FRC Insurance Agent Licensing Examination cheat sheet

Insurable interest requires a financial relationship such that the insured benefits from preservation of the subject matter and suffers loss from its destruction; it must exist at inception for life cover and at the time of loss for indemnity cover.

Indemnity restores the insured to the pre-loss financial position, never better; it is fully applicable to property and liability, modified for valued policies, and inapplicable to fixed-benefit life and personal accident cover.

Utmost good faith obliges both parties to disclose material facts; a fact is material if a prudent insurer would be influenced by it in deciding whether to accept the risk, what terms to impose, or what premium to charge.

Subrogation transfers the insured's right of recovery against a third party to the insurer after payment, limited to the amount paid; it cannot apply to life policies because they are not contracts of indemnity.

Contribution applies when two or more policies cover the same loss on the same interest, with each insurer paying its rateable proportion; it does not apply to fixed-benefit covers.

Proximate cause is the dominant, effective cause of loss, not necessarily the last event; where an excluded peril is proximate the claim fails, but where an insured peril is proximate the claim succeeds even if an exclusion was also involved.

Risk classification separates pure risk (loss or no loss) from speculative risk (loss, gain, or no change); only pure risk is insurable.

Perils are the causes of loss (fire, collision, theft); hazards are conditions that increase the chance or severity of loss, split into physical, moral, and morale hazards.

A valid insurance contract requires offer and acceptance, consideration (premium and promise to pay claims), legal capacity, and lawful object; insurable interest is an additional statutory requirement.

Uberrimae fidei (utmost good faith) is a duty of disclosure and non-misrepresentation; breach may allow avoidance from inception, depending on materiality, inducement, and whether the breach was deliberate, reckless, or innocent.

A warranty is a condition of the contract; under modern regimes such as the UK Insurance Act 2015, breach of warranty suspends rather than automatically terminates cover, and remedies are proportionate to the breach.

A condition precedent to liability must be satisfied before the insurer's obligation to pay arises (for example, claims notification within a stated period); breach does not void the policy but may defeat the claim.

Utmost good faith and disclosure: an insurer must also disclose material facts to the insured, including unusual terms, and must not misrepresent the scope of cover.

Doctrine of waiver and estoppel: an insurer that, with knowledge of a breach, acts in a manner indicating it will not enforce its rights may lose the right to rely on that breach.

Construction of policy wording: contra proferentem resolves ambiguity against the party that drafted the term, and words are given their ordinary meaning in context.

Assignment and transfer: assignment of policy rights requires insurer consent or statutory notice, and the assignee's rights are subject to the insurer's defences existing before notice.

Licensing gate: only authorised insurers and registered intermediaries may carry on regulated insurance activity; carrying on without authorisation is a criminal offence, and contracts may be unenforceable.

Capital and solvency: insurers must maintain a prescribed solvency margin (admissible assets minus liabilities) and, under risk-based regimes, a minimum capital requirement and a solvency capital requirement.

Fit and proper testing applies to directors, senior managers, and key function holders; regulators assess honesty, integrity, competence, financial soundness, and conflicts of interest.

Market conduct rules cover product approval, fair treatment of customers, disclosure, claims handling timeframes, and complaints handling with defined escalation to an ombudsman or regulator.

Reporting obligations include annual financial statements, quarterly returns, changes in control or ownership, and notification of material events within prescribed periods.

Regulatory intervention ladder: supervisory action may escalate from monitoring and remediation to restrictions on new business, appointment of an administrator, and ultimately withdrawal of authorisation.

AML and CTF supervision requires insurers and intermediaries to appoint a compliance officer, conduct risk assessments, apply customer due diligence, and report suspicious transactions to the financial intelligence unit.

Policyholder protection: statutory compensation or guarantee schemes may cover a portion of claims if an insurer fails, subject to per-claim and per-policyholder limits.

Intermediary categories include agents (representing insurers), brokers (representing clients), and bancassurance staff; each category carries different licensing, disclosure, and conflict-of-interest rules.

Disclosure duty: before a contract is concluded, the intermediary must disclose its status, the scope of products it can advise on, remuneration structure, and any holding or connection with the insurer.

Client money rules: premium and refund money held by an intermediary must be kept in a segregated client account and reconciled; commingling with business funds is prohibited.

Suitability and needs analysis: for advised sales the intermediary must conduct a documented fact-find, assess affordability and needs, and explain why the recommendation is suitable.

Record-keeping: retain client instructions, advice records, and transaction documentation for the prescribed period, typically five to ten years depending on the jurisdiction.

Continuing professional development: licensed intermediaries must complete a minimum number of CPD hours per year, including ethics and AML content, and keep evidence of completion.

Prohibited conduct includes misrepresentation of benefits, pressure selling, offering inducements not disclosed to the insurer, and signing or altering proposal forms on the client's behalf.

Notification duties: changes to directors, controllers, qualifications, or disciplinary findings must be reported to the regulator within the prescribed timeframe.

Term assurance pays a death benefit only if death occurs within the policy term; it has no cash value and is the lowest-premium form of life cover.

Whole-of-life cover guarantees a death benefit for the whole lifetime, with premiums payable for life or to a stated age; it accumulates a reserve and may have surrender value.

Endowment policies pay a sum assured on survival at maturity or on earlier death; they combine protection with a savings element and are sensitive to assumed interest rates.

Universal life and investment-linked policies separate the protection element from an account or unit fund; the policyholder bears investment risk, and charges are deducted from the fund.

Non-forfeiture provisions: if premiums lapse, the policy may continue as reduced paid-up cover, extended term cover, or surrender value, depending on the policy wording.

Grace period (typically 30 or 31 days) allows premium payment after the due date without lapse; reinstatement after lapse requires evidence of insurability and payment of arrears.

Suicide and incontestability clauses: a suicide exclusion usually applies for one to two years, and an incontestability clause bars the insurer from contesting the policy after a stated period absent fraud.

Beneficiary and nomination rules: a valid nomination directs the death benefit to the named beneficiary, and the insurer discharges its liability by paying the nominee where the law so provides.

Property fire policy covers fire, lightning, and explosion; standard perils may be extended to include storm, flood, earthquake, and malicious damage by endorsement.

Average clause: if the sum insured is less than the value at risk, the insurer pays (loss × sum insured ÷ value at risk), so underinsurance reduces the claim proportionally.

Marine cargo cover under Institute Cargo Clauses: ICC(A) is all risks with named exclusions, ICC(B) and ICC(C) are named-perils cover with progressively narrower scope.

Motor third-party liability is compulsory in most jurisdictions; own-damage cover is optional and may include theft, fire, and natural perils, with deductibles applied to each claim.

Liability policies respond to legal liability for bodily injury or property damage, and are written on an occurrence basis (injury during the period) or a claims-made basis (claim reported during the period).

Business interruption cover indemnifies lost gross profit and increased cost of working following an insured property loss, subject to an indemnity period and a material damage proviso.

Personal accident cover pays fixed benefits for accidental death, permanent disability, and temporary disability, and is not a contract of indemnity; it excludes illness and self-inflicted injury.

Deductibles and excesses reduce small claims and moral hazard; a franchise deductible means the insurer pays nothing if the loss is below the threshold but pays in full once it is exceeded.

Underwriting is the process of selecting, classifying, and pricing risks; it determines whether to accept, decline, or accept on special terms such as exclusions, loadings, or higher deductibles.

Material information for life underwriting includes age, sex, health history, family history, occupation, hazardous pursuits, smoking, and sum insured relative to income.

Moral hazard indicators include poor claims history, financial distress, inconsistent answers, and unusually high sums insured; these may prompt decline or enhanced due diligence.

Rating factors must be actuarially justified and non-discriminatory; prohibited factors typically include race, ethnicity, and, unless actuarially supported, genetic test results.

Experience rating adjusts premium for the insured's own loss history; exposure rating uses class and rating factors; both aim to align premium with expected loss cost.

Premium components: expected claims (pure premium) plus expenses, commission, profit margin, and a contingency or risk loading; the gross premium equals the rate applied to the exposure base.

Reinsurance supports underwriting capacity: proportional treaties (quota share, surplus) share premium and losses proportionally, while non-proportional covers (excess of loss) respond above a retention.

Financial underwriting checks that the sum insured is consistent with the insured's income and liabilities to limit adverse selection and moral hazard.

Claims process steps: notification, registration, verification of cover, investigation and loss assessment, reserving, decision, settlement, and recovery or subrogation.

Notification and proof: the insured must notify promptly and provide proof of loss; late notification may prejudice the claim only if it causes actual prejudice to the insurer.

Reserving: case reserves are set per claim and IBNR (incurred but not reported) reserves cover claims not yet notified; both feed the insurer's technical provisions.

Total loss settlement: a total loss may be settled as a repair or replacement, a cash payment equal to the market value, or a constructive total loss where repair cost exceeds the value.

Third-party liability claims: the insurer's duty to defend is separate from the duty to indemnify, and defence costs may be payable in addition to the limit of indemnity unless the policy states otherwise.

Fraud indicators at claims stage include a loss shortly after inception, a policy taken out just before the event, inconsistent statements, and documentation that appears altered.

Declinature and dispute: a declined claim must be communicated with written reasons, and the insured can escalate to the insurer's complaints function, the ombudsman, or the courts.

Salvage and subrogation recoveries reduce the net cost of claims; the insured must not prejudice the insurer's recovery rights, and salvage must be preserved pending inspection.

Money laundering stages: placement (introducing illicit funds), layering (obscuring the trail through transactions), and integration (reintroducing funds as legitimate assets).

Risk-based approach: firms must assess customer, product, delivery channel, and geographic risk, then apply enhanced due diligence to higher-risk relationships.

Customer due diligence requires identification and verification of the customer and beneficial owner, understanding the purpose of the relationship, and ongoing monitoring of transactions.

Enhanced due diligence applies to politically exposed persons, correspondent relationships, and high-risk jurisdictions; simplified due diligence is permitted only for demonstrably low-risk cases.

Suspicious transaction reporting: staff must report suspicions to the nominated officer, who decides whether to file with the financial intelligence unit; tipping off the customer is a criminal offence.

Record-keeping: retain CDD records and transaction records for at least five years after the relationship ends or the transaction is completed.

Insurance-specific red flags include early surrender of a large single-premium policy, overpayment followed by a refund request, third-party premium payment, and reluctance to provide source of funds.

Fraud prevention controls include pre-inception checks, claims analytics, staff whistleblowing channels, and sharing data with fraud prevention databases within legal limits.

Fair treatment of customers requires fair outcomes in product design, marketing, advice, claims, and post-sale service, not merely disclosure of terms.

Treating customers fairly outcomes typically cover: culture, products and services, price and value, consumer understanding, and consumer support.

Vulnerable customers (age, health, bereavement, financial difficulty) require adjusted communication and additional support; failure to identify vulnerability is a conduct failure.

Conflicts of interest must be identified, disclosed, and managed; commission disclosure is required where the customer is entitled to know the basis of remuneration.

Professional ethics: integrity, competence, confidentiality, objectivity, and fair dealing; an intermediary must place the client's interest above personal gain and avoid mis-selling.

Complaints handling: acknowledge promptly, investigate fairly, respond within prescribed timeframes, and inform the customer of the right to escalate to an independent ombudsman.

Data protection: personal and health data may be processed only for specified, lawful purposes, with consent or another lawful basis, and must be kept secure and retained no longer than necessary.

Financial crime and market abuse: insider dealing, misappropriation of client money, and falsification of records are criminal offences and grounds for licence revocation.