Chapter 2: Underwriting Procedures Flashcards
What documents are typically included in a quotation pack?
-A covering letter
-A document outlining the risk
-A statement of fact
-Policy wording (if requested)
How long is a quotation usually valid?
The quotation will state how long it is valid, if no time is stipulated, the offer remains open for a reasonable time.
What happens if the proposer accepts the quote within the specified time?
The insurer is legally bound to honour the quotation in the terms quoted, unless the circumstances on which the quote was based change.
What happens if the proposer does not accept the quotation within the specified time?
The quotation is no longer valid, and the insurer is not bound to honour it.
What are general questions?
Standard, basic questions that insurers ask when assessing a risk.
What is an example of a general question?
-Proposer’s name
-Proposer’s correspondence address
-Proposer’s occupation
-Period of insurance
-Past insurance history
What is a specific question?
Specific questions seek detailed information about a particular risk to help assess whether to accept the risk and on what terms.
What is an example of a specific question?
-Proposer’s risk address, e.g. related risks such as flood, subsidence, theft, malicious damage
-Description of the subject matter to be insured, e.g. description of buildings in commercial property insurance
-Sum insured
-Business details
What is the common pool in insurance?
The common pool refers to the premiums collected for similar risks that are pooled together.
What is risk-based contribution?
The premium should match the risk level and the likelihood of making a claim.
How do insurance companies use the law of large numbers?
To estimate the value and frequency of future claims, helping them set premiums accurately and manage risks effectively.
What is the formula for calculating premiums (used in property insurance)
Sum Insured X Rate = Premium
What does the premium rate reflect?
The risk associated with the insured.
What is the premium base?
Measures the exposure. Usually the value to the insured or the payment limit in property insurance.
What adjustment might be applied to the premium rate?
Loadings and discounts may be applied to the rate based on risk features.
How does risk assessment affect the premium?
Higher risk leads to a higher rate.
What are the types of rates?
-Rate per cent
-Rate per mille
What does rate per cent mean?
Price per £100 of exposure e.g. 1.5% rate means £1.50 per £100.
What does rate per mille mean?
Price per £1000 of exposure e.g. 2.5% rate means £2.50 per £1,000.
What is an adjustable premium?
When the exposure measure is unknown at the start of the policy, an estimate is provided initially. The premium is then adjusted (up or down) based on the actual exposure at the end of the year.
What is a deposit premium?
The initial premium based on the estimate is called a deposit premium.
How does the Consumer Rights Act 2015 apply to adjustable premiums?
The probation of setting a price after a contract starts does not apply if both the insurer and the insured agree that premiums will be adjusted based on change in exposure.
What is a flat premium?
A fixed amount charged for insurance, not based on a rate applied to a premium base.
What factors influence a flat premium?
-Proposal forms: information is stored electronically.
-Automatic calculations: premiums are calculated automatically based on answers to pre-programmed questions.
Can you give an example of when a flat premium might be used?
Motor insurance premiums are determined using rating tables that consider hazards related to the insured and their vehicle.
Can you give an example of when an adjustable premium might be used?
In employers liability insurance, the insured estimates the total wage bill for the coming year.
What are the advantages of using a flat premium?
-Quick quotations
-Reduced errors
-Ease of updating
What is compulsory insurance?
A type of insurance that individuals or businesses are legally required to purchase. E.g. motor and employers liability insurance.
What does the Road Traffic Act 1988 state that a cover note should include?
-Vehicles registration number
-Name of insured
-Inception and expiry date
-Entitled drivers
-Usage of vehicle
-Compliance confirmation
What is not shown on a cover note in relation to motor insurance?
Scope of cover (e.g. comprehensive, third party only)
What is included on a cover note relating to employers liability insurance?
-Policyholders name
-Start and expiry date
-Insurers name
-Authorised signatures
-Level of cover
-Legal compliance statement
What payment options may an intermediary offer for premiums?
-Credit card
-Finance agreements
-In-house credit options
What is the Consumer Credit Sourcebook (CONC)?
Sets out detailed obligations for credit-related activities.
What additional costs might be associated with paying premiums in instalments?
-Admin fees for collecting payments monthly
-Insurers charge a fee to cover the loss of interest from not receiving the full premium.
What is a single, upfront payment?
Refers to the payment method when the entire premium is paid in one lump sum at the beginning.
What happens in the event of non-payment of the premium?
The policy is not renewed and cover lapses.
What is the standard rate of IPT?
12%
What is the rate of IPT in relation to travel insurance and engineering inspection services?
20%.
What type of insurance products are not subject to IPT?
-Reinsurance
-Life assurance
-Certain marine policies
