Last week, we invited you to take a multiple choice test on the general principles of insurance. How did you do? Robin Wood supplies the answers and learning points
1. Which of these statements is untrue in relation to a breach of policy conditions under a personal insurance contract?
C. Ignorance of the precise terms of the condition is generally a defence.
The interesting point here is that where a broker is involved, the broker has a responsibility to take reasonable steps to ensure that the client knows the precise terms of the recommended contract.
2. Under The ABI Statement of General Insurance Practice under a personal insurance policy a breach of warranty the insurer might be expected to:
A. Repudiate liability to indemnify if the breach caused the loss.
At law, an insurer may avoid if the breach of warranty has nothing to do with a loss. The ABI code modifies the situation for individuals purchasing a private policy. Read the ABI Statement again.
3. The payment of premium by the insured:
B. Must be paid in advance of the contract being agreed if it is a condition precedent.
There is no general legal requirement that the premium must be paid for cover to commence, but many policies include a warranty or condition precedent that premiums are paid before cover is effective. Make sure you read a policy carefully before issuing it to a client.
4. An insurer has no duty to return premiums in which of the following circumstances?
D. Premiums relating to a policy-year prior to avoidance for non-disclosure of a material fact.
There could be debate on this one, but in principle, each renewal creates a new contract and so the avoidance goes back to renewal not to the inception of the policy.
5. With reference to insurable interest which of these statements is true?
C. In theft insurance it must exist at the time of inception and the time of loss.
Just a reminder that you might need to refresh your understanding of insurable interest. The CII text book PO3 gives a basic outline of the subject.
6. An insurance broker sends a quotation to a private client for her household insurance and a fire occurs before the premium is paid. The insurer refuses to accept the claim and the customer alleges that she thought the policy was on risk. Which of these is true?
B. The broker may be liable if nothing was said or communicated to the customer confirming that the quotation did not confirm cover.
This question is about risk management and keeping good records. If a broker says nothing and records nothing, then even if a judge can ultimately be persuaded that the member of the public should have known or did know that a quotation does not confirm cover, it is far better to avoid the time and expense of a defence by making it clear in the first place.
7. In relation to a fire insurance policy renewal which of the following is not true?
D. A renewal is a continuation of the original contract.
Basic knowledge, but a reminder that you should treat each renewal as a new contract and revisit the GISC requirements. Material facts, onerous conditions and adequacy of cover, all these and more need to be revisited.
8. Which of these statements is true?
C. There must be consideration by both parties to an insurance contract.
Generally we find that a broker's knowledge of basic contract law ranges from awful to rusty. Rarely is it up to date. PO3 again has a good section on simple contract law and forming a contract.
9. Which of these types of policy would be most likely underwritten with a regard to morbidity?
D. Travel insurance for a trip to Africa.
Again just a general knowledge question to see if you know that morbidity refers to the risk of sickness (as opposed to mortality and death) and also whether you know that PA insurance on its own does not cover sickness.
10. "Grossing up" is a term used to describe what form of broker malpractice?
B. Charging the insured a higher premium than the premium set by the insurer.
Beware, the regulators are coming to get you if you are not disclosing all earnings over and above the premium set by the insurer.
11. Which of these is a clear definition of an agent?
D. An agent is a person who has the authority or power to act on behalf of another.
Regulators require practitioners to understand the laws of agency. Much of the knowledge required will be basic (the law of agency is highly complicated).
12 Which of these is not a duty of an agent to a principal?
B. To obey a principal's instructions at all times
Most of the time. But do not forget what to do if you are asked to do something illegal or something which creates a conflict of interest.
13. An agent must not make any form of secret profit from agency duties. Which of these if not disclosed would not come into that category in the insurance industry?
D. Very high commissions paid by insurers.
There is an argument at law that fees and commission must be reasonable in relation to services provided, but GISC does not require you to disclose commissions unless asked.
14. Wear and tear is a term commonly used in property insurance. What does it mean?
B. The depreciation of an item due to its usage.
15. What does the term `ab initio' mean?
C. From the beginning.
16. What is the most correct definition of an all risks policy?
B. A policy covering all but a specific list of exclusions.
General knowledge but make sure that customers are aware of and understand the exclusions.
17. As a broker, you may be faced with the situation of someone apparently wishing to insure a risk of which they are not the legal owner. Remembering that insurable interest must exist, which of these relationships does not confer an immediate legal insurable interest?
C. Business partners.
Basic insurance legal principles but quite important if you are arranging say key man insurance for partners.
18. Which of these is not a term that you would automatically associate with the duty of disclosure?
C. Caveat emptor.
Basic insurance law again.
19. Which of these could not be a material fact or facts?
B. All criminal convictions.
So who forgot about the Rehabilitation of Offenders Act?
20. What is meant by the term `pairs and sets' clause?
B. The clause limits the loss of one of a pair to the value of the item in its own right.
Check if the policy has one and, if so, get it removed or tell the customer about it.
Using this CPD page
For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.
If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.
For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.
It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.
Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.
For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.
Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.
In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.
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