III IC-88 cheat sheet

Insurance is a contract of indemnity transferring specified risk from insured to insurer in exchange for premium; insurable interest must exist at inception (property) or at loss (life).

Utmost good faith (uberrimae fidei) obliges the insured to disclose all material facts; materiality is judged by whether a prudent underwriter would be influenced in accepting or rating the risk.

Indemnity principle: property/liability claims restore the insured to pre-loss financial position, never profit; life and personal accident are benefit (non-indemnity) policies paying the sum insured.

Subrogation applies only after indemnity payment under indemnity policies; insurer acquires the insured's recovery rights against the negligent third party but cannot recover more than it paid.

Contribution: where multiple indemnity policies cover the same risk, insurers share the loss pro rata (or by independent liability); total recovery cannot exceed the loss.

Proximate cause is the dominant, effective cause of loss; remote causes are disregarded when determining whether an insured peril operated.

Insurable interest: property - legal/equitable interest at time of loss; life - interest presumed for self and spouse, required at policy inception for others.

Contract essentials: offer, acceptance, consideration (premium), intention to create legal relations, capacity, and legality of object; a policy is void if object is illegal.

Policy structure: recital/schedule (parties, sums insured, period, premium), operative clause (grant of cover), exclusions, conditions, and endorsements; endorsements override inconsistent printed wording.

Average (co-insurance) clause: claim = (sum insured / value at risk) × loss; underinsurance proportionally reduces settlement for partial losses.

Reinstatement cover requires the sum insured to reflect new-for-old rebuild cost; it is normally conditional on repair/replacement actually being carried out.

Warranties are conditions precedent to liability - breach suspends or discharges cover regardless of causation (subject to statutory reform in some jurisdictions); representations are not warranties.

Deductibles/excess reduce each claim; franchise means no payment at all if loss is below the stated amount, but full payment if exceeded.

Pro rata condition of average applies to floating sums insured; first-loss and agreed-value policies displace average by fixing the basis of settlement.

Utmost good faith duties continue: notification of material alterations, change of risk, and claims must be prompt and honest to preserve cover.

Third-party liability covers pay sums the insured is legally liable to pay plus defence costs; occurrence vs claims-made triggers determine which policy responds.

Gross premium = risk premium + expense loading + profit/contingency margin + (where applicable) catastrophe or reinsurance loading; net premium excludes expenses.

Rate-making bases: class rating (homogeneous groups), schedule rating (additive debits/credits per hazard), experience rating (uses past loss record), and retrospective rating (premium adjusted post-term).

Loss ratio = incurred losses / earned premium; expense ratio = expenses / written premium; combined ratio = loss ratio + expense ratio; a combined ratio below 100% indicates underwriting profit.

Burning cost = historical incurred losses (plus expenses) / exposure base, used to price excess-of-loss and reinsurance layers.

Risk improvement measures (sprinklers, alarms, security) reduce frequency/severity and justify credits; moral hazard (intent) and morale hazard (carelessness) are rated differently.

Retention and deductible selection trade premium saving against volatility; higher retention reduces premium but increases net retained loss.

Reinsurance: proportional (quota share, surplus) shares premium and loss pro rata; non-proportional (excess of loss, stop loss) responds only above a retention/attachment point.

Underwriter decision rules: accept at standard rate, accept with terms (excess, exclusion, warranty), or decline; declinature must be documented with reasons.

Claims process: notification → registration → coverage verification → loss assessment/reserving → adjustment → settlement → recovery/subrogation; each stage has defined authority limits.

Reserving methods: case reserves (claim-by-claim estimate), IBNR (incurred but not reported), and IBNER (development on known claims); ultimate loss = paid + case + IBNR.

Total loss vs partial loss: total loss settles at sum insured or market value (per basis); partial loss settles at repair/replacement cost less excess, subject to average.

Salvage: insurer may take salvage after paying total loss; salvage value reduces the net claim; abandonment to insurer is not permitted without agreement.

Subrogation recovery = amount paid to insured, limited to the insured's remaining rights; insured must not prejudice recovery (e.g., by settling with the third party).

Fraud indicators: late notification, inflated or altered documents, staged incidents, inconsistent statements; suspected fraud is referred for investigation before payment.

Claims-made policies: cover responds if the claim is made and notified during the policy period (or extended reporting period), regardless of when the incident occurred.

Time limits and repudiation: late notification may prejudice cover only if it causes prejudice to the insurer (subject to policy wording and statute); repudiation must cite the specific policy term.

Regulatory objectives typically include policyholder protection, market confidence, and fair treatment of customers; conduct rules bind insurers, intermediaries, and staff.

Conflicts of interest must be identified, disclosed, and managed; personal interests (e.g., commissions, gifts) must not influence underwriting or claims decisions.

Data protection: personal data must be processed lawfully, fairly, and transparently, kept accurate, and retained no longer than necessary; consent or legitimate basis required.

Anti-money-laundering: customer due diligence (identification, verification, beneficial ownership, source of funds) and suspicious activity reporting are mandatory for insurers.

Treating customers fairly: clear disclosure of cover, exclusions, and premium; complaints handled within defined timeframes with escalation to the ombudsman/regulator.

Professional competence: staff must work within authority limits, refer beyond limits, and maintain records sufficient to evidence decisions.

Market conduct: mis-selling, churning, and non-disclosure of commission are breaches; suitability of advice must be assessed and documented.

Whistleblowing and integrity: suspected fraud, bribery, or regulatory breach must be reported through internal channels; retaliation is prohibited.

Technical reserves: unearned premium reserve (UPR) = written premium × unexpired proportion; outstanding claims reserve = case + IBNR; solvency margin = available capital − required capital.

Earned premium = written premium − increase in UPR; acquisition costs (commission, brokerage) are deferred and amortised over the policy term.

Solvency II-style framework: Pillar 1 (quantitative capital), Pillar 2 (governance and risk management), Pillar 3 (disclosure and reporting); SCR = required capital at 99.5% VaR over one year.

Investment policy: assets must match liabilities by currency and duration; liquidity maintained for claims; concentration and credit risk limits apply.

Distribution channels: brokers (act for insured), agents (act for insurer), bancassurance, direct; commission disclosure and conflicts rules apply per channel.

Reinsurance credit: reinsurance recoveries reduce gross liabilities only if the reinsurer is solvent and the contract is valid; credit risk must be assessed.

Operational risk: process failures, system outages, and outsourcing risks are managed through controls, business continuity plans, and testing.

Financial reporting: gross vs net premium, incurred claims, combined ratio, and return on capital are key performance indicators for underwriting performance.

Property: fire, special perils, business interruption (gross profit or gross revenue basis), and all-risks covers; exclusions typically include wear and tear, inherent vice, and war.

Liability: public, products, employers', and professional indemnity; occurrence vs claims-made basis; aggregate limits and defence cost treatment must be checked.

Motor: compulsory third-party bodily injury plus optional own-damage; no-claim discount scales vary; uninsured driver and theft covers are common extensions.

Marine and transit: institute cargo clauses (A/B/C) define perils covered; warehouse-to-warehouse transit; general average contribution applies.

Life and personal accident: sum insured payable on death/accident; exclusions for suicide (within period), pre-existing conditions, and hazardous activities; benefit basis not indemnity.

Engineering and construction: contractor's all-risks, erection all-risks, and machinery breakdown; defects exclusions and maintenance covers are standard.

Cyber and specialty: first-party (response, business interruption) and third-party (liability) covers; exclusions for war, infrastructure failure, and prior known incidents.

Product design: sum insured, excess, exclusions, and conditions must match the risk; endorsements tailor cover; policy wording must be clear and unambiguous to the insured.

Risk management cycle: identify → analyse/measure → evaluate → treat (avoid, reduce, transfer, retain) → monitor and review.

Risk transfer to insurers and reinsurers reduces retained volatility but does not eliminate risk; residual risk and counterparty risk remain with the cedant.

Reinsurance forms: facultative (individual risk, case-by-case) vs treaty (portfolio, automatic); proportional (quota share, surplus) vs non-proportional (excess of loss, stop loss).

Excess of loss: reinsurer pays losses above the cedant's retention up to the limit; reinstatements define how many times the limit can be used and at what cost.

Quota share: fixed percentage of premium and loss ceded; surplus: cedes amounts above the cedant's retention line, proportional to the sum insured.

Catastrophe cover: aggregate and per-event limits; event definition, hours clause, and reinstatement provisions determine recovery.

Enterprise risk management: risk appetite statement, risk register, key risk indicators, stress testing, and scenario analysis feed the ORSA (own risk and solvency assessment).

Captive and alternative risk transfer: captives retain selected risks; parametric and ILS structures transfer defined triggers, with basis risk as a key limitation.