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IF3 > 2 - Underwriting Procedures > Flashcards

2 - Underwriting Procedures Flashcards

1
Q

How are terms and conditions sometimes referred to?

A

Subjectivities

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2
Q

What must the underwriter do when providing a quote for consumer insurance?

A

Draw the proposers attention to any specific limitations and exclusions, particularly those which may differ from other insurer’s

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3
Q

What is a quotation?

A

A quotation is a statement of the premium and the terms and conditions (subjectivities) of the potential cover without actually being committed to the contract and accepting the terms and conditions.

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4
Q

What is commonly included within a quotation pack?

A
  1. Covering letter
  2. Document outlining risk to be insured
  3. Statement of fact

If requested the copy of policy wording may be provided

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5
Q

What is the main benefit to the proposer and the insurer of providing a quotation?

A

For the proposer it allows them to make an informed choice

For the insurer it helps to comply with contract certainty

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6
Q

What statute deals with the best practice around providing a quotation for consumer insurance?

A

Consumer Rights Act 2015

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7
Q

For how long is a quotation valid?

A

The quotation normally remains valid for the number of days stated (e.g. 30 days).

If it is not stated then it is valid for “a reasonable time” but the insurer can withdraw it at any time

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8
Q

Does a quotation constitute a contract?

A

No - the quotation counts as an offer but there has not yet been acceptance

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9
Q

How is the information required for a quotation usually gathered for consumer insurance?

A

Traditionally via proposal form but increasingly via the internet or phone (eg via an aggregator or online questionnaire)

A proposal form may not be necessary for the quotation to be provided but it will usually be subject to one being completed

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10
Q

If the proposer accepts the quotation in the time it is valid, is the insurer legally bound by it?

A

Yes, unless there has been a change of material circumstances altering the risk

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11
Q

What must the insurer ensure they do with the consumer’s answers to their questions in the proposal?

A

They must repeat the questions and answers back to the proposer/insured in the quotation, after going on risk, and during mid-term adjustments/renewal negotiations

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12
Q

What is a declaration and when it is made?

A

A declaration states that the information supplied by the proposer is true and correct to the best of their knowledge or belief. Made as part of the proposal for both consumer and commercial insurance

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13
Q

Why may a proposal form not be suitable for commercial insurance?

A

The risks are larger and more complex so more information is required or the information may be more difficult to obtain/communicate

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14
Q

How may information be gathered for commercial insurance?

A

Presentations of the risk, usually made by an intermediary, and possibly supplemented by surveys, questionnaires and meetings

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15
Q

What is a warning/important note and when is this made?

A

For commercial insurance as part of the proposal - tells the proposer what material circumstances and information needs to be disclosed and what the consequences may be if they are not disclosed. Also tells the proposer if they are unsure if something is material or not they should disclose it

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16
Q

What two types of questions are included in a proposal form?

A

General and specific

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17
Q

What are general questions? Provide some examples

A

Name
Address for correspondence
Occupation
Period of insurance
Past insurance history (declinatures, claims history)

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18
Q

What are specific questions? Provide some examples

A

Where the risk is located
Proposer’s age
Description of subject matter
Business activity
Requested sum insured/limits

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19
Q

What must a premium be?

A

Equitable and fair - the contribution should represent the risk

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20
Q

What does the law of large numbers allow insurers to do?

A

More accurately predict future claim payments

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21
Q

How are premiums usually calculated?

A

SUM INSURED x RATE = PREMIUM

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22
Q

When calculating a premium what is a premium base?

A

The measure of the exposure.
Depends on line of business.
Eg:
- property: sum insured
- employer liability: payroll
- public liability: turnover, etc.

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23
Q

When calculating a premium what is a premium rate?

A

a premium rate which reflects the hazard associated with the insured
A figure based on the likelihood that a claim would have to be paid on the policy (or estimation of)

24
Q

What is rate per mile and rate per cent?

A

Rate per mile = Price in pounds for each thousand pounds of exposure

Rate per cent = Price in pounds for each hundred pounds of exposure

1 per cent = 10 per mile

25
Q

A property is valued at £200,000. What would the premium be if the insurer set a rate of:

A) 0.7 per cent
B) 0.7 per mile

A

A) £1,400
(200,000 * 0.7%) 200,000*0.7/100

B) £140
(200,000 * 0.7%)

26
Q

What happens when the premium base/exposure measure is unknown at the start of the insurance?

(for example employers liability - the employer may not know the true value of their payroll until year end)

A

The insured can estimate the figure. The rate is applied to that figure to calculate a deposit premium. At the end of the period the insured then makes a declaration of the true figure. The premium is then adjusted based on this new figure

27
Q

What is a flat premium?

A

Rather than apply a rate to a premium base in some circumstances it may be more suitable to consult rating tables based on appropriate factors (eg motor insurance or one off events). Often computerised

28
Q

What is a policy document?

A

A document detailing all the details of the risk insured, insured perils, period of coverage, conditions, exceptions, other relevant information and the premium

29
Q

Is a policy document a contract of insurance?

A

No - it is evidence of the contract but not the contract itself

30
Q

What is a cover note?

A

Issued as temporary proof of coverage until a policy document can be issued, for example if the insurer is providing cover pending more information

31
Q

What will be included in a cover note?

A

Period of insurance
A statement that the insurance follows normal terms and conditions
Special terms (if applicable)
Information identifying the risk

32
Q

For which class of business is a cover note and certificate of insurance particularly important and why?

A

Motor insurance. The Road Traffic Act 1988 makes it a compulsory requirement to prove a policy is in force

33
Q

What must be shown on a certificate of insurance under the Road Traffic Act 1988?

A

Registration
Name
Period of cover
Person(s) covered to drive
Limitations
Confirmation that policy fulfils legal requirements

34
Q

What is a certificate of insurance? When are these normally issued?

A

Evidence that insurance is in place and that the policyholder is legally compliant. Required for compulsory insurances such as motor insurance and employer’s liability.

35
Q

What must be shown on a certificate of employer’s liability insurance?

A

Name
Period of cover (commencement and end date)
Name of the Insurer
Signature (authorised on behalf of insurer)
Level of cover (must be £5 million minimum)
Confirmation that policy fulfils legal requirements

36
Q

Why is contract certainty important?

A

To avoid disputes

37
Q

How is contract certainty achieved?

A

By complete and final agreement of all terms between the insured and the insurer by the time they enter into the contract, with policy documentation issued promptly thereafter

38
Q

In what 3 ways are premiums normally paid?

A
  1. Single upfront payment
  2. Credit
  3. Monthly instalments
39
Q

How does premium payments by credit work?

A

Payment will be due at the inception of the policy. If arranged by an intermediary they may offer the policyholder a credit facility where the intermediary will pay the insurer and then collect payment from the policyholder

40
Q

How does premium payments in instalments work?

A

Instalments will be paid on a pre agreed schedule via direct debit. An additional charge will apply to reflect loss of interest and additional admin

41
Q

Who is responsible for insurance premium tax?

A

It is paid by policyholders but the insurer is responsible for collecting and accounting for it and passing it to HMRC

42
Q

What is the standard rate of IPT?

A

12%

43
Q

What is the higher rate of IPT and when is this charged?

A

20%

Travel insurance
Household/electrical appliance insurances
Some vehicle insurances
Engineering risk management fees

44
Q

When may insurance be exempt from IPT?

A

Reinsurance
Life insurance
Certain marine policies
When the risk is located outside the UK (local rates may apply)

45
Q

What must insurers avoid under the Consumer Rights Act 2015?

A

Assumptive answers

46
Q

Why can an insurer not agree to take on a risk with terms to be agreed later?

A

This would break the principles of contract certainty

47
Q

How often do insurers update MID (Motor Insurance Database) with policyholder details?

A

Daily (usually overnight)

48
Q

An insurer provides a proposer with a quotation, which they accept. Upon checking the insurer discovers an error in their calculations which meant they should have charged a higher premium - what happens?

A

The insurer is legally bound by the quotation (unless the circumstances surrounding the risk have changed)

49
Q

You apply for insurance and receive a quotation, which you accept. Unless otherwise stated on the quotation, when is cover effective from?

A

When the quotation is accepted

50
Q

After purchasing a new car, you remember that you need to insure it. When is the earliest you can obtain cover?

A

From the time and date you request cover

51
Q

When is contract certainty achieved?

A

After complete and final agreement of all terms between the insured and insurer prior to contract inception

52
Q

You phone an insurer to obtain a quote for your motor insurance. You are happy with the quote and inform the insurer you wish to proceed. What are you likely to receive in the post first following this?

A

A statement of fact

53
Q

Which type of policies are subject to insurance premium tax?
Select one:
a. Life assurance.
b. Employers’ liability.
c. All marine policies.
d. Reinsurance.

A

b. Employers’ liability.

54
Q

Under the Road Traffic Act 1988, what information must be contained within a certificate of insurance for a private car?
a. Policyholder’s address.
b. Policy cover.
c. Name of the policyholder.
d. Make and model of car. Incorrect

A

c. Name of the policyholder.

55
Q

Premium calculations often involve applying a rate per cent premium calculation. An example of this would be that a rate of 2.5% would mean that an insurer would charge:
a. £250 for every £1,000 insured.
b. £12.50 for every £5,000 insured.
c. £25 for every £100 insured.
d. £25 for every £1,000 insured.

A

d. £25 for every £1,000 insured.

56
Q

Ben is applying for insurance and has received a quotation which is valid for 30 days. To proceed on these terms, he:
a. can accept the quote beyond 30 days if there are no changes to the material facts.
b. must accept the quote within 30 days and the policy will typically come into effect at the date it is accepted.
c. must accept the quote within 30 days and the policy will start from the date when the quote was issued.
d. can accept the quote beyond 30 days unless the insurer has previously withdrawn it.

A

b. must accept the quote within 30 days and the policy will typically come into effect at the date it is accepted.

57
Q

What does the statement by the insurers say on an employers’ liability certificate?

a. Premium has been paid.
b. Certificate must be displayed at insured’s main premises.
c. Policy is in force.
d. Policy satisfies the relevant legal requirements.

A

d. Policy satisfies the relevant legal requirements.

IF3 (11 decks)

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