LO 1: Understanding basic terminology used in the general insurance market Flashcards
principle of good faith
- applies to the proposer and the insurer throughout contract negotiations
- both parties must be transparent and share key information on the risk
insurer good faith examples
- not introducing nonstandard terms into the contract post negotiations
- not withhold facts on potential discounts
disclosure
when something is said
misrepresentations
when something is said that isnt true
consumer insurance (disclose and representations) act 2012
- whats a consumer
- what the act says
consumer = someone buying insurance for mainly or entirely for purposes unrelated to business/profession
consumers have duty to take resonable care not to make misrepresentation to insurerst
types of misrepresentation
careless
deliberate/reckless (insure wouldnt have entered into the contract if the info had been disclosed, burden of proof is on the insurer)
- knew/didnt care it was untrue/misleading
- knew/didnt care it was relevant to the insurer
insurer action for recklessness
- avoid contract
- refusing all claims
- no need to return premium
insurer action for careless
depends on what the insurer wouldve done if they had known
- avoid claims
- pay claims according to terms the insurer wouldve used
- reduce claims in proportion to the amount of extra premiums due
- contract termination
Insurance act 2015
- what?
contains laws on disclosure and representation for nonconsumers
inhibits data dumps by the insured (info need to be accessible)
its up to the insurer to decide if further questions are needed
can contact out , therefore previous laws apply
materiality
anything that affects a prudent insurers decisions on premiums or whether to write the risk
things that dont have to be disclosed (according to insurance act 2015)
- lessens the risk
- insurer knows
- insurer ought to know (known by an employee or agent of the insurer)
- waived by insurer (didnt ask the questions)
- insurer is presumed to know (common knowledge)
remedies for misrepresentation (insurance act 2015) from start of contract
- contract termination retain premium (reckless)
careless
- terminate contract, return premium
- treat contract as if correct terms were included
- claims reduced by premium_paid/premium_due
remedies for misrepresentation (insurance act 2015) during variation
- contract termination from time of variation retain premium (reckless)
carless and premiums remained constant or increased
- contract remain but additional premiums returned
- contract treated as if the correct terms were enforced
careless and premiums reduced
- claims reduced
- contract treated as if the correct terms were enforced
road traffic act 1988
prohibits the insurer from avoiding liability on the grounds of certain breaches of good faith
insurer has the right to recover from insured after they pay the claim
duty of disclosure under common law
from the start of negotiation to when the contract forms (as inception) after that only info that effects policy cover need to be shared
reopens for renewals/alterations, applies to all general (nonlife) insurance policies. for long term insurance (life) with no renewal this isnt the case, even material disclosures are not required
insurance examples where continued disclosure may be enforced
- commercial property insurance
- motor insurance
- public liability insurcnace
estoppel
bar that stops someone from asserting a right or fact
proximate cause
the main cause, must be a direct link between the event and the loss
(the first domino)
peril classification in relation to a policy
- insured
- exempted or excluded
- uninsured or unnamed (not mentioned), claims still can be paid
indemnity
financial compensation to return the insured to the same financial position they were in before the loss
doesnt apply to benefit policies
benefit policies
- meaning
- example
dont indemnify, provide fixed benefits
examples:
- life
- pensions
- annuity
- investment contracts
- policies
- personal accident
- loss of licence for air crew
ways to provide indemnity
cash (not the discounted amount the insurere may have paid for replacement)
repair (common for motor)
reinstatement (restore building or machinery)
replacement (common for glass)
depends on the options included in the contract
reinstatement in practice
- insurer self insurer for the period of reinstatement
- lose certainty of cost, they have to pay whatever it takes
contracts of indemnity
- examples
- property (can be cost to repair/replace minus wear and tear or new for old)
- liability (cover legal costs and damages)
measuring indemnity
usually the value at time and place of loss (called basic cover for property)
note: basic cover for machinery will pay the cost for a second-hand-item+transport+installation if it exists
agreed value policy
insurable value is pre-agreed and known before hand for total losses, treat as unvalued for partial losses
applies to marine
betterment
something cannot be indemnified and has to be new
property insurance
- reinstatement memorandum
- day one reinstatement
memo: sum insured , should represent the full value at the time of reinstatement or at least 85%. Last 15% needs to be covered by the insured
day one: insurer states day 1 reinstatement amount with an automatic uplift applied for inflation (50% on stated value for 15% increase in premium)
indemnifying stock
- types
manufacturers
retailer/wholesaler
doesnt include profits (would be in business interruption) except for farmer
first loss policy
the entire value isnt insured since a total/substantial loss isnt expected
item limits
household content policy
typically 5% of sum insured
average condition
claims or paid in proportion to the insured_amount/total_value
doesnt apply to farming livestock where inuserd amount is at least 75% of the actual value
excess
deducted from each claim an paid by the insured
deductible
- large excess
- limit is reduced by this value
franchise
below threshold: insured covers them selves
above: insurer pays upto limit
from ground up loss
figure with no deductible, franchise or limits taken into account
dual insurance
more than 1 policy on an item
contribution
- definition
- condition
- types
- insurers right to call upon others that are liable to the same insured to share cost of an indemnifying payment
- if it doesnt exist the whole claim can made to anyone, this can be claimed back by the insurer
rateable proportion:
– by sum insured = proportion of sum paid is the same as the value insured
– independent liability = proportion of sum paid is the same as the liability under each policy (amount theyd have to pay if there was one policy)
rateable share:
basis for contribution under common law (all not or)
common subject matter of insurance
common insurable interest
insured against common peril
policies liable for the loss
no existance of a noncontributoin clause
things that negate contribution
- noncontribution clauses (can cancle eachother out)
- more specific insurance
- market agreements
subrogation
right of insurer to take over the insured rights to recover payment from third parties after paying claim
- limited by the amount paid out by the policy
- clauses can be included to get the rights before paying claims
tort
breach of common law directive to act reasonably towards others
- gives the right to claim from third parties
riot compensation act 2016
provisions for types of claims that can be made against police for damages during riots
salvage
residual value of something partial destroyed after fill repayment
when subrogation isnt possible
- insured has no rights (mutual hold harmless = both parties take care of their own losses)
- benefit policies
- waiver
- negligent fellow employees
