III IC-77 cheat sheet

Risk is uncertainty of loss; peril is the cause of loss; hazard is a condition that increases the chance or severity of loss (physical, moral, morale).

Insurable risk tests: large number of similar exposure units, accidental and measurable loss, definite in time and amount, no catastrophic concentration, premium economically feasible.

Pure risk (loss or no loss) is insurable; speculative risk (loss, no loss, or gain) is generally not insurable.

Risk management steps: identify exposures, measure frequency and severity, select technique (avoidance, retention, control, transfer), implement, monitor.

Loss frequency x average severity approximates expected annual loss, the basis for retention limits and premium loading.

Insurers transfer risk; they retain only what surplus and reinsurance capacity support. Reinsurance is insurance for insurers.

Law of large numbers: as the number of independent similar exposure units grows, actual loss experience converges on expected experience, improving predictability.

Moral hazard is dishonesty-driven behavior; morale hazard is carelessness; both raise expected loss and may justify exclusions, deductibles, or co-insurance.

Adverse selection occurs when higher-risk applicants buy more coverage; underwriting, waiting periods, and exclusions control it.

Contract elements: offer, acceptance, consideration, legal capacity, and lawful object. In insurance, the application is usually the offer and the policy issuance or binder the acceptance.

Utmost good faith requires disclosure of material facts; non-disclosure or misrepresentation can allow avoidance depending on materiality and jurisdiction.

Insurable interest must exist at inception for life and at inception and loss for property; without it the contract is void.

Indemnity restores the insured to pre-loss financial position, no better; it underpins property and liability cover, not agreed-value life cover.

Subrogation lets the insurer step into the insured's legal rights after paying a loss, preventing double recovery and shifting cost to the negligent party.

Contribution applies when two or more policies cover the same loss; each pays its rateable share so total payment does not exceed the loss.

Proximate cause is the dominant, effective cause linking the peril to the loss; remote causes do not trigger cover.

Warranties are promises that must be literally complied with; breach may discharge the insurer, though modern rules often require materiality.

Doctrine of waiver and estoppel: an insurer that knowingly waives a right or condition cannot later enforce it to the insured's detriment.

Term life pays only on death within the term; no cash value. Whole life is permanent, level premium, builds cash value and may pay dividends in participating forms.

Endowment combines death protection with a maturity benefit paid if the insured survives the term.

Universal life separates protection from savings, with flexible premiums and an explicit cash value credited interest; cost of insurance is deducted.

Variable life and unit-linked products shift investment risk to the policyholder; values depend on separate account or fund performance.

Annuities liquidate capital: immediate vs deferred, fixed vs variable, life vs period-certain payout options.

Underwriting assesses mortality: age, sex, health history, family history, occupation, hobbies, smoking, and financial justification for sum insured.

Standard underwriting outcomes: standard, substandard (rated or excluded), postponed, or declined.

Suicide clause, incontestability period, grace period, reinstatement, and free-look period are standard policyholder protections.

Beneficiary rules: revocable vs irrevocable, primary vs contingent, per capita vs per stirpes distribution.

Sum insured is the maximum limit of liability; it is not automatically the value of the property.

Average (underinsurance) clause: claim = loss x (sum insured / value at risk), applied when sum insured is below required value.

Reinstatement value vs indemnity value: reinstatement replaces new for old; indemnity deducts depreciation.

Deductible/excess is the first amount of each loss borne by the insured; franchise means no payment at all if loss is below the threshold.

Policy structure: declarations, insuring agreement, exclusions, conditions, definitions, and endorsements. Endorsements override the base wording.

Claims process: notify, mitigate, prove loss, adjust, settle. Insurers pay the lower of loss, sum insured, or interest.

Co-insurance in commercial property requires insureds to carry a stated percentage of value or share losses proportionally.

Salvage and subrogation recoveries reduce net claim cost and are credited to the insurer.

Health cover types: indemnity (reimbursement of actual costs), fixed benefit, and managed care/network models.

Key terms: deductible, co-payment, co-insurance percentage, annual and lifetime limits, waiting periods, pre-authorization.

Pre-existing condition clauses exclude or delay cover for conditions existing before inception; regulation increasingly restricts their use.

Moral hazard controls include deductibles, co-insurance, exclusions, and utilization review.

Critical illness pays a lump sum on diagnosis of a listed condition after a survival period; it is not reimbursement.

Personal accident cover pays fixed benefits for death, disability, and medical expenses on accidental injury; it is not liability cover.

Claims documentation: diagnosis, treatment records, invoices, and pre-authorization approvals.

Renewability and portability rights affect continuity of cover and waiting-period credit.

Standard fire perils: fire, lightning, and explosion of gas used for domestic purposes; extended perils (STFI: storm, tempest, flood, inundation) are added by endorsement.

Fire requires actual ignition, accidental origin, and a flame; scorching without ignition is generally not a fire loss.

Property policy covers buildings, contents, or both; declare occupancy and construction because they drive rate.

Special perils add: aircraft damage, riot and strike, malicious damage, impact, subsidence, and bursting of pipes.

Business interruption covers lost profit and continuing fixed costs after an insured property loss, subject to an indemnity period.

Valued policy pays an agreed amount on total loss; unvalued policy pays the actual loss up to the sum insured.

Exclusions commonly include war, nuclear risks, willful acts, inherent vice, and wear and tear.

Loss of rent, removal costs, and professional fees are common extensions.

Marine cargo cover: Institute Cargo Clauses A (all risks), B, and C (named perils only); coverage is transit-based, warehouse to warehouse.

Hull and machinery cover insures the vessel; P&I (protection and indemnity) covers third-party liability, crew, and pollution.

General average: a voluntary sacrifice of part of the cargo or ship to save the whole venture; all parties share the loss proportionally.

Particular average is a partial loss borne by the owner of the damaged property alone.

Perils of the sea, jettison, barratry, piracy, fire, and collision are classic marine perils.

Aviation hull cover insures aircraft; aviation liability covers passengers, third parties, and baggage/cargo.

Warranties of seaworthiness, legality, and safe berth are central to marine cover; breach may void the claim.

Inchmaree clause covers negligence of master or crew and latent defects in hull cover.

Third-party liability is compulsory in most jurisdictions: bodily injury and property damage caused to others.

Own-damage (comprehensive) cover insures the insured vehicle against accident, fire, theft, and natural perils.

No-claim discount rewards claim-free years and is reduced or reset after an at-fault claim.

Insured declared value should reflect market value; over-insurance does not increase the payout beyond actual loss.

Common exclusions: driving without a valid licence, under influence, unroadworthy vehicle, racing, and use outside declared purpose.

Knock-for-knock agreements let insurers settle own-damage claims without subrogation disputes.

Motor third-party bodily injury claims are often subject to statutory limits or unlimited liability depending on jurisdiction.

Theft cover normally requires forced entry evidence and reporting to police.

Public liability covers injury or damage to third parties arising from the insured's premises or operations.

Product liability covers harm caused by defective products; occurrence vs claims-made triggers matter.

Professional indemnity covers negligent acts, errors, or omissions in professional services; claims-made basis with retroactive date.

Employers' liability / workers' compensation covers employee injury arising from employment, often statutory.

Directors and officers (D&O) liability covers wrongful acts of directors and officers; side A, B, and C cover distinct exposures.

Fidelity guarantee covers employee dishonesty; money insurance covers cash in transit or on premises.

Cyber liability covers data breach, privacy liability, and remediation costs.

Claims-made policy responds to claims first made during the policy period, regardless of when the act occurred, subject to retroactive date.

Regulators license insurers, intermediaries, and products; they set solvency, capital, and market-conduct standards.

Solvency margin is the excess of admissible assets over required liabilities; risk-based capital ties capital to risk profile.

Reserving: unearned premium reserve for the unexpired portion of premium; incurred but not reported (IBNR) reserve for claims not yet notified.

Premium is calculated as expected loss plus expenses, profit, and risk/contingency loading.

Statutory deposits, technical reserves, and reinsurance arrangements are core prudential requirements.

Market conduct rules cover fair treatment, disclosure, complaints handling, and anti-money laundering.

Insurance intermediaries (agents, brokers) must be registered; brokers act for the client, agents for the insurer.

Regulatory reporting includes financial statements, solvency returns, and actuarial certification.

Duty of disclosure: insurers must explain cover, exclusions, and premium clearly before the contract is concluded.

Suitability and needs analysis: recommend products matching the customer's needs, not the seller's commission.

Conflicts of interest must be disclosed and managed; commission disclosure is required in several jurisdictions.

Fair treatment of customers: transparency, fair claims handling, prompt settlement, and clear complaints procedures.

Data privacy: collect only necessary personal data, secure it, and use it only for stated purposes.

Anti-money laundering: customer due diligence, source-of-funds checks, and suspicious transaction reporting.

Mis-selling and churning (replacing policies to generate commission) are prohibited practices.

Whistleblowing and internal escalation channels protect ethical conduct and regulatory compliance.