FRC Insurance Agent Licensing Examination flashcards

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

Insurable Interest

A financial relationship with the subject matter such that the insured gains from its preservation and loses from its loss. Required at inception for life cover and at loss for indemnity cover.

Principle of Indemnity

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

Proximate Cause

The dominant and effective cause of a loss, not necessarily the last event in the chain. If the proximate cause is an insured peril, the claim succeeds despite contributing excluded causes.

Subrogation

After paying a claim, the insurer acquires the insured's right to recover the loss from the responsible third party, limited to the amount paid. It cannot apply to life policies.

Contribution Between Insurers

Where two or more policies cover the same loss on the same interest, each insurer pays its rateable proportion so the insured does not recover more than the loss.

Utmost Good Faith

A mutual duty requiring each party to disclose material facts and avoid misrepresentation. A material fact is one that would influence a prudent insurer's decision to accept or rate the risk.

Warranty in Insurance

A term the insured promises to comply with exactly. Under modern regimes, breach suspends cover rather than voiding the policy, and remedies are proportionate to the breach.

Contra Proferentem

A rule of construction that resolves ambiguous policy wording against the party that drafted it, usually the insurer, in favour of the insured.

Condition Precedent to Liability

A requirement the insured must satisfy before the insurer's duty to pay arises, such as prompt claims notification. Breach may defeat the claim without voiding the policy.

Solvency Margin

The excess of an insurer's admissible assets over its liabilities, which must exceed a prescribed minimum. Risk-based regimes add a solvency capital requirement and minimum capital requirement.

Fit and Proper Test

A regulatory assessment of directors, senior managers, and key function holders covering honesty, integrity, competence, financial soundness, and conflicts of interest before approval.

Policyholder Protection Scheme

A statutory compensation arrangement that pays a limited portion of claims if an authorised insurer fails, subject to per-claim and per-policyholder limits set by regulation.

Insurance Broker

A licensed intermediary who acts for the client rather than the insurer, advises on and places cover with insurers, and owes duties of disclosure, suitability, and client money segregation.

Client Money Segregation

Premium and refund money held by an intermediary must be kept in a separate client account, reconciled regularly, and never commingled with the intermediary's own business funds.

Continuing Professional Development

A minimum number of annual training hours required to maintain a licence, typically including technical, ethics, and AML content, with evidence retained for regulatory inspection.

Term Assurance

Life cover that pays a death benefit only if death occurs within the stated term. It has no cash value and carries the lowest premium for a given sum assured.

Non-Forfeiture Provision

A policy feature that preserves value when premiums lapse, allowing the policy to continue as reduced paid-up cover, extended term cover, or a surrender value.

Incontestability Clause

A provision barring the insurer from contesting a life policy after a stated period, usually one to two years, except for fraud or non-payment of premium.

Grace Period

A period, commonly 30 or 31 days after a premium due date, during which the policy remains in force and the premium can still be paid without lapse.

Average Clause

An underinsurance condition under which the insurer pays the loss multiplied by the sum insured divided by the value at risk, reducing the claim proportionally.

Business Interruption Cover

Cover for lost gross profit and increased cost of working following insured damage to property, subject to an indemnity period and usually a material damage proviso.

Claims-Made Liability Policy

A liability policy that responds to claims first made or reported during the policy period, regardless of when the injury occurred, and usually requires extended reporting cover on expiry.

Franchise Deductible

A threshold below which the insurer pays nothing, but once the loss exceeds the threshold the insurer pays the claim in full without deducting the threshold amount.

Moral Hazard

A condition of character or behaviour, such as dishonesty or financial distress, that increases the likelihood of a loss or of an exaggerated claim, prompting underwriting caution.

Experience Rating

A rating method that adjusts premium for the insured's own past loss history, rewarding favourable experience and penalising poor claims records over a defined period.

Quota Share Treaty

A proportional reinsurance arrangement in which the reinsurer accepts a fixed percentage of every risk written, receiving the same percentage of premium and bearing the same percentage of loss.

Incurred But Not Reported

A reserve estimate for claims that have occurred but have not yet been notified to the insurer, forming part of technical provisions alongside case reserves.

Constructive Total Loss

A loss where the cost of repairing or recovering the subject matter exceeds its insured or market value, so the insurer may settle as a total loss.

Duty to Defend

A liability insurer's obligation to fund the defence of a claim against the insured, which is separate from and may be additional to the duty to indemnify.

Layering

The money laundering stage in which illicit funds are moved through complex transactions to obscure their origin and break the audit trail before integration.

Politically Exposed Person

A person entrusted with prominent public functions, or their family or close associate, who requires enhanced due diligence and senior management approval before a relationship is established.

Tipping Off

Disclosing to a customer that a suspicious transaction report has been or will be made, which is a criminal offence and may prejudice a financial investigation.

Treating Customers Fairly

A conduct standard requiring fair outcomes in product design, marketing, advice, claims, and service, assessed by outcomes rather than by disclosure alone.

Vulnerable Customer

A customer whose circumstances, such as age, health, bereavement, or financial difficulty, reduce their ability to understand or act, requiring adjusted communication and extra support.