Chapter 1

Question 1

What 3 things are needed in order for a contract to be considered legally binding?

Answer 1

1) An offer
2) Acceptance
3) Consideration

Question 2

What is “the offer” in an insurance contract?

Answer 2

The quote to the insured

Question 3

What is “the acceptance” in an insurance contract?

Answer 3

The insured accepting the quote

Question 4

What is the “consideration” in an insurance contract? - for both the insured and insurer

Answer 4

Consideration for the insured is the premium. Consideration for the insurer is the promise to indemnify the insured.

Question 5

What is caveat emptor and what does it mean/do?

Answer 5

It means “buyer beware” and gives extra protection to consumers against unfair practices.

Question 6

What does uberrima fides mean and why does it apply to insurance contracts?

Answer 6

It means good faith and applies to insurance because we sell intangible products. (Things that can’t be seen until a loss occurs.)

Question 7

Does the principle of utmost faith still apply?

Answer 7

No - it’s now just called “good faith” to reflect legislation changes.

Question 8

What duty does the principle of good faith impose on consumer contracts?

Answer 8

All information provided must be full and accurate to any questions asked and all information they choose to volunteer.

Question 9

What duty does the principle of good faith impose on non-consumer contracts?

Answer 9

To ensure there has been a fair presentation of the risk. And any information which is material is highlighted for the insurer.

Question 10

Why is the proposer no longer bound to disclose all information a prudent insurer may wish to know?

Answer 10

Because it proved difficult for the average consumer.

Question 11

What act defined a material fact?

Answer 11

Marine Insurance Act 1906

Question 12

How is a material fact defined?

Answer 12

A circumstance which would influence a prudent insurer in fixing the premium or deciding whether or not to take the risk.

Question 13

Name some reasons why the definition of material fact was debated/changed?

Answer 13

1) It put insurers in a more advantageous position (there was an imbalance between insurer and insured)
2) Issues were only usually identified in the event of a claim

Question 14

Who does material circumstances apply to and which act defined it?

Answer 14

Non-consumers. Insurance Act 2015.

Question 15

How is material circumstance defined?

Answer 15

A material representation would influence the judgment of a prudent insurer to take the risk and if so, on what terms.

Question 16

How are material facts and material circumstances any different?

Answer 16

Material circumstances limits the insurers ability to rely on misrepresentation or non-disclosure. Further protecting customers.

Question 17

What are some things proposers don’t need to disclose?

Answer 17

1) facts of law
2) facts of public knowledge
3) spent convictions
4) facts that improve the risk
5) facts where insurer have waived its right to know
6) facts a survey should have revealed
7) facts an insured did not know
8) facts covered by policy terms
9) facts an insurer already knows

Question 18

What is a consumer?

Answer 18

An individual who purchases an insurance policy for their private needs not related to their trade or business.

Question 19

Does information that consumers volunteer have to be accurate?

Answer 19

Yes. Accurate and full.

Question 20

Must consumers answer all insurers questions?

Answer 20

Yes - fully and accurately. Being careful not make misrepresentation.

Question 21

Do consumers have to consider what a prudent insurer would deem prudent and volunteer this information?

Answer 21

No. This duty was abolished in 2012.

Question 22

Would the Consumer Duty act protect a customer who intentionally deceived insurers?

Answer 22

No as dishonestly is always taken to show a lack of reasonable care.

Question 23

What is a vulnerable customer?

Answer 23

A customer that is more susceptible to harm. This could be because of poor health or life events. We need to ensure they are treated fairly.

Question 24

What act does the insurance act 2015 replace?

Answer 24

Marine Insurance Act

Question 25

What type of customer does the insurance act of 2015 affect?

Answer 25

Non-Consumer - commercial etc…

Question 26

Non-consumers have to make a fair presentation of the risk - what does this mean?

Answer 26

1) They must disclose every material circumstance.

2) The presentation of the risk must be clear and accessible.

3) It must be substantially correct and made in good faith - even future events.

Question 27

What is the main difference between the consumer and non-consumer act?

Answer 27

Non-consumers still need to disclose relevant information even if the insurer doesn’t ask for it. (This is because non-consumer policies tend to be transacted through brokers)

Question 28

What is the main difference between the consumer and non-consumer act?

Answer 28

Non-consumers still need to disclose relevant information even if the insurer doesn’t ask for it. (This is because non-consumer policies tend to be transacted through brokers)

Question 29

Why do non-consumers still have to disclose all relevant information, even if insurers don’t ask for it?

Answer 29

Because most businesses is transacted via brokers who are paid a fee to help the insured know what information insurers will need.

Question 30

What is “contracting out” and can it be done without the other party knowing?

Answer 30

It is where both parties of the insurance contract agree that previous laws on disclose will apply but they cannot do so without the express agreement of the other.

Question 31

When does the duty of fair presentation start/how long does it continue for non-consumers? What happens with an MTA?

Answer 31

When negotiations begin and throughout the lifetime of the policy. The duty is revived at any MTA if there is an alteration in the risk.

Question 32

Name 3 types of policies which might require continuous disclosure?

Answer 32

1) Commercial Property Insurance
2) Motor and home insurance
3) PL

Question 33

When does the duty of fair presentation end for quotes?

Answer 33

Once the quotation expires - after a certain period of validity.

Question 34

Does a renewal require duty of fair presentation?

Answer 34

Yes - it is best to treat each renewal as if it is its own contract.

Question 35

Does the duty of fair presentation apply for claims?

Answer 35

Yes - it is closely linked to the potential for exaggeration.

Question 36

Does the duty of fair presentation apply for brokers?

Answer 36

Yes it applies for all intermediaries. They must disclosure all facts communicated by the proposer to them and anything additional they may be aware of.

Question 37

What is the difference between non-disclosure and misrepresentation?

Answer 37

Non-disclosure is where an insured has failed to tell the insurer something which may have affected their decision. Misrepresentation is where their statements are substantially false.

Question 38

What can insurers do when an insured has deliberately or recklessly not-disclosed or misrepresented facts?

Answer 38

They can decline all claims and treat the policy as if it never existed.

Question 39

What can insurers do when an insured has carelessly misrepresented or didn’t disclosed facts? (It wasn’t deliberate.)

Answer 39

They can offer a remedy based upon what they would have done if the insured had taken care to answer the question accurately. E.g. change in terms or applying average to the claim.

Question 40

Do insurers have to offer remedies for breaches of duty of fair presentation to non-consumers?

Answer 40

No!

Question 41

What is concealment and how can insurers handle it?

Answer 41

It’s a fraudulent breach of the duty of fair presentation. They can void the policy, keep the premium and sue for damages.

Question 42

What is a peril and give 1 example of a peril.

Answer 42

It is what gives rise to the loss e.g. a fire.

Question 43

What is a hazard and give one example of a hazard.

Answer 43

It is something which influences the peril e.g. a thatched roof.

Question 44

What are the 2 main types of hazard?

Answer 44

Moral and physical.

Question 45

Name the 6 main ways an insurer can obtain information regarding the risk?

Answer 45

1) Brokers
2) Risk Surveys
3) Supplementary Questionnaires
4) Meetings with Clients
5) Call Centres
6) The Internet