III IC-102 common mistakes
III IC-102 · Understand the traps and how to avoid them.
Applying the principle of indemnity to a life insurance claim and reducing the payout to the measured financial loss, instead of paying the full sum insured on death.
Candidates memorise indemnity as a universal insurance principle and then over-apply it. Life and personal accident covers are benefit policies where the sum insured is agreed at outset, so the loss-measurement logic of property insurance does not transfer.
What to do instead
Build a two-column table: indemnity-based classes (fire, marine, motor, liability) versus benefit-based classes (life, personal accident, critical illness). For each, note what is paid and on what basis, and rehearse the reason life insurance is treated as a benefit policy - the human life cannot be valued in money.
Confusing insurable interest at inception with insurable interest at the time of loss, and applying the wrong test to each class of insurance.
The rule differs by class: in life insurance interest must exist when the policy is effected, while in property insurance it must exist at the time of the loss. Candidates learn one version of the rule and apply it to every scenario.
What to do instead
Memorise the pairing explicitly - life: at inception; property: at inception and at loss; marine: may be contingent or partial. Then practise short scenarios where the insured sells the property mid-term, or where a creditor insures a debtor's life, and state which test decides the claim.
Treating proximate cause as the last event in the chain rather than the dominant, effective cause of the loss, and so mis-deciding claims with two contributing perils.
Everyday reasoning equates 'cause' with the immediately preceding event. Insurance law asks which peril was the efficient, dominant cause, which is often earlier in the sequence.
What to do instead
Work through chains such as fire then explosion then smoke damage, or storm then flood, and for each identify the dominant cause and whether it is insured. Learn the exceptions - where a excluded peril is the proximate cause the claim fails even if an insured peril also operated.
Describing utmost good faith as a one-way duty on the proposer, and failing to recognise the insurer's reciprocal duty to disclose material facts and to act fairly in dealing with the claim.
Textbook summaries often present the duty as the proposer's obligation to answer questions honestly, which leads candidates to miss questions about the insurer's side of the duty.
What to do instead
State the duty as mutual in every answer, then give the insurer's side: disclosure of material facts within its knowledge, fair presentation of policy terms, and prompt, good-faith claims handling. Link it to the remedy of avoidance and to what 'material' means - a fact that would influence a prudent underwriter's decision.
Answering a claims scenario without running the full claims-handling sequence: notification, registration, documentation, survey or assessment, coverage decision, settlement or repudiation, and recovery or salvage.
Candidates jump straight to the coverage question because that is the part they have studied most, and lose marks for the procedural steps the question also asks about.
What to do instead
Adopt a fixed checklist and write the steps in order even when only some are asked, then strike out the irrelevant ones. Attach a realistic time limit to each step (for example notification within the period stated in the policy) so the sequence carries concrete content rather than headings.
Ignoring the deductible, excess, franchise and average (under-insurance) clause when calculating the amount payable, and quoting the gross loss figure as the settlement.
The gross loss is the most visible number in the question, and candidates stop calculating once they have it. The adjustment clauses are where the marks usually sit.
What to do instead
After every loss figure, force yourself through a short adjustment ladder: apply average if the sum insured is below the value at risk, subtract the excess or deductible, apply any limit or sub-limit, then check salvage and subrogation recoveries. Show each line of the calculation so partial credit is visible.
Treating subrogation and contribution as the same doctrine, or applying subrogation against a life policy.
Both involve recovery from a third party, so the terms blur. Subrogation is the insurer stepping into the insured's legal rights against the wrongdoer after paying; contribution is the sharing of a loss between insurers covering the same interest.
What to do instead
Write one-line definitions side by side and a worked example of each: a motor claim against a negligent third party for subrogation; two fire policies on the same stock for contribution. Note explicitly that subrogation does not apply to life and personal accident benefit policies.
Confusing the roles of the intermediary, the underwriter and the insurer in the placement process, and describing a broker as the insurer's agent.
The distribution chain is taught as a list of job titles rather than as a set of legal relationships, so agency and authority questions expose the gap.
What to do instead
Draw the chain with arrows showing who acts for whom: broker acts for the client, agent and bancassurance staff act for the insurer, underwriter accepts or declines the risk for the insurer. Learn the practical consequences - who owes the duty of disclosure to whom, and who can bind cover.
Answering regulation questions by describing the supervisor's objectives in general terms instead of naming the specific licensing, capital, conduct and reporting requirements that apply.
Regulatory chapters are long and candidates revise them last, retaining only broad themes such as 'protect policyholders' without the operative rules.
What to do instead
Convert the chapter into a requirement table: who must be licensed, minimum capital and solvency margin, fit-and-proper criteria for directors and key persons, conduct rules on disclosure and complaints, and reporting and audit deadlines. Learn each as a number or a named obligation rather than a slogan.
Mixing up the accounting treatment of premiums, claims and reserves - for example recording premium when cash is received rather than when the risk period runs, or omitting the unearned premium reserve and outstanding claims reserve from the result.
Candidates carry over cash-accounting intuition from personal finance, while insurance accounting matches premium to the period of cover and requires technical reserves that directly affect reported profit.
What to do instead
Work one small numerical example end to end: a policy written mid-year, the earned and unearned split, a claim incurred but not yet reported, and the effect of each on the revenue account and the balance sheet. Learn the named reserves - unearned premium, outstanding claims, incurred but not reported - and what each is for.