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IF3 > Flashcards IF3 > Flashcards

Flashcards IF3

1
Q

In order for a contract to be legally binding, what three elements MUST be present?

A

Offer, Acceptance and Consideration

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2
Q

Under the duty of disclosure, what information must the proposer provide?

A

All information which is material, whether the question is asked or not

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3
Q

Utmost Good Faith requires both parties to disclose:

A

All facts which are material to the risk being proposed

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4
Q

Material facts enable a prudent underwriter to assess:

A

Whether the risk should be accepted and what premium to charge

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5
Q

Emerging Risks

A

Sources of potential loss which may result in future claims liabilities

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6
Q

IBNR

A

Claims which have occurred but not yet been notified to the insurer

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7
Q

Downside Risk

A

Possibility of the actual return on investments being lower than the expected return. Can be adversely affected by catastrophe losses

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8
Q

Account Performance

A

Profitability of an underwriting account over a particular monitoring period

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9
Q

Calendar Year

A

Monitoring period where claims are allocated to a calendar year according to date of loss and premiums are allocated based on the portion of premium earned during the calendar year

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10
Q

Accounting Year

A

Monitoring period where claims and premiums are allocated to a financial year according to date of loss and portion of premium earned during the financial year with estimates used to project these to the end of the period

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11
Q

Claims Loss Ratio

A

The overall amount of claims in relation to the overall amount of premiums expressed as a percentage

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12
Q

Earned Loss Ratio (ELR)

A

The amount of claims paid in relation to the premium earned, expressed as a percentage

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13
Q

Earned Premium

A

The amount of premium the insurer has received in relation to the specific amount of time on risk since inception

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14
Q

Outstanding Loss Ratio (OLR)

A

The amount of claims paid in relation to the premium collected, expressed as a percentage

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15
Q

Underwriting Year

A

Monitoring period used at account level (rather than individual policy level) where claims and premiums are allocated to the year in which the policies are incepted or renewed

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16
Q

Solvency

A

The ability to meet current and future liabilities from available assets/premium income and reinsurance arrangements

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17
Q

Exposure/Risk Accumulation

A

Risk of losses caused by large numbers of policies in a particular class of business or geographical area

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18
Q

Return on Capital Employed (ROCE)

A

Operating profit measured as a percentage of capital employed (capital employed represents the sum of share capital + retained earnings + long term borrowings). ROCE is:Operating Profit / Capital Employed X 100

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19
Q

Reserve Consistency

A

Reliability of claims reserve amounts per type of claim, in relation to actual settlements, based on methods and processes used by claims staff

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20
Q

Underlying Claims

A

Large number of predictable claims falling into the typical ‘Heinrich triangle’ pattern of high frequency and low severity

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21
Q

Lapse Flow Analysis

A

Monitoring of the number of policies being cancelled per year, over a period time

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22
Q

New Business Flow Analysis

A

Monitoring of the number of policies being incepted per year, over a period time

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23
Q

Combined Operating Ratio (COR)

A

A measure of the ‘underwriting result’ for an insurer, incorporating the loss ratio, commission ratio and expense ratio

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24
Q

Risk Premium

A

Funding required to cover the anticipated frequency/severity of claims, including large/catastrophe claims, IBNR claims, latent claims, claims inflation and reinsurance costs

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25
Q

Claims Run-Off

A

Movements in claims reserves for outstanding claims, which will ‘run-off’ over a period of time as claims are settled or finalised/closed

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26
Q

Latent Claims

A

‘Long tail’ liability claims which may take many years between the cause and the claim, such as asbestosis

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27
Q

Claims Inflation

A

Rate at which claims settlements increase, which can often exceed standard rates of inflation. Premium rates need to reflect this

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28
Q

Variable Expenses

A

Costs which will rise or fall depending on the size, complexity and nature of a risk, such as underwriting administration, commission and claims handling

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29
Q

Proportional Reinsurance

A

Type of treaty where an insurer cedes a pre-agreed share of every risk covered by the treaty

30
Q

Non-Proportional Reinsurance

A

Type of treaty where a reinsurer agrees to contribute towards losses exceeding a pre-agreed figure

31
Q

Quota Share Treaty

A

Reinsurance arrangement where the reinsurer will provide cover for a fixed percentage of every risk covered within the treaty, and claims are settled in the same proportion

32
Q

Surplus Treaty

A

Reinsurance arrangement where the reinsurer will provide cover for every risk where the sum insured exceeds the insurer’s retention limit (line)

33
Q

Excess of Loss Treaty

A

Reinsurance arrangement where the reinsurer will provide cover for claims which exceed the insurer’s pre-agreed liability figure specified

34
Q

Excess of Loss Ratio Treaty

A

Reinsurance arrangement where the reinsurer will provide cover for claims which exceed the insurer’s pre-agreed loss ratio percentage

35
Q

Facultative Reinsurance

A

Reinsurance for individual risks - particularly those where a total loss would represent a significant claim payment which would fall outside of standard reinsurance arrangements

36
Q

Risk Capital Requirement

A

The proportion of total account premiums which must be kept as free reserves to ensure that an insurer can meet its claims obligations

37
Q

FSCS

A

Organisation which levies a surcharge on insurers based on a percentage of gross direct premium to fund claims by policyholders where their insurer has become insolvent

38
Q

MIB

A

Organisation which levies a surcharge on insurers based on the mix of motor business, and dependent on claims experience to fund claims by motorists where they are involved in an incident with an uninsured/untraced driver

39
Q

Catastrophe Claims

A

Claims relating to the accumulation of losses all arising from a common event

40
Q

Under the duty of disclosure, what information does the proposer NOT need to provide?

A

Facts which the insurer has waived their rights to

41
Q

ABC Insurance company issued a motor policy for Sid Smart and later discovered that he had not disclosed a previous claim. Sid has now submitted a claim for theft damage to his vehicle. What is the strongest action the insurers can take?

A

Void the policy ab initio

42
Q

Rozanes v. Bowen (1928) illustrated the principle of:

A

Utmost Good Faith

43
Q

Utmost Good Faith requires:

A

The proposer and the insurers to voluntarily disclose material facts

44
Q

When considering a proposal for a commercial combined policy, which fact does NOT need to be disclosed?

A

‘spent’ convictions

45
Q

What principle requires the policyholder to disclose material facts?

A

Utmost Good Faith

46
Q

What facts should be disclosed?

A

Material facts

47
Q

What is an example of physical hazard?

A

Construction of building

48
Q

In what way can policy wordings modify the duty of disclosure?

A

A policy condition,such as the alterations clause, can extend the duty to a continuing one

49
Q

Where is the current legal definition of Material Fact contained?

A

Marine Insurance Act 1906

50
Q

Which of the following would be least likely to be used as a method to gather material facts on a household insurance risk?

A

Meeting with the client

51
Q

How long is a quotation normally valid for?

A

As stated by the insurer, normally for 30 days, or for a reasonable time, if the number of days is not specified

52
Q

Premier Accident insurers issue a household quotation to Sally for her renewal which is due in 28 days time, and stipulate a 30 day acceptance period. Ten days later, before Sally has accepted the quotation, her house is damaged in a fire and her current insurers start dealing with the claim. Two days before renewal, Sally then contacts Premier Accident to accept the quotation and request cover as per their original offer. What is the position with Premier?

A

They are not obliged to hold their original quotation at the same terms as the material facts have now changed, and may elect to withdraw their quotation or provide revised terms

53
Q

What is the purpose of the warning given in a typical proposal form?

A

It is intended to draw the proposer’s attention to the consequences of non-disclosure of material facts, and state that if the proposer is in any doubt as to whether a fact is material or not they should disclose it

54
Q

What is the purpose of the declaration within a proposal form?

A

It asks the proposer to declare that all information supplied is true to the best of their knowledge and belief, and must be signed by the proposer

55
Q

What is the difference between a rate per cent and a rate per mille?

A

Rate per cent is the price in pounds for each hundred pounds of insurance cover and rate per mille is the price in pounds for each thousand pounds of insurance cover

56
Q

Joanne insures her house for £350,000 at a rate of 0.18% What is the premium?

A

£630.00

57
Q

Smart Solutions insure have a £5m limit of indemnity on their public liability insurance, with a turnover of £250m per year. What would their premium be based on a rate of 0.3 per mille?

A

£75,000

58
Q

What type of insurance would be likely to have an adjustable premium?

A

Employers Liability

59
Q

What is the purpose of a policy document?

A

To set out the terms and conditions of the cover, and act as evidence of the contract which exists between the insurer and the policyholder

60
Q

For what types of cover must a certificate of insurance be produced in order to comply with legislation?

A

Motor insurance and Employers Liability insurance

61
Q

What is meant by the term Contract Certainty?

A

It is the basis of a code of good practice within the insurance industry to ensure that both parties to a risk are aware of the level of protection being provided and the details of the risk being insured before protection starts

62
Q

What is the normal period of cover on an insurance contract?

A

It will usually be for 12 months

63
Q

What type of cover will not be subject to IPT?

A

Reinsurance contracts

64
Q

Sid arranges travel insurance for his forthcoming holiday, at a premium of £100. What IPT will be payable on top of this?

A

£20

65
Q

Smart Solutions have just arranged their Professional Indemnity insurance for the coming year - what is the most likely premium base that the premium rate will be applied to?

A

Fee income

66
Q

What is meant by the term Deposit Premium?

A

It is the initial premium paid by a policyholder on an adjustable policy and may be adjusted up or down based on the year end declaration

67
Q

What cover is likely to be rated on a flat premium basis?

A

Motor

68
Q

In what circumstances would it be necessary for an Employers Liability certificate to be on display at at Sid Smart’s business premises?

A

When his employees are not able to easily access an electronic version

69
Q

Caroline receives a call from Sally at 9am on the 1st Feb asking to arrange motor insurance with effect from 11am on 2nd Feb when she is collecting her new car. Caroline is then interrupted and doesn’t remember to issue the cover note until 11.30am on 2nd Feb. What should she show on the covernote as the commencement date and time of cover?

A

11.30am on 2nd Feb

70
Q

Are you going to pass your exam? And if you get stuck, get in touch - allison.carter@studyflex.co.uk

A

Yes you are!

IF3 (1 decks)

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