III IC-78 key terms

A legal and financial relationship with the subject matter of insurance such that the insured benefits from its preservation and suffers measurable loss from its damage or destruction; required at inception and, for property, at time of loss.

The mutual duty of proposer and insurer to disclose all material facts and answer questions honestly, so that the contract is not obtained or granted on a false footing.

Any information that would influence a prudent underwriter's decision to accept a risk, fix the premium, or impose terms; it must be disclosed even if no question asks for it.

Failure by the proposer to reveal a material fact, whether deliberate or inadvertent. It may allow the insurer to avoid the contract or to repudiate a claim.

An untrue or misleading statement of a material fact made by the proposer. If made knowingly or negligently it may entitle the insurer to avoid the policy.

The principle that the insured should be restored, financially, to the position held immediately before the loss, neither better nor worse, subject to the sum insured and policy conditions.

The insurer's right, after paying a claim, to step into the insured's shoes and recover the loss from the party legally responsible, so that the insured does not recover twice.

The right of one insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest against the same peril.

Situation where the same insured interest is covered by more than one policy against the same risk, so that contribution applies between the insurers.

The dominant, effective and efficient cause of a loss, the cause that sets the chain of events in motion without interruption by a new and independent cause.

The event or contingency that causes loss, such as fire, theft, collision or flood. Perils covered are named in the policy or implied by its wording.

A condition or circumstance that increases the likelihood or severity of a loss from a peril, for example poor housekeeping, faulty wiring or careless driving.

The tendency of an insured to be less careful, or to act dishonestly, because insurance exists, arising from attitude rather than physical conditions.

A specific risk, property or circumstance expressly removed from the cover granted by a policy, often to keep the premium proportionate to the risk accepted.

A policy term that must be complied with exactly, whether or not it is material to the risk; breach may discharge the insurer's liability from the date of breach.

A term in the policy that sets out the rights and obligations of the parties, such as premium payment, claims notification or maintenance of protective measures.

The maximum amount the insurer will pay under a policy, representing the value the insured declares and on which the premium is calculated.

A situation where the sum insured is less than the actual value of the property, so that average or proportionate reduction applies to partial losses.

A condition that reduces a claim in the proportion that the sum insured bears to the value of the property at risk, penalising underinsurance.

The cost of replacing damaged property with new property of the same kind and quality, without deduction for depreciation, used as a basis of settlement in some policies.

The reduction in value of property through age, wear, tear or obsolescence, deducted when settling claims on an indemnity basis.

The residual value of damaged property that remains after a loss; the insurer may take it over or deduct its value from the claim paid.

The consideration paid by the insured for the cover granted, calculated from the rate applied to the sum insured and adjusted for risk factors and expenses.

The process of determining the premium rate for a risk, using tariffs, statistical data, past experience or individual underwriting judgement.

The insurer's assessment of a proposed risk to decide whether to accept it, on what terms, and at what premium, with or without conditions or exclusions.

The amount of each loss that the insured must bear before the insurer's liability begins; it reduces premium and discourages small claims.

A sum the insured agrees to bear on each claim, whether compulsory or voluntary, often applied to motor and property covers to reduce small claims.

A premium discount granted in renewal for a claim-free period, rewarding good experience and encouraging the insured to avoid small claims.

The continuation of a policy for a further period after expiry, which is not automatic; the insurer may revise terms, premium or decline the risk.

The written document evidencing the contract of insurance, setting out the cover, conditions, exclusions, sum insured, premium and period of insurance.

A written amendment to a policy that alters its terms, cover or details, and which forms part of the contract once agreed by the parties.

A formal demand by the insured for payment under the policy following a loss, supported by evidence of the loss and its cause.

A person appointed by the insurer to inspect the risk or investigate a loss, and to report on the cause, extent and value of damage.

Insurance of insurers, by which an insurer transfers part of its risk to a reinsurer, protecting its solvency and capacity to write larger risks.

The portion of a risk that an insurer keeps for its own account and does not transfer to reinsurers, based on its capital and appetite.

Arrangement where two or more insurers each accept a stated share of the same risk under one policy, sharing premium and claims in agreed proportions.

Legal liability of an insured towards other persons for injury, death or property damage caused by the insured's activity, often covered by liability policies.

Failure to exercise the degree of care reasonably expected of a person in the circumstances, resulting in damage to another, and the basis of most liability claims.