1. Fundamentals of Financial Services Insurance
Chapter 2.5
Chapter 7.3

2. Lesson Objectives By the end of the lesson: Everyone MUST Most SHOULD
Know that the financial services industry also includes insurance providers to enable financial risks to be managed
Most SHOULD
Know the types of insurance available: personal; corporate;
Explain the concept of syndication

3. The Financial Services Industry
Links those with surplus money to those with a need to borrow money
Includes markets to enable investors in equities and bonds or sell investments
Financial Services Industry
Includes foreign exchange dealers to allow one currency to be exchanged for another to facilitate international trade
Includes insurance providers to enable financial risks to be managed
The above diagram shows an overview of the Financial Services industry.
Focus for this lesson is INSURANCE
LO: Outline the key components of the financial services industry

4. Motor Insurance Example
Charlie’s profile Age: 24 Passed Test: A month ago Car: 7 year old VW Golf worth £3,000
PREMIUM £100 p/m
Why does Charlie pay a higher premium?
Sarah’s profile
Age: 48
Passed Test: 20 years ago
Car: BMW worth £10,000
Driving history: has never had an accident
PREMIUM £50 p/m

5. Oil Rig Example
Explo Inc Recently established oil exploration company Completed construction of first oil rig in the ocean off West Africa Rig Worth: $100 million The company wants to insure against damage due to mechanical failure or adverse weather. An insurance company decides to insure the oil rig. This means Explo Inc has PASSED ON THE RISK to the insurance company in exchange for a premium of $5 million each year.
This is a HUGE risk for the insurer. Is there anything they can do to protect themselves in the event of the risk materialising?

6. SYNDICATION could take place
Oil Rig Example
Explo Inc Recently established oil exploration company Completed construction of first oil rig in the ocean off West Africa Rig Worth: $100 million The company wants to insure against damage due to mechanical failure or adverse weather. An insurance company decides to insure the oil rig. This means Explo Inc has PASSED ON THE RISK to the insurance company in exchange for a premium of $5 million each year.
REINSURANCE
Where the insurance company also takes out insurance to protect themselves OR
SYNDICATION could take place
This is a HUGE risk for the insurer. Is there anything they can do to protect themselves in the event of the risk materialising?

7. SYNDICATION Total Shipping
Syndication allows a group of insurers to take on a “share” of the risk associated with a specific insurance policy. This is normally in circumstances where the risk is too high for one insurer to take by themselves. Each member would receive a percentage of the premium being paid by the insured party and at the same time would bear the same percentage of any claim made.
100% of the risk
Syndicate of Insurers
Insurance Co. 1
Insurance Co. 5
20% of the risk
20% of the risk
Insurance Co. 2
Insurance Co. 4
20% of the risk
20% of the risk
Insurance Co. 3
20% of the risk

8. Safety Net
A safety net, to protect against any future risks that may occur. The insurance policy is provided by an insurance company in exchange for a payment, referred to as the insurance premium.

9. Check your learning: EXIT PASS
Complete a 1:2:1 EXIT CARD
Identify 1 area that you already knew about
Identify 2 new things you have learnt today
Identify 1 area you would like to know more about