III IC-88 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 the insured benefits from its preservation or suffers loss from its damage; required at inception for property and at loss for life.

Utmost good faith

The mutual duty of insured and insurer to disclose all material facts; a fact is material if a prudent underwriter would be influenced in accepting or rating the risk.

Indemnity principle

The insured is restored to the pre-loss financial position, no better and no worse; applies to property and liability, not to life or personal accident benefit policies.

Subrogation

After paying an indemnity claim, the insurer acquires the insured's legal rights of recovery against the responsible third party, limited to the amount paid.

Contribution

Where two or more indemnity policies cover the same loss, insurers share the payment pro rata or by independent liability; total recovery cannot exceed the actual loss.

Proximate cause

The dominant and effective cause of a loss; remote causes are disregarded when deciding whether an insured peril operated under the policy.

Average clause

A co-insurance condition reducing partial-loss settlements in proportion to underinsurance: claim equals sum insured divided by value at risk, multiplied by the loss.

Warranty

A policy term whose breach discharges or suspends cover regardless of causation; stricter than a representation, and often subject to statutory reform.

Deductible versus franchise

A deductible reduces each claim by the stated amount; a franchise pays nothing if the loss is below the threshold but pays in full once it is exceeded.

Reinstatement cover

Settlement on a new-for-old basis for rebuilding or replacement, conditional on the work being carried out and the sum insured reflecting full rebuild cost.

Claims-made trigger

Cover responds when the claim is made and notified during the policy period or extended reporting period, regardless of when the incident occurred.

Combined ratio

The sum of the loss ratio and expense ratio; a value below 100 percent indicates an underwriting profit, above 100 percent an underwriting loss.

Burning cost

Historical incurred losses plus expenses divided by the exposure base, used to price excess-of-loss layers and reinsurance treaties.

Quota share reinsurance

A proportional treaty ceding a fixed percentage of every risk's premium and loss to the reinsurer, with the cedant retaining the remaining percentage.

Moral versus morale hazard

Moral hazard is dishonest intent to cause or exaggerate loss; morale hazard is carelessness or indifference to loss arising from having insurance.

Retention

The amount of risk or loss an insured or cedant keeps rather than transfers; higher retention lowers premium but raises net retained volatility.

IBNR reserves

Incurred but not reported reserves estimate losses from incidents that have occurred but not yet been notified; ultimate loss equals paid plus case plus IBNR.

Salvage

Remaining value of damaged property; after a total-loss payment the insurer may take salvage, and its value reduces the net claim.

Case reserve

A claim-by-claim estimate of the expected ultimate cost of a reported claim, reviewed as the claim develops and adjusted for new information.

Repudiation

The insurer's formal refusal to pay a claim, which must cite the specific policy term or legal ground relied upon and be documented.

Claims fraud indicators

Red flags such as late notification, altered documents, staged incidents, or inconsistent statements, which trigger investigation before any payment is made.

Customer due diligence

Anti-money-laundering checks identifying the customer, verifying identity, establishing beneficial ownership, and confirming source of funds before accepting business.

Conflicts of interest

Situations where personal or financial interests could influence decisions; they must be identified, disclosed, and managed, not merely ignored.

Treating customers fairly

The conduct principle requiring clear disclosure of cover, exclusions, and premium, suitable advice, and prompt fair complaint handling with escalation rights.

Unearned premium reserve

The portion of written premium relating to the unexpired part of the policy period, calculated as written premium multiplied by the unexpired proportion.

Solvency capital requirement

The capital needed to absorb a one-year loss at a 99.5 percent confidence level; available capital minus required capital gives the solvency margin.

Earned premium

Written premium minus the increase in unearned premium reserve; it represents the premium attributable to cover already provided in the period.

Business interruption cover

Pays loss of gross profit or revenue following insured physical damage, over an indemnity period, subject to a sum insured and increased cost of working limits.

Institute cargo clauses

Standard marine transit wordings A, B, and C, with A the widest all-risks cover and C the narrowest named-perils cover.

Professional indemnity

Liability cover for negligent acts, errors, or omissions in professional services, usually written on a claims-made basis with an aggregate limit.

Risk management cycle

The iterative process of identifying, analysing, evaluating, treating, and monitoring risks, with periodic review as exposures and controls change.

Excess of loss reinsurance

A non-proportional treaty where the reinsurer pays losses above the cedant's retention up to a limit, with reinstatements governing reuse of that limit.