Chapter 1: Material Information Flashcards
What is the primary role of an underwriter?
Assessing the risk which people bring to the pool
The concept of the common pool is relevant here.
What are the three elements necessary for a contract to be legally binding?
- Offer
- Acceptance of the offer
- Consideration
What is ‘consideration’ in the context of a contract?
A benefit received by one party in return for a promise of the performance of an act by another party.
In an insurance contract, who provides information to insurers and requests a quote?
The proposer
What does the insurer provide to the proposer in response to a request for motor insurance?
A quotation
What must the proposer do after accepting the quotation?
Pay the premium to insurers
What is the legal principle that most contracts are dealt with under?
Caveat emptor (buyer beware)
How are insurance contracts different from other contracts?
They are based on a promise to do something in the event that a certain set of circumstances occurs, in exchange for payment of the premium.
What legal principle governs insurance contracts?
Good faith (formerly known as uberrima fides, or utmost good faith)
Fill in the blank: A contract is an agreement between two parties that is _______.
legally binding
True or False: All agreements are considered legal contracts.
False
What does the term ‘duty of disclosure’ refer to?
The obligation to provide material information relevant to the risk.
What are ‘moral hazards’ in the context of insurance?
Risks associated with the behavior of the insured that may increase the likelihood of a loss.
What are ‘physical hazards’?
Conditions or situations that increase the chance of a loss occurring.
What does ‘non-disclosure’ mean in insurance?
Failure to disclose material information to the insurer.
What is the common law principle at the core of insurance contracts?
Utmost good faith
This principle requires parties to provide all information requested by the insurer.
What is the duty imposed on a proposer in consumer contracts?
Provide full and accurate information in response to insurer questions
This includes any additional information the proposer chooses to volunteer.
What is required from proposers in non-consumer contracts?
Fair presentation and reasonable search of the proposer’s business
Important information must be ‘signposted’ for insurers.
What did the Marine Insurance Act 1906 define as material fact?
Every circumstance that would influence a prudent insurer’s judgment
This includes fixing the premium or determining whether to take the risk.
What change did the Consumer Insurance (Disclosure and Representations) Act 2012 implement regarding consumer obligations?
Consumers must only answer questions asked by insurers in the proposal form
They must answer fully and accurately, including any volunteered information.
According to the Insurance Act 2015, what determines if a circumstance is material in non-consumer contracts?
If it would influence a prudent insurer’s judgment in determining whether to take the risk
And, if so, on what terms.
True or False: The duty to disclose material facts has remained unchanged since the implementation of the Consumer Insurance Act.
False
The duty has been modified to ease the burden on consumers.
What was a concern regarding the definition of material facts in the Marine Insurance Act 1906?
Insurers were in a more advantageous position to determine materiality
Issues with supplied information were typically identified only during claims.
Fill in the blank: The principle of utmost good faith requires that any party wanting to take out insurance must provide all information asked for by the _______.
insurer
What does the term ‘material circumstances’ refer to in the context of insurance?
Information that influences an insurer’s judgment regarding risk acceptance
This includes any details relevant to the insurance contract.
