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CII IF3 > Chapter 2: Underwriting Procedures > Flashcards

Chapter 2: Underwriting Procedures Flashcards

1
Q

How are terms and conditions sometimes referred to?

A

Subjectivities

eg a quote may be valid “subject to” a risk survey

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2
Q

What must the underwriter do when providing a quote for consumer insurance?

A

Draw the proposers attention to any specific limitations and exclusions, particularly those which may differ from other insurer’s

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3
Q

What is a quotation?

A

The premium, terms and conditions, and other relevant information is provided by the underwriter to the proposer before they make any commitment. This enables them to make an informed choice and comply with contract certainty

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4
Q

What is commonly included within a quotation pack?

A
  1. Covering letter
  2. Document outlining risk to be insured
  3. Statement of fact

If requested the policy wording may be provided

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5
Q

What is the main benefit to the proposer and the insurer of providing a quotation?

A

For the proposer it allows them to make an informed choice

For the insurer it helps to comply with contract certainty

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6
Q

What statute deals with the best practice around providing a quotation for consumer insurance?

A

Consumer Rights Act 2015

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7
Q

For how long is a quotation valid?

A

This will normally be stated in the quotation - standard is 30 days

If it is not stated then it is valid for “a reasonable time” but the insurer can withdraw it at any time

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8
Q

Does a quotation constitute a contract?

A

No - the quotation counts as an offer but there has not yet been acceptance

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9
Q

If the proposer accepts the quotation in the time it is valid, is the insurer legally bound by it?

A

Yes, unless there has been a change of material circumstances altering the risk

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10
Q

If the proposer wishes to accept the quotation after it is no longer valid is the insurer bound by it?

A

Not legally bound but they may still choose to honour it

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11
Q

How is the information required for a quotation usually gathered for consumer insurance?

A

Traditionally via proposal form but increasingly via the internet or phone (eg via an aggregator or online questionnaire)

A proposal form may not be necessary for the quotation to be provided but it will usually be subject to one being completed

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12
Q

What must the insurer ensure they do with the consumer’s answers to their questions in the proposal?

A

They must repeat the questions and answers back to the proposer/insured in the quotation, after going on risk, and during mid-term adjustments/renewal negotations

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13
Q

What is a declaration and when it is made?

A

A declaration states that the information supplied by the proposer is true to the best of their knowledge or belief. Made as part of the proposal for both consumer and commercial insurance

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14
Q

Why may a proposal form not be suitable for commercial insurance?

A

The risks are larger and more complex so more information is required or the information may be more difficult to obtain/communicate

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15
Q

How may information be gathered for commercial insurance?

A

Presentations of the risk, usually made by an intermediary, and possibly supplemented by surveys, questionnaires and meetings

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16
Q

What is a warning/important note and when is this made?

A

For commercial insurance as part of the proposal - tells the proposer what material circumstances and information needs to be disclosed and what the consequences may be if they are not disclosed. Also tells the proposer if they are unsure if something is material or not they should disclose it

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17
Q

What two types of questions are included in a proposal form?

A

General and specific

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18
Q

What are general questions? Provide some examples

A

Questions common to most general insurances

Name
Address for correspondence 
Occupation
Period of insurance
Past insurance history (declinatures, claims history)
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19
Q

What are specific questions? Provide some examples

A

Questions about particular details of the risk

Where the risk is located
Proposer's age
Description of subject matter
Business activity
Requested sum insured/limits
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20
Q

What must a premium be?

A

Equitable and fair - the contribution should represent the risk

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21
Q

What does the law of large numbers allow insurers to do?

A

More accurately predict future claim payments

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22
Q

How are premiums usually calculated?

A

Premium rate x Premium base = Premium

Discounts may be applied

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23
Q

When calculating a premium what is a premium base?

A

The measure of the exposure. Depends on line of business. For example property is usually sum insured, employer liability is usually payroll, public liability is usually turnover, etc

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24
Q

When calculating a premium what is a premium rate?

A

A figure based on the likelihood that a claim would have to be paid on the policy (or estimation of)

25
Q

What is rate per mille and rate per cent?

A

Rate per mille = Price in pounds for each thousand pounds of exposure

Rate per cent = Price in pounds for each hundred pounds of exposure

1 per cent = 10 per mille

26
Q

A property is valued at £200,000. What would the premium be if the insurer set a rate of:

A) 0.7 per cent
B) 0.7 per mille

A

A) £1400
(200,000 * 0.7%)

B) £140
(200,000 * 0.07%)

27
Q

What happens when the premium base/exposure measure is unknown at the start of the insurance?

(for example employers liability - the employer may not know the true value of their payroll until year end)

A

The insured can estimate the figure. The rate is applied to that figure to calculate a deposit premium. At the end of the period the insured then makes a declaration of the true figure. The premium is then adjusted based on this new figure

28
Q

What is a flat premium?

A

Rather than apply a rate to a premium base in some circumstances it may be more suitable to consult rating tables based on appropriate factors (eg motor insurance or one off events). Often computerised

29
Q

What is a policy document?

A

A document detailing all the details of the risk insured, insured perils, period of coverage, conditions, exceptions, other relevant information and the premium

30
Q

Is a policy document a contract of insurance?

A

No - it is evidence of the contract but not the contract itself

31
Q

What is a cover note?

A

Issued as temporary proof of coverage until a policy document can be issued for example if the insurer is providing cover pending more information

32
Q

What will be included in a cover note?

A

Period of insurance
A statement that the insurance follows normal terms and conditions
Special terms (if applicable)
Information identifying the risk

33
Q

For which class of business is a cover note and certificate of insurance particularly important and why?

A

Motor insurance. The Road Traffic Act 1988 makes it a compulsory requirement to prove a policy is in force

34
Q

What is a certificate of insurance? When are these normally issued?

A

Evidence that insurance is in place and that the policyholder is legally compliant. Required for compulsory insurances such as motor insurance and employer’s liability,

35
Q

What must be shown on a certificate of insurance under the Road Traffic Act 1988?

A 
Registration
Name
Period of cover
Person(s) covered to drive 
Limitations
Confirmation that policy fulfils legal requirements
36
Q

What must be shown on a certificate of employer’s liability insurance?

A

Name
Period of cover
Insurer
Signature of insurer (usually CEO)
Level of cover (must be £5 million minimum)
Confirmation that policy fulfils legal requirements

37
Q

Why is contract certainty important?

A

To avoid disputes

38
Q

How is contract certainty achieved?

A

By complete and final agreement of all terms between the insured and the insurer by the time they enter into the contract, with policy documentation issued promptly thereafter

39
Q

In what 3 ways are premiums normally paid?

A
  1. Single upfront payment
  2. Credit
  3. Monthly instalments
40
Q

How does premium payments by credit work?

A

Payment will be due at the inception of the policy. If arranged by an intermediary they may offer the policyholder a credit facility where the intermediary will pay the insurer and then collect payment from the policyholder

41
Q

How does premium payments in instalments work?

A

Instalments will be paid on a pre agreed schedule via direct debit. An additional charge will apply to reflect loss of interest and additional admin

42
Q

Who is responsible for insurance premium tax?

A

It is paid by policyholders but the insurer is responsible for collecting and accounting for it and passing it to HMRC

43
Q

What is the standard rate of IPT?

A

12%

44
Q

What is the higher rate of IPT and when is this charged?

A

20%

Travel insurance
Household/electrical appliance insurances
Some vehicle insurances
Engineering risk management fees

45
Q

When may insurance be exempt from IPT?

A

Reinsurance
Life insurance
Certain marine policies
When the risk is located outside the UK (local rates may apply)

46
Q

What must insurers avoid under the Consumer Rights Act 2015?

A

Assumptive answers

47
Q

Why can an insurer not agree to take on a risk with terms to be agreed later?

A

This would break the principles of contract certainty

48
Q

How often do insurers update MID with policyholder details?

A

Daily (usually overnight)

MID is the Motor Insurance Database

49
Q

An insurer provides a proposer with a quotation, which they accept. Upon checking the insurer discovers an error in their calculations which meant they should have charged a higher premium - what happens?

A

The insurer is legally bound by the quotation (unless the circumstances surrounding the risk have changed)

50
Q

You apply for insurance and receive a quotation, which you accept. Unless otherwise stated on the quotation, when is cover effective from?

A

When the quotation is accepted

51
Q

After purchasing a new car, you remember you need to insure it. When is the earliest you can obtain cover?

A

From the time and date you request cover

52
Q

When is contract certainty achieved?

A

After complete and final agreement of all terms between the insured and insurer prior to contract inception

53
Q

You phone an insurer to obtain a quote for your motor insurance. You are happy with the quote and inform the insurer you wish to proceed. What are you likely to receive in the post first following this?

A

A statement of fact

54
Q

What is the rate of insurance premium tax on travel insurance?

A

20%

55
Q

What is the rate of insurance premium tax on reinsurance?

A

Nil

56
Q

What line of business sometimes have adjustable premiums?

A

Liability - particularly employers’

57
Q

For which line of business are flat premiums more common?

A

Motor

Also used for one off events eg exhibitions

58
Q

What statement is made by the insurer on a certificate of insurance?

A

A statement confirming that the policy meets the relevant legal requirements

CII IF3 (11 decks)

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