Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

LM1 > Chapter 2 Basis insurance principles and terminology > Flashcards

Chapter 2 Basis insurance principles and terminology Flashcards

1
Q

What are the essentials of a valid contract

A

Offer and acceptance

Consideration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is usually the consideration in insurance

A

The premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Does a conditional acceptance form a valid contract

A

No it is not an acceptance it is a counter offer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

If I post an acceptance when is it deemed that I have accepted an offer

A

When acceptance is posted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What duty do consumers have under the Consumer Insurance Disclosure & Representations Act 2012

A

Duty to take reasonable care not to make a misrepresentation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What did the Insurance Act 2015 introduce?

A

Duty to make fair presentation of a risk for a non-consumer contract replacing utmost good faith

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Who does the duty of good faith apply too?

A

Both insured and insurer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What must the insurer disclose as an act of good faith?

A

Only taking on risks which the insurer is registered to accept
Ensuring statements are true and not misleading
Entitlement to discounts etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the duty of disclosure?

A

In all insurance negotiations there is a duty to disclose material circumstances, particularly at the proposal stage.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When is the duty of disclosure revived?

A

At each renewal date unless it is a continuing one.

If there is an alteration to the policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Who does the Consumer Insurance Disclosure Representations Act 2012 apply to?

A

Consumers not commercial customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What defines a consumer under the act?

A

Someone who takes out insurance wholly unrelated to the individuals trade.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Who does the Insurance Act 2015 apply to?

A

Non-consumer i.e. commercial customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What must the insured disclose under the insurance act?

A

Material circumstances the insured knows or ought to know
Disclosure in a manner which could be reasonably clear and accessible to insurers
Facts substantially correct, representations of belief made in good faith

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Who does the onus shift to under the Insurance Act?

A

It has shifted from the insured to the insurer, which is assumed to know information that would be expected of it.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What policies generally have a continuing requirement of duty of disclosure?

A

Commercial property

Motor insurances

Public liability insurances.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Does the duty of disclosure revive on alteration of a policy?

A

Yes if there is a need for an endorsement to the policy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What happens if the consumer does not provide material circumstance or a question asked by the insurer does not follow it up?

A

The Insurer has waived its right to the information and cannot claim there has been a breach of duty of disclosure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is meant by the term Ab Initio?

A

From the beginning

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are some examples of physical hazards?

A

Construction, nature of use, heating, electrical systems

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are some examples of moral hazards?

A

Criminal convictions, lack of good management, excessive, willful carelessness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What does the Insurance Act 2015 state about material circumstances?

A

A circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and if so on what terms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What facts do no require disclosure?

A 
Facts of law, 
Facts of public knowledge 
Facts that lessen the risk
Facts where the insurer has waived its right
Facts a survey should reveal
 Facts that the insurer does not know.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What facts do not require disclosure in non-consumer policies?

A 
Facts that diminish the risk
Facts the insurer knows,
Facts the insurer ought to know,
Facts the insurer is presumed to know
Facts that the insurer has waived its rights.
Facts of law
Facts a survey should have revealed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What did the Legal Aid, Sentencing and punishment of offenders act 2012 (LASPO) change?

A

The rehabilitation periods now contains a buffer period after the custodial sentence.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the rehabilitation period fora custodial sentence of more than 4 years?

A

Never spent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Buffer period for a non-custodial sentence such as fines or community orders?

A

1 year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Are any claims payable if a policy is Ab Initio?

A

No claims will be payable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What happens if the consumer proposer purposefully or recklessly answers questions wrong?

A

The insurer is entitled to avoid the policy ab initio.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What does the insurer have to do if they were misrepresented information but would have taken the policy on at a higher premium?

A

They are able to reduce the claim proportionately, meaning the insurer would only have to pay a certain percentage of the claim rather than the full amount.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is the calculation for reducing proportionality?

A

Loss multiplied by premium actually charged / higher premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What are the rules of disclosure in regards to compulsory motor insurance?

A

The insurer must pay compensation for injury and property damage for the third party, then claim back the amount from the insured.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is the definition of the principle of contribution?

A

“ The right of an insurer who has paid under a policy to call upon others similarly but not necessarily equally liable to the same insured to contribute to the payment”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

If a policyholder had two life policies would contribution apply?

A

No, as life policies are benefit policies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Identify two ways the principle of contribution is modified.

A
  1. Policies contain non-contribution conditions

2. There are market agreements between insurers where they agree not to seek contribution in certain instances

36
Q

Identify five aspects that must be common to both policies for contribution to apply.

A 
P eril (cover same peril) 
I ndemnity (both policies of indemnity)
I nsurable Interest (cover same insurable interest)
L iable (both policies liable for loss)
S	ubject matter (both policies cover same subject matter of insurance
37
Q

What does a rateable proportion contribution condition state

A

That the policy will only pay their proportion of the loss

38
Q

What does a non-contribution clause state?

A

That the policy will not contribute to a loss if it is covered under another policy

39
Q

If both policies contain a non contribution clause what happens?

A

The loss is shared proportionately.

40
Q

What does the specific insurance condition state?

A

That insurers will not contribute to a loss if the loss is more specifically insured?

41
Q

Identify two market agreements on contribution

A

Claims under driving other cars extension - vehicle insurers do not seek contribution from driver’s insurers
Travel and household

42
Q

Define “subrogation”

A

“the right of one person, having indemnified another under a legal obligation to do so, to stand in the place of that other and avail himself of all the rights and remedies of that other, whether already enforced or not”

43
Q

What are the two method for sharing losses between policies under the principle of contribution

A

Sum insured method
Independent liability method

Independent liability method

44
Q

How does the sum insured method operate?

A

Insurer A pays Loss multipled by Sum Insured of Insurer A divided by total sum insured of Insurer A and B

45
Q

When is the sum insured method used?

A

On property claims where the policies are not subject to average.

46
Q

How does the independent liability method work

A

Loss shared in proportion to liabilities of each insurer if the other had not been paying the loss

47
Q

Identify three ways that subrogation rights may arise.

A

In tort eg negligence
In contract
Under statute e.g. Riot Damages Amendment Regulations (2007)

48
Q

What do we mean by salvage

A

If an insured pays a total loss to the insured they are entitled to retain what is left of the item insured eg written off car

49
Q

Identify two market agreements on subrogation

A

ABI Memorandum of understanding – subrogated motor claims

Immobile property agreement

50
Q

Identify four ways subrogation rights may be precluded.

A

The Insured has no right
The policy is a benefit policy
Insured has given another party a subrogation waiver
Negligent fellow employees - insurers do not subrogate against

51
Q

What is the proximate cause?

A

The dominant cause of a loss

52
Q

For the first cause to be the proximate cause must the chain of events be broken or unbroken

A

Unbroken

53
Q

What is an insured peril?

A

Those named in policy as covered

54
Q

What is an excluded peril?

A

Those named in policy as specifically not covered

55
Q

What is an unnamed or uninsured peril?

A

Perils not mentioned in policy

56
Q

If a loss is caused by an insured peril (eg Fire) and the insured peril is the proximate cause is the loss covered?

A

Yes

57
Q

If a loss is caused by an excepted peril (eg war) and the excepted peril is the proximate cause is the loss covered?

A

No

58
Q

If a loss is caused by an uninsured peril (eg water) but an insured peril eg fire is the proximate cause is the loss covered

A

Yes

59
Q

What is the definition of “indemnity”?

A

“To put the Insured as close as possible to the same financial position after a loss as they were immediately before the incident”

60
Q

Identify two types of insurance that are benefit policies i.e. not policies of indemnity.

A

Life
Personal accident

Personal accident

61
Q

Identify four ways a property insurer can indemnify an insured

A

Cash
Repair
Replace
Reinstate

62
Q

What are the two ways indemnity is measured on a Marine policy?

A

Valued policy as agreed

Unvalued policy as per formula in Marine Insurance Act (1906)

63
Q

What would “indemnity’ be on property policy covering buildings?

A

Replacement cost less wear and tear

64
Q

On what basis are most buildings insured under a property policy?

A

Reinstatement basis (new for old)

65
Q

If a building is insured on a reinstatement basis what condition of average usually applies?

A

85% condition of average

66
Q

If average applies and there is a claim for £10,000 and the sum insured is £90,000 and the value of the item insured is £100,000 how much do insurers pay for the loss?

A

£9,000 = £10,000 x £90,000/£100,000

67
Q

If a building is insured on a reinstatement basis and the 85% condition of average applies and there is a claim for £10,000 and the sum insured is £90,000 and actual reinstatement value of the item insured is £100,000 how much do insurers pay for the loss?

A

£10,000 as the sum insured £90,000 exceeded 85% of the actual reinstatement value so average does not apply

68
Q

If a building is insured on a reinstatement basis and the 85% condition of average applies and there is a claim for £10,000 and the sum insured is £80,000 and actual reinstatement value of the item insured is £100,000 how much do insurers pay for the loss?

A

£8,000 = £10,000 x £80,000/£100,000

Average does apply as the sum insured £80,000 is less than 85% of the actual reinstatement value

69
Q

What is the typical valuation of indemnity for manufacturer’s stock under a property policy

A

Cost of raw materials plus labour costs incurred to date

70
Q

What is the typical valuation of indemnity for wholesaler’s stock under a property policy

A

Cost of replacing stock including transport costs

71
Q

The inflation protection where by the insured declares the cost of reinstating the building at the inception date of the policy but the sum insured is the declared figure plus a specified percentage to cover inflation during the policy period and reinstatement period is called?

A

Day one

72
Q

Is property insurance on a Day 1 basis subject to 85% average?

A

No average will apply if the declared value is less than the actual reinstatement value of the building at the inception date of the policy

73
Q

What is the typical measure of indemnity on a household policy?

A

New for old

74
Q

What is the typical measure of indemnity for farming stock?

A

Market price

75
Q

What is the typical measure of indemnity on a liability insurance policy?

A

Compensation plus legal costs and expense subject to policy limit

76
Q

Identify three ways insurance policies modify the principle of indemnity

A

Agreed value policies (eg Fine Art)
First loss policies (eg Theft)
New for old/Reinstatement (eg Property)

77
Q

Identify five ways indemnity may be limited under a policy

A 
Sum insured not adequate
Limit of policy not adequate
Sub limit applies
Average applies
Deductible/excess applies
78
Q

The average condition that applies when an insured has taken out two policies covering the same stock is known as?

A

Two conditions of average

79
Q

If a loss is £30,000 and there is a deductible of £5,000 each claim how much do insurers pay to the insured?

A

£25,000 (£30,000 less £5,000)

80
Q

Provide a definition of insurable interest

A

“the legal right to insure arising out a financial relationship recognised at law between the insured and the subject matter of insurance.”

81
Q

What three elements are required for insurable interest to exist

A

Subject matter
Legal relationship
Financial value

82
Q

What is the difference between the subject matter of insurance and the subject matter of the contract in household insurance?

A

The house is the subject matter of insurance

The house owner’s financial interest in the house is the subject matter of the contract

83
Q

When must insurable interest exist in marine insurance?

A

At time of loss only

84
Q

When must insurable interest exist in life insurance

A

Only at inception not at time of loss

85
Q

When must insurable interest exist in property and other insurances

A

At inception and time of loss

86
Q

Identify three ways insurable interest can be created

A

Common law e.g. ownership
Contract e.g. lease gives tenant responsibilities
Statute eg Repair of Benefices Building Measures Act (1972) requires upkeep of building

LM1 (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions