III IC-24 key terms

A legally recognised financial relationship with the subject matter of insurance such that the insured benefits from its safety and suffers loss from its damage. It must exist at inception for life and marine cover, and at the time of loss for property indemnity.

The principle that a property or liability claim should restore the insured to roughly the same financial position as before the loss, no better and no worse. It limits recovery to the actual loss suffered, subject to the sum insured and policy conditions.

The mutual duty of the proposer and the insurer to disclose all material facts relevant to the risk being accepted, without being asked. Breach by the insured can allow the insurer to avoid the contract from inception.

Any information that would influence a prudent underwriter's decision on whether to accept a risk, what premium to charge, or what terms to impose. Examples include prior claims, hazardous occupations, and existing cover elsewhere.

Failure by the proposer to reveal a material fact to the insurer, whether deliberate or inadvertent. It differs from misrepresentation, which involves a positive false statement, though both may entitle the insurer to avoid the policy.

The dominant, effective, and operative cause of a loss, the one that sets the chain of events in motion without interruption. Claims are assessed by this cause, not merely by the last event in the sequence.

The increased likelihood of loss arising from the insured's own attitude, dishonesty, or carelessness rather than from the physical nature of the risk. It is assessed through claims history, character of proposer, and safeguards such as deductibles.

A tangible condition of the insured property or its surroundings that increases the chance or severity of loss, such as poor wiring, combustible stock, or flood exposure. It is distinguished from moral and morale hazards, which are behavioural.

The insurer's right, after paying a claim, to step into the insured's legal position and recover the loss from the party responsible. It supports indemnity by preventing the insured from recovering twice for the same damage.

The principle allowing an insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest against the same peril. It applies only to indemnity policies and requires common subject matter, peril, and period.

The situation where the same insured takes out more than one policy covering the same interest, peril, and period, so that total sums insured exceed the value at risk. Contribution governs how the claim is shared among insurers.

A policy condition that reduces a claim in proportion to under-insurance, calculated as sum insured divided by value at risk multiplied by the loss. It penalises insureds who declare a sum insured below the true reinstatement or market value.

The maximum amount the insurer will pay under a policy for a covered loss, and the basis on which premium is usually calculated. It should reflect the value at risk, otherwise average or a shortfall in recovery may apply.

A fixed amount or percentage the insured must bear before the insurer pays anything on a claim. It reduces small claims handling costs, encourages loss prevention, and is often used to price higher-risk or high-frequency covers.

The portion of a loss that the insured retains, deducted from the claim payment, which may be compulsory or voluntary. A voluntary excess is often accepted in exchange for a lower premium, and it may apply per claim or per event.

A threshold below which no claim is payable at all, but once the loss exceeds it the entire loss is paid without deduction. It differs from an excess, which is always deducted from the amount payable.

The cost of replacing or rebuilding damaged property with new material of like kind and quality, without deduction for depreciation. Policies on this basis usually require the sum insured to reflect full replacement cost to avoid average.

The reduction in the value of an asset due to age, wear and tear, or obsolescence. Under an indemnity basis of settlement, depreciation is deducted from replacement cost when arriving at the amount payable for a claim.

The residual value of damaged property that remains after a loss, which belongs to the insurer once the claim is paid in full. Its value is deducted from the loss, or the insurer may sell it to offset claim costs.

A clause in a policy that removes specified perils, property, or circumstances from cover, such as war, nuclear risks, or wear and tear. Exclusions define the boundary of the promise to indemnify and are read alongside the operative clause.

A policy term that the insured promises to fulfil, such as maintaining a sprinkler system or fitting approved locks. Breach may entitle the insurer to avoid the contract or refuse a claim, depending on the applicable law and wording.

A requirement the insured must satisfy before the insurer's liability arises, for example giving notice of loss within a stated period or submitting a claim form. Failure may allow the insurer to reject the claim.

A written amendment to a policy that changes, adds, or removes cover, terms, or conditions after issue. It is signed or agreed by both parties and forms part of the contract, taking precedence over the original wording.

A temporary document issued before the formal policy, providing evidence that cover is in force from a stated date. It is usually short-lived and is replaced by the policy once underwriting and premium formalities are complete.

The part of the policy that records the specific details of the contract, including the insured's name, risk address, sum insured, premium, period of cover, and applicable endorsements. It is read with the general and special conditions.

The application document completed by a proposer, containing the information the insurer needs to assess the risk. Its answers are usually declared to be the basis of the contract, making accuracy and full disclosure essential.

A physical or technical survey of the insured property or operations to assess hazards, verify proposal information, and recommend improvements. Findings influence acceptance terms, premium rating, and any risk improvement conditions.

The process of calculating the premium for a risk using rates, sums insured, and rating factors such as occupancy, construction, and claims experience. It aims to match the price charged to the expected cost of claims and expenses.

The consideration paid by the insured for the insurer's promise of cover, usually stated in the policy schedule. It may be adjusted for deductibles, risk improvements, no-claim benefits, and instalment payment arrangements.

Incurred claims expressed as a percentage of earned premium over a period. It is a core measure of underwriting performance, used alongside expense ratios to judge whether a class of business is profitable.

The transfer of part of an insurer's risk to another insurer, the reinsurer, in exchange for a share of premium. It protects the ceding insurer's solvency and capacity, and may be proportional or non-proportional in structure.

The amount of risk an insurer or reinsurer keeps for its own account before ceding the remainder to reinsurers. It is set with reference to capital, surplus, and the volatility of the class of business.

A reinsurance arrangement negotiated separately for each individual risk, giving the reinsurer the right to accept or decline. It suits large, unusual, or hazardous risks that fall outside automatic treaty capacity.

A standing agreement under which the reinsurer automatically accepts a defined class or portfolio of risks that fall within the treaty terms. It covers many policies without individual negotiation and may be proportional or excess of loss.

The process of registering, investigating, assessing, and paying or repudiating a claim in line with policy terms and regulatory timelines. It includes loss assessment, documentation, salvage recovery, and fraud checks.

The remedy that treats a contract as never having existed, returning both parties to their pre-contract position. Insurers may seek avoidance for material non-disclosure or misrepresentation, subject to statutory and regulatory limits.

The specific event or cause of loss that a policy covers, such as fire, lightning, theft, or flood. Perils are named in the operative clause and are distinct from hazards, which increase the likelihood of a peril occurring.

The clauses of an insurance contract that set out the obligations and rights of both parties, including claims notification, premium payment, and cancellation. They sit alongside the operative clause, exclusions, and schedule.