Insurance Products and Cover
Insurance products and cover tests whether you can read a policy document and say precisely what is and is not insured: the structure of the wording, the standard classes, the trigger that activates cover, and the compulsory insurances that override freedom of contract. Questions often give a scenario and ask which policy responds, or ask you to compute a business interruption settlement.
Anatomy of a policy
- Recital and operative clause, definitions (which drive scope), insuring clauses, exclusions, conditions, schedule and endorsements. Endorsements prevail over the printed wording.
- For consumer policies, FCA rules and unfair-terms law require transparency and fairness, with more latitude for terms defining the core cover and price.
Core classes
- Property: buildings and contents, named perils versus accidental damage, basis of settlement.
- Business interruption: gross profit or gross revenue basis, rate of gross profit, indemnity period, increase in cost of working.
- Liability: employers' liability is compulsory under the Employers' Liability (Compulsory Insurance) Act 1969 with a £5m minimum limit; public and products liability are usually occurrence-based, while professional indemnity and D&O are claims-made.
- Motor: Road Traffic Act 1988 s.143 makes third-party cover compulsory; the MIB handles uninsured and untraced drivers.
- Life and health: term, whole of life, critical illness, income protection with deferred periods.
- Reinsurance: facultative or treaty; proportional (quota share, surplus) or non-proportional (excess of loss, stop loss).
Trigger and retroactive dates
Claims-made policies respond to claims notified during the period, subject to a retroactive date, and often offer an extended reporting period.
Worked example
A shop has turnover £500,000 and gross profit £200,000, a 40% rate, a 12-month indemnity period and a £200,000 sum insured. Fire closes it for three months; lost turnover is £120,000, saved insured standing charges £10,000, increased cost of working £15,000. Loss of gross profit = 40% × £120,000 = £48,000, less saved costs £10,000 = £38,000, plus ICW £15,000 = £53,000, within the sum insured.
Traps that cost marks
- Confusing gross profit with net profit as the BI basis.
- Confusing the indemnity period with the policy period.
- Treating the £5m employers' liability minimum as a maximum.
- Assuming a claims-made policy covers acts after its retroactive date.
- Ignoring that increased cost of working must be economically justified by reducing the loss.