Three generations of both life and non-life directives The first directives paved the way for any insurer authorised in any Member State to set up a branch, agency or establishment in any other EC state, without restriction by the host, subject only to the host’s regulatory requirements, now largely harmonised. The second generation created free movement of insurance services within the EC by abolition of restrictions to sell across national boundaries. The third generation completed the move towards a single insurance market by abolishing the right of a host nation to insist upon authorising insurers established in other Member States. Authorisation in one state became a Single European Licence, allowing an insurer, without authorisation from any other state: (a) to establish elsewhere; and (b) to sell into other states from establishments outside those states. Post-authorisation regulation is carried out by the insurer’s home state to complete the twin aims of single licence and home country control. See FOURTH MOTOR INSURANCE DIRECTIVE.

Previous insurance record of the insured or proposer. Unsatisfactory insurance history is material (utmost good faith) and must be disclosed to the insurer. Where proposal forms are used, it is customary for the insurer to include questions about present insurances; previous declinatures; imposition of special terms or increased premiums by previous insurers; refusals to renew; cancellations.

Firms carrying on an insurance mediation activity including an insurer, for example when it advises on or arranges its own noninvestment insurance contracts or those of another insurer through its own sales force. See INSURANCE: CONDUCT OF BUSINESS RULES.

Defined under the Insurance Mediation Directive as any of the following: (a) introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance; (b) assisting in the administration and performance of such contracts, in particular in the event of a claim; and (c) concluding contracts of insurance. These activities become regulated activities in 2005.

Approved by the European Parliament in September 2002 concerning insurance and reinsurance intermediary regulation. Its aim is to create a system of registration based on the following professional requirements: (a) in possession of the necessary general, commercial and professional knowledge and ability; (b) of good reputation; (c) in possession of professional indemnity insurance or any comparable guarantee against liability for professional negligence; (d) having sufficient financial capacity for those intermediaries who handle client account money. This is similar to the GISC matrix of regulation. Once intermediaries are registered in their home country they will be free to provide services in other EC states. See MEDIATION ACTIVITIES.

Measures and monitors trend of insurance purchases as a percentage of gross domestic product in a particular country. It is an indicator of the importance of insurance generally or a particular line of insurance. Higher penetration rates are achieved in the developed countries.
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Insurance penetration is defined as the ratio of premium underwritten in a given year, to the gross Domestic Product (GDP).

Tax on general insurance premiums. Current (2003) standard rate is 5 per cent of gross premium but 17.5 per cent (introduced in April 1997) for travel and extended warranties on vehicles and some domestic appliances. Most long-term insurance is tax exempt, as is reinsurance, insurance for commercial ships and aircraft and insurance for commercial goods in international transit. Premiums for risks located outside the UK are also exempt, but they may be liable to similar taxes imposed by other countries.

An FSA regulated activity covering arranging the purchase of insurance policies; advising on insurance policies; dealing as an agent. Assisting in the administration and performance of policies is also regulated.

A way of transferring insurance risk to the capital market by way of securitised bonds, e.g. catastrophe bonds and life bonds. They are attractive to investors as they have a high yield and lack correlation with other assets. Losses caused will be unconnected with economic downturns. There are three types of trigger for ILSs: indemnity (actual losses of bond-issuing insurer); index (benchmarking of loss estimates); or parametric.

Swap transaction under which the investor receives fixed payments for an agreed term in return for a promise to pay a specified amount if an insurance-related event, e.g. earthquake, occurs.