Insurance Principles and the Non-Life Insurance Market
Core principles
Non-life (general) insurance transfers the financial consequences of uncertain events from the policyholder to the insurer in return for a premium. Candidates must be able to explain insurable interest, utmost good faith, indemnity, subrogation and contribution, and distinguish them from the doctrines that apply only to life business. Indemnity means the insured is restored to their pre-loss financial position, no better and no worse; it is the principle that limits property and liability claims and underlies average, betterment and salvage.
Market structure
Understand the roles of insurers, Lloyd's syndicates, managing general agents (MGAs), brokers, and the distribution channels (direct, broker, affinity, aggregator). Know the difference between admitted and non-admitted markets, mutuals versus proprietary companies, and the meaning of the Financial Ombudsman Service and the Financial Services Compensation Scheme as consumer backstops. Recognise soft and hard market cycles: soft markets mean falling premiums and wider cover; hard markets follow large losses and capacity withdrawal.
Traps in questions
- Confusing subrogation (the insurer stepping into the insured's legal shoes) with salvage (the insurer's right to the residual property).
- Assuming contribution applies where policies cover different interests - it only applies where two or more policies cover the same interest against the same peril.
- Treating insurable interest as a requirement at the time of the loss in all lines; for liability, the interest arises at the time of the incident.
Worked rule of thumb
If two property policies both cover the same building against fire, and each has a rateable proportion clause, split the loss by the ratio of the sums insured - not equally, and never so the insured recovers more than the loss.