THE CHARTERED
INSURANCE INSTITUTE
Business and economics
530
Objective: To develop in the candidate:
• an awareness and broad knowledge of the environment in which businesses operate;
• a detailed knowledge and understanding of the economic, ethical, operational and financial
framework applicable to UK companies;
• the ability to synthesise different aspects of the syllabus and to apply learning specifically to the
insurance industry;
• the application of knowledge and skills to practical situations.
Assumed knowledge and application skills
Assumed knowledge may not appear in detail within the
learning outcomes but forms part of the syllabus and thus may
be examined. It is assumed that the candidate already has the
knowledge gained from a study of the relevant sections of P04
Business practice or an equivalent qualification.
Method of assessment
See page 7 in the 2005 Advanced Diploma in Insurance
‘Information for candidates’ brochure.
1.3 The nature of competition
Candidates should be able to
–
discuss the factors influencing the extent of competition;
–
distinguish between competition and monopoly;
–
outline the barriers preventing new firms entering
a market;
–
evaluate the nature and extent of competition within the
insurance industry.
Notes:
– The syllabus will be based on UK and EU law and practice.
– The April session will test the legal position as of 31st
August of the preceding year.
– The October session will test the legal position as of 28th
February of the same year.
– Candidates will be expected to demonstrate the application
of knowledge and skills to practical situations. They are
strongly advised to keep abreast of current affairs and to
ensure the inclusion of the financial accounting aspects of
the syllabus in their exam preparation.
1.4 The role of insurance in production
Candidates should be able to
–
describe the contribution made by the insurance industry
to the national income;
–
explain the importance of the factors of production;
–
explain the problems faced by the UK insurance industry
in the current economic climate.
1. Insurance in the world economy
1.1 Nature of economic systems
Candidates should be able to
–
distinguish between the main economic systems:
planned, market and mixed economies;
–
describe and explain the features of a mixed economy;
–
explain the nature of the UK economy.
1.2 Demand and supply
Candidates should be able to
–
explain the factors affecting demand and supply;
–
describe and calculate equilibrium price and
equilibrium quantity;
–
discuss the causes and effects of shifts in demand and
supply curves: including taxation and subsidies,
price controls;
–
explain the elasticity of demand and supply;
–
illustrate demand and supply theories using
diagram format;
–
apply knowledge and understanding of demand and
supply to explain the insurance market cycle.
2005
© The Chartered Insurance Institute 2004
1.5 Monetary policy, fiscal policy and taxation
Candidates should be able to
–
outline the role and instruments of monetary policy: Bank
of England changes to interest rates and control of the
money supply;
–
outline the role and instruments of fiscal policy:
government budget, taxation, expenditure and borrowing;
–
analyse how changes in various tax rates, both individual
and corporate, can affect an insurance company’s results;
–
evaluate the impact of monetary and fiscal policies on the
insurance industry;
–
identify corporation tax as the main tax paid by companies
and explain how it is calculated;
–
list other taxes that may be paid by companies depending
on the nature of their business operations;
–
explain UK insurance premium tax, including current rates
and exemptions, and its impact on insurance business.
1.6 Inflation
Candidates should be able to
–
discuss the causes of inflation; distinguish between
Monetarist and Keynesian views;
–
identify the main means of measuring inflation;
–
define deflation;
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–
–
evaluate the effects of inflation and deflation on
businesses in general and insurance companies
in particular;
identify the various investment markets used by the
insurance industry and discuss the effects of their
performance, showing the relationship between the risk
and reward.
1.7 Unemployment
Candidates should be able to
–
identify and distinguish between the main causes
of unemployment;
–
outline employment trends in the UK;
–
evaluate the effects of unemployment on the
insurance industry.
1.8 The balance of payments and exchange rates
Candidates should be able to
–
define balance of trade components and the relevance of
balance of trade to the insurance industry;
–
describe the causes and implications of current account
deficits and surpluses;
–
explain the methods used to correct deficits
and surpluses;
–
distinguish between floating and fixed exchange rates;
–
explain the reasons for devaluation and revaluation of a
currency and the effects of each on the insurance industry
and economy;
–
discuss and evaluate the impact of European Economic
Union and the Euro currency on UK business,
including insurance;
–
discuss the ways in which the UK economic business
cycle can have an effect on both trade and exchange rates.
1.9 Government regulation
Candidates should be able to
–
explain the relationship between EU Directives and
UK legislation;
–
outline the main provisions of European Union (EU)
Directives relating to insurance: First, Second, Third,
Reinsurance, Insurance Accounts, Insurance
Intermediaries (Mediation) and Motor Directives.
2. Business and society
2.1 Consumer protection
Candidates should be able to
–
explain how consumers are protected by regulators,
commissions, UK statutes, EC Directives and
trade associations;
–
discuss the role of consumer protection within the
insurance industry.
2.2 Employee protection
Candidates should be able to
–
describe the key rights and protection for workers in the
UK, based on current legislation.
2.3 Corporate governance
Candidates should be able to
–
discuss the requirement for corporate governance;
–
evaluate the impact of corporate governance on insurance
companies and intermediaries, with particular reference
to the Cadbury, Greenbury, Hampel, Turnbull, Higgs
reports, the Sarbanes-Oxley Act and N2.
–
explain the key elements of and evaluate the
effectiveness of risk management.
2005
© The Chartered Insurance Institute 2004
2.4 Social and ethical functions of insurance
Candidates should be able to
–
discuss the importance of social and ethical functions
of insurance;
–
identify sources of professional discipline and standards
in the insurance industry;
–
outline the reasons for and the impact of the voluntary
codes of conduct affecting the insurance business.
3. Business organisation with reference
to insurance
3.1 The structure of insurance organisations
Candidates should be able to
–
describe the types of insurance companies: life and
long-term, general insurances, reinsurance, captive,
specialist or composite;
–
recognise the global nature of insurance and reinsurance;
–
describe alternative methods of transacting insurance:
direct insurers, via supermarket chains, internet sales,
self-insurance and captives;
–
evaluate the advantages and disadvantages of insurers
outsourcing work and delegating authority.
3.2 Information systems and computer networks
Candidates should be able to
–
outline the provisions of the Computer Misuse Act 1990;
–
describe how IT can be used in various aspects of an
insurance company’s business: premium quotation
engines, risk assessment, policy administration, claims
data and internet sales;
–
analyse the risks associated with the use of computer
networks including hacking, viruses and breakdown;
–
explain the need for a disaster recovery plan and analyse
its content.
3.3 Data Protection Act 1998
Candidates should be able to
–
evaluate the implications of the Data Protection Act 1998
for the transaction of insurance business.
3.4 Money Laundering Regulations
Candidates should be able to
–
evaluate how the current Money Laundering Regulations
affect the transaction of insurance business.
4. Business organisations and their
financial processes
4.1 Business financing
Candidates should be able to
–
explain the reasons why businesses need short-term and
long-term financing;
–
identify and describe the main sources of capital funds
for businesses;
–
apply knowledge and skills to practical situations.
4.2 Formulating financial objectives
Candidates should be able to
–
explain the reasons for formulating financial objectives;
–
describe the processes of planning, budgeting and
variance analysis.
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4.3 Statutory accounts
Candidates should be able to
–
state the legislation and main accounting standards that
are relevant to statutory accounts;
–
explain what kind of information is provided in balance
sheets, profit & loss accounts and cash-flow statements;
–
list the typical assets and liabilities of a company;
–
use and interpret a balance sheet, profit & loss account
and cash flow statements;
–
differentiate between the accounts of a non-insurance
company, an insurance company and an insurance broker;
–
apply knowledge and skill to identify relevant figures and
prepare a set of accounts for a non-insurance company,
an insurance company and an insurance broker.
4.4 Users of financial and statistical information
Candidates should be able to
–
identify the groups of people interested in business
information about an organisation;
–
describe the kinds of information that can be elicited from
a set of accounts;
–
explain the reasons why the information provided in
management and statutory accounts differs.
4.5 Financial ratios
Candidates should be able to
–
list the main categories of standard accounting ratios and
state the formulae used to calculate ratios in
each category;
–
explain why financial ratios are used;
–
apply skills and knowledge of ratios to understand the
performance of insurance and other companies.
4.6 Financial strength of insurance companies
Candidates should be able to
–
describe and explain the security work carried out by
ratings agencies;
–
identify the types of reserves held by insurance companies
and explain why they are necessary;
–
explain the reasons for minimum solvency requirements;
–
apply skill and knowledge to calculate the minimum
solvency margin for an insurance company.
Reading list
Note: The examination will test the syllabus alone. The reading
list is provided for guidance only and is not in itself the subject
of the examination.
Most of these additional study materials can be borrowed or
purchased from CII Information Services at www.cii.co.uk/is
Primary text
Business and economics. London: The CII. Coursebook 530.
Additional reading
Business for higher awards. 2nd ed. Oxford: Heinemann
Educational, 1999.
Reading between the lines of company accounts. Stephen
Bloomfield. Tadworth, Surrey: Elliot Right Way Books, 2001.
Success in economics. Chris Nuttall, Derek Lobley. 4th ed.
London: John Murray, 2001.
Periodicals
The Economist. London: Economist Newspaper. Weekly.
Financial Times. London: Financial Times. Daily.
The Journal. London: The CII. Six issues a year. Also available
online (CII/SOFA members only) at www.cii.co.uk/is
Post Magazine. London: Timothy Benn. Weekly.
Finance/business sections of quality newspapers.
Websites
Best of biz: the business information site. [London: London
Business School]. www.bestofbiz.com
Examination guides
You are strongly advised to study these before the examination.
Please visit www.cii.co.uk to buy online or contact CII Customer
Service for further information on 020 8989 8464.
Exam technique/study skills
There are many modestly priced guides available in bookshops.
You should choose one which suits your requirements.
An example is:
The exam secret: how to make the grade. Barbara Brown.
Tadworth, Surrey: Elliott Right Way Books, 2000.
For a more interactive approach, you should consider:
Winning the brain game. London: The CII, 1996. CD Rom.
The following list provides details of various publications which
may assist with your studies. The primary text for this syllabus
is shown in bold type. Periodicals and publications listed as
additional reading will be of value in ensuring candidates keep
up to date with developments and in providing a wider
coverage of syllabus topics. The reference materials cited are
authoritative, detailed works which should be used selectively
as and when required.
2005
© The Chartered Insurance Institute 2004
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