SLII Diploma in Insurance flashcards

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

Insurable interest

The legal right to insure arising from a financial relationship with the subject matter; the insured must benefit from its preservation and suffer loss from its destruction.

Utmost good faith

The mutual duty of disclosure in insurance contracts; consumers answer questions honestly and with reasonable care, while commercial insureds must make a fair presentation of risk.

Indemnity principle

The insured is restored to the same financial position as before the loss, no better and no worse; it applies to property and liability but not to life or accident benefit policies.

Proximate cause

The dominant and effective cause of a loss, determined by tracing the chain of events; it decides whether an insured or excluded peril triggered the claim.

Subrogation

The insurer's right, after paying a claim, to pursue third parties who caused the loss and to recover the amount paid; it cannot exceed the indemnity paid.

Contribution

Where two or more policies cover the same interest against the same peril, insurers share the loss rateably; it does not apply to benefit policies such as life cover.

Average clause

Where the sum insured is below the value at risk, the claim is reduced proportionately: settlement equals sum insured divided by value at risk, multiplied by the loss.

Reinsurance

A contract by which an insurer transfers part of its risk to a reinsurer; facultative cover is arranged per risk, while treaty cover is automatic across a defined portfolio.

Insurance Act 2015

UK statute governing commercial insurance: it imposes a duty of fair presentation and replaces automatic avoidance with proportionate remedies for breach, except for deliberate or reckless conduct.

CIDRA 2012

The Consumer Insurance (Disclosure and Representations) Act 2012: consumers must take reasonable care to answer questions honestly and accurately; remedies for misrepresentation vary by culpability.

Fair presentation

A commercial insured's duty to disclose all material circumstances, provide sufficient information to put a prudent insurer on notice, and present the risk clearly and accessibly.

Warranty suspension

Under the Insurance Act 2015, breaching a warranty suspends rather than terminates cover; the insurer's liability resumes when the breach is remedied.

Third Parties Act 2010

Legislation allowing a third party to claim directly against an insolvent insured's liability insurer, without first having to establish liability through proceedings against the insured.

Consumer Duty

FCA rules requiring firms to act to deliver good outcomes for retail customers across products, price and value, consumer understanding, and consumer support.

Limitation period

The time within which a claim must be brought; generally six years for contract claims in England and Wales and three years for personal injury claims from knowledge.

PRA and FCA

The UK's twin-peaks regulators: the Prudential Regulation Authority supervises financial soundness of insurers, while the Financial Conduct Authority regulates market conduct and consumer protection.

Underwriting cycle

The recurring pattern of hard markets with rising rates and tight terms, followed by soft markets with surplus capital, rate competition, and broader cover.

Moral hazard

A deliberate behaviour change to gain from insurance, such as fraud or arson; it is distinguished from morale hazard, which is mere carelessness caused by having cover.

IBNR reserves

Incurred but not reported reserves: an actuarial estimate for claims that have occurred but have not yet been notified to the insurer at the valuation date.

Salvage rights

When an insurer pays a total loss, it acquires the right to sell or recover the damaged property; the insured cannot abandon property to the insurer without agreement.

Claims notification

The insured's duty to notify the insurer promptly; late notification defeats a commercial claim only where it causes prejudice to the insurer under the 2015 Act.

Case reserve

An amount set aside for an individual reported claim, based on the estimated ultimate cost including legal and adjustment expenses, reviewed as the claim develops.

Fraud indicators

Warning signs such as early inception, over-insurance, financial pressure, inconsistent statements and prior claims; these trigger referral to a specialist investigation team.

Rating factors

Variables used to price risk, such as age, location and claims history; they must be actuarially justified and comply with equality and discrimination law.

Solvency II pillars

The EU-derived framework with three pillars: capital requirements, governance and ORSA supervision, and public disclosure of solvency and financial condition.

SCR and MCR

The Solvency Capital Requirement is calibrated to a 1-in-200-year adverse event; the Minimum Capital Requirement is the lower floor below which regulatory intervention occurs.

Combined ratio

Loss ratio plus expense ratio; a result below 100% indicates underwriting profit, while above 100% indicates an underwriting loss funded by investment income.

Loss ratio

Incurred losses divided by earned premium, expressed as a percentage; it measures claims cost against premium income for a defined period.

Treating Customers Fairly

The FCA principle that firms must deliver fair outcomes for customers across product design, marketing, advice and claims, now embedded in the Consumer Duty.

CPD requirement

Continuing professional development: members of professional bodies such as the CII must complete and record a minimum number of hours annually to maintain competence.

Broker versus agent

A broker acts for the client and owes duties to the insured, while an agent acts for the insurer; the intermediary must disclose its status and remuneration.

ORSA

The Own Risk and Solvency Assessment: an insurer's internal review of its risk profile, capital needs and business plan, submitted to the regulator under Solvency II Pillar 2.