III IC-01 cheat sheet

Insurable interest: the policyholder must suffer genuine financial loss from the insured event; it must exist at inception (property) or at inception and at claim (life).

Utmost good faith (uberrimae fidei): both parties must disclose all material facts; breach by the insured generally allows the insurer to avoid the contract from the start.

Indemnity: property and liability insurance restore the insured to the pre-loss financial position, no better and no worse; life and personal accident policies are benefit policies and are not contracts of indemnity.

Proximate cause: the nearest, dominant, effective cause of loss decides cover; remote causes do not trigger the policy even where they contributed.

Subrogation: after paying a claim the insurer inherits the insured's right of recovery against the third party, capped at the amount paid, and only for indemnity policies.

Contribution: where two or more indemnity policies cover the same loss, insurers share it; common methods are rateable proportion (sum insured basis) and the independent liability method.

Average clause: if sum insured is below the value at risk, claim payment = (sum insured / value at risk) x loss, so underinsurance reduces the settlement proportionally.

Material facts include prior claims, hazardous occupancy, criminal convictions, other insurance, and known defects; non-material facts need not be disclosed.

Insurance transfers risk from the insured to a pool of premiums; it does not eliminate risk, and speculative risk (gain or loss possible) is generally uninsurable.

Insurable interest separates insurance from gambling: without it the contract is void, and its timing differs between property (inception) and life (inception and death).

Utmost good faith applies to proposal and renewal; concealment or misrepresentation of a material fact gives the insurer the right to avoid the policy.

Indemnity limits recovery to actual financial loss; new-for-old or agreed-value clauses are exceptions that must be stated in the wording.

Proximate cause analysis starts with the triggering event and works forward, ignoring causes that are too remote to be operative.

Subrogation prevents double recovery: the insured cannot keep both the insurer's payment and damages recovered from the wrongdoer.

Contribution requires the same insured, same subject matter, same peril, and same interest; without all four, policies do not share.

Underinsurance is measured against reinstatement or market value as defined in the policy, not against the purchase price of the asset.

A material fact is one that would influence a prudent underwriter's decision on acceptance, terms, or premium.

Risk pooling: premiums from many insureds fund losses of the few; the law of large numbers makes outcomes more predictable as the pool grows.

Moral hazard is behaviour change caused by having insurance; anti-selection (adverse selection) is the tendency of higher-risk applicants to buy cover.

Insurers manage moral hazard through deductibles, exclusions, warranties, and claims investigation; they manage adverse selection through underwriting and rating.

A warranty is a condition the insured promises to fulfil; breach generally discharges the insurer from liability for the relevant loss, subject to the governing insurance act.

A condition precedent to liability must be satisfied before the insurer pays, for example notifying a claim within the stated period.

Insurable risk is ideally accidental, measurable, definable, and not catastrophic to the whole pool; war and nuclear risks are typically excluded.

Reinsurance transfers part of the insurer's risk to another insurer; it does not change the original insured's rights against the first insurer.

Co-insurance in commercial property means the insured shares losses above an agreed percentage of value, distinct from contribution between separate policies.

Offer and acceptance: the completed proposal is usually the offer; cover begins when the insurer accepts or issues a temporary cover note.

Consideration: the insured pays premium, the insurer promises to pay valid claims; a policy issued without premium may still be valid if credit terms apply.

Utmost good faith is a duty of disclosure and a duty not to misrepresent; innocent, negligent, and fraudulent misrepresentation carry different remedies.

Fraudulent claims: the insurer may refuse the whole claim and recover sums already paid, and may avoid the policy prospectively or from inception depending on the jurisdiction.

Doctrine of waiver and estoppel: an insurer that knowingly accepts late premium or late notice may lose the right to rely on that breach.

Proximate cause chains: if an excluded peril sets an included peril in motion, cover depends on which is dominant and whether the wording is wide or narrow.

Sum insured is the maximum the insurer will pay; it is not a valuation, and it is reduced by claims paid under a reducing sum insured clause.

Ex gratia payments are made without admission of liability and do not set a precedent for future claims.

Insurable interest in life insurance: the proposer must have a pecuniary interest in the life assured, such as self, spouse, or a key employee.

Insurable interest in property: ownership, leasehold, mortgagee, bailee, and possession-based interests can all support cover.

Indemnity calculation: settlement = lesser of (loss less deductible) and (sum insured less prior claims), adjusted for average where applicable.

Contribution formula (independent liability method): each insurer pays its independent liability share, then shares the loss proportionally to those liabilities.

Subrogation rights arise only after payment; the insured must not compromise a claim against a third party without the insurer's consent.

Non-disclosure remedies under modern insurance acts are proportionate: the insurer may reduce the claim rather than avoid the policy for negligent breach.

Averaging applies where the sum insured is less than the value at risk; agreed value and first-loss policies avoid averaging.

The principle of indemnity bars profit from loss; salvage and subrogation recoveries are credited back to the insurer.

Risk transfer, risk avoidance, risk reduction, and risk retention are the four core risk management responses; insurance is the transfer option.

Pure risk has only loss or no-loss outcomes and is insurable; speculative risk has gain or loss outcomes and is not.

Underwriting assesses hazard, moral hazard, and physical hazard to set terms; the proposal form is the primary source of material facts.

Premium components: expected claims (pure premium), expenses, contingency/risk margin, and profit loading.

Policy structure: recital, insuring agreement, exclusions, conditions, definitions, and schedule; the schedule overrides general wording.

Contra proferentem: ambiguous policy wording is construed against the party that drafted it, typically the insurer.

Causa proxima non remota spectatur: the law looks to the proximate, not the remote, cause; this is the legal basis of proximate cause.

Utmost good faith is reciprocal: the insurer must also disclose material facts, such as unusual terms or known limitations.

A deductible (excess) is the first amount of each loss borne by the insured; it reduces small claims and moral hazard.

A franchise is a threshold: if the loss exceeds it, the insurer pays the full amount; if not, the insurer pays nothing.

Co-insurance clause in property: the insured must carry insurance to an agreed percentage of value or bear a proportional share of each loss.

Aggregate limit is the maximum payable across all claims in a policy period; per-occurrence limit applies to a single event.

Reinstatement value is the cost to rebuild or replace with new equivalent; market value is the depreciated price the asset would fetch.

Salvage: the insurer may take over damaged property after paying a total loss, and salvage value reduces the claim.

Warranties must be complied with exactly; a breach discharges liability even if unrelated to the loss, unless the law or wording provides otherwise.

Burden of proof: the insured must show a loss within the insuring agreement; the insurer must show an exclusion applies.

Misrepresentation remedies: fraudulent - avoid and retain premium; negligent - proportional or avoidance remedy; innocent - contract stands, insurer may adjust terms.

Avoidance means the contract is treated as never having existed, so premiums are returned (subject to fraud) and claims are not paid.

Non-disclosure at renewal is as serious as at inception; the duty revives each time the policy is renewed or varied.

Insurable interest must be continuous in property insurance; if the interest ends before the loss, the claim fails.

Assignment of policy rights requires insurer consent in most property policies; life policies are generally freely assignable.

Contribution and subrogation both prevent double recovery: contribution among insurers, subrogation against third parties.

Total loss: actual total loss where the subject is destroyed or irrecoverable; constructive total loss where recovery cost exceeds the insured value.

Partial loss is settled on indemnity basis; repair, replacement, or cash are the standard settlement options.

Insurers must hold solvency capital to meet liabilities with a defined probability; solvency margin = admissible assets minus liabilities.

Claims reserving distinguishes incurred but not reported (IBNR) from reported outstanding claims; both affect technical provisions.

Reinsurance forms: proportional (quota share, surplus) and non-proportional (excess of loss, stop loss).

Facultative reinsurance is placed risk by risk; treaty reinsurance covers a defined portfolio automatically.

Fronting: a local insurer issues the policy and cedes most of the risk to a reinsurer, often for regulatory or licensing reasons.

Insurance-linked securities and catastrophe bonds transfer peak catastrophe risk to capital markets.

Pooling arrangements spread catastrophic or hard-to-insure risks (flood, terrorism, nuclear) across many insurers.

Premium rating factors must be objective and non-discriminatory; gender-based pricing is restricted in many jurisdictions following EU case law.

Duty of fair presentation: the insured must disclose material facts, not misrepresent them, and make a reasonable search for information.

Proportionate remedies apply to negligent non-disclosure: the insurer may reduce the claim in proportion to the premium it would have charged.

Terms not relevant to the actual loss cannot be used to refuse a claim under modern fair presentation rules.

Fraudulent claims: the insurer may refuse the claim entirely and recover sums paid, and may treat the policy as terminated.

Insurers must handle claims promptly and fairly; unreasonable delay can attract regulatory sanction and damages.

Complaints and dispute resolution: internal complaints procedure first, then the regulator or ombudsman, then the courts.

Data protection and confidentiality: personal and claims data must be processed lawfully and retained only as long as necessary.

Anti-money-laundering checks apply to life insurance and certain investment-linked products at onboarding and at claim.

Policy interpretation hierarchy: schedule, then insuring agreement, then exclusions, then conditions, then definitions.

Contra proferentem applies only where wording is genuinely ambiguous; clear exclusions are enforced as written.

The ejusdem generis rule limits general words following a list of specific items to things of the same kind.

Express terms override implied terms; custom and practice may imply terms only where they are certain and well known.

A condition precedent to contract must be met for the policy to exist at all; a condition subsequent ends the policy on breach.

Time bars on claims notification are strictly enforced unless the insurer waives the breach or the law provides otherwise.

Third-party rights: a person who is not a party to the policy generally cannot enforce it, unless statute or a direct right of action applies.

Insurers may recover defence costs from the insured where a claim is excluded or fraudulent.

Insurable interest in marine and cargo insurance: the assured must have an interest at the time of loss, not necessarily at inception.

Life assurance insurable interest is limited to a defined pecuniary amount; unlimited interest is not permitted.

Key person insurance: the company insures an employee whose death would cause measurable financial loss; the benefit is limited to that loss.

Creditor insurance: a lender may insure a borrower's life up to the outstanding debt; the benefit reduces as the debt is repaid.

Group life and group personal accident schemes rely on the employer's insurable interest in employees.

Co-insurance in health insurance means cost sharing between insurer and insured, distinct from property co-insurance.

Deductibles can be per claim, per annum, or per occurrence; the basis must be read from the schedule.

No-claims discount is a rating mechanism, not a legal right; it can be withdrawn on a claim or misrepresentation.

Insurable interest test: would the insured suffer a pecuniary loss if the event occurred? If no, there is no insurable interest.

Utmost good faith test: would the fact influence a prudent underwriter in deciding acceptance, terms, or premium? If yes, it is material.

Proximate cause test: which cause is nearest in efficiency and dominant in producing the loss?

Indemnity test: what sum restores the insured to the pre-loss position, taking account of depreciation, salvage, and deductible?

Contribution test: do two policies cover the same insured, subject matter, peril, and interest? If yes, share the loss.

Subrogation test: has the insurer paid, and does the insured have a legal right of recovery against a third party?

Average test: is the sum insured below the value at risk? If yes, apply the proportion to the loss.

Warranty test: is the breached term a warranty or a condition precedent? If yes, liability may be discharged regardless of causation.

Insurable interest and indemnity are the two pillars: the first makes the contract valid, the second limits the payout.

Utmost good faith and fair presentation govern the pre-contract stage; breach remedies range from avoidance to proportionate reduction.

Proximate cause determines whether an excluded peril defeats cover; the dominant cause controls.

Subrogation and contribution prevent double recovery from third parties and from other insurers respectively.

Average and deductibles allocate loss between insurer and insured; co-insurance clauses do the same in commercial property.

Warranties and conditions precedent are the insurer's defences; modern law limits their use where the breach is unrelated to the loss.

Risk pooling, moral hazard, and adverse selection explain why insurers underwrite, rate, and impose exclusions.

Claims handling, reserving, and reinsurance are the operational application of these principles.