Insurance principles and the nature of motor insurance
What the exam tests
This domain tests whether you can apply general insurance principles to motor policies rather than recite them. Expect questions on indemnity, insurable interest, disclosure, proximate cause, contribution and subrogation in a road-accident context.
Core rules
- Motor is an indemnity class: the insurer restores the insured's financial position after a loss, subject to sum insured, market value, excess and policy limits. It should not create profit.
- Insurable interest exists where a person would suffer financial loss: owner, registered keeper, hirer, lessee or lien holder. A driver with no proprietary interest may still have liability cover.
- Consumers must take reasonable care to answer questions fully and accurately (CIDRA 2012); commercial insureds must make a fair presentation of risk (Insurance Act 2015).
- Proximate cause decides whether a loss is covered: the dominant, effective cause, not the last event.
- Subrogation lets the insurer recover from a negligent third party after paying; contribution shares a loss between insurers covering the same interest.
Worked example
A car with a market value of £7,000 is damaged beyond economic repair. Repairs are £8,500; the sum insured is £10,000; the excess is £250; salvage is worth £500. On a market-value policy the insurer pays £7,000 less £250, and may retain or sell salvage. It does not pay £8,500 merely because that is less than the sum insured. If the policy is agreed value, the agreed figure applies instead.
Traps
Do not confuse sum insured with market value. Betterment is not indemnity: a new part may be fitted, but the insured may contribute for improvement. Wear and tear, mechanical breakdown and depreciation are not accidental damage. A policy responds to the proximate cause, so an excluded cause that is merely incidental does not automatically defeat a claim.