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This sample question is designed to give you an indication of the type of question you will face in the exam. It is based on the Lloyds of London Case study which is restated below for your convenience. You do not have to provide an answer to this question but you are strongly advised to make notes listing your thoughts on how you might approach answering this question. A sample answer will be put on Oasis+ by the middle of next week. ----------------------------------------------------------------- ---------------------------------------------------------------------
As they have expanded Lloyds of London have built up a large loyal customer base. Inevitably they have gather large amounts of customer information that is not only person but also commercially sensitive. You have been asked to advise the organisation on several important aspects of information asset protection.
What is the law relating to the protection of information assets? What do you see as the main threats to their information assets? What protection measures are available to help offset the indentified threats? What approach to protecting their information assets do you recommend?
Case Study
Lloyd s of London
A truly global market
1. Introduction - What is insurance?
Life is full of risks. Insurance can provide security against some of these risks. For example, motor insurance provides cover for certain costs resulting from a road accident or the theft of a car. A contract of insurance involves the insured making a payment, (a premium) to an insurer. In return for the premium the insurer agrees to provide the insured with cover for certain types of losses arising from specified events. For example, a policy of household insurance might provide cover for damage to a house in the event of a fire.
Commercial Combined Insurance This insurance covers physical damage to premises and to equipment, stock etc. as well as goods in transit, business interruption, employers liability and public/product liability. Professional Indemnity Insurance This insurance covers professionals such as accountants and solicitors, for liabilities that might arise from the advice they give or the recommendations they make in their professional capacity. Business Interruption Insurance This type of insurance provides cover for some of the reduction in profit that could arise from a decrease in trade, or the increased cost of working, which might result from an interruption in business arising from an insured event . For example, the events of September 11 meant that many businesses were unable to trade, resulting in a loss of customers and revenue. Business interruption insurance provided many of the affected businesses with cover for some of the reduction in income experienced during the period of disruption. Employers Liability Insurance Employers liability insurance is a legal requirement for employers in the UK. The insurance is designed to meet claims by employees for bodily injury, illness or disease suffered while carrying out their duties of employment.
3. Lloyd s of London
Lloyd s of London is the world's oldest and best known insurance market. In the 17th Century, London s growing importance as a trade centre led to an increasing demand for ship and cargo insurance. Business in those days was conducted very informally. A merchant with a ship to insure would ask a broker to take the risk from one wealthy merchant to another seeking insurance cover. Each merchant would take a portion of the risk and the broker would visit several merchants until the risk was completely covered. The broker s skill lay chiefly in ensuring that policies were underwritten only by people who could meet their share of a claim, if need be, to the full extent of their personal fortunes. This process came to be known as underwriting.
Brokers, acting on behalf of their clients, who bring risks to the market; and Underwriters, accepting risks from the brokers on behalf of syndicates, who provide insurance cover.
A market place is a physical or virtual place that enables those with goods or services to sell, to make contact with those who want to buy. Many UK towns have local market places where traders sell their products from stalls to consumers. There are larger markets where bulk trade in meat, fish, flowers and other commodities takes place for resale by local businesses nationwide. New Covent Garden Market in London is one such market, selling fruit and vegetables. Other examples include Smithfield Market (wholesale meat) and Billingsgate Market (fish). National markets such as these developed as the UK economy moved from an agricultural to an industrialised focus. Lloyd s is an insurance market where businesses from all over the world can find insurance for risks in exchange for payment of a premium. The premium is based on the sum insured and the nature of the risk. As the UK economy has developed from a national economy to part of the global economy, Lloyd s has also developed into a global insurance market. The Lloyd s market brings in business from over 180 countries and has its own offices and staff in over 25 different countries.
The structure of the Lloyd s market encourages flexibility and an entrepreneurial approach to underwriting. The risks insured in the Lloyd s market are divided into the following main classes:
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Lloyd s underwriters create innovative policies tailored to meet customers' needs. Examples of innovation in the Lloyd s market include specialist policies for:
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satellites niche UK motoring activities e.g. coach companies, taxi fleets protection against hostile takeover bids large international, national and local sporting events.
representing their interests achieving the best value for money ensuring the quality of the cover offered meets the client's needs finding the most competitive price.
Corporate and private members of Lloyd s All insurers require capital to provide security for their underwriting. After all, policyholders need to know that an insurer will have the funds to pay in the event of a claim. The capital that finances the activities of the syndicates in the Lloyd s market is provided by what are known as members. There are two types of member: 1. Corporate members insurance businesses such as Munich Re, Berkshire Hathaway, Ace and XL Individual members the individual capital providers in Lloyd s known as Names . Until 1994. Names were the sole capital providers for the market.
2.
Members provide capital to syndicates operating in the market, who use this capital to underwrite risks. In 2003, 87%2 of the capital backing the Lloyd s market was provided by corporate members.
6. Types of market
There are a number of different types of markets in which businesses operate:
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Commodity markets include those for raw materials such as cocoa used in the production of chocolate. A shipment of cocoa from Africa may be split between two buyers - the product is the same for both buyers. Insurance bought at Lloyd's is often bespoke - the product or policy is created specifically for the client, so the product might not be the same for each client.
Consumer markets involve producing goods and services for the private individuals who consume them. Large companies that supply consumer markets, such as manufacturers and banks, insure at Lloyd's.
Services can be provided to consumers or businesses in the same way products are sold to consumers. The Lloyd s syndicates operate primarily in the market for specialist insurance, providing insurance services to their clients. Other specialist markets within commercial services include capital markets such as the Stock Exchange, where companies sell shares in their businesses. The Stock Exchange provides a structure and market place for the trade in shares and is similar to Lloyd s in that it facilitates buying and selling between others, but does not buy or sell itself.
7. Transactions
To understand the difference between transactions in a consumer market such as private car insurance and in a business market such as marine insurance, it is necessary to identify the organisations involved in the chain. Very often a consumer will purchase motor or household insurance directly from an insurer. Therefore, a typical consumer private motor policy transaction might be represented as follows:
However, when seeking cover for more complex commercial risks businesses usually employ the services of a broker. The placement of a commercial risk in the Lloyd s market might be represented as follows:
Brokers use their knowledge of the market and close relationships with underwriters to spread large, unusual or difficult risks between syndicates. Underwriters on the syndicates take on risks brought
8. Conclusion
All business involves risk, and so business owners need to protect themselves through insurance which will pay out if the events covered by the policy occur. This helps the business to continue to trade. Lloyd s allows businesses to buy cover against risks in a way that suits their needs. Lloyd s underwriters specialise and compete against other underwriters so the client s needs are best met. The market place at Lloyd s facilitates trade between buyers and sellers of insurance.