CII Basic Insurance cheat sheet

Insurable interest: the policyholder must benefit from the preservation of the subject-matter and suffer loss if it is damaged; required at inception for life policies and at the time of loss for indemnity policies.

Utmost good faith (uberrimae fidei): both parties must disclose all material facts; the Consumer Insurance (Disclosure and Representations) Act 2012 replaced the duty to volunteer information with a duty to take reasonable care not to make a misrepresentation for consumers.

Indemnity: the insured is restored to the same financial position as before the loss, no better and no worse; applies to property and liability insurance but not to life or personal accident policies, which are benefit policies.

Subrogation: after paying a claim the insurer acquires the insured's legal right to recover the loss from the third party responsible; it supports indemnity and cannot apply to life policies.

Contribution: where two or more policies cover the same risk and the same interest, each insurer pays its rateable proportion, preventing the insured from recovering more than the loss.

Proximate cause: the dominant, effective cause of the loss, not the last event; if an excluded peril is the proximate cause the claim is not payable even if an insured peril also operated.

Average (underinsurance): if the sum insured is less than the value at risk, a proportional reduction applies; with a 50% condition, payment = loss × (sum insured ÷ value at risk).

Risk management: risk avoidance, reduction, retention and transfer; insurance is a transfer mechanism, and deductibles or excesses are forms of retention.

Insurable risk criteria: losses must be accidental, definable, measurable, numerous and independent, and the premium must be affordable; speculative risks (e.g. gambling, ordinary business trading) are not insurable.

Motor insurance: third-party cover is the legal minimum in the UK; comprehensive adds own-damage, fire and theft; no-claims discount is a percentage reduction that steps down after an at-fault claim.

Home buildings versus contents: buildings cover the structure and fixtures (often on a sum insured basis); contents cover movable items, with high-value single items often requiring specified-item listing.

Life assurance: term assurance pays only on death within the term and has no investment element; whole-of-life pays on death whenever it occurs and builds a surrender value; endowment combines protection with a maturity payout.

Income protection (permanent health insurance): pays a taxable replacement income, typically up to 50–70% of gross earnings, after a deferred period, and usually ceases at retirement age.

Critical illness cover: pays a tax-free lump sum on diagnosis of a listed condition meeting the policy definition; it is not a substitute for income protection because it pays once, not as a recurring income.

Public liability versus employers' liability: public liability covers claims from third parties for injury or property damage; employers' liability is compulsory for most UK employers and covers employees' work-related injury or disease.

Professional indemnity: covers claims arising from negligent advice or professional services; usually written on a claims-made basis, so the policy in force when the claim is notified responds.

Travel insurance: medical expenses, cancellation, baggage and personal liability; pre-existing medical conditions must be declared, and the EHIC/GHIC card does not replace travel cover.

Commercial property and business interruption: property cover pays for damage; business interruption pays loss of gross profit or increased cost of working following an insured peril at the premises, usually for an indemnity period of 12–36 months.

Insurance is a contract of utmost good faith; the Consumer Insurance (Disclosure and Representations) Act 2012 governs consumer disclosure, and the Insurance Act 2015 governs commercial disclosure and remedies for breach.

Insurable interest: under the Life Assurance Act 1774 a person taking out life cover must have an insurable interest in the life insured; the Gambling Act 2005 removed the requirement that a contract be evidenced in writing for general insurance.

Warranties and conditions: a warranty is a promise that must be exactly complied with; under the Insurance Act 2015 breach of warranty suspends cover rather than automatically discharging the insurer, and the breach can be remedied.

Utmost good faith remedies: the insurer may avoid the policy (treat it as never existing) for fraudulent misrepresentation; for innocent or negligent misrepresentation the court applies a proportionate remedy under the 2012 Act.

Regulation: the Financial Services and Markets Act 2000 created the FCA and PRA; insurers and intermediaries must be authorised, and the FCA's Consumer Duty requires firms to act to deliver good outcomes for retail customers.

Financial Ombudsman Service: free to consumers, can award compensation (the limit is adjusted periodically); its decisions are binding on the firm but not on the consumer, who may still go to court.

Financial Services Compensation Scheme: protects policyholders if an authorised insurer fails; the limit for insurance claims is 100% of the claim without upper limit for compulsory insurance, and 90% for most other general insurance.

Data protection: the UK GDPR and Data Protection Act 2018 govern handling of personal data; insurers must have a lawful basis, keep data accurate and secure, and honour subject access requests.

Anti-money-laundering: firms must apply customer due diligence, identify beneficial owners, monitor transactions and report suspicious activity to the National Crime Agency under the Proceeds of Crime Act 2002.

Market participants: insurers (companies, mutuals, Lloyd's syndicates), intermediaries (brokers act for the buyer, agents for the insurer), loss adjusters, loss assessors, actuaries and reinsurers.

Distribution channels: direct writing, brokers, independent financial advisers, bancassurance, price comparison websites and affinity schemes; each has different disclosure, advice and remuneration rules.

Broker versus agent: a broker is the client's agent and owes a duty of care to the client; an agent acts for the insurer and can bind cover within delegated authority.

Lloyd's of London: a subscription market where syndicates accept shares of a risk; each syndicate is liable only for its own share, and security is backed by the Lloyd's central fund.

Reinsurance: facultative covers a single risk; treaty covers a portfolio (quota share, surplus, excess of loss); reinsurance protects the insurer's solvency and capacity, not the original policyholder directly.

Treating Customers Fairly and Consumer Duty: outcomes-based rules covering products, price and value, consumer understanding and consumer support; vulnerable customers must receive appropriate support.

Complaints: firms must follow FCA complaint-handling rules, acknowledge promptly and give a final response within eight weeks; if unresolved the customer may refer the matter to the Financial Ombudsman Service within six months.

Commission disclosure: for commercial customers the intermediary must disclose remuneration on request; for consumers, conflicts of interest and remuneration must be managed and disclosed clearly.

Claims service: notification, validation, loss adjustment, settlement and recovery; good customer service includes clear communication, fair treatment and prompt payment, and complaints data is published by the FCA.