III IC-84 flashcards

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

Insurable interest

A legal or equitable relationship to the subject matter such that its loss causes the insured a pecuniary or legal detriment. Required at inception for life cover and at loss for property.

Indemnity principle

Property and liability policies restore the insured to pre-loss financial position without profit. Life and personal accident policies are valued contracts and are exceptions to this principle.

Utmost good faith

Both parties must disclose material facts. Materiality is tested by whether a prudent insurer would be influenced in accepting the risk or setting the premium.

Proximate cause

The dominant, effective, efficient cause of a loss, not merely the last event. It determines whether the loss falls within insured perils or an exclusion.

Subrogation

After paying an indemnity, the insurer acquires the insured's rights of recovery against third parties. Recovery cannot exceed the amount paid, nor prejudice the insured's uninsured balance.

Contribution

Where two or more policies cover the same interest, peril, and subject matter, each insurer pays rateably or per an independent liability clause, preventing double recovery.

Average clause

Underinsurance formula: claim payment equals sum insured divided by value at risk, multiplied by the loss. Applied to partial losses, not total losses.

Class-of-business authorization

An insurer, broker, or agent must hold the specific licence for the class transacted before conducting business. Acting outside authorization is an offence regardless of good faith.

Solvency margin

Admissible assets minus liabilities, measured against a required capital amount prescribed by regulation. A breach triggers supervisory intervention rather than automatic insolvency.

Customer due diligence

Identifying the customer and beneficial owners, verifying identity, and understanding the purpose of the relationship before or during onboarding, with enhanced checks for politically exposed persons.

Suspicious activity report

A confidential report filed with the financial intelligence unit when an intermediary knows or suspects money laundering or terrorist financing. Tipping off the customer is prohibited.

Treating customers fairly

A conduct framework testing outcomes across product design, sales, post-sale service, and complaints, rather than merely documenting policies and procedures.

Moral hazard

Risk arising from the character, honesty, and financial motivation of the insured, such as intent to defraud or exaggerate a claim.

Morale hazard

Risk arising from carelessness or indifference once cover is purchased, because the insured no longer bears the full cost of loss.

Loss ratio

Incurred losses divided by earned premium. Used in experience rating with credibility weighting and trend adjustment to set renewal terms.

Facultative reinsurance

Reinsurance placed risk by risk, with the reinsurer free to accept or decline each submission. Contrasts with treaty reinsurance, which is automatic within defined parameters.

Physical hazard

Tangible risk characteristics such as occupancy, construction, fire protection, housekeeping, and exposure to neighboring risks, which underwriting evaluates and prices.

Aggregate limit

The maximum total the insurer will pay across all covered losses in a policy period. Reinstatement provisions may restore the limit, sometimes for additional premium.

Reservation of rights

A letter preserving the insurer's coverage defenses while investigation continues. It is not a denial and does not waive coverage by itself.

Actual cash value

Indemnity measure equal to replacement cost less depreciation, reflecting the pre-loss value of the damaged property. Betterment is excluded from settlement.

Business interruption gross profit

Covers lost turnover less saved costs plus increased cost of working. The indemnity period must align with the time needed to restore turnover.

Salvage

Damaged property retained or sold after settlement, reducing net claim cost. The insurer must handle disposal without negligence to avoid liability.

Hammer clause

A liability policy provision allowing the insurer to settle within limits without the insured's consent, with the insured bearing excess damages if consent is unreasonably withheld.

Proof of loss

A formal sworn statement of the claim amount and supporting evidence. In many policies it is a condition precedent to recovery, along with prompt notice.

Commission disclosure

A conduct requirement to tell the customer, in understandable form and before the contract concludes, the basis and amount of remuneration the intermediary receives.

Advice versus information

A personal recommendation requires a suitability assessment of needs and objectives. Execution-only sales require documented customer election and clear warnings.

Target market definition

Identifying the customer group a product is designed for and the distribution strategy appropriate to it, with post-sale review of product value.

Cooling-off period

A defined window after inception during which the customer may cancel. Refund calculation differs by product type and must be disclosed at point of sale.

Financial promotion

Marketing communication that must be fair, clear, and not misleading. Comparisons must be verifiable and past performance must not be overstated.

Client money segregation

Premiums collected by intermediaries are held in statutory trust accounts separate from company funds, with reconciliation at prescribed intervals.

Vulnerable customer

A customer whose circumstances reduce capacity to understand or decide, requiring adjusted communication, extra time, and documented suitability checks. Not limited to age or disability.

Complaint root-cause analysis

Categorizing complaints by underlying cause and using volume, resolution time, and repeat issues as conduct risk indicators reviewed by supervisors.