Chapter 3 - Insurance Contracts and the Role of Government in Insurance Flashcards
fiduciary
is someone who handles other peoples’ money.
Government Levels
Solvency - Federal, Provincial- monitor solvency strength
Fair Practices - Provincial - oversees terms and conditions of the policy, create the insurance act, created statutory conditions
Insurer Licensing - Provincial - authorizes the insurers to do business in the province
Broker Licensing - Provincial - oversees broker testing, licensing, and discipline, created the RIB Act
Office of the Superintendent of Financial Institutions (OSFI)
Supervises Canadian insurance companies incorporated under the Insurance Companies Act as well as foreign insurers who are licensed to sell insurance products in Canada
OSFI’s main role is to review and monitor all federally licensed insurers to determine their financial soundness.
Property and Casualty Insurance Compensation Corporation (PACICC)
Membership in PACICC is mandated by legislation and regulation for property and casualty insurers who write automobile, property, liability, and most other property and casualty (P&C) insurance policies. In the unlikely event of the collapse of a P&C insurer in Canada, the industry-funded PACICC will respond to policyholder claims.8
Provincial Supervision
The Financial Services Regulatory Authority of Ontario (FSRA) regulates insurers operating in Ontario and enforces the provincial Insurance Act and the Compulsory Automobile Insurance Act. FSRA is responsible for:
- Licensing of both life and general insurers and agents.
- Ensuring fair marketing practices.
- Solvency
- Approving automobile insurance coverage and rates.
INSURANCE CONTRACTS
Insurance policies are essentially formal contracts where insurance companies agree to assume the risks of others. In this chapter, the terms “contract” and “policy” are used interchangeably.
Eight Elements Required for Any Insurance Contract
1) Agreement. - There must be an offer made, and an unconditional acceptance of the terms of that offer.
2) Consideration. - A legally enforceable contract requires an exchange of something of value
3) Legality of object. - Legality of object refers to whether the object of the contract has a legal basis.
4) Legal capacity of the parties to the contract. -
For a contract to be considered legally enforceable, the parties involved must have the legal capacity to enter into a contract. The following are legal entities who can enter into contracts:
- An individual is a legal person who can enter into contracts, sue, or be sued.
- Businesses registered as sole proprietorships, partnerships, or corporations are also legal entities and have the same right to contract as individuals.
- If an unincorporated business uses a trade name for marketing purposes, the contract must be issued in the name of the individual(s) who own the business, and not the trade name.
5)Genuine intention.
A contract is enforceable only when it can be shown the parties actually intended to enter into a contract. If the validity of a contract is questioned, it is necessary to show that the agreement between the parties was not affected by one or more of the following:
- Fraud (trickery).
- Duress (use or threat of force or illegal imprisonment).
- Concealment (misrepresentation of pertinent facts).
- Mistake (a legal document signed in error or by mistake).
Insurance ONLY
1) Insurable interest- Individuals and other legal entities have an insurable interest when they can show they would suffer financially from a loss. The following are examples of parties who can demonstrate an insurable interest:
2) Utmost good faith. - The complete honesty of the parties is critical to a legally enforceable insurance contract. Both insureds and insurers have obligations in complying with this requirement, as outlined below.
3) Indemnity. - The law restricts payments for claims under an insurance policy to the actual amount of financial loss suffered by the policyholder — no more and no less.
Void and Voidable
Void contract: A void contract of insurance is one which is considered never to have existed
Voidable
A voidable contract of insurance is one that may be rendered void or unenforceable for one or more of the reasons discussed earlier.
Binders
A binder is defined as a written or oral agreement giving temporary insurance protection to the insured, pending issue of the policy by the insurance company. As such, a binder is a temporary contract of insurance and is subject to the same terms and conditions applying to all contracts of insurance. For this reason, brokers must make sure all binders issued contain the complete details to be incorporated into the actual insurance contract.
Binders are typically valid for a period of 30 days, or when the actual policy is received by the client, whichever comes first. This period can be extended upon request if the insurance company is delayed in issuing the policy itself.
Oral Binders
A binder can be issued orally, but as a general rule, it should be confirmed immediately with a written binder. This practice avoids the potential for disagreement about terms, conditions, and coverage limits in the event a loss occurs before the policy itself has been issued.