2. IF3 Chapter Breakdown (approx.)
Material Facts
6 questions 8%
Ch. 2
Underwriting Procedures
13 questions
17%
Ch. 3
Insurance Policies
11 questions
15%
Ch. 4
Renewals and Cancellations
3 questions 4%
Ch. 5
Insurance Products: Personal
Ch. 6
Insurance Products: Commercial
Ch. 7
Related Services
2 questions 3%
Ch. 8
Underwriting Considerations
12 questions
16%
Ch. 9
Establish the Price: Rating
14%
Ch. 10
Pricing Factors
5 questions 7%
Ch. 11
Managing Exposure
6 question

3. Material Facts / Circumstances
Chapter 1
Material Facts / Circumstances
6 questions = 8% of the exam

4. Learning Objectives:
After studying this chapter, you should be able to:
Explain the principles of Utmost Good Faith.
Define material information and circumstances and give examples.
Explain the principles of the duty of Fair Presentation.
Explain the consequences of Non-disclosure and Misrepresentation.
Explain Perils and Hazards
Explain Moral and Physical hazards
Explain the methods of gathering Material Facts

6. Principles of Utmost Good Faith
A contract is a legally binding agreement that requires three elements:
Offer
Acceptance
Consideration
What is Caveat emptor ???
Why would this be considered to be unfair in an insurance contract ???

8. Principles of Utmost Good Faith
What is Uberrima Fides ?
“A positive duty to voluntarily disclose, accurately and fully all the facts material to the risk being proposed, whether material or not”
Who does this apply to?
Insured only
Insurer only
Both insured and Insurer

10. What is a Material Fact?
“Any circumstance which would influence the judgement of a prudent insurer in fixing the premium or determining whether to take the risk”
Do consumers need to volunteer material facts ???
Do commercial customers need to volunteer material facts ???

11. Insurance Act 2015:Examples of material information
Special or unusual facts relating to the risk
Particular concerns leading to the request for insurance
Anything that someone dealing with the class of insurance would generally understand that should be dealt with as part of a fair representation of risks
Insurance Act 2015:Examples of material information

12. Facts that do not need to be disclosed
Law
Public knowledge
Lessen the risk
Insurer waived their rights
Survey should have revealed
Insured doesn’t know
Policy terms
Spent convictions

14. Consumer Insurance (Disclosure and Representations) Act 2012
Abolishes insured’s duty to volunteer information
Insurer must ask specific questions
Insured must take reasonable care not to make a misrepresentation to insurers
Does not affect commercial insurances

15. Consumer Insurance (Disclosure and Representations) Act 2012
Example of considerations
Type of consumer contract and target market
Relevant explanatory materials
How clear and specific were the insurer’s questions?
How clear was the warning from insurers at renewal?
Who was the agent acting for?

16. Consumer Insurance (Disclosure and Representations) Act 2012
Agent of insurer when:
Collecting information under their express authority
Entering into the contract as the agent of the insurer
Acting as an appointed representative of the insurer
(Parsons. C, 2016, p.9/8)

17. Advice under the 2012 Act
Agent of insurer
Agent of consumer
Places insurance with only one insurer (for the type of insurance)
Under contract to place insurance with restricted number of insurers
Insurer places the type of insurance with a restricted number of agents
Agent permitted to use insurer name when providing their agent services
Insurance is marketed under the name of the agent
Insurer asks the agent to solicit the consumer’s custom
Giving impartial advice to the consumer
Conducts a fair analysis of the market
When consumer pays the agent a fee
(Parsons. C, 2016, p.9/9)

18. Advice under the 2012 Act Agent of insurer Agent of consumer
Places insurance with only one insurer (for the type of insurance)
Under contract to place insurance with restricted number of insurers
Insurer places the type of insurance with a restricted number of agents
Agent permitted to use insurer name when providing their agent services
Insurance is marketed under the name of the agent
Insurer asks the agent to solicit the consumer’s custom
Giving impartial advice to the consumer
Conducts a fair analysis of the market
When consumer pays the agent a fee
(Parsons. C, 2016, p.9/9)

19. Insurance Act 2015 Confirms these common law rules
Statements must be substantially correct
Statements of expectation or belief must be made in good faith
Not material if misrepresentation would have made no difference to outcome
Representation may be withdrawn or amended before contract is formed
Must disclose material facts you know or ought to know
Repeals Sections 18, 19 and 20 of Marine Insurance Act 1906
Replaces duty of ‘Utmost Good Faith’ as set out in these sections with a duty of ‘Fair Representation’
Fair representation
Duty to disclose and a duty not to misrepresent material facts

20. Insurance Act 2015 continued
No need to disclose facts which:
Diminish the risk
The insurer knows
The insurer ought to know
The insurer is presumed to know
Have been waived by the insurer
Materiality test unchanged but Act gives extra guidance:
Special or unusual facts relating to the risk
Particular concerns which led to the insured seeking the cover
Anything that people concerned with the class of insurance or field of activity would regard to be something that should be included in a ‘fair representation’

21. Duty of Disclosure What does the Duty of Disclosure relate to ???
Q: Under common law when does the duty of disclosure apply
Inception only 
Renewal only 
Inception and renewal 
Through out the policy 
Policy condition…

22. Duration of the Duty of Disclosure Policy Condition Rules
Common Law Rules
There is a need for the customer to be honest during the negotiation stage, at any mid term adjustments and again at the renewal stage.
Policy Condition Rules
Insurers write a condition into the policy which means the customer must now advise the insurer of any material changes.
This is referred to as the continuing requirement.

24. Consequences of Non Disclosure
Consumers – CIDRA 2012:
If the consumer took reasonable care not to breach their duty or If the breach did not induce the insurer to take on the risk, they have no remedy.
If the above is not the case, then the breach is classed as “qualifying” and the insurer has two remedies:
If deliberate or reckless they can void the policy
If it was careless the insurer has two options:
Alter their terms and deal with the risk as though there was no breach OR Proportionately reduce the amount paid, if they would have charged a higher premium.

25. Consequences of Non Disclosure
Commercial customers – Insurance Act 2015:
If the insured is in breach of the duty of disclosure, the insurer may avoid the policy ab-initio
For both commercial and consumers
If non-disclosure or misrepresentation is fraudulent then:
The policy is voidable.
The insurer can keep the premium and sue for damages.
They can however ignore the breach of good faith, in which case the policy continues and the claim must be paid.

27. Physical and Moral Hazards
What are hazards ???

29. Obtaining Material Facts
The most common way of gathering material facts is…
Brokers
Risk Surveys
Supplementary questionnaires
Meeting with clients
Call Centres
Internet

31. When a new policy is taken out, under common law, when does the duty of disclosure end?
When the insured has full details of the risk.
When negotiations begin.
When the premium is paid.
When the contract is formed.

32. When does the duty of disclosure start and end under common law?
Starts when negotiation begins and is an ongoing warranty under the policy wording.
Starts at policy issue stage and ends when policy comes up for renewal.
Starts when negotiation begins and ends when the contract is formed at inception.
Starts at renewal of the policy and ends when the premium is paid.

33. In relation to a commercial combined insurance contract which of the following is not a physical hazard?
The type of products manufactured.
Intruder alarm security precautions.
Poor factory management.
The standard of the building construction.

34. Under the Consumer Insurance (Disclosure and Representations) Act 2012, in which of the following scenarios is an agent deemed to be working on behalf of the proposer?
They collect information from the consumer, if the insurer gave them express authority to do so.
They disclose information to insurers provided to them by the insured.
They act as the appointed representative of the insurer.
They enter into the contract as the insurer’s agent, if the insurer gave them express authority to do so.

35. With regard to the duty of disclosure, what core change was made by the introduction of the Consumer Insurance (Disclosure and Representations) Act 2012?
It abolished the duty of businesses to volunteer material facts to insurers.
It abolished the duty on Brokers to disclose material facts to consumers.
It abolished the duty on insurers to disclose material facts to consumers.
It abolished the duty on consumers to volunteer material facts to insurers.

36. Some factors do not need to be disclosed when obtaining a quotation for insurance. Sam is obtaining a quote for theft insurance. What does he NOT need to disclose to his prospective insurers?
Target stock.
His existing alarm system.
His conviction for arson last year.
Claims experience.