IF3.2 Underwriting Process Flashcards
define Subjectivity
Terms and condition
Statement of Fact
legally significant facts
Policy wording
Written the terms and conditions of the coverage
What has to be provided/ not provided in a quote
statement of fact
not policy wording
Quotation procedure
- provide a quote and state how long it is valid for
- if you accept within the timescale the insurer is legally bound to honour it
- if you do not accept it within the time the insurer is not bound to honour it and the consumer must get a new one.
- if the risks change, the insurer doesn’t have to accept
- the insurer can withdraw the quote at any time
When is cover effective
at inception NOT at quotation
if no timescale is issued on the quotation then…
the timescale must be a reasonable time
What is a proposal form
a document for consumers to fill in their information
declaration
A declaration states that the information supplied by the proposer is true and correct to the best of the proposers knowledge and belief
Insurtech
the use of new technologies and digital tools to provide insurance services
Small commercial company proposals
packages where cover is up to a limit
(software houses provided the functionality of brokers to obtain quotations for companies)
Large commercial company proposals
- presentations
- surveys
- fact finds
- questionnaires
- meetings
Consumer proposals
internet & phone calls
Specific Questions Examples
- Risk Address (the location where the thing your insuring is)
- Sum Insured
- Business description
- limits of indemnity
- security measures
General Questions Examples
- Name
- Correspondence address (the person insuring)
- Occupation
- Insurance Period
- Insurance History
When is pricing easier for insurers?
When they take on lots of the same risk (law of large numbers)
Premium
The amount paid to an insurer by the insured in consideration of the insurer agreeing to cover the risk
Premium rate
reflects the hazard associated with the insured
Premium Base
the measure of exposure (suitable measure of risk, aka sum insured)
Formula for premium
premium = rate x sum insured
greater risk… (effect on rate)
higher rate
Rate per cent or Rate per mile
a change in rate based on having more hazards and presenting a higher risk
Rate per cent
the price in pounds for each hundred pounds of exposure
rate per mile
the price in pounds for each thousand pounds of expoure
Alternative exposure methods
- look at wage roll (employers liability)
- look at annual turnover (product liability)
- look at fees earned (PI insurance)
What does the insureds premium represent?
The amount of risk they represent and the likelihood of them taking money out of a common pool in the event they claim (doesn’t take into account expenses)
What happens if the exposure measure is unknown at the start of the period of insurance?
(Adjustable premium)
- provide an estimate of what the exposure measure might be
- at the end of the year submit a declaration showing the actual figures
- then the premium is adjusted up or down depending on the difference
(Consumer rights act doesn’t apply, the insurer must still be clear what will occur)
Deposit premium
the initial premium paid when the exposure is known and the premium will be altered at the end of the insurance term
Flat Premium
The premium is automatically given on input of the proposal form aka a rate is not applied to a premium base.
Advantages of a flat premium
quick and easy (especially for brokers)
Why a policy document issued
So that the insured and the insurer need to be absolutely clear as to the terms and conditions agreed between them
What does the policy document include?
- details of the item/exposure insured
- operative perils
- period of cover
- exceptions
- conditions
- the premium
any other relevant information
what is a cover note
A temporary document issued as evidence that insurance has been granted (to temporarily replace a certificate)
when is a cover note issued
- granting temporary cover until a proposal form arrives
- the insurer wishes a surveyor to visit the premises
- If a new driver is added in motor insurance a cover note is issued.
Features of a cover note
- commencement date
- statement that the policy follows the normal terms and conditions of the insurer for that class of insurance
- risk specific information that identifies the property or liability that is covered
- special terms that apply
- expiry date of cover
What has to be contained in motor insurance certificates
- registration of vehicle
- person entitled to drive
- limitations as to use
- name policyholder
- date of commencement and expiry
- confirmation that cover complies with UK statutory requirements
What has to be contained in Employers Liability Insurance certificates
- Name of policyholder
- date of commencement and expiry date
- name of insurer & authorised signature
- level of cover (needs to show meets the minimum requirement)
- statement from the insurer to show meets the minimum requirement
Contract Certainty
The complete and final agreement of all terms between the insured and the insurer by the time that they enter into the contract, with contract documentation provided promptly thereafter
Why do we have contract certainty?
to avoid disputes from uncertainty
What are the different methods of paying a premium?
- single upfront payment
- credit
- monthly installment
What happens if the insured decides to pay in instalments?
a fee is added on to the premium to reflect the loss of interest
Renewal Notice
Information about renewal inc the renewal premium
If the insured does not pay the premium on renewal?
cover is lapsed
Insurance Premium Tax (IPT)
The tax is payable by policyholders but insurers are responsible for collecting the tax and passing it to HMRC.
Standard rate of IPT
12%
Higher rate pf IPT
20% for travel insurance & additional insurances
What type of insurance are not subject to IPT
reinsurance, life assurance & certain marine policies
Loadings and Discounts
applied to the rate to reflect various inherent risk features
Wage roll
payments to staff throughout the year
Turnover
the amount taken by a business in a particular period
When working out premium per mile…
divide by 10 first
rate per mile
per thousand
rate per cent
per hundred
example of flat rate based
group travel, one off events
When are cover notes neccessary
If there is a delay in updating the Motor Insurance Database (MID) you need one to show you’re covered.
How quickly does a policy have to be given to a consumer according to contract certainty
7 days
How quickly does a policy have to be given to a commercial client according to contract certainty
30 days
What is credit
When a broker uses a third party company to pay the full premium then the client pays back in instalments.
Difference between credit & instalments by direct debit
credit uses a third party and then the insured pays the bank back.
Instalments are provided by the insurer where you’re just delaying paying.
Policy Lapse
In the event of non payment, cover will no longer be provided.
Difference between per cent and per mile
A rate per cent is a price for each hundred pounds of exposure.
A rate per mile is the price for each one thousand pounds of exposure.
In a proposal form, risk specific questions are
Question that pertain to the particular details of a proposed risk
If a proposers accepts a quote when is the insurer legally permitted to withdraw these terms
Only if the basis of risk has changed
What is the usual premium base for employers liability?
The wage roll
What is the most common basis of premium calculation for public & product liability insurance
Turnover
A valid employers liability insurance certificate must contain
the insureds Name
minimum level of cover for medical treatment in a standard travel insurance policy
1m
Personal accident benefits for a travel insurance policy
10-25k
If an insurer wishes to check the claims history of a proposer it would check…
the claims and underwriting exchange (CUE)
Can insurers assume positive answers to proposal form questions
(Consumer Insurance (Disclosure and representations_ Act 2012)
No, proposers have to expressly answer
warning (or important note)
the material information & circumstances which should be provided and the dangers if they are not disclosed.
General proposal questions
Common to most general insurances
Specific proposal questions
risk specific questions
What are applied to the rate to reflect various inherent risk features
loadings and discounts
What does the policy contain?
- all details of the item insured
- operative perils
- period of cover
- exceptions
- conditions
-premium - other relevant information
Who made contract certainty
ABI
How quickly must policy document be sent according to contract certainty?
- 7 days consumer
- 30 days commercial
What insurance is not subject to IPT?
reinsurance, life assurance, risks outside of the UK & marine policies
What document forms the legal basis for an insurance contract
the proposal form
Which section of the insurance policy contains a detailed extent of cover?
The operative clause
