CH 10 Flashcards
To whom is policy issued to
To the insured and insurer so as they are clear to the terms and conditions of the contract, they have entered
In which form are policies issue
In a scheduled form, in that the policy wording is pre-printed in a booklet and a schedule is incorporated at the end of the policy
What does the policy schedule contain
It contains all the variable information concerning the insured and the risk insured and signifies which sections of the policy are operative
What determined policy schedule style
The company or corporate approached to documentation, some produce A4 format, others produce smaller A5 booklet form
What determines the policy schedule length
It is determined more by the actual class of business than by corporate attitude
What is the basic structure of all general insurance policies?
- heading
- recital clause
- signature
- operative clause
- exceptions
- conditions
- policy schedule
- information and facilities
Each policy has a heading, what must it include
The name of the insurer and address and company Logo
What does the recital clause entail?
It sets the scene for what follows in the policy by referring to the two parties (insured and insurer),coming together to form the contract by which insurer in return for premium, undertakes to indemnify the policyholder according to the cover details
The recital clause will often set out the constituent elements that together make up the contract that is
- policy conditions
- schedule applicable to the insured
- proposal confirmation
The recital clause reminds and emphasizes the insured to check the accuracy of the proposal confirmation content failure to do that will result to what action
- the policy being invalidated
- claim being rejected
- claim not being paid in full
Where can you find the signature of an official from the insurer
Under the recital clause or close to it
Signatures are no longer a common practice, however where can they be found
They can be found in Certificates of Insurance usually with a pre-printed signature
What does operative clause entail?
It describes the scope of cover in detail, they are the heart of the policy describing what the policy covers
How many operative clauses may there be?
It depends on the class of business, there may be one clause outlining cover or a number of clauses (motor and household policies) all dealing with the different aspects of insurance , also containing exceptions that are specific to each individual operative clause
Each Operative clause within policy begins with which word
-“The Company Will” for insurance companies and “We underwriting Members” in respect of Lloyd’s underwriter, and then stating what the insurer/underwriter promises to do
As insurers are increasingly committed to make policy wordings simpler how have they re-styled their language
Using the word “we’ instead of the insurer and “you” instead of the insured
How long do policy conditions apply?
They apply throughout the policy period
What are the two types of policy
Implied Condition and Express Condition
What are express conditions
These are the ones stated in the policy
What are Implied Conditions
These conditions exist whether they appear in the policy or not
The implied conditions include
- The insured must act as if uninsured and not use insurance as an alternative to be act prudently
- insured may be required to advise appropriate authorities, depending on the circumstances
- insured must take reasonable care but not if it endangers them
- insured should not hinder the insurer in their claim investigation
What is the policy schedule?
This is where the policy is made personal and specific to the insured
What are the variable details of the policy, within a policy schedule?
- insured’s name
- insured’s address
- policy period
- premium
- details of the subject matter
- sum insured/limit of liability
- policy number
- territorial limits if any
- reference to special exclusions, conditions or aspects of cover
- operative sections of the policy
What are specific exclusions?
Also known as a exception, these apply to particular parts of the policy, they are specific to that type of insurance and will not necessarily apply to other forms of insurance
What are General Exclusions
These are exclusions which apply to the entire contract
How do General Exclusions enable the insurer?
It enables the insurer to repudiate all liability under the policy, irrespective of the section of the policy concerned
What is another term for General Exclusion?
It is also termed as Market Exclusions
Which Market exclusion is standard in Most general Insurance policies?
War and related perils, Radioactive contamination and explosive nuclear assemblies
What type of risk is damaged caused by war civil war perils?
-They are fundamental risk
For War and related peril who is responsible
-It is generally regarded to be the responsibility of the state, the government is to provide compensation for injury and damage occurring in the UK, as a result of any kind of hostilities
Which policies may extend to include war risks?
Marine and Aviation policies
Which Market exclusion is standard in most general insurance property and Motor policies?
Riot and Civil Commotion, unless cover is specified in the policy
Which Market exclusion is not in liability policies
Riot and Civil Commotion
Why have riot and civil commotion always been excluded from property and motor covers
-This Is because of the variable risks of riot at different times and different places
Where can property cover include Riot and Civil commotion s as a risk
-In Great Britain, insurers will provide cover but at a varying rate depending on the area involved, however in Norther Ireland the risk cannot be extended
How is cover provide for Radioactive contamination and explosive nuclear assemblies
- It is provided by a system of market pools, in which insurer and re insurers accept a share of risk suited to their underwriting capacity
Terrorism is an exclusion for which insurance contract mainly
Property Insurance policies
Which initiative bought about arrangements for insuring against acts of terrorism in England,Wale sand Scotland
- Following joint Government/Insurance Industry initative
Who backs up full/partial cover for the material damage risk of terrorism
Specialist re insurers(Pool Re) and the Government
What is Pool Re
This is a mutual reinsurance company,that provide cover for all risks perils linked to terrorism
Originally what type of covers did Pool Re provide
It provided limited cover for property damage and business interruption resulting from fire or explosions caused by terrorists actions
Insurers that participate in the scheme offer terrorism cover as
They offer it as part of their commercial property policies when requested to do so by their policyholders
If a Terrorism loss occurs what shall the insurer do
Each insurer must pay the losses it sustains up to a threshold,determined individually for the insurer. And if losses are above the threshold insurer is able to claim upon reserves accumulated by Pool Re
If terrorism claim exceed insurer’s reserves accumulated by Pool Re, what’s the next step
Pool Re is able to draw funds from the government to enable it to meet its obligations in full regardless of the scale of losses
Which exclusion is standard for property and liability policies
Pollution /Contamination
However property insurance can provide what type of pollution/contamination cover
The cover provided for pollution that causes an insured peril or which itself is caused by an insured peril
Under public liability policies, what insurers specifically exclude
Insurers make it clear in their exclusions that they intend to cover pollution risks ONLY if they arise from sudden identifiable event, not a gradually operating cause
Which policies exclude marine policies
Property insurance policies
The effect of property policy wording exclusion states
To exclude material damage cover for property that is also covered by marine policy and if the sum available under marine policy is not enough to cover this losses then the property policy will respond but only cover the excess amount
Which exclusion applies to motor and liability policies
Contractual Liability
The exclusion of contractual liability in motor and liability policies states that
Insurer will not cover claims that are payable as a result of an agreement that has been entered into by the insured and extends their responsibilities beyond the position that would arise under the common law
List the most common policy conditions
1.Duties of the policyholder/insured
2.Alteration
3Action by the insured in the event of a claim
4.Fraud
5.Reasonable precautions
6.Contribution
7.Average
8. Subrogation
9.Arbitration
10.Cancellation
What does the alteration policy condition state
Found in most property insurance policies,it extends the duty of fair presentation on a continuing one, requiring insured to notify the insurer of any changes that increase the risk
What is the fraud policy condition
In the event of any fraudulent/false/exaggerated claim, then
- the policy may be cancelled
- claim may be rejected along with subsequent claim
- insurer may retain any premium paid by the insured
The fraud policy condition applies to
It applies only with claims
What does the reasonable precaution condition emphasize on
The insured should act as if uninsured, and not be regarded as an excuse for carelessness or inactivity
The arbitration policy condition deals with
It deals with any disputes that arise to the amount to be paid in settlement of a claim under a policy
What are other methods that insurers rely on to resolve claim settlement disputes
The financial ombudsman Service
How many days is the insurer required to give for cancellation notice to the insured
It gives them a 14 or 7 days notice, it is universal practice to refund pro rata amount to reflect the unexpired time
If the insured cancels the policy before its due to start then
The insurer will return any premium paid in full
If the insured cancels the policy within 14 days of policy starting or the insured receiving the policy documents then
the insurer will return any premium paid less an administration fee
If the insured cancels the policy after 14 days have passed
then the insurer will return any premium paid less administration cost and an amount for the period the policy has been in force
What are the advantages to insurer now that it is not necessary for insurers to be sure that the certificate for cancelled policies are surrendered, if they are to avoid contractual liability
- insurer have greater control and clarity over the period of contractual liability and can more easily reduce the period of statutory
- insurers potential statutory liability can be minimized by immediately updating Motor Insurance Database
What did the FOS rule on administration and cancellation fees, due to much complaint
The FOS advised that the fees have to reflect the cost of the firm and not the nominal amount
Market exclusions relate to which situations
They relate to situations were the insurer doesn’t wish to become involved in catastrophic nature of any potential damage
Specific exclusions relate to
Relates to situation where the insurer expects some other kind of insurance is in place
What is an Excess
The first amount of each and every claim for which the insured is responsible,and its not covered by the policy and the insured is the insurer of its own excess amount
An excess may be
Compulsory or Voluntary
A Compulsory excess means
This means excess is imposed on the insured by insurer
A Voluntary excess means
This means excess is accepted by the insured in return for a premium discount
What is franchise
This is a fixed amount/period that acts as a threshold to determine whether the claims are payable
What are deductibles
These are very large excess
How is a franchise different from an excess
There is no deduction like an excess, insured once a period/amount has been exceeded the claim is payable in full
Franchise are common in which policies
Engineering business interruption
Sickness cover and personal accident and sickness cover
What is a warranty
This is a promise made by the insured relating to facts/performance concerning the risk.It must be strictly and literally complied with
Warranties are always expressed in the
In the policy document ,
In which class of insurance is there implied warranty, not written into the policy
In marine insurance regarding the seaworthiness of a vessel
Warranty is an undertaking by the insured that
- something will or will not be done
- a certain facts exist or does not exist
Warranty mar relate to what types of facts
The present or the past facts
What is a continuing warranty
This is a warranty in which the insured promises that a state of affairs will continue to exist or the insured will continue to do something
What act made changes in the way warranties in insurance policies operate
Insurance Act 2015
What did the Insurance Act 2015 provide warranties should become
Warranties should become suspensive conditions
What does suspensive conditions in warranties mean
The insurer will not be liable for losses concurring while the insured is in breach of the warranty, however its liability will be restored once the breach is remedied
How will a breach be considered as remedied
Where the risk to which the warranty relates becomes essentially the same as that contemplated by the parties
What happened to the basis of contract
They are now prohibited and thus any warranty in the policy must be expressly agreed between insurer and insured
Under the IA 2015 representations can’t be converted to
Warranties by an provision of non-consumer contract
What are express warranties
These are warranties specified in the policy. All warranties are always express warranties in general(non-marine) insurances
When can an insured not comply with express warranty
Only if they notify the insurer, and they are excused with or without an additional premium
What is implied warranties
This is a warranty that does not appear in the policy but is understood by both parties to be automatically applicable to the contract of insurance
Which class of insurance is implied warranty found
It’s only found in Marine Insurance
What is the implied warranty for marine insurance
Warranty is that the vessel insured is seaworthy
Conditions in insurance contracts can be
Express/Implied
What are the two distinct categories
- Conditions precedent to the contract(implied conditions)
2. Conditions precedent to the liability
What are conditions precedent to the contract
These are conditions that must be fulfilled prior to formation of the contract itself or may be ongoing
If conditions precedent to the contract are not complied with then
There is doubt to the validity of the entire contract
What are the particular matters will render the policy as void
-insurable interest
-fundamental mistake
-an illegal contract
policy will be treated as no effect
What are the particular matters that will render the policy as voidable at the option the insurer
deliberate or reckless mis statement
Continuing conditions precedent is common in which contracts of insurance
Motor insurance relating to the road worthiness of the vehicle
For continuing conditions precedent an insurer may avoid the contract from the date of the breach when
They may set aside the whole contract if there is a breach, and it must have a casual connection between a particular claim and failure to abide by the policy condition.
Or insurer may waive its rights and leave the whole contract in force
What are conditions precedent to the liability
These are conditions that must be complied with if there is to be a valid claim
how conditions precedent to the liability listed in a policy
They are listed as claims conditions
if conditions precedent to the liability is not observed, what is the insurers response
Insurer may avoid liability for that particular loss but they may not repudiate the contract as a whole
Which section of the Insurance Act are conditions precedent affected
Section 11
In summary what does section 11 of condition precedent of the IA 2015 state about validity of a breach during claim payment
Where an insurance contract includes a term( warranty or condition) that will have the effect of reducing the risk of loss
-of a particular type
-in a particular location
-at a particular time
then breach of the term does not allow the insurer to avoid liability if the breach hasn’t increased the risk of the loss that actually occurred.
But an exception for terms that define the risk as a whole, then insurer can still deny liability
FCA rules on Condition state that
insurer shouldn’t repudiate liability of indemnifying a policyholder when there is a breach of condition, where condition is not related to circumstances of the loss, unless its fraudulent. Warranties and conditions are treated in an identical manner in this respect
What are exclusions
Policy exclusions are used to define the extent of the policy cover
What are representations
During negotiations, these are statements made by proposers that may persuade an insurer to enter into a contract or enter into it with particular terms
Where can representations be found
Not in the policy, but during the negotiation process/period
When a proposer provides wrong information this is known as
Misrepresentation
Where misrepresentation is not deliberate or careless(innocent misrepresentation)
Insurers can’t turn down claims from the private individuals. they could apply a redress reduce claim payment or charge an additional premium in order to receive the claim payment
Representation must relate to
Material circumstances
Why are insurers keen to encourage renewal of policies
- the costs associated with renewals are much less than in acquiring new business
- the more stable the database of existing clients, the more reliable the statistical information about the whole portfolio
What is a renewal notice
This notice is sent to the insured well before the current contract expires
What does the renewal notice show
- Any proposed changes in terms
- the premium to renew the policy
- the previous year’s premium paid by the insured
The FCA rules state that for commercial and group policies, insurer/intermediary should provide renewal information when
They must take reasonable steps to ensure the customer is given the appropriate information in good time
The level of information to be provided during renewal will depend on
- the knowledge and experience of the customer
- the nature of the policy; its complexity,terms and benefits
What are the FCA rules for general insurance polices for consumer customers
for renewals between 1-3 years of the inception of the original policy, the rules require the firm to provide customers with
- the renewal premium
- the premium of the previous year as set out at the start of the policy
- calculation of the annual premium following most recent mid term adjustment excluding fees or charges
- statement that the customer should check the level of cover offered is appropriate for their needs and tell them that they are able to compare the prices and level of covers offered by others providers
For renewals of 4 or more years, apart from the general FCA rules, which more specific rules are firms required to follow
Firms are required to state “you’ve been with us for a number of years, you maybe able to get the insurance cover you want at better price if you shop around
What is Dual pricing
This is a practice where by brokers/insurers, charge new customers the best price and loyal customers pay more
How does the FCA ensure removing dual pricing
The FCA has taken keen interest to ensure insurers and brokers comply fully with the renewal regulation stated above, by drawing consumer attention to the premium changes
The guidelines agreed by BIBA and ABI on halting dual pricing is specific to
It’s specific to personal lines insurance such as home/motor/travel products but not pet/health insurance
What is considered to be in good time depend on
It will depend on how important the information is to the customer’s decision making process and the point at which the information may be most useful
If the insured pays the premium to the insurer, how long shall the insurer respond with certifications and policy
This must be doe promptly
How is the Motor Insurance procedure different
It’s different in the view of its compulsory nature and the need to issue Insurance certificate
For Motor Insurance what do insurers/intermediaries provide as a matter of practical convenience
The renewal notice,receipt and certificate are prepared in advance
Why are no days of grace permitted
This is because if payment is received after renewal, then the annual certificate sent to the insured will be a backdated cover and would contravene the Road Traffic Acts
Premium payments may be in two forms
Single Payment
Installment
Installments can be half-yearly,quarterly,monthly and are usually paid by
- standing order
- direct debit
What is a standing order
This is an instruction by the insured to the insured’s bank/building society to pay the amount of the premium to the insurer when due. The amount can only be altered by express instructions from the insured
What is a direct debit
This is an instruction by the insured to the insured’s bank or building society to allow the insurer to debit whatever premium is due from the insured’s account
Recital clause is also known as
Preamble
What effect does the recital clause have on the proposal form
It has the effect of making the proposal form part of the contract even though it’s not reproduced and printed within the policy
Apart from the policy schedule Where else can the choice of law applicable to the policy be found
Recital Clause
What are the common Market Exclusions
- War and related Perils
- Riot and Civil Commotion
- Radioactive Contamination and explosive nuclear assemblies
- Terrorism
- Pollution/Contamination
- Marine Policies
- Contractual Liability
- Sonic Bangs
Pool Re coverage was extended by the
Counter-Terrorism and Border Security ACT 2019
The counter Terrorism and Border security Act 2019 gave pool re what coverage extension
It became the first terrorism reinsurance pool in the world to extend its cover to non-damage business interruption losses
When it says pool re covers non-damage business interruption what does it mean
- Pool Re can now cover loss of trade due to the inability to access insured premises due to police actions when responding to terrorist activity.
- losses resulting from downturn in the amount of customers entering the store(footfall) at the b’ness within a mile of terrorist incident
When pollution/contamination is covered in property insurance, the policy does not extend to
It doesn’t extend to include liability of the property owner,meaning pollution and contamination of any surrounding property is not covered by the policy
For actions taken by the insured in the event of the claim, which is one common requiring factor
Include reference to the time within which the claim is to be notified
With subrogation when can an insurer pursue their rights
Insurer can pursue their rights of subrogation before claim payment is made to the insured by the insurer. But the actual recovery of monies takes place must afterwards
Why do the insurers see the need of expressing, their implied conditions
This is done to make the position clear for the insured
Conditions that apply specifically to claims situations are used for
They are used by insurers to determine the outcome of a particular claim, and will not affect the continuing cover under the policy
Why do insurers include conditions
They are induced to emphasize on the fact that loss/damage must be fortuitous so far as the insured is concerned
Information and facilities section of the policy will include
- Definitions
- Customer Service Standards Statement
- Complaint procedures
- Claims information
- Privacy notice
Te Customer service standard statement entails
It entails in details what the insured may expect in respect to the service provided, in terms of courtesy and response times
In the information and facilities section of the policy what will the complaint procedure entail
It will include reference to internal procedure by encouraging policyholder to contact a nominated person within the insurer’s organisation in the first instance
What does the complaint procedure tell the policyholder if matter is still unresolved to their satisfaction
If the policyholder is a consumer or small b’ness the they will refer to the financial ombudsman services, and if still not satisfied take it up to the court system
Claim information in the information and facilities section of the policy will usually include
IT will usually include a claim helpline number
Most companies include a privacy statement which states
It will entail how the insurer will handle the information gathered in connection to the insured and the subject matter of the insurance, especially when sensitive personal information is involved
Compulsory insurance is common in which class of insurance
In many motor insurance policies
How is the compliance of warranties
Compliance is strict and literal
Why are warranties imposed
To ensure that some aspect of good house keeping or good management is observed or to ensure certain features of higher hazard are not introduced without the insurer’s knowledge
When can the insurer not rely on the breach of warranty by insured to discharge its liability
Where the warranty relates to a loss of particular kind/location/time if the insured can show that the breach could not have increased the risk of the loss that actually occurred in the circumstance that it occurred
What is the difference between a void and voidable contract
Void contracts are ones that are considered illegal, thus contract is automatically cancelled and are treated as of no effect. Voidable is when a contract can be avoided at the option of the insurer/insured
Continuous conditions precedent to the contract are also known as
Conditions subsequent to the contract, as there is an ongoing requirement through out the policy period to comply
According to the law commission terms of the following type may be considered to define the risk as a whole
- define a geographical area in which a loss must occur for liability to attach
- define age/identity/qualification/experience of the operator of vehicle,aircraft,vessel,chattel
- exclude loss that occurs while a vehicle, aircraft,vessel or chattel is being used for commercial purpose
Terms of warranty or condition can be in two forms
- terms that have the effect of reducing the risk of loss
- terms that define the risk as a whole
What do insurers use exclusions for
They can’t avoid the policy as a whole, but exclusions are aspects of policy wording that are checked by insurers each time a loss occurs so as to establish whether there is liability under the policy
The FCA has specific rules for general insurance policies for consumer customers, also applies to individual retail customers which include personal lines cover for both personal and business use. This FCA rules apply to
- policies with duration of ten months or more
- renewals with the same intermediary/insurer,still apply to renewals arranged by an intermediary if there is a change in insurer but the same polices features and benefits apply
After insured has paid premium, insurer in turn delivers the required documentation(certificates and confirmation of renewals)
Promptly
The market requires the delivery of correct documentation must be provided no later than
seven working days for consumers
30 calendar says for other categorizes beyond renewal
