chapter 6

Question 1

What are the three main purposes of the Motor Insurers’ Bureau (MIB)?

Answer 1

Compensate victims of uninsured drivers.

Compensate victims of untraced drivers.

Guarantee the existence of insurance for UK vehicles abroad.

Question 2

What is an excess in insurance?

Answer 2

The first amount of each claim that the insured must pay out-of-pocket before the insurer makes a payment.

Question 3

What is the difference between a compulsory and voluntary excess?

Answer 3

Compulsory excess: Applied by the insurer as a term of the policy (e.g., higher risks like young drivers).

Voluntary excess: Chosen by the policyholder to reduce the premium.

Question 4

What is a deductible in insurance?

Answer 4

A large excess, typically used in commercial policies, where the insured self-insures for smaller claims.

Question 5

What is the difference between a franchise and a deductible/excess?

Answer 5

Franchise: If a claim exceeds the franchise amount, the claim is paid in full.

Deductible/Excess: Only the amount above the deductible or excess is paid by the insurer.

Question 6

What is Article 75?

Answer 6

An agreement where insurers cover claims even when a policy has been voided due to misrepresentation or non-disclosure, ensuring victims receive compensation.

Question 7

What is the purpose of the Uninsured Drivers’ Agreement?

Answer 7

To compensate victims of motor accidents caused by identified uninsured motorists for both property damage (up to £1,200,000) and personal injury (unlimited).

Question 8

What are the limitations of the Uninsured Drivers’ Agreement?

Answer 8

No subrogation claims can be made against the MIB.

The MIB will not cover repairs for an uninsured victim’s vehicle.

No compensation for passengers who knew the vehicle was stolen or uninsured.

Question 9

How does the Untraced Drivers’ Agreement work?

Answer 9

Victims of accidents caused by unidentified drivers can submit claims to the MIB, which will investigate and decide whether to offer compensation.

Question 10

What is contribution in insurance?

Answer 10

When more than one policy covers the same loss, insurers contribute proportionately to settle the claim, based on rules set out in agreements like the ABI Personal Effects Contribution Agreement.

Question 11

What is a Bi-lateral Agreement between insurers?

Answer 11

Agreements between insurers to handle claims more efficiently, often using systems like a subrogation portal to process claims quickly and without manual intervention.

Question 12

What happens when a property is underinsured?

Answer 12

The insured becomes their own insurer for the underinsured portion, and the insurer only pays a proportion of the claim based on the ratio of the sum insured to the actual value of the property.

Question 13

What is the formula used to calculate a claim when property is underinsured?

Answer 13

sum insured / value of goods at risk × loss

Question 14

What is the ABI Personal Effects Contribution Agreement designed to prevent?

Answer 14

Adverse publicity from insurers referring claimants to other insurers.

Time-consuming handling of small contributions.

Establish rules for contribution among participating insurers.

Question 15

When does the ABI Personal Effects Contribution Agreement require contribution between insurers?

Answer 15

Contribution is required in all circumstances except:

Motor accidents and thefts: No contribution.

Specified items: Generally no contribution.

Question 16

What is a deductible commonly used for?

Answer 16

Deductibles are often used by large commercial entities to self-insure for smaller claims while relying on insurers for more significant claims.

Question 17

What are the main purposes of market agreements between insurers?

Answer 17

To reduce the cost of dealing with claims.
To speed up repair and claims settlement.
To promote good relations between insurers.

Question 18

What types of insurance policies are subject to contribution under the ABI Personal Effects Contribution Agreement?

Answer 18

Household, all risks, motor, travel, and other defined personal insurances.

Question 19

In what scenario might the MIB reject a claim from a passenger under the Uninsured Drivers’ Agreement?

Answer 19

If the passenger knew the vehicle was stolen or was being driven without insurance.

Question 20

What is a franchise in insurance, and how does it differ from an excess?

Answer 20

A franchise is a threshold. If a claim exceeds this threshold, the insurer pays the full claim. If it doesn’t, the insurer pays nothing. Unlike an excess, the full amount is paid once the franchise is exceeded.

Question 21

What are the main limitations of the Uninsured Drivers’ Agreement?

Answer 21

Subrogation claims cannot be pursued against the MIB.

Claims for uninsured victims’ vehicles won’t be considered.

Claims from passengers who knew the vehicle was stolen or uninsured are excluded.

Question 22

What is the purpose of Article 75 of the MIB’s Articles of Association?

Answer 22

Article 75 requires insurers to handle certain claims even if they have voided the policy due to misrepresentation or non-disclosure, ensuring compensation for victims.

Question 23

hat are the statutory obligations of insurers under the Road Traffic Act 1988?

Answer 23

Insurers must meet certain obligations, including compensating third parties injured by insured vehicles, even if the policy is void due to misrepresentation or non-disclosure.

Question 24

The payment of money, paying for repairs and replacement are all types of:

Answer 24

settlement options.

Question 25

If a policyholder with a comprehensive motor policy makes a claim for damage, the insurer will typically:

Answer 25

authorise payment for a garage to repair the vehicle.

Question 26

If a major haulage contractor wished to limit its cover to large claims and be its own insurer for small claims, what action may it take?

Answer 26

Arrange for a deductible on its policy.

Question 27

How much is the excess, if any, that is applied by the Motor Insurers’ Bureau for property damage caused by unidentified third parties?

Answer 27

£400

Question 28

How is the value of any salvage determined when the insured wants to retain it?

Answer 28

By agreement between the insurer and the insured.

Question 29

Under the terms of a policy, when is an insurer able to commence subrogation rights against a negligent third party?

Answer 29

As soon as the claim is paid

Question 30

How does factor or flag reserving operate when reserving on individual policies?

Answer 30

It applies a standard monetary reserve to each claim of a certain type.

Question 31

Under the ABI Personal Effects Contribution Agreement, how is the no-claims discount under a non-motor policy usually treated?

Answer 31

It will usually be unaffected where a payment is made to another insurer under the agreement terms.

Question 32

One of the methods used to project claims is known as the:

Answer 32

Loss Development Factor.

Question 33

What type of insurance policy would usually have a time franchise?

Answer 33

Personal accident.

Question 34

With the uninsured drivers’ agreement, the Motor Insurers’ Bureau will compensate victims where certain conditions are met. What is NOT one of these conditions?

Answer 34

Damages for third party personal injury must be limited to £500,000.