SLII Diploma in Insurance cheat sheet

Insurable interest: the policyholder must benefit from the subject matter's survival and be prejudiced by its loss; in UK non-marine life and property it must exist at inception (life) or at inception and loss (indemnity covers).

Utmost good faith (uberrimae fidei): both parties must disclose material facts; under the Consumer Insurance (Disclosure and Representations) Act 2012 consumers need only answer questions honestly and with reasonable care, while commercial insureds must volunteer material facts under the Insurance Act 2015.

Indemnity: 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).

Proximate cause: the dominant, effective cause of loss determines cover; where an insured peril and an excluded peril operate, the earlier effective cause prevails in a chain of events.

Subrogation: after indemnifying, the insurer steps into the insured's legal rights against third parties; it cannot recover more than the amount paid and cannot pursue the insured's own family members in a domestic policy.

Contribution: where two or more policies cover the same loss on the same interest, insurers share the loss pro rata (or per the policy's rateable proportion clause); it does not apply to benefit policies.

Average clause: if the sum insured is less than the value at risk, the claim is reduced in proportion - settlement = (sum insured / value at risk) x loss.

Reinsurance: the insurer transfers part of its risk to a reinsurer; facultative is per-risk, treaty is automatic over a defined book; proportional (quota share, surplus) shares premium and loss, non-proportional (excess of loss) responds above a retention.

Insurance Act 2015 (commercial): abolishes the duty to disclose all material facts in favour of a duty of fair presentation; remedies for breach are proportionate (avoidance only for deliberate or reckless breach, otherwise proportionate reduction of claim or increase in premium).

Consumer Insurance (Disclosure and Representations) Act 2012: replaces disclosure with a duty to take reasonable care to answer questions honestly and accurately; remedies depend on whether the misrepresentation was deliberate, careless or innocent.

Fair presentation requires disclosure of material circumstances, sufficient information to put a prudent insurer on notice, and clear presentation; knowledge includes senior management and persons responsible for the insurance.

Warranties under the 2015 Act: a breach suspends rather than discharges cover; the insurer's liability is suspended while the breach continues and resumes when remedied (except where the warranty defines the risk).

Terms not relevant to the actual loss: a breach of a term that could not have increased the risk of the loss does not allow the insurer to avoid or reduce the claim.

Third Parties (Rights against Insurers) Act 2010: where an insolvent insured is liable to a third party, the third party may claim directly against the insurer; the 2010 Act removes the need to first establish liability against the insured.

FCA regulation: insurers and intermediaries are authorised and prudentially regulated by the PRA and conduct-regulated by the FCA; the Consumer Duty requires fair value, good outcomes and clear communications for retail customers.

Limitation periods: contract claims in England and Wales are generally six years (twelve for deeds); personal injury claims are three years from knowledge; limitation runs from the date of loss or breach, not from policy inception.

Underwriting cycle: hard markets follow capital depletion and rising losses, producing higher rates and tighter terms; soft markets follow surplus capital, producing rate competition and broader cover.

Rating factors must be actuarially justified and non-discriminatory; protected characteristics under the Equality Act 2010 cannot be used except where a specific statutory exception (e.g. age in certain financial products) applies.

Moral hazard vs morale hazard: moral hazard is a deliberate act to gain from insurance (fraud, arson); morale hazard is carelessness or indifference created by the existence of cover.

Claims notification: the insured must notify promptly per the policy; late notification only defeats a claim where it causes prejudice to the insurer (Insurance Act 2015 for commercial, and the Enterprise Act 2016 implied term on prompt payment).

Claims handling steps: notification, coverage verification, loss assessment, reserving, investigation (fraud indicators), settlement or repudiation, and subrogation/salvage recovery.

Salvage and abandonment: the insurer takes over salvage rights when it pays a total loss; the insured cannot abandon property to the insurer without agreement.

Reserving: case reserves are set per claim; IBNR (incurred but not reported) reserves cover claims incurred but not yet notified; adequacy is tested by actuarial reserving reviews.

Fraud indicators: early policy inception relative to loss, over-insurance, unusual financial pressure, inconsistent statements, and prior claims history; referral to a specialist fraud team is required under FCA rules.

Solvency II: Pillar 1 sets capital requirements (SCR and MCR), Pillar 2 covers governance and ORSA, Pillar 3 covers public disclosure; own funds must exceed the SCR, and the MCR is the absolute floor.

Risk-based capital: the SCR is calibrated to a 1-in-200-year adverse event over one year; the MCR is a lower threshold below which the regulator intervenes.

Treating Customers Fairly / Consumer Duty: outcomes-based regulation requiring products to meet customer needs, fair pricing, clear information, and no foreseeable harm.

Professionalism: the Chartered Insurance Institute's Code of Ethics requires competence, integrity, fairness, and putting the client's interests first; continuing professional development (CPD) is mandatory for members.

Distribution: insurers sell direct, through brokers (acting for the client), agents (acting for the insurer), or bancassurance; the intermediary's disclosure of status and remuneration is a regulatory requirement.

Financial ratios: 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.

Reinsurance and capital: reinsurance reduces net retained risk and therefore the capital requirement; ceded premium reduces gross written premium but the insurer retains the credit risk of the reinsurer.

Governance: the board must operate an effective risk management framework, including a risk register, business continuity plan, outsourcing oversight, and an appointed actuary for technical provisions.