Underwriting Procedures Flashcards
What does a quotation state regarding its validity?
It states for how long it is valid, usually a set number of days, e.g. 30 days.
This establishes the time frame within which the proposer must accept the quotation.
Is cover effective when a quotation is issued?
No, cover is not effective when the quotation is issued.
The insurer is not on risk and the proposer is not covered until the contract is accepted.
What must happen for a contract to come into existence?
There must be a valid offer and acceptance.
The quotation acts as the offer that needs to be accepted by the proposer.
What happens if the proposer accepts the quotation within the specified timescale?
The insurer is legally bound to honour the quotation.
This is contingent on the terms quoted remaining unchanged.
Under what condition is the insurer not bound to maintain the quotation?
If the circumstances upon which the quotation was based change.
For example, if the proposer has an accident or changes to a more expensive car.
What option does the proposer have during the validity period of the quotation?
The proposer has the option to accept or decline the quotation.
This allows flexibility for the proposer to consider their options.
What happens if the proposer does not accept the quotation before it expires?
The quotation is no longer valid and the insurer is not bound to honour it.
However, the insurer may choose to honour it after expiry.
If no time is stipulated for the quotation, how long does it remain open?
It remains open for a reasonable time.
This is based on general rules for the interpretation of contracts.
What is the traditional mechanism for underwriters to receive risk information?
The proposal form.
It is completed by the proposer and submitted to the underwriter.
What types of risks do commercial package insurances typically cover?
Compulsory insurances or part of fixed packages.
They include risks like apartments, shops, salons, and small contractors.
What is a key difference between personal lines and commercial markets in insurance?
The prevalence of personal lines insurance products available via aggregators.
Aggregators are more common in personal lines than in commercial markets.
What types of risks often require more detailed proposals than personal insurances?
Large and complex risks, such as industrial complexes and satellites.
These require more comprehensive information due to their complexity.
What is a subjectivity in the context of a quotation?
A condition that must be met as part of the quotation to proposers.
It should not be a way to obtain information that should be asked for upfront.
What should a proposer do if they are in doubt about whether information is material?
They should disclose the information.
This emphasizes the importance of transparency in the proposal process.
What is a premium in insurance?
A premium is the amount paid to an insurer by the insured in consideration of the insurer agreeing to cover the risk.
What is the role of an underwriter in premium calculation?
An underwriter calculates a suitable, or fair (equitable) premium that reflects the risk presented by the proposer.
What principle underlies the collection of insurance premiums?
The principle is that premiums collected for similar risks proposed form a common pool.
What does the law of large numbers enable insurers to do?
It enables insurers to determine a more accurate premium chargeable to the insured by dealing with a large number of similar exposures to risk.
What is the formula for calculating premium?
The formula is: sum insured × rate = premium.
What is a rate per cent in premium calculation?
Rate per cent is the price in pounds for each hundred pounds of exposure.
What is a rate per mille in premium calculation?
Rate per mille is the price in pounds for each thousand pounds of exposure.
What is a flat premium?
A flat premium is a fixed amount charged rather than applying a rate to a premium base.
What information does a policy contain?
A policy contains:
* details of the item/exposure insured
* operative perils
* period of cover
* exceptions
* conditions
* premium
* other relevant information
What is a cover note?
A cover note is a document issued as evidence that insurance has been granted, pending the issue of a policy.
What information must a cover note contain?
A cover note must contain:
* commencement date
* statement of normal terms and conditions
* risk-specific information
* any special terms
* expiry date
What is the purpose of a certificate of insurance?
A certificate of insurance proves that a policy is in force and that the policyholder complies with legal requirements.
What information is required on a motor insurance certificate?
A motor insurance certificate must include:
* registration mark of vehicle
* name of policyholder
* date of commencement of cover
* expiry date
* person or classes of persons entitled to drive
* limitations as to use
* confirmation of compliance with UK statutory requirements
What are the requirements for employers’ liability insurance certificates?
The certificate must include:
* Name of policyholder
* Date of commencement of cover
* Expiry date
* Name of insurer
* Authorized signature
* Level of cover
* Statement of legal requirement satisfaction
What is contract certainty in insurance?
Contract certainty is achieved by the complete and final agreement of all terms between the insured and insurer before entering into the contract.
What methods are used to collect insurance premiums?
Premiums can be collected by:
* single upfront payment
* credit
* monthly instalments by direct debit
What happens in the event of non-payment of premium?
If the premium is not paid, the policy is not renewed and cover lapses.
What is Insurance Premium Tax (IPT)?
IPT is a tax payable by policyholders, but insurers are responsible for collecting and accounting for the tax.
What is the current standard rate of IPT?
The current standard rate of IPT is 12%.
What is the higher rate of IPT and when does it apply?
The higher rate of 20% applies to travel insurance and engineering inspection service fees.
What is an adjustable premium?
When exposure is not known at the start of the year, a deposit premium can be paid, which can be adjusted up or down at a later date
What is minimum cover for employee liability?
£5m + costs
For a quotation to be taken up and the policy to be in force, what is needed?
Offer, acceptance, and consideration
