III IC-01 flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Insurable interest

A legal or pecuniary relationship to the subject matter such that the insured benefits from its preservation or suffers loss from its damage. Required at inception for property and at inception and death for life.

Utmost good faith

The reciprocal duty on insured and insurer to disclose all material facts and not misrepresent them. Breach allows the insurer to avoid the contract or, under modern law, apply a proportionate remedy.

Material fact

Any fact that would influence a prudent underwriter in deciding whether to accept a risk, what terms to impose, or what premium to charge. Examples include prior claims, hazardous activities, and other insurance.

Indemnity

The principle that 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, and effective cause of a loss. Cover depends on this cause rather than on remote causes that may also have contributed to the event.

Subrogation

After paying a claim, the insurer acquires the insured's right to recover the loss from a third party. Recovery is capped at the amount paid and applies only to indemnity policies.

Contribution

The right of an insurer that has paid a loss to recover a share from other insurers covering the same insured, subject matter, peril, and interest. Methods include rateable proportion and independent liability.

Average clause

A condition that reduces a claim proportionally when the sum insured is below the value at risk. Payment equals sum insured divided by value at risk, multiplied by the loss.

Sum insured

The maximum amount the insurer will pay under the policy. It is a limit, not a valuation, and may be reduced by claims paid or reinstated on payment of additional premium.

Deductible

The first amount of each loss borne by the insured. It reduces small claims and moral hazard and may be applied per claim, per occurrence, or per annum.

Franchise

A threshold amount. If the loss exceeds the franchise the insurer pays the full loss; if the loss is below it the insurer pays nothing.

Warranty

A term the insured promises to comply with exactly. Breach may discharge the insurer from liability for the relevant loss even if the breach is unrelated to the loss.

Condition precedent

A requirement that must be satisfied before the insurer becomes liable, such as notifying a claim within the stated period or submitting proof of loss.

Moral hazard

The change in behaviour caused by having insurance, which can increase the likelihood or size of a loss. Insurers counter it with deductibles, exclusions, warranties, and claims investigation.

Adverse selection

The tendency of higher-risk applicants to seek insurance more than lower-risk ones. Insurers manage it through underwriting, rating, and policy terms.

Risk pooling

The collection of premiums from many insureds to fund the losses of the few. The law of large numbers makes aggregate outcomes more predictable as the pool grows.

Pure risk

A risk with only loss or no-loss outcomes, such as fire or theft. Pure risks are generally insurable, unlike speculative risks that offer gain or loss.

Speculative risk

A risk where both gain and loss are possible, such as trading or investment. Speculative risks are generally not insurable because they are voluntarily undertaken for profit.

Avoidance of contract

A remedy treating the policy as never having existed. Premiums are returned subject to fraud, and claims are not paid, typically for fraudulent non-disclosure or misrepresentation.

Fair presentation

The insured's duty to disclose material facts, avoid misrepresentation, and make a reasonable search for information. Remedies for negligent breach are proportionate to the premium shortfall.

Contra proferentem

The rule that ambiguous policy wording is construed against the party that drafted it, usually the insurer. It applies only where genuine ambiguity exists.

Actual total loss

A loss where the subject matter is destroyed, irrecoverable, or so damaged that it ceases to be the thing insured. The insurer pays the sum insured, less salvage.

Constructive total loss

A loss where the subject matter is not destroyed but the cost of recovery or repair exceeds its insured value. The insured may abandon the property and claim a total loss.

Salvage

Damaged property taken over by the insurer after paying a total loss. Its value reduces the claim, and the insurer may sell it to recover part of the payment.

Reinsurance

The transfer of part of an insurer's risk to another insurer. It does not change the original insured's rights against the first insurer.

Quota share treaty

A proportional reinsurance arrangement in which the reinsurer accepts a fixed percentage of every risk in a defined portfolio, sharing premiums and losses in that proportion.

Excess of loss

A non-proportional reinsurance arrangement in which the reinsurer pays losses above a retention up to a limit, per occurrence or per year.

IBNR reserves

Incurred but not reported reserves. Provisions for claims that have occurred but have not yet been notified to the insurer, estimated using actuarial methods.

Solvency margin

The excess of admissible assets over liabilities that an insurer must hold to meet claims with a defined probability. It is a regulatory capital requirement.

Co-insurance clause

A property condition requiring the insured to carry insurance to an agreed percentage of value. If not, the insured bears a proportional share of each loss.

Reinstatement value

The cost to rebuild or replace the insured property with new equivalent, without deduction for depreciation. It is an exception to the indemnity principle and must be stated in the policy.

Waiver and estoppel

The rule that an insurer which knowingly accepts a breach, such as late premium or late notice, may lose the right to rely on that breach later.

Burden of proof

The insured must show a loss falls within the insuring agreement; the insurer must show an exclusion applies. The burden shifts according to the wording and the law.