Chapter 1: Material Information

Question 1

What is the primary role of an underwriter?

Answer 1

Assessing the risk which people bring to the pool

The concept of the common pool is relevant here.

Question 2

What are the three elements necessary for a contract to be legally binding?

Answer 2

• Offer
• Acceptance of the offer
• Consideration

Question 3

What is ‘consideration’ in the context of a contract?

Answer 3

A benefit received by one party in return for a promise of the performance of an act by another party.

Question 4

In an insurance contract, who provides information to insurers and requests a quote?

Answer 4

The proposer

Question 5

What does the insurer provide to the proposer in response to a request for motor insurance?

Answer 5

A quotation

Question 6

What must the proposer do after accepting the quotation?

Answer 6

Pay the premium to insurers

Question 7

What is the legal principle that most contracts are dealt with under?

Answer 7

Caveat emptor (buyer beware)

Question 8

How are insurance contracts different from other contracts?

Answer 8

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.

Question 9

What legal principle governs insurance contracts?

Answer 9

Good faith (formerly known as uberrima fides, or utmost good faith)

Question 10

Fill in the blank: A contract is an agreement between two parties that is _______.

Answer 10

legally binding

Question 11

True or False: All agreements are considered legal contracts.

Answer 11

False

Question 12

What does the term ‘duty of disclosure’ refer to?

Answer 12

The obligation to provide material information relevant to the risk.

Question 13

What are ‘moral hazards’ in the context of insurance?

Answer 13

Risks associated with the behavior of the insured that may increase the likelihood of a loss.

Question 14

What are ‘physical hazards’?

Answer 14

Conditions or situations that increase the chance of a loss occurring.

Question 15

What does ‘non-disclosure’ mean in insurance?

Answer 15

Failure to disclose material information to the insurer.

Question 16

What is the common law principle at the core of insurance contracts?

Answer 16

Utmost good faith

This principle requires parties to provide all information requested by the insurer.

Question 17

What is the duty imposed on a proposer in consumer contracts?

Answer 17

Provide full and accurate information in response to insurer questions

This includes any additional information the proposer chooses to volunteer.

Question 18

What is required from proposers in non-consumer contracts?

Answer 18

Fair presentation and reasonable search of the proposer’s business

Important information must be ‘signposted’ for insurers.

Question 19

What did the Marine Insurance Act 1906 define as material fact?

Answer 19

Every circumstance that would influence a prudent insurer’s judgment

This includes fixing the premium or determining whether to take the risk.

Question 20

What change did the Consumer Insurance (Disclosure and Representations) Act 2012 implement regarding consumer obligations?

Answer 20

Consumers must only answer questions asked by insurers in the proposal form

They must answer fully and accurately, including any volunteered information.

Question 21

According to the Insurance Act 2015, what determines if a circumstance is material in non-consumer contracts?

Answer 21

If it would influence a prudent insurer’s judgment in determining whether to take the risk

And, if so, on what terms.

Question 22

True or False: The duty to disclose material facts has remained unchanged since the implementation of the Consumer Insurance Act.

Answer 22

False

The duty has been modified to ease the burden on consumers.

Question 23

What was a concern regarding the definition of material facts in the Marine Insurance Act 1906?

Answer 23

Insurers were in a more advantageous position to determine materiality

Issues with supplied information were typically identified only during claims.

Question 24

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 _______.

Answer 24

insurer

Question 25

What does the term ‘material circumstances’ refer to in the context of insurance?

Answer 25

Information that influences an insurer’s judgment regarding risk acceptance

This includes any details relevant to the insurance contract.