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Midlands State University

Faculty of Commerce

Department of Insurance & Risk Management

Module : Insurance Broking IRM 404

Lecturer : S. Masiyiwa

“Good advice is precious”

Chapter 1

The role of the insurance broker

1. Introduction

Although people are increasingly becoming aware of the role of insurance in mitigating some financial hardships they encounter in life, insurance is still not a favoured purchase by most clients and has to be sold to them in order for them to buy, hence the saying: insurance is sold and not bought. There is therefore a real need for an intermediary (broker) to identify and advise clients on their financial needs and the security that can be provided by insurance.

The operations of a brokerage can range in size from a huge international firm (e.g. Aon) down to a one person concern (e.g. Interlect). Insurance brokers are independent specialists who place insurance business on behalf of their clients. They are expected to use accumulated knowledge of the market to obtain the most suitable insurance policy for their clients – not necessary the insurance policy with the lowest premium. As professionals they are expected to exercise reasonable care and skill in the discharge of their duties. If a client is financially prejudiced because of faulty advice, the broker can be sued for damages.

As an indication of the seriousness with which the broker’s liability is viewed by the courts, one has only to refer to the case of Lapperman Diamond Cutting Works (Pty) Ltd v Glenrand MIB (Pty) Ltd and another 2004 (2) SA ( (SCA). A claim for diamonds “lost” from the cutting works was rejected by the insured. Lapperman then sued the brokers for not informing them of the need to keep appropriate records of assets, etc. The court dismissed the action, ruling that the broker’s responsibility does not include a duty to ensure that the insured complies with the policy conditions.

Insurance brokers are commercial intermediaries bringing together two parties, namely, the proposer and the insurer, for the purpose of concluding a contract. The broker receives commission from the insurers for the business placed. Although the broker is remunerated by the insurer and may be regarded as the insurer’s agent, the broker acts primarily as the agent of the person seeking insurance.

1.1 Corporate brokersBroking firms with their own sales force are a common feature of the Zimbabwe insurance market. Some firms employ over 100 sales people and operate on national scale e.g. ZIB, Aon, Marsh, Capitol, PIB, etc. The sales people are subject to control in much the same way as tied agents employed by the insurer. Brokers firms pay their salespeople by way of commission or salary or a combination of both. In some cases the sales people receive incentive bonuses related to their own individual production.

1.2 Broker consultantsIt is generally accepted that approximately 50% of all life assurance business is written by brokers and almost all of the short term business is written by brokers. Most insurers actively seek to have a larger share of the broker business by building relationships with their brokers. To this end they employ consultants who periodically call on brokers to encourage them to support the company they represent.

The primary functions of the broker consultant are:-- Keeping the broker up to date with latest product innovation and policy terms

- Collecting completed proposal forms from the broker and processing the application through the administration departments of the insurer as speedily as possible.

- Keeping the broker up to date with latest trends and legislative changes applicable to the business – this information will be supplied to the broker consultant by the marketing and legal departments of the insurer

- Ensuring that the broker has the insurer’s latest version of the computerised quotation system that will assist the broker to provide from the brokers that they are delegated to.

1.3 Special role of the insurance broker The roles of both the short term and long term broker do not differ much, although it is common for the short term to provide a wider range of services, while long term insurance brokers often have a need to interface with clients for many years after the policy is first organised.The special role of the broker can be summarised as follows:-- Doing a risk assessment / needs analysis- Selection of insurers- Placing the risk- Seeing to changes and updates and renewals- Negotiation of claimsThis summary embraces a multitude of different tasks and responsibilities including:-- Obtaining a detailed knowledge of the client’s personal situation, business and

philosophy- Maintaining clear records of the client’s business so that this can be explained to an

insurer and others- Providing technical advice to the client on insurance developments in the market and the

law- Maintaining a detailed knowledge of available markets- Selection and recommendation of an insurer or group of insurers- Negotiating with insurers on the client’s behalf- Acting promptly on instructions from the client and providing written acknowledgements

and progress reports- Providing the client with a written record of the insurance placings- Collecting and remitting premiums (in some cases)- Providing additional services e.g. risk management services and uninsured loss

recoveries

An elaboration of these tasks is given below:

(a) Risk assessment/ needs analysisAs professionals brokers must conduct a needs analysis for the client to enable them to advise accordingly. With the advent and wide usage of computers in commerce, most brokers now use computerised needs analysis systems. (b) Selection of insurersMost clients will have a little knowledge of more than a handful of insurers. In a market where there are few insurers, say four, there will be little need for a broker. Most markets, including Zimbabwe, have a large number of insurers selling various indemnities. A broker is required in such markets to select insurers and matching and balancing their qualities with the client’s individual needs.

The following factors must be considered:- Quality of service- Breath and terms of cover

- Flexibility- Capacity- Geographical spread- Provision of technical advice- Price- Investment performance- Survey and risk control- Reciprocity- Financial security- Computerised facilities

(i) Quality of service

Brokers and insurers are both in business to make a profit and to achieve this objective both must

retain existing business and also seek new sources of business. The quality of service is critical

both in the acquisition and retention of business. Aspects of quality to consider include:-

- Fast and comprehensive quotations- An efficient system of documentation- A competent survey system- Efficient accounting- Suggestions for the improvement of cover- Prompt notification of proposed changes in market practice- Specialist servicesThe capacity of an insurer to deliver service depends on the quality of staff employed as well the computer system in use. The insurer’s service should provide for the following:-- It is important for an insurer to advise that he is not able to provide a quotation on the

risk. This saves time on both sides- Documentation must be clear and without mistakes. Returning documents is time

consuming and delay will reflect as much on the broker as the insurer- Surveys, where performed by an insurer, should take place quickly and the surveyor

should be practical with a good understanding of the client’s business

(ii) Breadth of coverThe must understand the variations between insurers so that he is able to explain them to the client when alternative quotes are compared. While the breadth of cover as per policy wording may be a point in favour of an insurer, the broker must not ignore the willingness of other insurers to negotiate.

(iii) FlexibilityThe latitude shown by an insurer in the policy terms and conditions and willingness to innovate will

influence the broker in selecting an insurer, e.g., writing a risk on a burning cost method, offering a high deductible, accepting a franchise rather than excess, high levels of medical-free limits in group life insurance contracts.(iv) CapacityCapacity requirements will differ according to circumstances. Some risks will be outside the capacity of most insurers even with the assistance of the reinsurers. The insurer’s capacity is decided by their perception of the risk (e.g. good, bad or indifferent) the risk (e.g. the trade, construction, etc, the size of the insurer and the availability of reinsurance.

(v) Geographical spread and global risksThe geographical spread of an insurer’s offices may be an influencing factor in selection. There may be need for international representation by the insurer where the client has interests overseas.

(vi) Claims serviceKnown lenience in the interpretation of policy wordings and conditions may affect the broker’s choice. The broker will naturally tend to favour an insurer whom he feels is likely to give his client the benefit of the doubt in the event of loss. Of equal importance is the quality of the insurer’s claims service especially turnaround times in high volume claim policies e.g. motor policies. This includes:-- Speed of appointing loss adjusters- Accuracy of documentation especially settlement cheques- Speed of decision making- Openness

(vii) Technical adviceThe broker should consider the willingness and readiness of the insurer to support the broker’s technical service to the client. The insurer who is willing and readily available to give support gains a competitive edge.

(viii) PricePrice should be viewed in relation to the terms and benefits offered. The broker should use his knowledge and experience of the market to determine whether the rate quoted is truly competitive and if in doubt seek alternative quotations. This is important in the competitive market for private motor insurance. For larger risks the broker will generally choose an insurer who will offer the contract most suited to the client’s needs and then negotiate the most advantageous terms.

In life assurance, pensions and annuity business the contracts differ in both scope and promise. Before recommending a contract to a client, a broker needs to make a detailed evaluation of cost vis-a-vis anticipated benefits and assumptions on which bonus prospects are based.

It is important that a competitive price is not obtained at the expense of reduced cover unless the client is made aware of the position. The granted discount for a large excess may produce an apparent premium saving but the client will have to meet a large portion when loss occurs. The broker must ensure that he is comparing like with like and take special note of the policy wording.

The cheapest is not necessarily the best and price can be a difficult area in insurer selection. A higher premium, where selected, should be justifiable e.g. in terms of a better contract.

(ix) Survey and risk controlWhere quotations are provided subject to a quotation, the surveys should be conducted quickly. The arranging of provisional cover is a very useful facility but has its disadvantages especially when the insurer later recommends improvements which exceed the value of a premium saving. It is thus preferable for the broker to arrange surveys before cover is granted. This helps in providing the insurer with sufficient information so that possible improvements can be anticipated. The broker should accompany the insurer’s surveyor on the site visit.

Smaller brokers do not normally employ their own surveyors and rely on risk control advice given by the insurers and in such cases it is important that the insurer is able to offer advice that reflects an understanding of the client’s business needs.

(x) ReciprocityThis may influence the choice of insurer, e.g. it may be deemed expedient to place the business with an insurer who makes major purchases of goods and services from the insured firm. There may be a tacit or explicit understanding between the parties to this effect. Where such agreement exists, the broker still has the responsibility of making sure that all aspects of the transaction are in the best interests of his client and of alerting the client of the existence of better terms elsewhere.

(xi) Financial securityThe security of an insurer and his ability to meet claims as and when they fall due is of paramount importance and should be a major factor in insurer selection process. The broker may also use the published rating services provided by rating agencies. Most brokers have lists of approved insurers. Although brokers are not liable for the failure of insurers, they must constantly monitor the financial security of the insurers they do business with to avoid the following:- problems with disappointed clients should large volumes be placed with an insolent

insurer- damage to the broker’s reputation from association with an insolvent insurer- financial loss from unpaid brokerage- increased costs in placing the same business with other insurers

(xii) Reputation and experienceWithin each market certain insurers develop a reputation for certain types of risks in depth of knowledge and experience e.g. in the chemical industry or motor trade. This may be beneficial to the insured but the broker has to guard against complacency.

(xiii) Other factorsPersonal relationships and “kickbacks” also influence the selection of an insurer. Insurers must build good personal relationships with brokers to encourage them to support them hence, the need to appoint a broker consultant. “Kickbacks” although technically illegal are a reality in the insurance industry. These take the form of a business lunch, an office party after work, a lakeside ‘nyama choma” party (braai) at Lake Chivero, a weekend boat cruise in Lake Kariba, etc.

(xiv) Placing the riskThe broker should ensure that he has gathered all the information needed to place the cover and that the cover matches the requirements of the clients mapped during the analysis stage. All insurer requirements of proposer’s details e.g. proof of age, security system certificates, etc, should be obtained at the outset to avoid unnecessary delays at the claims stage.

(xv) Endorsements and renewalsThe broker maintain regular contact with the client to ensure that the insurance cover arranged is kept up to date with the client’s changing needs. He should arrangement endorsements where the review of cover reveals some gaps. He should also attend to annual policy renewals in time to ensure continuity of cover. (xvi) Negotiation of claims

The broker should retain interest in the policy and should help the client in the claims negotiation and settlement process. The payment of a claim often creates a need for further advice, e.g. investment of investment of the proceeds of a maturing policy or of the proceeds of a policy on death of the life assured. These situations are not only ideal for further business but also represent part of the broker’s service in making sure that the policy proceeds are put to use in line with the original plan.

1.4 The positioning of the brokerThe insurance broker can chose to advise his clients on a limited product range or broad range of products. If he chooses to specialise, he may advise clients either on short term or long term products. He may also elect to specialise in classes of business, e.g. fleet motor insurance, agricultural insurance, geographic region, non-governmental organisations, etc.The advantages of specialising include:

- Better focus than help in giving clients unparalleled service- Differentiation from other brokers - Closer client contact

However, specialisation has its limitations that include:-- Possible “poaching” of clients by providers of financial services not offered by you- Lack of income spread to cover costs- Incomplete customer service

If the broker chooses to generalise he will offer varied financial services to as many clients as possible. This helps the broker to give a total service to his clients without developing mastery in any specific area. To help close the gap caused by lack of specialisation some brokers form shared business networks that allows individual brokers to focus on their areas of strength while at the same time ensuring that the client’s needs can be satisfied within the network.

Chapter 2The law of agency

2.1 The nature of agency contractsAn agent is a person who acts on behalf on another, known as the principal.

The agent enters into binding contracts with other persons (third parties) on behalf of the principal. The agent is simply a mechanism through which the principal acts. The legal principle is expressed as ‘qui facit per alium facit per se’ (he who does something through another does it himself)

The agent is not personally bound and drops out once the agreement between the principal and the third party has been reached.

There are three contracts that exist in an agency relationship in insurance broking.- Agency contract :- this is the contract between the principal (insurer) and agent

(broker)

- Main contract:- this is the contract that comes into being between the principal (insurer) and third party (insured)

- Ancillary agreement: this is the relationship between the agent and the third party and depends on whether the principal named, disclosed or undisclosed.

2.2 Contractual capacity and the agentThe agent is more than a mere pipeline, but less than a full contracting party as far as the contract between the principal and the third party is concerned. An agent employs a certain measure of discretion in the negotiation of the contract and therefore a certain level of capacity is required of the agent so that he is able to understand the nature of contract in question. He does not need to have full contractual capacity because it is only the only his principal who usually becomes liable under the contract. 2.3 Difference of contracts of agency and other contracts

(a) Agents and employeesAn employee works for an employer while the main duty of an agent is to bring his principal into binding legal relationship with third parties. An agent has greater freedom than an employee.

The employer is usually responsible for acts performed by his employees in the course of their duties (vicarious liability) but is not normally liable for wrongs committed by his agents. Agents are independent contractors.

There are only two parties to an employment contract – the employer and employee. An agency contract exists for the purpose of creating binding legal relationships with third parties, and another party is always a requirement to the agency agreement.

(b) Agents and trusteesAn agent like a trustee must not make a secret profit nor allow his interests to conflict with his duty to his principal. If he misappropriates the principal’s property he can be treated as a trustee.

An agent differs from a trustee in that he is not the legal owner of that property although he may have a right to dispose it. An agent represents his principal whereas a trustee does not represent beneficiaries under the trust.

(c) Agency and cessionsIn a cession, rights are transferred by contract, which the cessionary acquires. In an agency the agent performs acts for the principal, there is a continuing relationship.

(d) Agents and principalsAlthough a person may be called an agent, it does not mean that in law he is an agent e.g. a motor manufacturer may give a dealer a ‘sole agency’ for the sale of his cars. In such case the car dealer buys cars from the manufacturer and sells them to the public and acts as a principal and not an agent.2.4 Intermediaries as agents of insured or insurerThe agent is deemed to be the agent of the insured or proposer when:-

- Giving advice about insurance needs- Advising on the most appropriate insurer with whom to place the risk- Assisting in completing the proposal form- Giving claims advice

The agent is deemed to be the agent of the insurer:-- Issuing a cover note

- Collecting a premium- Issuing a policy- Subject to express authority receiving and handling proposal forms- Handling other forms according to previous dealing with the insurer and assuming an

implied authority to do so.- Surveying and describing property on the insured insured’s behalf- Acting without express authority if the insurer ratifies his action- Acting without authority but with the knowledge that the insurer has ratified such

action in the past- Asking questions and completing proposal forms even when the proposal contains a

declaration of the contrary

2.5 Insurance brokingAn insurance broker does not accept liability for insurance risks but acts an intermediary between the policyholder and the insurer. Provided he holds the necessary agents contracts, the broker has access to who insurance market unlike an agent who is tied to one or more specific insurers.

As an insurance specialist, a higher degree of professionalism is expected of an insurance broker than of an ordinary agent.

A broker is deemed to be an agent of his client for whom he provides a service. He is remunerated by a commission received from the insurer, and he should reveal the amount of the commission to his client on request. The broker may charge an additional fee if he feels the commission is inadequate, but the client must be advised of the amount before the insurance policy is effected. The additional fee must be shown separately from the premium.

The broker has a duty to obtain not only the best terms for his client but also to ensure that in the

event of a claim, the client receives an equitable and satisfactory settlement in terms of his insurance policy.

2.6 Additional services provided by brokersThe modern insurance broker has transformed himself from being an intermediary between policyholders and insurers to offering a diversified range of services in effort to diversify his income streams. These include:-

- Recovery of uninsured losses (e.g. recovery of excess on motor policies from third parties)

- Loss adjusting services- Risk surveys- Design, implementation and maintenance of captives- Premium finance- Risks management services- Reinsurance broking

2.7 The creation of agencyThe agency relationship arises by the following means:-

- Agreement- Ostensible authority (estoppels)- Ratification- Operation of law- Negotiorum gestio

2.7.1 Agency by agreement(a) Express agentThe appointment is effective and positive and the agent has authority to act in accordance with the express terms of the agency agreement. If the ambit of authority is ambiguous the agent is under duty to seek clarification from the principal. Authority is given in writing or orally. When an agency is in writing the document created is called a “power of attorney”.

(b) Implied agentAgency by implication is derived from tacit agreements, e.g. - Reference to past course of dealings Agency arising from an implied term that such dealings are to be authorized by the principal. In Murfitt v.Royal Insurance Co (1922) an agent was requested to arrange insurance cover on fruit trees and crops in an orchard. The agent advised that the property would be covered while he submitted the proposal to the company. The company, however, rejected the proposal and in the meantime a fire had taken place. The agent had no express authority to give verbal cover, but there was overwhelming evidence that he had been doing that in the district for over two years.

Past course of dealing with an agency was therefore implied and the insurance company had to meet the claim.

- Reference to specific law and practiceAgency relationships are implied by reference to Acts of Parliament, past precedents, the established methods of conducting business in a trade or profession or a combination of the three e.g. under law of partnership each partner is the implied general agent of the firm and in banking where each bank has an implied authority to be the customer’s agent for the purpose of collecting cheques for the credit of his account.

- Wife as implied agentAn agency is implied in favour of the wife living with her husband, she is entitled to pledge her husband’s credit for the purchase of necessaries suitable to their style of leaving. This implied agency would extend to a woman living with a man in a stable relationship other than marriage.

However, the implied agency in favour of the wife can be rebutted by proving:- express warning to supplier to discontinue the supply of goods on credit to the wife;

or- the wife was already adequately supplied with goods; or- the wife had an adequate cash allowance to cover necessaries without the need for

credit; or - the wife had been expressly prohibited the husband’s credit and the supplier had

been notified accordingly.

2.7.2 Agency by estoppelEstoppel is a rule of evidence whereby a party is precluded or prevented from denying the existence of some of facts which he has previously asserted. The third party must demonstrate that he altered his position in reliance to the representation that a person is the principal’s agent e.g. a man who has prohibited his wife from pledging his credit but not notified the supplier accordingly may be estopped from denying the wife’s implied agency.

Estoppel operates when the principal has acted in such a way as to create the impression of an agency agreement and where it would create injustice to third parties for the principal to be able to escape responsibility.

2.7.3 Agency by ratificationIf an agent acts without authority, a principal who would not otherwise be bound by the agent’s action may adopt the contract by ratification. Ratification gives the contract status of an act done with actual authority with effect from the date of dealing with the agent. Ratification thus has retrospective effect.For ratification to be effective the following must exist:(i) Contract must not be voidIt is essential that the principal must be shown to have been in existence and capable of contracting at the time of contracting at the time the agent purported to contract for him.

In Ashbury Railway Carriages v.Riche (1875) a company was formed to build railway carriages. The directors entered into a contract to construct a railway in Belgium, a contract which was ultra vires. The company could not ratify the contract as at the time the contract was made it lacked the necessary legal capacity.

(ii) Ratification must be within reasonable timeUndue delay in ratifying a contract will render the purported ratification ineffective.

(iii) Act must still be possibleA principal can only ratify an agent’s action if such action is still possible at the time of ratification e.g. a contract of insurance cannot be ratified after a loss.

In Grover and Grover Ltd v. Mathews (1910) an intermediary without any instructions from the insured renewed the policy of piano manufacturers which had expired a few days before a fire at the premises. Ratification was ineffective. However, the decision in that case was criticized. Canadian and American courts have subsequently permitted ratification after a loss. The Marine Insurance Act 1906 section 86 allows for the ratification of marine insurance contracts after a loss.

(iv) Awareness of material factsAt the time of ratification, the principal must be aware of all the material facts unless he has shown himself willing to ratify whatever may be the surrounding facts.

(v) Undisclosed principalAn undisclosed principal cannot ratify. Ratification will only be permitted where it has been declared openly that the relevant contract has been made on behalf of the person seeking to ratify. The agent need not name his principal but he must supply sufficient information to allow him to be identified.

(vi) Methods of ratifyingRatification can be oral or written. A principal may not both ratify the beneficial aspects of a transaction and at the same time repudiate those parts which are not beneficial.

(e) Negotiorum gestioA person who reasonably undertakes to manage the fairs of another on his behalf but without authority is called a Negotiorum gestor and is entitled to indemnified for necessary expenses incurred in the course of his management e.g. Chinos sees Tamaz ‘s house burning down and extinguishes the fire, he is acting as Negotiorum gestor for Chinos. There is no contract between the parties but the gestor is indemnified for his expenses, on presentation of statement of account to the principal, although not entitled to remuneration.

2.8 Duties of the agentAt law the agent has the following duties:-

- To obey instruction and conform to usage- To exercise care- To perform his mandate- To account and pay over- To deny the title of his principal to goods he holds for him- To show good faith

(a) ObedienceThe agent must obey his principal’s instructions and if he fails to execute the agency contract he will be liable in damages and will be unable to claim any remuneration.In Turpin v.Bilton (1843), an insurance broker agreed, for a consideration, to arrange for the insurance of the plaintiff’s ship. He failed to do so, the ship was lost and he was held liable in damages to the plaintiff.

An agent is also required to exercise discretion in accordance with the duty of obedience.An agent must perform the duties imposed on him by the agency and is not entitled to delegate the duties to someone else. He is required to delegate a task which is purely mechanical which does not require judgment or discretion. Improper delegation makes the agent liable to the principal for breach of duty.

ExceptionsThe agent can delegate his duties in the following circumstances:

- where a principal expressly authorizes the agent to delegate- where custom or trade usage sanctions delegation- where delegation is necessary to ensure proper performance- where the work delegated is purely clerical (e.g., signing letters)- where unforeseen emergencies arise which impose upon the agent the necessity

of employing a substitute (e.g. serious illness)

(b) To exercise due care and skillAn agent must show skill and diligence in doing his work. If the agent breaches this duty the principal can sue for damages.

(c) To act in good faithAn agent stands in a fiduciary relationship with his principal and must not use his position for his own benefit. This duty can be considered as follows:(i) Conflict of interestAn agent must not let his personal interest to conflict with his business interest. In Swale v Ipswich Tannery Co (1906), the plaintiff was employed as a fulltime manager. His duties, among other things, were to advise the defendant on its insurance arrangements.

He accepted an agency from an insurance company without the knowledge of the defendant and received commission for that. The court held that the misconduct amounted to conflict of interest and justified instant dismissal.

The agent acts as the tool of the principal and must always act in the principal’s best interests. He must not act for his own benefit unless he makes a full disclosure to the principal and receives permission to do so.

An agent appointed to sell property cannot sell to himself or if appointed to buy property cannot buy from himself without the consent of the principal.

(b) Secret profitsAn agent acting on behalf of the principal is not entitled to profit by carrying out those transactions unless he has made full disclosure of the true position to the principal and has received permission to do so.

Any secret profit made is recoverable by the principal. For example, if an agent receives money due to a principal a fortnight early and invests it during that time and earns interest, such interest will amount to a secret profit and will have to be handed over to the principal.

Bribes and double commission amount to secret profits. A bribe is an amount of money paid to an agent so that he may exercise his agency powers in a particular way.

The principal who discovers that his agent has accepted a bribe can:- recover the bribe from the agent- dismiss the agent without notice and without commission- sue the agent and the third party for conspiracy to defraud- exercise the right to set aside the contract made with third partyAn agent is not permitted to receive commission from both his principal and the third party unless he has made full disclosure and consent has been granted. (c) Confidential informationAn agent may not use confidential information which he has acquired in his capacity as agent for his personal benefit or the benefit of a third party. This duty may continue after the termination of the agency.

(d) AccountabilityAn agent must account to his principal for all money he receives on his behalf and must keep a proper record of all transactions. He must keep the agency money separate from his own.

2.9 Duties owed by principal to agentAn agent has rights against the principal in respect of:

- Remuneration- Indemnity- Lien over goods

(i) RemunerationThe agent has a right to the remuneration agreed by his principal or to a reasonable remuneration as is customary in the particular business or is appropriate to the particular circumstances. Remuneration usually consists of commission and to earn it he must prove that he was the effective cause of the transaction.

(ii) IndemnityThe agent must be compensated for all expenses or loss incurred in acting on behalf of the principal. An agent cannot claim indemnity in respect of unauthorized actions unless they are subsequently ratified. He has no rights for losses caused by his default or negligence.

2.10 Liability for breach of duty(a) Breach by principalThe agent can take legal action to recover any money he is owed by the principal. He also has the right to refuse to continue to act. The agent can in respect of the money he is owed hold on to any goods he holds on behalf of the principal i.e. exercise a lien over the goods.

(b) Breach by agentThe principal has a right to terminate the agency if an agent is in breach of his obligations. The principal may also sue the agent for breach of contract. If agency agreement is terminated on the grounds of fraud, the agent will lose the right to remuneration and there will be the possibility of prosecution under Prevention of Corruption Act.

2.11 Relationship of principal and agent to third parties

(a) Agent contracting for disclosed principalIf the agent acts outside his actual, implied, ostensible or presumed authority, no contract will be created between the principal and the third party unless the disclosed principal ratifies the agent’s unauthorized acts.

(b) Agent acting for undisclosed principalIn this case a contract is made with a person who, although really an agent, is not known to be such at the time of the contract. The principal is treated as undisclosed unless the third party has actual notice of his existence.

The undisclosed principal and the agent are bound by the contract and can enforce it. The undisclosed principal will not be able to enforce a contract:

- where the agent has expressly described himself as principal- where the agent made the contract without authority- where the third party contracted with the agent because of reasons personal to the

agent- where to admit evidence of the existence of a principal would be in conflict with the

terms of the contract(c) Personal liability of agentIf an agent fails to disclose that he is acting for an undisclosed principal he can be held personally liable by the third party.

In Sika Contracts Ltd v. Gill and Others (1978) a chartered civil engineer acting for a principal made a contract with a building contract and did not disclose this fact until sometime after the contract had been concluded. He had signed his letters ‘BL Gill BE, MICE, Chartered Civil Engineer’ although the court agreed that he was acting in a professional capacity, he was also personally liable to the plaintiffs.

(d) Third party’s right to electWhere the agent contracts for an undisclosed principal both agent and principal are bound. However, when the name of the principal is disclosed the third party may elect within reasonable time the party whom (agent or principal) he is looking to for the discharge of obligations under the contract.

The contract cannot be enforced against another defendant at a later date. If he elects to proceed against the agent then the principal is discharged.

(e) Misrepresentation by agentIf the unauthorized acts of an agent are not ratified by the principal the agent becomes liable to an action by the third party for breach of warranty of implied authority. The agent can be sued for fraud if he has been fraudulently misrepresenting his authority.

(f) Principal’s liability for the delicts of his agentA principal is liable for the torts committed by his agent when acting within the scope of his express, implied or ostensible authority and liabilities extends to torts which he later ratifies.

This is akin to the vicarious liability of an employer for the torts of his employees acting within the course of their employment.

(g) Payment via agentThe principal remains liable to the third party for payment made through his agent which the agent fails to pass on by reason of fraud or bankruptcy.

(h) Breach of warranty of authorityAnyone claiming to be an agent is deemed to warrant that he has authority to do so. If it is later discovered that he had no such authority, he can be sued for breach of warranty of authority.

2.12 Termination of agencyThe agency may be terminated in any of the following ways:-

(i) Mutual consentThe agent and principal may mutually agree to terminate the agency agreement.

(ii) Revocation by principalThe principal can revoke the agency before performance is complete but may be sued for damages if the revocation is in breach of the agency contract.

(iii) Renunciation by agentThe agent can resign from the agreement before the agency has been completely performed and may be sued by the principal for damages if the renunciation is in breach of the contract.

(iv) BreachIf either principal or agent breaches the agency contract in a way that would amount to a breach of conditions the other party may treat the contract as discharged.

(v) Commercial agentsIf the contract for a commercial agent is terminated, the agent is entitled to commission for business he has introduced, repeat orders and renewal commission.

(vi) Personal incapacityDeath or insanity of either principal or agent will terminate the agency agreement.Bankruptcy of the principal terminates the agency contract.

(vii) Destruction of subject matterDestruction of the subject matter of the agency will terminate the agency contract e.g. if an agent is instructed to sell a ship but the ship is destroyed before the sale is effected.

(viii) Supervening illegalityThe agency will be terminated where performance of the acts required to give effect to the agency becomes illegal e.g. a principal becoming an enemy alien on the outbreak of war.

(ix) Effluxion of timeIf agency is for a fixed period, the contract terminates at the end of that period.

2.13 Exceptions to rules of terminationAgency coupled with an interest cannot be terminated i.e. the agent has been authority to act as such in order that he should obtain some benefit for himself)

2.14 Effects of termination

If a principal in breach of contract terminates the agency he may be liable to pay agent damages for breach. If an agent who declines to perform his obligations under the contract may be liable in damages to his principal.

(a) Rights of actionBenefits already earned or obtained under the terms of the agreement are not destroyed by termination. The agent may lose these benefits where he is found to have committed acts of fraud against the principal. Commercial agents are entitled to commission after the termination of the agency contract if the transaction is mainly attributable to the agent’s efforts during the contract.

2.15 Binder agreementsSome agents have limited underwriting and claims settling authority delegated to them by the insurer. There must be a written agreement which in addition to any other terms and conditions includes a term:-

- Setting out the kinds of short term policies which may so entered into, premiums or the basis for the calculation of premiums to be charged in terms of those short term policies, the wording of those policies and the maximum value of the policy benefits which may be undertaken to be provided under each such kind of short term policy

- If such intermediary is entitled to settle or pay claims under any such short term policies, setting out the scope of the intermediary’s powers to do so and the circumstances under which it may be done

- If such intermediary is by virtue of such agreement entitled to any remuneration other than by way of commission only , settling out the basis on which the intermediary is remunerated for services rendered in terms of such agreement

- Requiring that such intermediary shall, prior to entering into a short term policy on behalf of the short term insurer or Lloyd’s underwriter concerned, disclose to the prospective policyholder the name of the short term insurer or Lloyd’s underwriter and the fact that the intermediary is acting in terms of the agreement.

Chapter 3

Risk Evaluation

Severity Frequency

Risk Control

Financial Physical

Retention TransferElimination Minimisation

Risk Identification

Insurance

Risk management and the insurance broker

3.1 The risk management conceptRisk management involves a great deal more than buying insurance. Risk is the uncertainty of loss and risk management aims at removing some or all of the uncertainty. It takes a broader view to problems posed by risk to that taken by insurance in that in considers both insurable and uninsurable risks. 3.2 The risk management processThere are three main steps involved in risk management, namely:

- Identification of risk- Evaluation of risk- Control of risk- Monitoring of risk

The process can be represented diagrammatically as follows:

The diagram shows that risk control can involve the financial transfer of risk and this is where insurance becomes involved as a subset of the broader risk management framework. Historically, Insurers have not viewed risk management favourably as its concepts sought to lure business away from them. It is regrettable that many insurers still hold that view today. However, some brokers and insurers have realised the benefits and now offer risk management as a service to clients for a fee.

3.3 The risk managerThe risk manager is a specialist and is not limited to one function. An engineer may be able to identify engineering risks and a lawyer may be able to identify legal risks. The risk manager must have a broad overall knowledge of all the activities of the company.

3.4 The role of the broker

The organisation must identify and assess risks incident to the affairs of the organisation and decide which ones may be retained and minimised economically and those that might transferred to an insurance company. The broker can provide the risk manager with expertise than is not available within his own organisation. The broker can use his expertise and wide experience in similar circumstances to report fully but concisely on specific situations. He can also help in identifying insurers capable of providing the required cover at the most advantageous terms and rates as he has a detailed understanding of and access to the entire insurance market.

The broker must produce a report after conducting risk survey and consultations. The report must detail the specific risks identified and explains how these may be resolved through the medium of insurance. If the broker is especially appointed to advise on risk management then his report will be expanded to deal with loss prevention, self insurance and a variety of other measures which can be used in conjunction with the transfer or retention of risk.

The broker can only comprehensive assistance and guidance if he is only given the detailed information he requires. He must therefore be allowed to inspect the premises, properties and processes and to consult with the appropriate departmental managers. Such consultation must be carried out in conjunction with the risk manager. Access to the required information will be facilitated by the fact that the risk manager is in close and constant contact with all areas of the organisation. Satisfactory teamwork and constant consultation between the risk manager and broker is essential if the broker is to obtain a true appreciation of the needs of the position to play his part in the basic functions of risk management, namely, risk identification, risk assessment and risk control.

3.5 Risk IdentificationRisk identification can be defined as a combination of techniques brought together to make all the activities of a firm and their inter-relationships apparent, and to help identify potential losses.

It can also be defined as the examination of the activities of an organisation in order to ascertain features which may prove hazardous to the furtherance of its objectives. Such hazardous features are commonly known as risk exposures and result from a wide variety of adverse factors. The broker, in his role as assistant to the risk manager, must help identify such factors so that they be eradicated or minimised.

Companies are exposed to risk in variety of ways which can result in financial loss. The following steps will help the broker and risk manager or for to everyone within the organisation in highlighting all areas where a loss or liability could occur.

(a) Physical inspection/SurveysBefore starting it is advisable to first carry out some kind of physical inspection of all properties and processes of the organisation. This may be carried by the broker or by specialist surveyors on his staff or insurer’s surveyors. This may involve simply walking around the plant to add to knowledge already gained from the company publications or information from interviews with managers. It helps the broker get a feel of the workplace and may help direct him in the formal identification techniques.

(b) FireThe survey will disclose potential risk areas which might give rise directly or indirectly to losses in the future. The fire risk is generally the prime object of the survey, and this will

involve consideration not only of the inherent hazards of the premises or property such as the storage and use of hazardous materials but also the risk arising from adjoining or adjacent properties. Consideration will also be given to the external fundamental risk potentials of storm, flood, subsidence and other natural catastrophes. All the risks commonly referred to as “special perils” will also receive attention.

(c) SecurityThe security aspects of an organisation must the examined. This may be carried out by the broker or his specialist adviser depending on the size and nature of business carried out. For example, a steel stock-yard is less likely to receive the attention of thieves than a jeweller’s workshop and protection of the latter would normally be referred to a specialist surveyor. The security aspects will include risks of theft, fraud – including computer crime, robbery, burglary, terrorism, civil unrest and other forms of politically motivated damage.

(d) Engineering risksFor engineering risks the broker and the risk manager will rely on the reports of the engineering insurer’s inspectors or reports of an approved inspection authority e.g. NSSA. These persons make periodic inspections of boilers, lifting appliances and other machinery to ensure safety conformity with statutory requirements.

Some firms of risk management consultants employ their own specialist engineers to make recommendations and prepare the necessary reports. The risk considered under the general heading of engineering will include electrical and mechanical breakdown, and interruption, with special reference to the availability of vital spares and plant for repair and replacement.

(e) Health and safetySpecial considerations must be given to the health and safety hazards to both employed personnel and third parties, the latter including not only business contacts such as customers and suppliers of goods and services but also casual visitors whether invitees or not, and persons and property in nearby premises and areas. The identification of potential workmen’s compensation, employers’ liability and public liability risks is an important part of the work of the risk manager and his broker adviser.

The health and safety of employees’ issues are governed by the Occupational Health and Safety Act. This Act provides for the general safety of machinery and for the health and safety of every worker in Zimbabwe, including agricultural employees and domestic servants but excluding those who fall under the Mines and Works Act and Explosives Act.

Under the Act, an employer with more than 20 workers is required to appoint a safety representative for each separate workplace. A safety representative must be appointed for every 50 employees. Where two or more representatives are appointed a safety committee has to be established. One of the main functions of the safety representatives is to conduct monthly safety inspections of the workplace. Other provisions of the Act relate to safety standards for machinery, personal protection equipment and the reporting and investigations of accidents.

The risk manager and broker must be fully conversant with the requirements of the Act and ensure its full implementation in which task NSSA is well qualified to offer guidance and assistance.(f) On site discussionsIn addition to the specific surveys the broker and risk manager will have on site discussions approved by management, with safety representatives and other selected personnel at appropriate levels since their views and opinions on the potential risk areas

will be of value in risk identification. A casual comment by a workman may pinpoint a hazard which might otherwise be overlooked.(g) Examination of recordsIt is essential to obtain a comprehensive picture of the organisation and its operations and for this it is necessary to supplement the facts ascertained during the surveys by an examination and analysis of certain records which reveal other risk exposures. The extent to which this is possible and likely to be of value depends in part on the size and type of the organisation concerned and willingness of the management to reveal facts may be considered confidential, but generally, access would be made available to the following:-- Financial statements for the last financial year- Management budgets and forecasts- Accident registers and incident reports for the last year- Published literature giving details of products produced, their range, description and

intended use or application- Published lists of services provided- Details of guarantees given to customers- List of specialist employees and their qualifications- Standard contracts used by the organisation showing detailed terms of buying and

selling- Leases in connection with all property which would include contracts for the leasing

of land, buildings, machinery, computers and cars(h) InterruptionIn addition to direct material loss which may result from exposure to risk there always exists the possibility of a consequential intangible loss. For a non-trading organisation interruption to operations may result in loss of goodwill from its failure to attain its intended objectives or provide the intended services. In a manufacturing or trading organisation the result will be a shortfall in production or a loss of anticipated profit. The potential interruption losses should be given special consideration in the risk identification process. They may arise not only from hazards within the insured property or premises but from external circumstances beyond the control of the organisation, for example:

- Cessation from any cause of suppliers of raw materials from a regular source of supply

- Failure of regular customers to purchase supplies of finished goods or- Failure in the regular supply of public utilities such as gas, electricity, water or

sewage disposal facilities.Attention should always be paid to the possibility of loss resulting from the fire or other insured peril occurring at the premises of suppliers or customers but this “outside” risk may arise from many other of which may provide difficult to recognise and identify.

3.5.1Aids to identification Following the initial inspection, use of the following aids may help in identifying areas of risk:-- Organisational charts- Flow charts- Check lists- Fault trees- Hazard and operability studies

(i) Organisational ChartsThese charts show the basic organisational structure of the company and where the personnel fit in the company. They can highlight weaknesses in the structure, which could problems.

For example:

The works manager must report all accidents or near accidents. To do this he has to fill out 6 pages of documentation, in triplicate, as the three managers above him will need copies. This is a long involved process and is a positive disincentive to effective reporting of accidents, especially minor ones.

The risk manager could then streamline the system and cut down on the paperwork so that he gets information much more quickly – perhaps having the form reduced in size and sent to one person only.

Organisational Chart- ABC Manufacturing Company

(ii) Flow chartsA flow chart is very helpful in companies where the production system involves materials flowing through a process.

Managing DirectorMarketingProductionPurchasingMarketing & SalesProductionWorksAccountingPurchasingFinancePersonal Assistant

Risk Identification Flow Chart

Sold commercially to company XYZ Sold commercially to company MNO

The figure above illustrates a system where a product X is manufactured:- Two items of raw materials arrive in quantities of 100kg and 200kg- Item A arrives by road- Item B arrives by rail- The two items are processed in plants 1 & 2 respectively- As a result process in plant 2, a by-product C is produced and sold to a subisidiary- Ingredients are added in plant 4 to the remaining product- Two final products are produced and sold commercially.

Interpretation of the flow chart:-The flow chart enables the risk manager to see at a glance where problems could arise. He will take into consideration the following:-

- What effect would a fire at a suppliers premises have on the business- How easy would it be to find another supplier- What effect would there be if plant 2 was destroyed by a fire or other type of peril- How long would it take the business to start some interim operation- What effect would there be on the company’s profits- Will there be a breach of contract, if the company cannot supply by product C to the

client

Plant 5a150kg

X

100kgA

150kgADE

250kgAD150kg E delivered

by road

150kgADE

150kgD

Plant 1100kg

A

Plant 3250kgA+D

100kgF

Plant 2150kg

D

Plant 4300kgADE

Plant 5b150kg

Y

50kgC

By road from subsidiary 100kg A

By road from supplier 200kg B

- Could one of the other plants be utilised to replace one which was unable to work

(iii) Check lists

3.6 Risk evaluation/assessmentAfter identifying risk exposures the broker and risk manager must evaluate these in terms of frequency and severity. In other words they must decide not only how often a loss is likely to occur but how much is likely to be involved in monetary terms.

The first step requires the collation and analysis of all data obtained during the risk identification process. This must be added to the actual record of losses over a reasonably representative period of 3 or 4 years if a statistical analysis of such data is to produce a reasonably reliable estimate of expected future losses. A particular activity or situation which has proved unduly hazardous and we therefore be indicative of probable future risk exposure areas. The broker and risk manager will consider the relative frequency of past occurrences and from these statistics will be able to infer future probabilities. It is in this connection that the examination of the accident registers and incident reports is of importance.

In the assessment of risk it is necessary to build up a detailed risk profile of the organisation showing specific areas of exposure which will include assets, income, liabilities and personnel. Each of these areas may then be analysed to show the extent to which it is affected by the management functions of purchasing, production, transport, distribution, sales, finance and administration.

The broker and the risk manager must make use of their experience and knowledge of other organisations in a similar position. They may need to refer to property valuations and will require not only a knowledge and understanding of the legislation affecting the various exposures, but, as regards liability risks, a knowledge of the current levels of compensation awarded by the courts.

3.7 Risk controlRisk can be defined as the uncertainty of loss. If risk exists it may or may not give rise to a loss. The broker as adviser on risk management must therefore consider not only the control of risk but the control of losses which may arise. Risk control may be either physical or financial.

3.7.1 Physical controls

(a) Risk avoidanceThis refers to action taken to avoid entirely and possibility of an undesirable event taking place. To avoid the possibility of having a motor accident a man might sell his car. To avoid his dog biting the postman he might instruct the post office not to deliver post at his address. Such risk avoidance is rare in commercial organisations but might involve, e.g. a decision not to embark on the manufacture and supply of a new drug by a pharmaceutical company where the possible consequences of its proving harmful would outweigh any financial advantages from its sale. In such cases the broker merely acts in an advisory role. The decision must rest entirely with the company and the broker can only indicate the likely effects.

(b) Risk reductionThis is a process whereby active steps are taken to reduce the degree of hazard presented by a risk which cannot be eliminated or the frequency with which it may result in a loss. For example:-- The introduction of an improved system of maintaining machinery and equipment

- Limiting the quantity of flammable liquids brought into a factory each day from the main store

- The mandatory use of seat belts to reduce the risk of injury- The replacement of naked flame space heaters by hot water radiators

(c) Loss preventionThis involves the introduction of physical controls to minimise or prevent the possibility of loss occurring. There is some overlap here with the principles of risk reduction but the following may be cited as examples of loss prevention:-- The elimination of ignition sources in areas where flammable vapours may collect- The prevention of work above a certain height without special safety precautions- The substitution of non-flammable solvents for flammable solvents in cleaning

processes

(d) Loss minimisationThis involves physical measures which, while not preventing the loss from taking place will lessen the extent of the damage as far as possible, e.g.- The introduction of automatic sprinkler systems- The employment on site of skilled first aid staff- The compartmentation of hazardous areas by fire-break walls and break floors.

3.7.2 Financial Controls(a) Risk retentionThis means that an organisation will itself meet in whole or in part the cost of losses resulting from a particular risk’Passive risk retention refers to situations where the organisation is unaware that a risk exists or alternatively where the existence of a risk is recognised but no active plan has been put in place to deal with it. In such cases it is the duty of the broker to ensure that his client is aware of the risk he is retaining, and if appropriate, to make recommendations for it to be transferred elsewhere.

Active risk retention arises when an organisation takes a conscious decision to bear the cost of any losses resulting from a recognised risk, and may take the form of:-- Electing to carry a voluntary or franchise- Insuring on a first loss basis with the sum insured being well below the total value at risk or- Deliberately under-insuring knowing that average will apply

(b) Funded risksSelf-insurance by building up funds is a form of active risk retention. Where risks are funded an amount is allocated out of operating revenue towards meeting anticipated losses. The contribution is set at a level which, hopefully, will allow for the build up of a fund to meet losses over a specified period. The size of these annual contributions should be decided by reference to the statistical analysis made during the risk assessment process.

The broker and the risk manager must be aware of the applications and limitations of funding techniques including taxation restraints. There are important tax considerations affecting funded risks and before a final decision is made to follow this route, the financial director or auditor or tax consultant should be invited to analyse the after tax position, which may vary from company to company, according to the nature of the business and the type of assets employed.

In general terms, ZIMRA will allow the deduction from income of insurance premiums paid for the protection of assets and revenue, whether the assets are of a capital or current nature. This affects the net cost of insurance. The proceeds of insurance claims for loss of

current assets or revenue, such as a loss of stock or loss of profits, will be regarded as gross income and is therefore taxable, although the loss will have offset the proceeds of the claim.

Insurance recoveries in respect of fixed assets will, in most instances, be of a capital nature and thus not taxable.

Where losses are funded in advance in advance in lieu of the payment of insurance premiums, the amounts set aside are not deductible for tax purposes, and at the end of the financial year any surplus in the fund must be brought back into the statement of comprehensive income for tax calculation purposes.

(c) Unfunded risksThese are actively retained risks where the resultant losses are paid for out of current revenue on each occasion as they arise. Whether or not a risk is best dealt with in this manner is something which must be assessed by the broker and the risk manager.

(e) Risk transfer to insurersThe broker plays a major role in the transfer of risks to an insurer. Apart from the traditional markets, the broker may recommend the formation of a captive insurance company to bear part or whole of the client’s insurable risks. The motivational reasons for making this recommendation include cost, non-availability of cover locally, taxation advantages and the possibility of profit-earning should the captive extend its operations beyond the immediate needs of its parent.

In the formation of a captive company the broker may provide a full handling service embracing management, documentation, claims handling and administration on a fee basis, together with the placement of the reinsurance requirements. Alternatively the broker may advise on offshore funding facilities to achieve similar results.

However, in Zimbabwe there are very few organisations which are large enough and sufficiently diversified to operate an offshore captive company and the current tax and exchange control legislation prohibit the formation of offshore captives. However, some local organisations are adopting the concept and to date IDC, CBZ, ZB Bank and other have formed captive insurance captives, Allied Insurance, Optimal and Cell respectively.

(f) Risk transfer to non-insurersThis involves transferring risks to third parties who are not insurers. The broker must be alive to these possibilities and will make recommendations to his client accordingly. Examination of contract wordings will reveal areas where, through disclaimers or hold-harmless agreements, the client is able to transfer responsibility for risks to other parties.

3.7.3 Contingency planning Contingency planning is an essential part of risk management. The client usually has a pre-determined written plan of action to help alleviate and minimise losses. The broker should play advisory role by conveying his knowledge of the procedural methods available.3.7.4 Risk monitoringRisk management is an ongoing process. Once the action outlined above has been considered and the necessary programme implemented there remain the ongoing task of monitoring its continued effectiveness and performance.

The objectives will have been established together with guidelines in respect of costs and benefits, but business conditions change with the passage of time and there is a constant need to determine whether the objectives are still being attained without undue hindrance from risk or whether changed circumstances demand a revision of the risk control programme.

The broker’s role in the risk monitoring process demands re-surveys where necessary a continuous watch on the adequacy or the inadequacy of risk retention limits and sums insured, and a periodic evaluation and interpretation of loss statistics, all of which will enable him to give early warning of necessary changes in the programme.

Chapter 4Long term insurance and financial planning

4.1 Market selection and information gatheringThe broker must identify the market he wants to serve. He may choose to focus on the high income, middle income, low income, self employed markets, etc.

Once a market is identified, individuals that meet the target profile must be qualified to become good prospects. Before a person is qualified he is called a lead. In order to be successful in marketing life assurance the broker needs to spend time with his prospects and getting acquainted to them. This approach changes them strangers to friends. After all who does not good friends?

Cold calls are not encouraged as they are costly to the broker. Appointments should be made before a broker goes to make his presentation. The importance of planning cannot be overemphasised. In life assurance marketing - a failure to plan is planning to fail. The broker must collect the following information about the possible prospect:-

- Full names and, if applicable, nicknames- Type of job and the employer’s name and address

- Age- Marital status- The names of any children or other dependants- Home address and telephone numbers- An estimation of his income levelOther information that may be of assistance but which is not essential will include:-- Children’s ages- Spouse’s job- Any interests (e.g. sports, hobbies, etc)- Details of existing life insurance policies and possible retirement fund arrangements

4.2 Needs analysisPeople will not buy something unless they believe that they need it. Brokers must not create wants for the clients. Doing so, will have short term benefits, because the client will stop paying the premium anytime soon the minute they want money for something else.

Buying life assurance is like buying a suit of clothing – each person will need a different size, shape, colour and material. It also important to match the suit with other items the person already has taking into account shoes and other accessories, the person lifestyle, the weather, place where person leaves, etc. In insurance marketing – once a prospect that fits into a target market has been identified, it is important to do a needs analysis. This will help the broker in working out the best type of policy needed, the amount of premium and what needs the policy will address. While people buy life assurance for various reasons; there are certain times in life when money will be needed for specific items. For example, on death, money will be needed for:-- An income for surviving family members to live off- Death bed and funeral expenses- The cost of medical care before death (this could be during a period of illness, or

hospital expenses if involved in an accident)- The paying of any debts owed by the deceased

On the other hand, disabled persons who can no longer work will need money for medical expenses and an income for themselves and their families. Even where a person does not die too soon or become disabled, there is always the chance that they may live too long (superannuation).

(a) Determining the amount of insuranceFor someone taking a life policy to have for a house or a child’s education, working out the amount of insurance required is very easy as long the possible increase in cost due to inflation is not ignored.

Working out the amount of insurance required for death, disability or retirement is far more difficult as it depends on individual circumstances. The role of existing insurances must be factored in as well, e.g. retirement and funeral schemes.

Banks usually accept life policies as collateral for loans advanced. In fixing the amount of insurance an individual needs, one can either use a set of general rules or go through each need with prospect, asking them how much they need. The broker should keep in mind always that each prospect’s circumstances and ideas could be quite different.

For example, one prospect may consider it enough for the family to be able to settle down after his death whilst another may want permanent replacement of income that he would

have earned if he had lived. The following guidelines can be useful in determining the minimum amount of required.

(i) Death or disability: subtract current age from 60 then multiply by three months’ salary, plus

(ii) Last medical expenses: any figure between $2000 to $10000 could be applicable, plus

(iii) Outstanding debts: an actual amount, if possible, if not, provide for one year’s salary.

ExampleThe prospect’s age is 38 and earns $620 per month. Determine the minimum cover required.Death and disability: (60-38) x 620 =$13640PlusMedical/funeral expenses: $5000PlusOutstanding debts: 12x620 = $7440Minimum required $26080Establishing and trying to overcome a prospect’s needs is all very well but the broker must ensure that the prospect can afford to the pay the premiums for the policy. The broker should avoid overselling. A general rule is that the cost of all insurance premiums should not be more than 10% of the prospect monthly income or 25% where the person is not a member of a retirement fund linked to his employment.

Where insurance is being used as savings plan for something special, e.g. university education or a house, the percentages may be increased if the premiums can be afforded. The broker must appreciate that younger people may prefer to spend less on life assurance as they may have other demands on their income, whilst others may prefer to save a higher percentage of their income as they near retirement age.

4.3 Portfolio constructionSome prospects may not be able to pay for the cover as determined by the needs analysis. It is therefore advisable to start by setting something for retirement, either completely or partly until extra resources become available. It is always important to first cater for the death or disablement of the prospect. The classic approach is to cater for the needs in the following order:-- Life insurance for death of the insured- Disability insurance for permanent disability of the insured- Disability insurance for the temporary disability of the insured- Critical long term savings needs (endowment assurance , with or without life cover)- Retirement provision (endowment or retirement annuity policies)

Where the prospect already has one or more policies it is important that the benefits of these plans be deducted from the minimum amount when proposing a further policy. The broker should use a step by step approach to satisfying the overall needs. The full portfolio should be built over time. Remember – once a prospect always a prospect!

The premium update facility can also be used to build the client’s portfolio over time. The flexibility of modern life policies makes it possible to cover all needs using a minimum number of policies, e.g. universal policies.

Chapter 5The Insurance Act Chapter 24: 07

5.1 BackgroundInsurance companies in Zimbabwe have to conform to the requirements of the Companies Act as other companies have to. However, because of the type of business they conduct and the supervision they receive from the Insurance and Pensions Commission, they are exempt from some provisions of the Act. The Insurance Act Chapter 24:03 directly applies to all insurers, reinsurers and brokers.

5.2 Insurance and Pensions Commission (IPEC)The Minister of Finance appoints a Commissioner of Insurance and Pensions to carry out all powers assigned to him/her by the Insurance Act.

5.3 Provisions of the Insurance Act applying insurance brokersAn insurance broker must apply for registration in terms of Section 35 of the Insurance Act. The Commissioner will register the broker if he/she is satisfied that an applicant in terms of this section:-

- Is not seeking to register under a name identical with the name of a person registered in terms of this Act or so nearly resembling the name of such person as to be mistaken for it

- Has not, under any law of any country been adjudged or declared insolvent or bankrupt and has not been rehabilitated or discharged

- Has not been convicted by any court wherever situated of any offence involving dishonesty

- Has not entered into an agreement relating to preferential offer of insurance business with any insurer so as to impair his impartiality

- Is authorised, if he negotiate insurance business other life insurance business, to act as a correspondent of brokers who are authorised by insurers in any country to place business with any such insurers.

The commissioner will register the applicant as a broker and him a certificate of registration. Where the Commissioner is of the opinion that it would not be in the public interest to approve an application for registration as an insurance broker, he will reject it and notify the applicant accordingly in writing.

5.4 Investments by insurance brokers

Insurance brokers must hold and maintain unencumbered investment in approved securities whose values are determined by the Commissioner from time to time in terms of section 36 subsection(1) of the Act.

5.5 Professional indemnity insuranceInsurance brokers must effect and maintain a professional indemnity policy in force with a limit of liability determined by the Commissioner from time to time in terms of section36 subsection(2) of the Act. The policy must be issued in Zimbabwe.

5.6 Annual returnsInsurance brokers should in terms of 37 subsections(1) and (2), within six months of the end of each financial year submit to the Commissioner a statement setting out the details of insurance business placed by the insurance broker and such other additional information as may be prescribed from time to time. Failure to comply with this provision attracts a penalty.

5.7 Cancellation for registrationThe Commissioner may in terms of 37 subsection(1) , (2) and (3) cancel the registration of an insurance broker if he/she is satisfied that the broker has violated any provisions of the Insurance Act Chapter 24.03.

Chapter 6Ethics and the insurance broker

It has long been accepted that users of financial products in Zimbabwe have enjoyed little in the way of legal protection when it comes to the providers of financial advice. Consumers are vulnerable because:-- Their level of knowledge of financial matters and products is generally very low- Often products are not regular purchases, so consumers have little chance to evaluate

them- Some products are of a long term nature and often ‘lock” buyers for a considerable

period of time, with heavy penalties being applied on early termination- The benefits are intangible and dependant on a number of factors- Products cannot be pre-tested and sometimes a shortfall or oversight is only detected

when it is too late- Many intermediaries involved in the selling of products are themselves ill informed- The legal and economic environment into which these products fall is complex and fast

changing

- Many sellers of the products are incentivised to sell by a commission structure which encourages sales at all costs

- Historically, many consumers have been “taken for a rude” by unscrupulous operators.

Despite these glaring challenges very little has been done in Zimbabwe to protect insurance consumers beyond what is contained in the Insurance Act Chapter 24:0 enacted in 1996. Its amendment and regulations have primarily focused on solvency issues and the expenses ethical issues in the transaction of insurance business.

6.1 IntroductionEthics is a discipline which has been receiving attention of late and which is closely tied the broader concept of corporate governance. Ethics goes beyond mere compliance with existing laws to include policies and procedures of business conduct as well as the more basic moral issues.It has been shown over time that companies that uphold high ethical standards in their business tend to do better than those that do not.

6.2 Core concepts of ethicsEthics embraces the following core concepts:- Values – such as respect, integrity, honesty and truthfulness- Obligations – both specific and general responsibilities and our commitment to meet

these- Rights – to property and treatment of both the service provider and the customer- Consequences – on both the service provider and the community- Character – covering issues such as honour and comparison

6.3 Role of ethics in businessEthics deals with the balance between various stakeholders involved and the process of business as it impacts on the individuals concerned.The most common issues are:-

- Disclosure of relevant information- Rewards and payments (including gifts, bonuses, etc)- Social responsibility- The impact of business on the environment- The proper use of company assets- Confidentiality- Business politics to enhance one’s own position- Equity in dealing, e.g. not enforcing a deal with a supplier which is totally one-sided.-

6.4 Test of ethicsSeveral checklists are available to help people determine whether a particular decision complies with good ethical practice. These include asking the following questions about the decision:-- Is it legal?- Does it comply with professional standards?- Does it promise the greatest good for the greatest number of people involved?- Does it feel right?- Would you like someone else to act this way towards you?- Would you be able to justify your actions to others, for example for business colleagues,

the media and your family?- What would a reasonable person think?- Can you sleep easily at night given your course of action?

6.5 Creating ethical behaviour in business

The following can help in creating a culture of ethics in business:-- Work the aspect of ethics into your corporate vision or mission- Draw up a code of ethical business conduct- Talk about ethics regularly in the business- Do regular audits on your business practice- Promote openness and disclosure- Reward ethical behaviour and punish non-compliance

6.6 Corporate governance issues in insurance brokingCorporate governance is a young discipline that has grown out of deep seated concerns raised by spectacular and well publicized corporate failures. Such corporate failures worldwide were caused inter alia by insider loans, compensation scandals, fudging financial statements, inefficient and unethical conduct of external auditors for companies and closed decision making processes leading to corruption and waste. The collapse of Enron, Arthur Anderson, World.com and others from the late 2001 to date, generated interest in corporate governance and a series of regulations and statutory provisions were enacted in 2002 through the famous Sarbanes-Oxley Act.

In South Africa the promotion of good corporate governance has been spearheaded the King Committee which has since produced guidelines of best practice for South African companies. To date the King Committee has produced three reports, namely, King I, II & III which has a gone a long way in improving best practice in the way organisations are managed and directed.

Zimbabwe has not been spared of corporate scandals and failures. In 2003 scandals rocked the banking sector involving allegations of insider loans and fudging of company financial accounts. The problems persist to this very day. In response, the Reserve of Zimbabwe crafted Guideline No. 1 of 2004 on corporate governance suggesting inter alia the appointment of independent non-executive directors to serve on the board and committees of Financial Institutions.

Lately in September 2009, Zimbabwe Leadership Forum and the Institute of Directors Zimbabwe launched a corporate governance code drafting effort which is gaining momentum. It is hoped that the effort will yield the best for the corporate governance scene in Zimbabwe. It will be a unique code dealing with the unique history and interests of the corporate governance in Zimbabwe. Ex-students of the MSU MBA Graduate School are involved in the crafting. The code of best practice for Zimbabwe and is expected to be out by end of 2010.In a nutshell, good corporate governance covers the following aspects:-

- Fairness to all stakeholders- Accountability at all levels being attributed to and accepted by individuals- Discipline- Independence, allowing objectiveness in all dealings - Social responsibility in conducting business of the concern.

6.7 Benefits of being an ethical organisationA reputation is a character generally ascribed to a company or organizational entity. A good reputation has the following advantages:-- For a listed company, a good reputation is a key asset because it helps to enhance the shareholder value.- Companies with high reputation have corresponding high share prices.- A strong share price makes the raising of extra capital for existing or new investments

easy.- Damage to the reputation of a company is quickly reflected by a drop in its share price

and loss

of business.

6.8 Industry agreements and self regulation This is a non-statutory method of supervision exercised by the industry itself through adherence by its members to the principles contained in codes of practice.The Life Association of Zimbabwe (LOAZ) and the Insurance Council of Zimbabwe (ICZ) have a role in facilitating the smooth running of the industry agreements. Their roles, inter alia, include:-

- Improved protection of the insurers, as part of the measures to keep premiums down- Protection of consumers- Improved public image- Assistance in limiting the amount of legislative controls- Improved business efficiency

The following sections contain a summary of relevant LOAZ codes and a few ICZ short term industry agreements.

6.8.1 Long term insuranceMember offices of LOAZ, have over the years formulated codes of conduct on most aspects of their business as life assurers. These codes, to which all member offices subscribe, are constantly updated to meet to meet changing circumstances. These codes are set down as “entrenched” agreements that no member office will knowingly or deliberately contravene. Brokers involved in advising clients on life assurance policies should be aware of these codes and their implications to their work environment.

(a) Code on the life registerThe life register is a data base through which insurers can share information about people who propose for life assurance and have “Notifiable impairments” that are relevant to the risk being assessed. Notifiable impairments are conditions which result in a final extra mortality or extra morbidity of 75% or more regardless of the underwriting decision taken.

The LOA life register facilitates full disclosure of material facts in assessment proposals for life assurance. To this end all life insurers must enter in the life register the details on applicants whose application for life assurance would have been adversely treated .

(b) Code of good practice on disability insuranceThis seeks to avoid over insurance in disability insurance by limiting benefits payable. This provides an incentive for the claimant to return to work.

(c) Code on medical fees, report and related mattersThis sets out fees payable on medical examinations for insurance purposes requested by a member office.

(d) Code on dread disease benefitsThe objective of the code is to ensure that all proposals for the dread disease benefits request information about existing policies and current proposals from similar benefits and to include benefits within the scope of the LOA claims register.Dread diseases are known, but not limited to, by the following names:-- Critical illness- Trauma cover- Living benefits

There are no limits enforced anymore in terms of the code, each insurer must have their own internal practise regarding limitation of benefits and this should be applied at underwriting stage. The vast variation in the types of dread diseases cover available makes the limitations between insurers very difficult.

(e) The HIV testing protocolThis provides guidelines on the application of HIV/AIDS tests and use of HIV/AIDS exclusion clauses. HIV/AIDS tests are mandatory for policies providing immediate life cover.

The rapid escalation of HIV positive numbers in Zimbabwe necessitated a rethink of the numerical figures to be used before an HIV test be undergone. All life offices in Zimbabwe currently require a negative HIV test before they can accept a proposal for a policy providing for the payment of the full sum assured on death. Where the proposal is unable or unwilling to go for the HIV test any policy issued is subject to an HIV exclusion clause. The wording of the clause varies from office to office by the intention is clear that the full benefit will not paid on death with the first five years of the policy duration.The clauses available on the market limit the benefit to:-

- A refund of the premiums less policy fees and commission (without interest)- Payment of the surrender value or a refund of the premiums whichever is the lesser- A multiple of the annual premium e.g. twice the annual premium

The above position was taken after it was found that:-- An insurance company will be able to refuse payment only where it can be shown that

there was a material non-disclosure in relation to HIV status before the policy was issued. This is easier said than done as non-disclosure if difficult to prove.

- AIDS is very seldom, if ever, stated on death certificate as the cause of death. This would thus make it very difficult to enforce an AIDS exclusion clause. The insurer may elect to rely on the World Health Organisation’s (WHO) list on AIDS related conditions, but this is one step removed and will make the AIDS exclusion clause difficult to enforce. Having accepted that AIDS exclusion clauses will no longer be imposed an insurer must subscribe to a testing protocol that ensures that test results are treated in a confidential and sensitive manner.

The code also sets the guidelines for HIV testing for life insurance purposes. The proposer should sign a consent form agreeing to undergo an HIV test, go through pre-test counselling and post test counselling by his personal doctor. The HIV test should not be disclosed to any person other than the doctor nominated by the proposer. All positive results and refusals to undergo a test must be recorded in the LOA’s life registry.

(f) Code on replacementThe objective of the code is the protection of policyholders and the good name of the industry. The code discourages termination of an existing insurance policy and to effect a new one in its place. The existing policies should be varied to provide changed policyholder circumstances or requirements instead of replacing them. Cancellation of policies causes loss to the insured in that he does not get a refund of the premiums paid and the insurer also loses in that he may not recoup the heavy initial expenses involved in setting up a policy.

Intermediaries have a duty to advise their clients to take more insurance policies and not cancel existing ones. They have a duty to explain the meaning of replacement, the potential prejudice from replacement and give them any detailed comprehensive information regarding the replacement.

The code imposes heavy penalties on non-compliance and these include:-- Issue a warning to offending intermediary- Request that no commission is paid or reversed if payment has already occurred - Grant the client a 30 day cool-off period in accordance with LOA key features document

- The intermediary concerned may be considered for action under the Code on “S” reference

(g) Code on the “S” reference systemThe “S’ reference system protects the public in particular and the industry at large from persons who are not fit and proper to market life assurance products or directly train or control people who are so engaged. Member offices will not employ, accept business or pay commission to any intermediary with an “S’ reference.

The imposition of an “S” reference is a very serious matter with grave consequences both for the industry and the intermediaries concerned. The ”S” reference once imposed for a period of 5 years. The agent can appeal to the chairperson of the LOA appeal board and right of appeal may be granted where there is reasonable prospect of the appeal being successful. After the “S” reference has run its course it is replaced by an “X” reference which indicates that the intermediary may, once again, to market life insurance, control or train life assurance intermediaries.

(h) Code on stop orders: collecting commissionThis regulates the amount of collecting commission paid to certain employers for collecting premiums on behalf of life insurers.

(i) Code on reversed commissionThis code regulates the recovery of commission paid when the premium it relates to is still outstanding.The code provides for the reversal of commission paid in advance in anticipation of the premium of a premium, but the premium is not later remitted. It code endorses the viewpoint of the industry that commissions are due only when the premiums they relate to have been paid.

(j) Code on half yearly statisticsThe code regulates the submission of half yearly statistics on all aspects of their business, including new business written, and statistics on policies surrendered or lapsed.

(k) Code on commission control and the interpretation of the remuneration regulations

This code restates what is contained in the Insurance Act Chapter 24:03. It is a breach of regulations of the Insurance Act Chapter 24:03 for an intermediary to be influenced in selecting an insurer to place business with by an abnormal service or any subsidy or reward of any kind other commission as laid down in the regulations. The decision on where to place business must be dependent only upon factors such as the product itself, the standing of the life office and the standard of that type of service which would be of importance to the policyholder and should not be influenced by factors such as entertainment.

Life offices and their officials must not do anything which could be seen to be an inducement, consideration or reward for the placing of business which is over and above that provided for in the regulations.

(l) Code on public relations and on advertising and promotionThe code ensures that making of public statements on behalf of the insurance industry is only be made by the Life Offices Association.

(m)Code on benefit illustrationsThe code is intended to ensure that policyholder expectations created as a result of illustrative policy benefits are reasonable and do not result in the image of the industry being damaged.

The code provides for the use of a minimum and maximum interest rate to use in calculating projected maturity values. The minimum rate is called the lower projection rate and the maximum rate is called the upper projection rate. These rates are determined by LOA from time to time.

(n) Code on the Claims RegisterThe Claims Register is a data base through which insurers can share information about persons who are lives assured under life policies and who have made “Notifiable claims” that are relevant to the assessment of future claims, e.g. early claims, claims under special investigation, fraudulent claims, repudiations, dread disease claims, AIDS/HIV+, etc.

(o) Code on the Intermediary RegisterThe Intermediary Register affords users the opportunity to access relevant reference data before appointing an intermediary.

(p) Code on living annuity policiesThe code seeks to avoid mis-selling of living annuity policies by ensuring that consumers are given adequate information to enable them to make informed decisions.

(q) Code on unclaimed benefitsThe code ensures that reasonable steps are taken by member offices to inform the policyholders/beneficiaries on any unclaimed benefit.

6.8.2 Short term insurance

(a) Agreement on the application of pro rata averageThis agreement is intended to ensure that assets are insured for their full values and avoid underinsurance. When assets are not insured for their market values insurers do not get full premiums and as result are not able to pay for the losses in full. This agreement globally incorporates the Pro Rata Average in all material damages insurances issued in Zimbabwe. The classes of insurance to which this agreement applies is reviewed from time to time.

Whenever the policy is subject to average, if property covered by the policy is damaged by any insured peril has a value less than the value of the loss the insured will be considered as being his own insurer for the difference and shall bear a rateable share of the loss accordingly. (b) Knock for knock agreementThis is a bilateral agreement between motor insurers which allows each insurer to pay for damages for its own policyholder’s vehicle if such damage is insured irrespective of responsibility for the accident. This avoids litigation and promotes good relations between insurers.

Under this agreement, the insurer of the party who was wrong pays the excess of the party who was in the right. The excess is then sent to the insured as a refund for the excess he would have paid when the claim was settled.

Chapter 7Business Insurance

The broker will meet clients who require various business insurance in the course of his work. The pertinent aspects of some classes of insurances he meets are summarised below:-

(i) Key person insuranceServices of a key employee may unexpectedly terminated by untimely death, disability or resignation. Not only could the vacant position be difficult be difficult to fill, but the knowledge and expertise that he may impart to a competitor could seriously damages the employer’s market share.A key person is someone who would:-

- Difficult to replace- Affect the profits of the enterprise- Result in the reduction of sales- Result in costly training of a replacement- Require a possible change in management.

It is often difficult to fix the value of a key person in dollars and cents and the following questions may help:-

- Will creditors require immediate settlement as a result of the death of the key person?

- Will suppliers suddenly require cash on delivery?- Are certain contracts or projects going to have to be cancelled?- Is the bank going to cancel any facilities and call up all loans?

Where it is not possible to accurately assess the loss that a key person will mean to an employer it is normal to use a multiple of his/her basic salary to determine the sum insured, say, 2 or 5 times his gross salary.

Current legislation treat the premium payable by employers in respect of key person insurances as tax deductible up to limits that are reviewed from time to time.

(ii) Restraint of trade (preferred compensation)It is normal for employees to move from one employer to another. Much as any brokerage may wish to retain the services of a particularly talented employee this would seldom stretch to normal retirement age as the nature of the enterprise requires a constant flow of new ideas and thus new talent.The age of the employee may be such that the period to normal retirement age may be considered too long and so the plan would not be an incentive for the employee to remain in the service of the employer.

The answer to either of the above problems is to adapt the employer owned scheme is such a way that the employee will feel that a real benefit can be reaped for remaining in the service of the employer. At the same time the employer must be able to see a real benefit for him as well.

The SchemeThe employer and employee agree, in writing, to the following:

- The employer pays the employee a special, non-retirement funding, salary increase- The employee, after having paid the tax due on the special increment received, will

buy a policy of life insurance- The employee ceded the policy to the employer as security for the increase

The employer’s positionThe employee will claim the increase in salary expenses as a tax deduction. The proceeds of the policy will also not be paid to the employer and will not be taxed if the complies with the requirements of the Income Tax Act. Supplementary benefits may be added.

The employee’s position The employee enjoys ownership of the policy without any extra outlay. The cession must be a security cession and not an outright cession to ensure that ownership will not be transferred and the policy remains the property of the employee.

The agreementThe agreement ensures that neither party is unsure of their position with regards to the policy in the event of a change of their relationship, either by death or resignation. It should cover issues such as ownership of the policy and what would happen if the employer goes insolvent.

(iii) Capital asset replacement planUnlike land and buildings, plant, machinery, motor vehicles, office equipment, etc, are wasting assets with a limited time span usage and is standard accounting policy to depreciate capital assets at a fixed amount each year for their expected life span.

Different write off periods exist for various assets usually between two and 25 years depending on the nature and lifespan of the asset. The depreciation of these assets reflects the estimated annual cost of wear and tear and is tax deductible in determining the company’s taxable income. Although depreciation is a cost, the charging of it does not involve any cash outlay. To ensure that enough funds are available to replace these assets, cash amounts equal to the depreciation charges must be invested in a sinking fund, e.g. a pure endowment policy.

The annual depreciation charge is matched with an annual payment into a pure endowment policy for a term of at least 5 years. Under current legislation there is no need for a policy to have a “life insured” if the policy does not provide life cover. Sinking fund policies may also be used in saving for employee bonuses.

(iv) Buy and sell agreementsSmall businesses are affected by the death of a partner or shareholder as their share passes to their estate on death. The profitability of the business can also be reduced by the permanent disability of a partner. Retirement and insolvency could also present similar problems for the business.

Life offices have life assurance plans to mitigate against the inconvenience occasioned to the business on death, permanent disability and retirement of a partner, shareholder or key person. It would be ideal for all concerned if the sole proprietor, partner, or shareholders in a private company arranged for the continuity of their business entity while they are still able to do so. The most effective way of doing this is through a buy-and-sell agreement and fund it using life assurance policies and the broker must familiarise himself with the following available options:-

(i) Partnership share protectionWhen a partner dies his share of the partnership passes to his estate. This may not be convenient to the surviving partners. It is the interests of all partners that the surviving partners are able to buy out the interest of the deceased partner and for the family to receive a cash sum for that. It is recommended that each partnership should have a clause enabling this. Many life offices offer partnership protection plans containing a draft partnership agreement and policies under trust for each partner. When a partner dies, the policy on their life pays out to the surviving partners as beneficiaries of the trust. The funds are then used to by the deceased partner’s share from his estate.

(ii) Directors’ share protectionSmall businesses have problems similar to those faced by partnerships. At death the share of a director is passed to their estate or someone with no interest in the company. The surviving directors may want to keep control of the company. The best way is an agreement between the directors providing for a buy and sell plus a life policy on the life of each director. On death of a director the policy will pay out and provide funds to surviving directors to buy shares from the deceased estate.

(v) Contingent liability insurance A private company like any business entity will sometimes need to borrow to fund its operations. Directors of the company may be required to sign personal surety where the bankers feel that the assets of the business provide insufficient security. On death of the director the loan will be recalled and the business will need to repay the loan. If the company fails to do so the creditors may claim the outstanding debt from the director’s deceased estate. To avoid the inconvenience the business may take out insurance on the lives of any directors that may signed personal sureties on condition that:-

- Premiums are paid by the business- The proceeds of the policy are used to settle any amounts outstanding to creditors

who hold personal guarantees that the director may have signed- Any surplus remaining after the settlement of the secured debts may be retained by

the business- A written agreement is entered into between the business and the director that

compels the business to use the proceeds of the policy to settle the amount owing to the creditors

- Creditors accept the plan and provide a written undertaking to cancel the personal surety provided by the director on repayment of the debt.

- It advisable to include permanent disability riders on the basic policy.Setting up of a contingent liability plan can safeguard not only the estate of a deceased director but also the enterprise against financial hardship, should the personal guarantor pass away suddenly.

(vi) Group employee benefits and related schemesAll retirement funds must be registered in terms of the Pension and Provident Fund Act Chapter 24:07. The aim of this statute is to protect the rights of members and ensure minimum solvency standards (i.e. to ensure that the fund always has enough assets to meet its liabilities to members).

Retirement fund fall into the following categories:-- Pension funds- Provident funds- Retirement annuity funds

Of the three types, pension and provident funds have an employer involvement. A retirement annuity fund is essentially a self financed pension plan where the individual pays all the contributions, receives all the tax benefits and gets all the concessions that may be available at retirement. Smaller employers are likely to opt for retirement annuities in order to contain costs.

The purpose of a retirement fund includes the following:-- Primarily to provide a retirement benefit, either as lump sum or a regular monthly

payment or combinations of both options, that will provide an income to a member who has passed the retirement age agreed between the employer and the employee representatives until his death; or

- To provide a lump sum payment or monthly income to persons who, for reasons such as ill health, are no longer able to remain actively in employment; or

- To provide for the dependants of an employee who might die before he reaches retirement or die after retirement.

In addition most funds now provide for the following features:-- Ill health- Physical disability caused by an accident ; or- Death – benefits provide for Widows and Orphans Pensions (WOPS) until they can

take care of themselves (e.g. until the attain age 18 or 21 if still in tertiary education). The benefit payable to surviving to spouse usually continues for life.

The following are arguments for the adequate provision of retirement benefits:-- A great deal of goodwill is generated if an employee knows that his dependants are

looked after. The involvement of the employer is seen as part of a social awareness and uplift ment program for the employees and their dependants

- Employers soon realise that the employees feel more secure and happier in their jobs – leading to a much more effective work force

- A retirement allows for more orderly staff policy. The employer can plan for succession and promotion, knowing that those reaching retirement age are adequately provided for.

- It provides a more effective way for an employer to release an employee who, due to permanent illness or disability, has to stop before normal retirement.

- A direct benefit to the employer is the fact that a good staff retirement fund is an attraction for a better calibre of applicant when recruiting additional staff.

- The cost of providing retirement benefits is spread over a long period, becoming part of the employer’s bill and the employee’s monthly deductions.

- Additional benefits e.g. WOPS which show the employer’ s concern are likely to be reflected by employees loyalty and dedication to the enterprise

- A retirement fund is extremely flexible and can easily accommodate benefit changes for a whole group of employees.

- It releases employer from his financial obligations to employees once they have left service.

- Fund assets cannot be attached in the event of the liquidation of either the employer or employee. This provides a level security to employees that cannot be provided by the employer or any private scheme.

- Both employer and employees enjoy some tax concessions

Negotiating with staff representatives

After the employer has been convinced that a retirement plan is the best interests of the business and its employees, will need to engage his employees on the structure of the scheme.

The discussions usually culminate in the appointment of representatives as trustees the retirement fund. Members are entitled to appoint 50% of trustees with the balance being appointed by the employer.

There are various types of retirement funds in existence. The most important of these are self administered funds, funds administered by insurers and funds administered by professional administrators. The fund benefit structures include defined contribution and defined benefit schemes. These benefit structures were discussed in the Pensions Scheme and Design Module IRM 206.

Chapter 8Operational issues in insurance broking

8.1 Negotiating broking contractsBefore a brokerage can start, operating must be arranged with one or more insurance companies. As broker should sell a wide range of products and to this end he must approach a wide range of insurers and negotiate agency contracts. The Insurance Act Chapter 24:03 regulations provide that brokers must be supplied written confirmation of the services which they van offer from each insurer represented.

(a) Long term insuranceIt is not difficult to obtain a contract with a long term insurer, provided the broker is registered with IPEC and there is no history of LOA “S” referencing. If annualised commission payments are being sought, the insurer will usually require full financial statements proving the stability of key individuals in the brokerage. Annualised contracts will not be granted to those who have a history of insolvency.

Many long term insurers will review the contract regularly over time. It is current practice to demand a certain minimum level of production in order to warrant the broker’s consultant’s time and services. In extreme cases, the contract may be cancelled for non-production. (b) Short term insuranceIt is also not difficult to obtain a contract with a short term insurer, provided the broker is registered with IPEC and there is no history of LOA “S” referencing. The requirements for Lloyd’s line are far more extensive.

8.2 Assessing the strengths of insurersThere are three main factors which may endanger the security of the life and general insurers, namely:-- Inadequate premiums charged and reserves created, resulting from inadequate

statistics or technical information or changes such as a gradual worsening of claims experience and the failure to take prompt corrective action

- Chance accumulation in the number or size of claims against which adequate arrangements, usually by way of reinsurance have not been made

- Losses on investments on investments and other assets in particular circumstances

The Ministry of Finance the responsibility of monitoring the situation, largely through the statutory returns made to IPEC. These controls are not fool proof and all brokers must be aware of the security of insurers they deal with.

Although in most circumstances brokers are not liable for the failure of an insurer, there are several reasons why they should monitor constantly of the security of the insurers they deal with, namely:

- He could face problems from disappointed clients should large volumes be placed with an insolent insurer

- His reputation will be damaged from association with an insolvent insurer- Financial loss from unpaid brokerage- Increased costs in replacing business with other insurers

(a) Balance sheet tests: short term insurance business

The greatest danger in general insurance relates to the charging of inadequate premium and creating low reserves.

The charging of premiums over a period of years can go unnoticed by an insurer if proper provisions for unearned premiums and outstanding claims are not created at the correct time. The continuing solvency of a short term insurer depends upon its shareholders funds in relation to the premium income. The shareholder’s funds represent the difference between the insurer’s total assets and its sources of finance, excluding shareholders funds. It follows that any overstating of asset values or understating of liabilities will have the effect of increasing the stated amount of shareholder’s funds.

In analysing an insurance company’s balance sheet, attention should therefore be paid to any signs of weakness in these balance sheet values:

(i) Balance sheet assetsTo obtain a realistic value of the asset side of the balance sheet it is suggested that the following steps be taken:-- Discount entirely goodwill and unsecured debts of an associated dependent company

Goodwill is the premium paid representing the excess over the value of the net assets when a business is acquired. As such the “asset” does not exist and in extreme cases (for instance insolvency) will probably have no value.Unsecured debts are of lower value than secured loans and, technically, the parent can exert little control over an associate, and there assets of this nature are questionable.

- Discount fixed assets (other than real property by two thirds)Fixed assets are valued on a going concern basis and in the event of an urgent disposal may not realise the sums shown in the accounts.

- Discount real property by one third. The lower discount reflects the more tradable nature of these assets

- Discount shares in associated companies by one third as the valuation of the shares may be subjective

- Check that the value shown in the balance sheet of quoted investment is not greater than their market current value – the current market value should be used as it is more recent.

- Check that no more than 20% of total assets (after any discounting from the points mentioned above) is held in agents or companies balances.(ii) Agent balancesThese are amounts owing to the company from its agents, and in most cases these amounts will be due quite quickly.Reasons for paying attention to this figure are:-

- A growth in agents balance may indicate weakness in the company’s credit control systems which could a symptom of other problem

- The agent balances may be spread over a wide range of intermediaries and thus failure of any single intermediary should not cause a great impact

- Check that cash, bank balances and money on short term deposit is not less than 6% of the total assets.

- Check that quoted investments at market value plus cash, bank balances and money on short deposits covers the amount of the insurance funds including outstanding claims as shown on the liabilities side of the balance sheet. This is an indication that the insurer’s liquidity i.e. ability to meet current liabilities from current resources

- Be aware of the need for the company to follow a sound and broad based investment policy which will take the strain of both short term and long term cash requirements.

The importance of paying attention to a company’s investment’s mix is demonstrated by problems and failures of a number of US life companies. Their problems stemmed from over investment in “junk bonds” (high yielding but risk bonds issued by commercial companies) and real estate, which both suffered a spectacular slump in the past.

(ii) Balance sheet liabilitiesThe largest single item on liabilities for most insurers is the provision for outstanding claims, followed by unearned premiums. It is essential for an insurer to set aside correct amounts for unearned premiums and outstanding claims including IBNR claims.

Under-reserving over time can undermine the resources of the company. It is also possible to test the adequacy of the provisions by analysing the premium income in each separate class and the outstanding claims at the end of for each class. This information can be obtained from the company or IPEC statutory returns.

When the company’s assets have examined and, if necessary, recalculated and reduced, and the total of the company’s liabilities (other than to shareholders) assessed, the latter total should be taken away from the former to give a margin of solvency. The margin of solvency should not be less than 25% of general business income net income of outward reinsurance.

The above comments should be read in conjunction with requirements of the Insurance Act Chapter 24:03 on calculations of minimum margin of solvency. Although the margin of solvency is the best measure of an insurer’s solvency, it is based on historic figure and should therefore be compared with other tests.

(iii) Other testsBalance sheet tests suffer from the following weaknesses:-- The information is often out of date when it becomes available (although many

companies do publish quarterly statements which may be of some help)- it may not sufficient to make a complete judgementit also requires time and a certain degree of expertise to carry out the analysis and this will be compounded by the number of companies a broker deals with. In addition to the balance sheet tests, the broker must be aware of the following:-

- long delays in the settlement of claims, although this may be a reflection of administrative inefficiency rather than a deep seated problem.

- Speed at which return premiums and other credits are repaid by the insurer- The general quality of insurer statistical information particularly claims experience, so as

to provide indications of inefficiencies within the business which may lead to under – reserving.

- Willingness to pay above average commissions and other inducements may indicate a need to generate cash flow in order to keep up with losses.

(iv) Rules of thumbThe broker can also use the following rules of thumb in assessing the insurer’s security:-

- Credit ratingsRating agencies are not without their limitations as the ratings are to some extent historical

- Paid up capitalParticular attention should be paid to cases where the paid up capital is less than 50% of issued or authorised capital.

- Trading history

Although not an absolute guarantee, a log trading period of successful trading should be an indication of future solvency.

- GrowthIf the company has grown rapidly in the past this may indicate overtrading, inexperienced or misguided underwriting or an attempt to obscure problems with expenses or claims.

- Ratio of gross to net premiums Where insurer is heavily dependent on reinsurance it can be exposed to the insolvency of one or more reinsurers

- General underwriting styleA company with too relaxed underwriting terms may not be able to meet large claims

- Excessive capacityA small company which offers capacity comparable to that available from a larger insurer may be taking excessive risk to its net account or again may be unduly reliant on reinsurance

8.3 Long term insurance businessThe test of solvency for a long term insurer lies in the certificate signed by an actuary and annexed to the balance sheet stating whether or not the aggregate amount of the liabilities at the end of the financial year, following valuation, exceeded the aggregate amount of those liabilities shown in the balance sheet. The balance sheet figure is normally the life insurance fund plus current liabilities i.e. the fund being the accumulated balance of income over expenditure in the life revenue account over the years during which the company has transacted.

The most potential danger to a life office is the loss on investments and other assets. Severe losses can occur only when sales have to be made at a time of a severe fall in market prices. However, such sales need not endanger or seriously affect the security of life office so long as the invested assets are reasonably matched by length of term to the company’s contractual to its policyholders.

8.4 Embedded valueThis is a concept that has been gaining support in the past few years. Embedded value in the complex world of life insurance is a similar measure to the concept of “economic value’ with other companies.

It is calculated by taking adjusted capital and surplus of the insurer and adding to it the discounted value of future distributable profits on in-force (effectively the cost of capital required the in-force business). Any increase in the embedded value over and above what could be expected in the assumed projections would then be seen as ‘value added during the period’

8.5 Underwriting and ClaimsThere is a need for efficient administration systems to be maintained to ensure the required level of customer service and to optimise ongoing sales opportunities.

8.5.1 Short term insurance

(a) New business and underwritingAt the time of making the initial contact with a new client, a client file should be opened with the client’s details, the paperwork surrounding the survey of needs, the quotation(s) and the documents required as per industry codes of best practice. The full policy wording is a useful addition, in case of a claim.Once the policy is issued the renewal date should be immediately entered on the renewals register. The files should be stored in alphabetical order for ease of access.

(b) Servicing and renewalA renewals register must be maintained, preferably listing renewals due during each month of the year. This will help the broker not to overlook any renewals and this may have serious consequences for the client.

Where alterations are required to the risk, the details should be added to the client file. All communication with client should be recorded, including brief transcripts of telephonic interaction.(c) ClaimsOnce a claim has been intimated a separate claims dossier should be opened up within the client’s file. The handling of the claim should then be tracked through the various stages to completion with the broker in particular paying attention to:-

- Ensuring that the insurer is advised timeously of the claim- Obtaining the necessary documentation- Ensuring that pressure is put on the insurer (where necessary) to speed up the claim- Confirming the ongoing insurance cover termsDetails of settled claims should be kept in the records for future reference and use.

8.5.2 Long term insuranceClient files are just as necessary as in short term insurance with similar information being required. The full needs analysis is essential and must be kept up to date by periodic review of the client’s needs. Remember: Once a prospect always a prospect – clients needs change overtime and the broker should maintain contact with his clients to ensure that their life assurance needs are always covered.

(d) Servicing and renewalThe annual renewal should be “tagged” on the broker’s computer system so that the broker is reminded of impending renewals in time to enable him make any necessary checks on the client needs and requirements for the future period.(e) ClaimsThe opportunities presented by a claim are huge. Not only is this a good time to demonstrate tangible results from the insurance but could often lead to further business as the proceeds may have to be reinvested, for example in an immediate annuity.

Where the claim is as a result of disability, there may be a role for the broker in negotiating the payment on behalf of the insured.

In the event of surrender, the professional broker would probably interact with the client in an attempt to save the policy, perhaps through a policy loan, and also to assess the extent of the change to financial position that this may indicate.

Chapter 9Marketing

9.1 Marketing principlesMarketing is the management process which identifies, anticipates and supplies customer requirements efficiency and profitably.

Marketing is a management process and requires input from on all four of the traditional management fields – planning, organising, leading and controlling. Marketing it is about identification of customer requirements. The need to anticipate is important to take into

account, because often by the time the need actually arises, it is too late to take advantage of the situation.

Marketing needs to meet the requirements of the customer efficiency. If this is not done it is highly likely that a competitor will exploit the opportunity. Marketing efforts must be on an ongoing basis in order to create a good brand awareness status and ongoing customer loyalty.

9.2 Marketing and sellingSelling focus on the needs of the seller, whereas marketing focuses on the needs buyer. It is only once the proper process of needs identification has been followed that the selling part can be put into practice. Marketing is an all embracing philosophy which should permeate throughout the organisation and not be the sole domain of a person or a department.

9.3 Aspects of marketingTraditional marketing theory gives four main aspects of marketing, often known as “the 4 Ps” – product, price, place and promotion – the so called marketing mix.

The product comprises the core products and all aspects of it including the packaging, all extras, options, guarantees, etc. Place refers to the distribution channel and the method by which the product or service is brought to the customer including the whole sales process. Marketing theorists argue that services has 7Ps . These include the 4Ps in addition to the people factor, the process used to deliver the service and the physical evidence that goes with it.

9.4 Service marketingServices are seen to be quite different from commodities in that:-

- They are often intangible, i.e. one cannot examine or test the product practically before buying it

- the product cannot be pre-manufactured and warehoused awaiting a buyer but has to be created “on the spot” as it were

- often the delivery of the service places a great emphasis on the person or persons performing the service, with considerable direct interaction with the customer and personal customer involvement in the process.

- Most services are consumed in their delivery e.g. the service of the needs analysis or risk assessment for a client in the insurance field only really has value at the time that it is performed.

The measurement of quality in service delivery is a complex matter and service marketers traditionally struggle to produce and maintain the kind of consistency that is required to ensure an overall quality experience.

9.5 Personal vs business marketingMarketing theorists also draw a distinction between the marketing focused on individual and corporate buyers. Business marketing often requires far more hard data than emotional persuasion, while performance guarantee are often more important. In some situation marketing to a business may involve several people working as a team rather than an individual.

9.5.1 The different steps of marketingAnother way of looking at it views marketing as consisting of the following step:-

- Marketing research- Product development- Communication- Sales - Analysis and control results

(a) Marketing researchThe objective and systematic collection, recovering, analysis, interpretation and reporting of information about existing or potential markets, markets strategies and tactics, and the interaction between markets, marketing methods and current and potential products or services.

Marketing research does not only focus on the customers but also on competitors’ distribution systems and the entire delivery process. Whilst marketing research may often demand grassroots surveys it could also be done from desk through the public media, reports or published information and also by gleaning feedback from staff members who interact with customers. Many marketers also conduct regular feedback sessions with their as part of marketing research.

There is always a temptation on the part of a relatively small business to ignore marketing research on the basis that this is only for the bigger companies. However, marketing research is not necessarily only formal and high cost research studies. In many cases a smaller company can make excellent use of freely available information as published in industry media, extracts of surveys done by others and especially, by simply recording day to day customer comments. The use of a simple customer satisfaction rating survey on a regular basis is also highly recommended.

(b) Product developmentIn the sense of the insurance broker this may include the development of specific policy packages aimed at the target audience but it is more likely to involve the service the service package offered to customers, including the chosen distribution method, e.g. telesales, group presentations at the workplace, and so on as well as the methodology of the service, e.g. using a computerised needs analysis programme.

(c) CommunicationCommunication covers several aspects, including advertising to the potential market, public relations activities which help to position the broker uniquely within the chosen community and personal and personal communication with actual clients.

For the small broker advertising may be limited to the signage outside the business premises, an entry in the yellow pages, perhaps, a regular advertisement in the local, one or more pamphlets outlining the services offered and an annual calendar or similar handout.

More aggressive approaches could include the daily papers, or even a local radio station. Often a constant base level of promotion combined with several seasonal bursts just before key times. This can be done by cold calling on the telephone, a personal drop in post boxes or via a mailing list.

Direct marketing can be an effective way of reaching a new audience to expand one’s scratch, for example out of telephone directories, but this takes time and is often not effective because of changes that may have taken place. It is also not that personal. Lists may be bought from list brokers or obtained from personal connections. Care should be

taken not to overstep the boundaries of professional conduct in pursuing canvassing too hard.

The best source of contact referral is from existing clients, especially those who have enjoyed good service from you already.

Public relations activities could perhaps include a regular talk at the local school on risk management as a life skill or arranging free insurance coverage for the local old age home fundraising fair day. A popular marketing approach today is relationship which seeks to build a continuous, long term relationship between the marketer and the customer.

It is essential that the business should have a clearly defined target audience with which it wants to communicate as well as a clear message that it needs to convey or confused message could result.

(d) SalesThis aspect of marketing covers the actual approach to the customer, including the needs analysis and the presentation of a solution to the needs uncovered, which should lead to the sale of a policy or the adjustment of an existing one.

(e) Analysis and controlThe purpose of this part of the marketing function is to:-

- Ensure that the plan is working- Capitalise on areas of particular success- Adapt the plan where it is not working- Provide a base for future planningIt effectively operates through comparing the actual performance with that anticipated but also involves further market research an interaction with the customer base.

9.6 The sales processIt is usual for a salesperson to have a set process to follow in looking for sales. The steps may include:-

- Prospecting- The needs analysis- The sales visit- After sales service - Renewals

(a) ProspectingProspecting is general term used to describe the planning phase of an intermediary’s activities. Instead of approaching just anyone they happen become to come across to see if they are interested in buying insurance intermediaries use prospecting to qualify people into likely purchasers. While some intermediaries may have a limited success with cold calling on members of the public the professional intermediary prospects knowing it will help in that.

- Days can be planned to a more efficient use of time. Energy is also used in the proper way, thus leading to greater personal efficiency

- Unacceptable prospects can be eliminated and the chances of successful sales calls increased

- People who have a particular need for insurance can be identified- Closing ratios will improve i.e. making a sale every time a presentation is done. This

leads to greater to greater effectiveness and a positive mental attitude. Every person has some need for insurance and is a possible prospect. However, the potential pool of prospects should thus be restricted to an intermediary’s own area in order to keep costs down and to make ongoing servicing of the client base more feasible. This could

depend on how easily one is able to get around, one’ s status and social standing within the community and the ability to cultivate centres of influence who can provide qualified leads.

(b) Targeting prospectsA broker will find that he will be more successful if he concentrates on a defined area or market . As people get to know and accept the broker as part of the community he will be referred to other members of the community in need of his services. Examples of areas where an intermediary should thus concentrate his activities are:-

- The community in which he lives- The employee of a large employer in the neighbourhood- A local supporters’ club or church community- A particular industry

Influential friends and contacts e.g a school principal or estate agent, are known as centres of influence and are very important to the eventual success of any broker. A centre of influence is essentially any person who can introduce the broker to a large number of qualified prospects. The centre of influence will provide the broker with the necessary information that will leads into prospects. However, the broker must ensure that the prospects fit the insurer’s target profile.Some likely target markets would be people:-

- In a specific age range, say 25 to 55 years old- Who own their own house- Who are in a steady job and earn in excess of e.g. $500 per month- Who have bank accounts

(c) Critical times for insurance salesThere are really good times to approach people about insurance. Brokers should constantly lookout for these opportunities. For example in long term insurance, the broker could at the following aspects:-

- When getting a salary increase- When getting married- The birth of a child- Changing jobs- Buying or moving house- Death in the family

Brokers in the short term market should look for_- people on the move either in their career or their physical homes- purchase of a motor car- the opening of new business premises- Addition of new plant and equipment

In the short term market the annual renewal time if an important time not only to secure existing income flow but to look for opportunities to add to the cover.

(d) The needs analysisThe sales process will go better if some of analysis of customer’s needs is done first.The analysis for the long term was discussed in section 4.The amount of short term insurance cover needed will come from needs analysis, which should comprise of an inventory of the assets involved, clearly showing what is to be insured, the sum insured and the type of cover sought.

(e) Building a portfolioIt is known fact that it is far much easier to sell to an existing customer than to a new one. Brokers must build relationships with their existing customers on an ongoing basis. Brokers must appreciate the importance of a step by step approach to satisfying the customer needs. The flexibility of modern policies allows f or the coverage of various needs using a minimum

number of policies, e.g. the universal life policy. This approach is beneficial to both the insured and the insurer as it saves on costs of acquisition of business.

(f) The sales visitThe visit must be planned for in advance if it is going to yield the required results. The broker should pay particular attention to the following aspects:- An appointment should be scheduled at a suitable time in advance, whether at home or

office of the client or the broker’s office.- The broker’s dress code should suit the professionalism of the industry but should take

into account individual circumstances e.g. when dealing with a farmer it may not be correct to wear a dark suit and tie.

The sales process consist of following stages :-(i) The opening or breaking the iceThis should be tailored to suit the situation. The broker should identify himself, the purpose of his visit, and may include a certain amount of social chat (depending on cultures) to place the client at ease.

(ii) The identification of needs and wantsThe broker will use the needs analysis he might prepared in advance to work through the analysis and confirming each component.

(iii) The presentationThe products features and benefits must be articulated to the client. The emphasis should be on the benefits rather on meaningless features. The link between the benefits of the product and the needs beings addressed should be stresses. For example, the affordability of the premium could be highlighted in relation to the client’s financial circumstances.

(iv) NegotiationThis focuses on dealing with any objections which may be raised and the planed must be smoothened to best suit the client’s circumstances.

(v) The closeThis the most important stage of getting the papers signed and formalising whatever needs to be done in order to bring the policy into force.

Sales training should provide the skills needed to guide the sales process. Hard selling is unprofessional. The broker should use professional analysis and provide acceptable solutions to genuine needs thus building trust between him and the clients.

9.7 Customer service and retentionThe broker has an obligation to submit the proposal to the insurer, submit any additional information which may required for underwriting and to ensure that the policy is issued. He must ensure that the first premium is paid that future premiums are received by the insurer. The broker may also be called to help in some later administrative tasks, e.g. claims.

By assisting the broker ensures that his client is getting the benefits that were explained during the sales process. The broker must also assist with the policy delivery (if he is not going to retain it) and also ensure that all other communication is received and understood by the client.

(a) Ongoing serviceFor a broker to continue getting business from his centres of influence, he must service clients properly. If they are not happy, word will quickly spread around cutting off any chances for future business in that market. The broker must maintain contact with his clients

and provide a good level of service and continuously review their insurance needs as their finances and circumstances improve.

(b) Ethics, attitude and behaviourMany policyholders will consistently renew their policies without making any claims or interfacing with the insurers directly. It is therefore important for a broker to behave in a proper way.

Brokers are independent contractors who operate with little or no supervision. Personal responsibility and a sound work ethic are therefore essential for the successful broker. Brokers must also provide support to the insurers they represent as they are often the only contact between the policyholders and the insurer. Brokers must not run down the products of other insurers or brokers as this gives the industry a bad name and breaks down the insuring public’s trust. The broker must not make promises which cannot be met. It is advisable to promise to deliver something in five days and then deliver it in four days. He must under promise but over deliver to delight the customer.

The broker’s duty is to help policyholders but at the same time represent the insurers and industry. He must therefore keep both their interests in mind at all times.

9.8 Marketing planning and new product developmentThe broker’s market planning should flow from the overall corporate strategic plan.

This involves setting marketing objectives, evaluating the current and future strengths and weaknesses, opportunities and threats within the environment, implementation the programme while putting in place suitable control systems to measure progress and allow for adaption.

The broker can use, inter alia, the Ansoff model in developing a marketing strategy.

Ansoff ModelPresent Products New Products

Present MarketsNew Markets

The planning should embrace:-- The segmentation of possible markets into viable segments- The selection of appropriate segment(s)- A positioning statement which clearly places the broker in the market - The key measures that will differentiate the provider’s operation from that of the

competitors within the chosen segment.The broker can also use SWOT analysis to look at his business and try to identify:S – strengths that exist in comparison to competitorsW – weaknesses that exist in comparison to competitorsO – opportunities that exist in the identified marketT – threats that may arise to jeopardise the operationThe plan drawn up should aim at making the best of the opportunities that exist, given the strength that are there, while minimising the role of the weaknesses and seeking to counter or best avoid the threats. The marketing plan should be refined and brought down to numbers (sales targets and expenses) so that they can be fed into the company financial model.

Market penetration

Market development Diversification

Product development

(a) SegmentationMarket segmentation involves the breaking down of the entire market into separate components that have similar needs and characteristics, before grouping together those similar components in terms of the marketing mix.

In segmenting the market, care should be taken to match them to particular strengths of the brokerage as well as ensuring that the target market suits the objectives of the business. Segmentation makes it easier to plan one’s activities and the marketing and communication messages become and the product range become easier to handle.

Consumer markets can be segmented in four different ways, namely:(i) GeographicThe focuses on the area and scope of the business e.g. Harare low density suburbs or The Willowvale heavy industrial area(ii) DemographicThis focuses on the age, race, gender, marital status and income profile of the target market audience. While many brokers specialise in either the upper income or lower income market and some focus on the financial needs of women.(iii) PsychographicThis is related to what is called lifestyle although it can also incorporate attitudes and beliefs. Segments could include the very conservative or the reckless e.g. drivers of sports cars.(iv) BehaviouralThis focuses on aspects relating to the actual buying decision, e.g. who actually makes the decision, do they buy only from a broker or their bank or they will buy off the internet or from a retail store or garage.

Business markets are segmented differently. Typical segments could relate to- Type of business e.g. mines- The size of business- The buying policy of the organisation, e.g. tenders- Type of company e.g. partnership

Whilst a broad market approach may offer more attractive prospects in short run, the broker should realise that specialisation on and differentiation in a particular market has a greater advantage in the long term.

9.9 Consumer behaviourMarketers have long known that it is important to study consumer behaviour in order to be successful in meeting their needs. The studies focus on:-- The economics of the purchase- The psychological implications- The sociological aspects.

(a) Economic theoryThis focuses on the disposable income, its flow and stability and the way people evaluate different products and services in establishing a preferential “hierarchy” for the purchase decisions. Marketers use the utility theory which seeks to understand the factors which consumers use to evaluate the use or value of a product or service.

(b) Psychological implicationsThis concentrates on establishing the underlying motivators that come into play during a decision about the purchase of a product or services. Maslow’s theory of the Hierarchy of Needs is often used in understanding this process.

(c) Sociological aspects

Buying decisions are usually affected by the personal makeup and also by the outside influences e.g. peer groups, role models associations, social class modelsMarketers categorise the general buying population in terms of their propensity to accept new ideas, products and services, on a five stage scale comprising of:-- Innovators- Early adopters- Early majority- Late majority- Laggards

9.10 Bancassurance and its impact on insurance brokersThe financial sector was not spared from the devastating effects of hyperinflation that besieged the Zimbabwe economy from 1998 to 1998. In order to survive in the turbulent economic environment. It cannot be business as usual. It has to be business unusual. Hence, the emergence of strategic alliances between insurance companies and commercial banks. The strategic alliance is called bancassurance. According to Sigma No.7/2002:3 “…bancassurance represents a strategy by which banks and insurers cooperate in a more or less integrated way to work the financial markets. This includes, at its core, the distribution of insurance products by banks”.

The strategy is adopted for various reasons all which revolve around accessing and exploiting a previously untapped market. Bancassurance is widely gaining acceptance in the local financial sector. This represents a departure from tradition as insurance in this country has largely been distributed through insurance brokers with direct sales representing a very small portion of total sales. At first sight bancassurance represents the best synergistic scheme for both institutions. However, on further analysis, one is forced to conclude that the role of the insurance broker cannot and will never be the same in the Zimbabwe insurance sector.

Brokers have to transform and offer risk management advisory services in order to diversify their income streams. Alternatively, they can become part of banking groups and offer broking services to the bancassurance clientele. Detailed treatment of this topic is covered in the module Bancassurance Practice IRM 207.

This study explores the development of bancassurance in Zimbabwe and its effects on the insurance brokers.

9.11 E-commerce

The wide application of computers in commerce and the advent of the internet has revolutionalised the way insurance services are distributed. Many services can now be offered online, for example:-

- Submission of application forms- Submission of claims forms and any supporting documents- Quotations- General policy administration- Advertisements

Chapter 10Support Services in Insurance Broking10.1 Information technology and its application

to insurance broking

All modern day insurance brokerages use information technology to support their operations. Although manual client records may still be used (in preference to computerised records) computer generated quotes, e-mail, faxes and even cell phones are indispensible to the business. However, technology does not come cheap and the system selected must be adequate for current and any future requirements

(a) System and equipment requirementsThe brokerage should appoint a suitably skilled to do an analysis of the system needs of the operation when the system is first installed. The system should be accommodating unavoidable refinements which may be required over time.

The broker could purchase an “off the shelf’ IT system that covers the full needs e.g.(i) Electronic storage of client details(ii) Communication e.g. fax, e-mail and internet(iii) Word processing(iv) Spreadsheets and reports(v) Electronic marketing(vi) Research (internet applications)(vii)Accounting records, including budgets, revenue collection (premiums and commissions),

accounts payable, billing systems, and the necessary financial statements for the auditors

(viii) Marketing databases(ix) Statistics/management(x) Quotation systems(xi) HR records

(b) System security and disaster recovery plansA business that relies on a computer system needs to understand the implications of a possible systems failure. Often this would bring the operations to a halt. While it is possible to arrange business interruption insurance to cover some eventualities, it is wise to take some steps towards risk management.The main sources of systems failure are:-

(i) Hardware malfunction, e.g. disc crash(ii) Fire of flooding(iii) Tampering by staff, either with malice or accidental(iv) Virus attacksThe proper access and system security procedures should be mapped out, including a good up to date virus protection programme. This can be arranged on a contract basis with a key provider, so that regular updates are installed.

A properly controlled backup system should be installed. The most practical of these is to do a daily backup onto a storage device which is kept in a secure place e.g. a safe which offers protection against tampering and fire, etc.

Weekly backups should be taken for storage at an offsite location. There are service providers who offer a backup system. Alternatively the disc stored with the bank or at another business site.

It is advisable to sign a service agreement with a computer company to provide hardware and software support so as to minimise downtime.

The broker should also be aware that they are specialist providers who can often retrieve data from crashed discs, and should not lose heart if an unforeseen failure happens to the system.

10.2 An outline of human resources issues in insurance brokingIn larger brokerages the human resources function is handled by a specialist department, working closely with line management and a number of outside consultants and/or service providers.

In a small brokerage this role may be played by the owner, unless it is big enough to afford an operations manager, who is likely to be generalist administration manager than an HR specialist. The danger is that HR issues may be neglected with serious consequences. (a) Recruitment

(i) Planning Signing on a new staff is not an action that should be taken without careful thought. Legislation involving employment is such that it is often difficult 9and costly) to reduce the staff complement and so the employment process must only be followed when it is essential. Care should be taken to ensure the right people are recruited.

Part of the planning process should include a full investigation of the actual job function, which should confirm the need for the individual as well as giving rise to a job description, complete with the skills requirements for the person to fill the position (often referred to as the job specification)

The initial focus should be on current employees who can be moved into the job either as promotion or part of the broadening of skills of the individual or even to make better use of that employee by combining jobs where possible. Another option would be consider if the job could be done by a temporary worker. The staff complement should be kept at the optimum without increasing costs.

(ii) The processProspective employees can be attracted to the organisation through press advertisements. An initial screening against set requirements should be done to eliminate those who would not suit the position. A short list of qualifying applicants should be prepared and interviews arranged. Where ever possible the interview should be conducted by more than one person. Practical exercises may be necessary e.g. Pankhurst Test in an effort to assess the fit of the applicant into long term goal and likely human resources needs of the business.Business references are critical and must be checked in all cases to avoid surprises. Authenticity of claimed qualifications must be confirmed. Once a decision has been made to employ someone, an offer letter should be drawn specifying the terms and conditions of employment (in conformity with labour laws) and preferably the job description.

(iii) OutsourcingMuch of the hard work involved in recruitment can be outsourced to employment agencies. However, the brokerage must do the planning and the leave the employment agency to do the screening and delivering a short list of three of four candidates for final selection, along with a dossier on each giving the findings of the agency and a motivation for their selection.(iv) Induction If a new employee is to perform in his job to the best of his abilities, it is important that they are properly inducted into the business. This includes settling them physically, introducing them to other staff, outlining the operation of the company, advising them of the details of

the job requirements and appraising them of the rules and regulations of the organisation. Regular follow-ups should be made to check on they are settling in and help on any challenges the employee may be facing.

(c) Business structure and organisationIn a small brokerage business is done in needs in unstructured way with most of the work being done the proprietor with the help of an assistant. However, as the business grows it becomes necessary to create formal structures identifying the work allocation to ensure that people know their areas of accountability.

(i) IssuesModern management theory does not favour hierarchical organisation structures which results in people having a “silo mentality” i.e. being boxed in to specific functions thus losing sight of the overall business goals. Instead it advocates for flat structures. The hierarchical structure improves communication, highlights areas of responsibility and ensures that processes are optimised without overlaps or gaps. This means that the breaking up of the work and allocation thereof to staff with the necessary skills is quite an important item’

An analysis of the work of the work to be done must be made and broken down to quite a low level. The various tasks must then be combined in some logical way in combinations that reflect staff competences.

(ii) Job descriptionsA Job description clarifies responsibilities and provides focus for each staff member. It contains an outline of the main purpose of the job, the reporting lines and a list of duties and responsibilities for the job. It will also contain the job specifications i.e. skills and person traits that the incumbent needs for the job. Every employee must have a job description that should be regularly reviewed as conditions change.

(iii) DelegationThe proprietor or manager cannot carry out everything on his own and will need to allocate some of his responsibilities to his subordinates. Care should be taken to ensure that the person to whom the task is given understands what is required and his limits of authority in executing the tasks. The manager remains responsible for task and must monitor the progress by requesting periodic feedback.

(d) Human resources management(i) PrinciplesEmployees represent a brokerage’s major asset and often consume a large part of the expense budget. The management of staff is therefore an important function which can make a huge difference to the success of the business. The purpose of human resources management is to optimise performance of staff and to manage the necessary systems.(ii) AdministrationAll staff records should be kept safe and up to date. This includes all payments, taxation, training, disciplinary hearing, leave, performance appraisals, etc. Computer software packages in support of the HR function are available on the market at very affordable prices. (iii) MotivationStaff motivation is important to the success of a brokerage as a motivated workforce will deliver greater output than a demotivated one. Motivated staff is likely to stay with the firm for a long time to the benefit of the organisation as this reduces the cost associated with the replacement of staff.

In addition to pay staff well, the physical work conditions, the nature of the actual work, recognition, personal respect and involvement and the involvement of staff at levels in the formulation of business objectives can be very motivating.

(iv) TrainingAll staff needs to be trained on the job and the modern trend is towards a fair degree of multi-skilling to cater for unseen events. Training should also include formal development programmes that are meaningful to the work situation and the employee’s career.(e) Tax and social issuesAll employers have an obligation to register employees for tax purposes and remit the required amounts monthly. This function is part of the salaries administration, which may be outsourced or administered easily on a computer package.

Many employers pay other benefits, such as medical aid, retirement fund, group insurance cover, etc. These may be subsidised by the employer in some way as part of the person’s remuneration. (f) Industrial relationsThe labour environment has become increasingly legislated in order to protect employees from being abuse by their employer. The main legislation which applies is the Labour Relation Act. The main focus of the Act is on trade unions and bargaining, strikes and disputes as well as disciplinary procedures and requirements for dismissals and retrenchments.

Chapter 11The Corporation of Lloyd’s

11.1 The Corporation of Lloyd’sFrom small beginnings as an informal meeting house and place to catch up on the shipping news, Lloyd’s has grown a world famous association of underwriters. The Corporation of Lloyd’s deals with approximately 50% of the insurance underwritten in the London insurance market.

11.2 Operations of Lloyd’sLloyd’s is not an insurance company. It is an insurance market of members. Members of Lloyd’s or “capital providers” as they are often known, accept insurance business through syndicates (i.e. group of members) on a separate basis for their own profit and loss. Members are not jointly responsible for each other’s losses. Membership of Lloyd’s is made up of companies, individuals and partnerships. Individual members or names, tend to support a number of syndicates, whereas some corporate members only underwrite through a single syndicate.

11.3 The Lloyd’s syndicates and their operationsLloyd’s members conduct their insurance business in syndicates each of which is run by a managing agent. There are 62 syndicates operating within the market, covering many speciality areas including:-

- Marine- Aviation- Catastrophe- Professional indemnity- Motor

Syndicates tailor solutions to respond to specific risks of the client. They compete for business, thus offering choice, flexibility and continuing innovation. They cover either the whole or a portion of the risk and are staffed by underwriters, the insurance professionals on whose expertise and judgement the market depends. It is the responsibility of the management agent to employ underwriting staff and manage the syndicate on the member’s behalf. A managing syndicate must be a company specifically established for the purpose of managing a syndicate and may not carry out any other function but can be responsible for more than syndicate.

There are some 164 firms of brokers working at Lloyd’s, many of whom specialise in particular risk categories. Each Lloyd’s broker is required to demonstrate an understanding of the Lloyd’s market as part of Lloyd’s assessment of its suitability to be accepted as a Lloyd’s broker. Business at Lloyd’s can only be placed by Lloyd’s accredited brokers.Each syndicate has a managing agent or underwriter who is responsible for the negotiations with the brokers on behalf of the syndicate, having ensured that each member of the syndicate has the reserves or capital needed for the underwriting transactions.

Syndicates are the insurers, not Lloyd’s. Lloyd’s provides the premises administration services and assistance needed for the underwriting to take place. Underwriters in the syndicate do not deal with the individual or company who is seeking to place the insurance policy but must go through specially appointed Lloyd’s broker. The broker will approach the under with a “slip” of paper requesting insurance cover. The “slip” will give the type of insurance needed the time period, geographical location and all other relevant information. The managing agent will go to his “box” in the Lloyd’s market place, which is known as “The Room”. Accredited Lloyd’s brokers then move around The Room with the slips of the insurance they wish to place.

The underwriter will then either accept or reject the insurance cover or may accept a portion of it, and the broker will then approach other underwriters until all the cover has been sold. The managing agent who wishes to accept the risk will sign the slip and indicate the amount of the total risk that his prepared is prepared to take. The action means the names in that syndicate are committed to specific to a specified share of the risk. The broker will continue to go around The Room with his slip until all of the insurance is placed and the risk is covered. The item is then insured at Lloyd’s and not by Lloyd’s.

The Process of Insuring at Lloyd’s

Individual members Corporate members

Members’ agents Licensed Lloyd’s advisors

Personal Commercial

The corporate members negotiate underwriting deals through the offices of one of the 11 Lloyd’s licensed advisers and will either join or form a syndicate for the deal in the same way

CAPITAL

The MarketLloyd’s Broker

Clients

Syndicates

as the individual members do. Most syndicates specialise in a particular type of insurance risk, such as only underwriting marine or motor insurance.

A syndicate is not a partnership, where there would be shared responsibility for debts. In a syndicate each member accepts responsibility for his own share of the business and no more. Each member of a syndicate then receives a previously agreed share of each of the insurance accepted on behalf that syndicate.

11.4 The structure of Lloyd’sThe Lloyd’s Act changed the structure of Lloyd’s in 1982 and Lloyd’s is now governed by the Lloyd’s Council, which oversees the activities of Lloyd’s as a whole while the Lloyd’s Committee carries out the day to day managing and controlling of The Room.

The Lloyd’s is elected by the members and is responsible for supervising the market and ensuring that members are able to meet their obligations for the Lloyd’s policies in which they participate. The Committee researches the financial background and reputation of all those who wish to be elected as Names or underwriting members. Members are required to deposit a certain sum of money with the Committee which in turn is deposited in a trust account and held there in order to meet any liabilities that the name has incurred.

One of the reasons for the change in Lloyd’s structure is that Lloyd’s went through a very difficult time in the early 1980’s. One of the most significant changes is that corporate capital was allowed into Lloyd’s for the first time in 1984 and now represents 60% of the total capacity at Lloyd’s. 11.5 The Council of Lloyd’sThe Act of Lloyd’s Act 1982 defines the management structure and rules under which Lloyd’s operates. Under the Act, the Council of Lloyd’s is responsible for management and supervision of the market. It is regulated by the Financial Services Authority (FSA) under the Financial Services and Markets Act 2000.

The Council has six working, six external and six nominated members. The appointment of nominated members, including that of the Chief Executive Officer, is confirmed by the governor of the Bank of England. The working and external members are elected by the Lloyd’s members, the Chairperson and Deputy Chairperson are elected annually by the Council from among the working members of the Council. All members are approved by the FSA.

The Council can discharge some of its functions by making decisions and issuing resolutions, requirements, rules and byelaws. Other decisions are delegated to the Lloyd’s Franchise Board and associated committees.

Governance Structure of Lloyd’s

11.6 The duties of the Council of Lloyd’sThe duties of the Council of Lloyd’s are similar to those of senior management of any equivalent organisation. They are responsible for the management and supervision of the affairs of the Lloyd’s Society and regulation of the business of insurance at Lloyd’s. They also have the authority to delegate power to the Committee of Lloyd’s and to the Chairperson and Deputy Chairperson of Lloyd’s. Both the Chairman of Lloyd’s and the Chief Executive of Lloyd’s serve on the Council.

The Council is always represented at meetings of the Lloyd’s Committee, either by the Chairperson or by one of his deputies. The Council also appoints committees and sub-committees to look after the activities of various business divisions within the organisation. In many ways the Chairperson acts as an ambassador for Lloyd’s as it is he who represents Lloyd’s at meetings with the government of Britain or other countries and other financial bodies in the City of London.

11.7 Regulation of Lloyd’sLloyd’s of London is regulated by the UK Financial Services Authority (FSA) under the Financial Services and Markets Act 2000.

The FSA oversees Lloyd’s regulation to ensure consistency with general standards in financial services. The FSA delegates a substantial part of its regulatory activity to the Council of Lloyd’s and focuses on a supervisory role. The Council of Lloyd’s is the governing body of the Society under the Lloyd’s Act 1982. Much of the market’s rule structure is embedded in a series of byelaws passed by the Council. These are supplemented by core principles for underwriting agents and a number of codes of conduct are published to the market by means of regulatory bulletins.Day to day supervision of the market is undertaken by the risk management division of the Corporation of Lloyd’s. 11.8 Lloyd’s franchise board

The Council of Lloyd'sFranchise BoardAudit Committee

The Franchise Board sets the franchise strategy, and is responsible for risk management and profitability targets across the market. It lays down guidelines for all syndicates and operates a business planning and monitoring process to safeguard high standards of underwriting and risk management, thereby improving sustainable profitability and enhancing the financial strength of the market.

The Board is chaired by the Chairperson of the Council of Lloyd’s and has three further executive members:

- Chief Executive Officer- Director of Finance and Risk Management- Franchise Performance Director

Reflecting current best practice in corporate governance, the Board has non-executive independent directors appointed for their specialised knowledge and expertise.

The Franchise Board carries out its functions through various key sub-committees.

11.9 Lloyd’s in South AfricaLloyd’s is the largest property and liability insurer and reinsurer in South Africa but is not allowed to underwrite compulsory third motor liability, compensation for occupational injuries and diseases and life reinsurances. All correspondents in South Africa who place business with Lloyd’s underwriters must be approved by Lloyd’s. In 2008 there were 60 cover holders and 28 open market correspondence approved to act of underwriters in South Africa. In 1998 trust account deposits stood at R593 million which is based on 110% of net premium income for this region. The deposit is available for the payment of South African Rand claims only. Lloyd’s opened a new office in South Africa in 1998 and the office acts as the main point of contact of all Lloyd’s business in the region.

11.10 Lloyd’s in ZimbabweLloyd’s is not admitted as in insurer in Zimbabwe, and does not have a local office. Insurers and brokers seeking to place their business at Lloyd’s have to go through Lloyd’s accredited correspondents (mostly reinsurers and their retrocessioners).

11.11 Lloyd’s and catastrophe losses in the recent pastThe terrorist attacks on World Trade Centre on 9 September 2001 in New York and the Pentagon Washington brought Lloyd’s into the limelight. The loss from attacks was enormous. Lloyd’s total net loss was US2.9 billion, its largest payout yet for a single event.

IN2005, Hurricane Katrina hit 50 kilometres of the Mississippi shoreline leaving 80% of New Orleans under water and covered 235 square kilometres ( about half the size of France).Lloyd’s initial loss reserve from Hurricane Katrina at US$2.4 and continues to rise.

Chapter 12Industry Associations and Professional Institutes

A number of organisations have been established in Zimbabwe to foster co-operation between various parties involved in the life insurance industry. These associations provide a service to all role players by creating a forum in which issues of common interest can be discussed. Some of these associations act as watchdogs over the industry and co-ordinate the adoption of voluntary codes of practice amongst their members. This self regulation initiative avoids the passing of stricter legislation to control the affairs of the industry and benefits both insurers and their clients.

12.1 The Life Offices Association of Zimbabwe (LOA)LOA is a voluntary association of life insurers conducting life assurance in Zimbabwe. It is the spokesperson for the life market, seeking to promote the interests of the industry and insuring public as a whole. The association members conduct more than 98% of the life insurance business in Zimbabwe.

The association’s activities are directed by a management committee consisting of all senior executives of member offices. The management committee is elected every year at the annual general meeting.The day to day activities of the LOA are conducted by a small secretariat with an executive director at its head. The management committee and the secretariat are assisted by a number of committees and sub-committees. Members of these committees and sub-committees are chosen for their abilities from amongst the member offices.

12.2 The Zimbabwe Association of Reinsurance Offices (ZARO)This is an association of companies that only transacts reinsurance. It is the spokesperson reinsurance market, seeking to promote the interests of the industry and insuring public as a whole. ZARO specifically considers insurance trends as applicable to the reinsurance because they tend to carry a greater portion of the larger risks than the direct underwriters.

12.3 The Insurance Council of Zimbabwe (ICZ)This is a voluntary association of all short term insurers in Zimbabwe. It is the spokesperson for the short term market, seeking to promote the interests of the industry by negotiating with government and promotion of cooperation between the industry and the general public.

The ICZ members abide by a Code of Conduct.

Core functions of the ICZ are:

The representation of its members' interests to the public in a proactive manner. The representation of its members' interests to government at all levels.

The provision of a forum for discussion of common interests in the short-term insurance industry.

The facilitation of information flow among its members. Interaction with all associations operating within the insurance industry, both locally

and abroad. The setting of appropriate technical standards for the industry.

12.4 The Zimbabwe Brokers Association (ZIBA)This is a voluntary association of all insurance brokers in ZimbabweCore functions of the ZIBA are: To protect members’ interests.

Critical areas are conditional selling, the cancellation of broker contracts, disputes between insurers and brokers, the S-reference system, equal remuneration and fair and reasonable broker contracts.

To act as the mouthpiece for the independent broker. To establish training facilities for brokers.

The ZIBA supports the training programs offered by IIZ (Insurance Institute of Zimbabwe) and any other training provider who could add value for its members.

To harness members’ collective capacity. To solve collective problems on a group basis. To develop unique solutions for all stakeholders.

Such products and schemes are group life cover, trauma cover, income protector, professional indemnity, preferential rates and agreements.

To provide a home for the independent broker.The ZIBA provides a place of belonging not only for the small and medium sized brokerage, but also for the larger independent corporates. Ideas are exchanged and members support one another. ZIBA meetings are held regularly to keep members informed and to motivate them.

12.5 The Chartered Insurance Institute (CII)

12.6 The Insurance Institute of Zimbabwe (IIZ)The IIZ is directly involved in education and training for the industry. It offers both certificate and diploma courses in short term and long term insurance studies. Recently it acquired a franchise from IISA and is now offering the advance diploma in Insurance. IIZ also coordinates and administers the Chartered Insurance Institute examinations in Zimbabwe.

12.7 The insurance Institute of South Africa (IISA)The IISA is a professional institute that has in the recent past been directly involved in education and training in the insurance industry. That role has since been outsourced to UNISA and IISA now concentrates on the role of a professional body of qualified members. The IISA aims to promote the highest professional and ethical standards in insurance industry in Southern Africa and elsewhere, IISA has code of conduct which applies to all its members.12.8 The Institute of Risk management (IRM)The Institute provides high quality education, training and professional development in risk management at a range of levels, from introductory to expert.The following programmes of study are available:(a) IRM's International Certificate in Risk Management is a broadly based introductory

qualification taken over 6-9 months. (b) IRM's International Diploma in Risk Management is a post-graduate level distance

learning qualification designed to meet the development needs of a wide range of risk professionals. Successful completion leads to full membership of the Institute of Risk Management and the use of letters MIRM after your name

12.9 The Institute of Pensions Consultants and Administrators (IPCA)

This is an association of people have who have at least 5 years directly concerned in giving advice on schemes or funds or administering such schemes or funds for the provision of group employee benefit programmes.

Its objectives, inter alia, are:-- To promote for the community the existence of a class of consultants and

administrators providing advice on schemes or funds for the provision of employee benefits who can be relied upon as being trustworthy and duly qualified to perform their duties responsibly

- To provide a central organisation for its members and generally to do all such things as from time to time may be considered to enhance their status in the community and advance and safeguarded their interests and to improve the general standard of efficiency and proper professional conduct.

12.10 The Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC)It will be of interest to know that AIRMIC was formed in UK in December 1963 to cater for the special interests of insurance managers in both private and public industry, in commerce and local authorities. It has since widened the scope of its membership and now admits anyone from industry or commerce or local or national government undertakings who has a responsibility for insurance or risk management matters. The stated aims of the Association are:-

(a) To further the profession of insurance and risk management in industry and commerce

(b) To ascertain and advise members of changes in insurance law and practice and other matters relating to insurance and risk control generally

(c) To promote within the members’ sphere of influence a better understanding of risk management and its techniques, including, but not limited to, insurance management, and

(d) To represent, where appropriate, a body of informed opinion within fields of interest to insurance and risk managers and insurance consumers in industry and commerce.

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