LO 1: Understanding basic terminology used in the general insurance market

Question 1

principle of good faith

Answer 1

• applies to the proposer and the insurer throughout contract negotiations
• both parties must be transparent and share key information on the risk

Question 2

insurer good faith examples

Answer 2

• not introducing nonstandard terms into the contract post negotiations
• not withhold facts on potential discounts

Question 3

disclosure

Answer 3

when something is said

Question 4

misrepresentations

Answer 4

when something is said that isnt true

Question 5

consumer insurance (disclose and representations) act 2012
- whats a consumer
- what the act says

Answer 5

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

Question 6

types of misrepresentation

Answer 6

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

Question 7

insurer action for recklessness

Answer 7

• avoid contract
• refusing all claims
• no need to return premium

Question 8

insurer action for careless

Answer 8

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

Question 9

Insurance act 2015
- what?

Answer 9

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

Question 10

materiality

Answer 10

anything that affects a prudent insurers decisions on premiums or whether to write the risk

Question 11

things that dont have to be disclosed (according to insurance act 2015)

Answer 11

• 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)

Question 12

remedies for misrepresentation (insurance act 2015) from start of contract

Answer 12

• 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

Question 13

remedies for misrepresentation (insurance act 2015) during variation

Answer 13

• 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

Question 14

road traffic act 1988

Answer 14

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

Question 15

duty of disclosure under common law

Answer 15

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

Question 16

insurance examples where continued disclosure may be enforced

Answer 16

• commercial property insurance
• motor insurance
• public liability insurcnace

Question 17

estoppel

Answer 17

bar that stops someone from asserting a right or fact

Question 18

proximate cause

Answer 18

the main cause, must be a direct link between the event and the loss

(the first domino)

Question 19

peril classification in relation to a policy

Answer 19

• insured
• exempted or excluded
• uninsured or unnamed (not mentioned), claims still can be paid

Question 20

indemnity

Answer 20

financial compensation to return the insured to the same financial position they were in before the loss

doesnt apply to benefit policies

Question 21

benefit policies
- meaning
- example

Answer 21

dont indemnify, provide fixed benefits

examples:
- life
- pensions
- annuity
- investment contracts
- policies
- personal accident
- loss of licence for air crew

Question 22

ways to provide indemnity

Answer 22

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

Question 23

reinstatement in practice

Answer 23

• insurer self insurer for the period of reinstatement
• lose certainty of cost, they have to pay whatever it takes

Question 24

contracts of indemnity
- examples

Answer 24

• property (can be cost to repair/replace minus wear and tear or new for old)
• liability (cover legal costs and damages)

Question 25

measuring indemnity

Answer 25

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

Question 26

agreed value policy

Answer 26

insurable value is pre-agreed and known before hand for total losses, treat as unvalued for partial losses

applies to marine

Question 27

betterment

Answer 27

something cannot be indemnified and has to be new

Question 28

property insurance
- reinstatement memorandum
- day one reinstatement

Answer 28

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)

Question 29

indemnifying stock
- types

Answer 29

manufacturers
retailer/wholesaler

doesnt include profits (would be in business interruption) except for farmer

Question 30

first loss policy

Answer 30

the entire value isnt insured since a total/substantial loss isnt expected

Question 31

item limits

Answer 31

household content policy

typically 5% of sum insured

Question 32

average condition

Answer 32

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

Question 33

excess

Answer 33

deducted from each claim an paid by the insured

Question 34

deductible

Answer 34

• large excess
• limit is reduced by this value

Question 35

franchise

Answer 35

below threshold: insured covers them selves
above: insurer pays upto limit

Question 36

from ground up loss

Answer 36

figure with no deductible, franchise or limits taken into account

Question 37

dual insurance

Answer 37

more than 1 policy on an item

Question 38

contribution
- definition
- condition
- types

Answer 38

• 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:

Question 39

basis for contribution under common law (all not or)

Answer 39

common subject matter of insurance
common insurable interest
insured against common peril
policies liable for the loss
no existance of a noncontributoin clause

Question 40

things that negate contribution

Answer 40

• noncontribution clauses (can cancle eachother out)
• more specific insurance
• market agreements

Question 41

subrogation

Answer 41

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

Question 42

tort

Answer 42

breach of common law directive to act reasonably towards others

• gives the right to claim from third parties

Question 43

riot compensation act 2016

Answer 43

provisions for types of claims that can be made against police for damages during riots

Question 44

salvage

Answer 44

residual value of something partial destroyed after fill repayment

Question 45

when subrogation isnt possible

Answer 45

• insured has no rights (mutual hold harmless = both parties take care of their own losses)
• benefit policies
• waiver
• negligent fellow employees