General

Insurance
Business

F02
 General
Insurance
Business
F02

This material is based upon the content of the Chartered Insurance Institute (CII)’s F02
Study Text 2019: General Insurance Business, which remains the copyright of the CII.
 ©
Chartered Insurance Institute of Nigeria
2020

All rights reserved. Material included in this publication is copyright and may not be
reproduced in whole or in part including photocopying or recording, for any purpose
without the written permission of the copyright holder. Such written permission must
also be obtained before any part of this publication is stored in a retrieval system of any
nature. This publication is supplied for study by the original purchaser only and must
not be sold, lent, hired or given to anyone else.
Every attempt has been made to ensure the accuracy of this publication. However, no
liability can be accepted for any loss incurred in any way whatsoever by any person
relying solely on the information contained within it. The publication has been
produced solely for the purpose of examination and should not be taken as definitive of
the legal position. Specific advice should always be obtained before undertaking any
investments.

ISBN 978-978-57332-1-1

Published by Chartered Insurance Institute of Nigeria (CIIN)

27, Lagos Street, by Freeman
Ebute Metta, Lagos, Nigeria.
Tel: +234 817 204 0914-5
Email: info@ciinigeria.org
Website: www.ciinigeria.org
facebook: Chartered Insurance Institute of Nigeria
twitter: @ciinigeria

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CII Author(s)
Updater
Angus Robertson BA (Hons) FCII Chartered Insurer has been involved in
underwriting across many lines of business for over 40 years, 27 of which were based
overseas (Africa, Middle East and Asia) in both technical and general management roles
with RSA Group. He is now an independent consultant on underwriting, and
reinsurance matters, including due diligence programmes, capability assessments,
production and delivery of insurance technical training courses and workshops in the
UK and overseas. He has reviewed and updated IF2 since 2013.

Author
David Ransom FCII Chartered Insurance Practitioner worked for Royal Insurance
Group for 20 years, both as an underwriter and in development management roles,
before moving to the Chartered Insurance Institute. Currently, David runs a training
company and provides consultancy services in technical insurance areas, as well as
regulation and compliance. He is the author of numerous technical publications and
articles and lectures extensively around the world.

CIIN Domesticated Co-Authors

Chilekezi, Obinna (B.Sc, M.Sc, MBA, FCIB, FIIN) is a multi-skilled professional with
background in Library Science, Book Publishing, Finance and Banking, Marketing and
Insurance. He was once the editor of Nigeria Insurance Digest published by the
Nigerian Insurers Association and had won the African Insurance Organisation award
on one of his published books in 2016. He is currently an insurance researcher and
consultant, having worked in various arms of the industry.

Adebiyi, Titilola B.Sc, AIIN started her insurance career as a graduate trainee in 1988
with Sun Insurance, Lagos. She worked in various technical departments of NFI
Insurance, GNI Insurance and Leadway Assurance. She was the best candidate in
‚Legal Principles‛ in 1988 CIIN Examination. She is currently an associate lecturer and
faculty member at the College of Insurance and Financial Management, Asese, Ogun
State.

Abubakar, Sabiu Bello AIIN, FIIN, MNIM is Executive Director (Operations &
Training) of Jaiz Takaful Insurance Plc. He is a Fellow of both the Chartered Insurance
Institute of Nigeria and Chartered Insurance Institute of London as well as Associate
Member of Nigeria Institute of Management (AMNIM).

REVIEWER
Akolade, Abdul-Rasheed A. is an erudite life assurance practitioner. He was Head of
Life Business Operations at Continental Reinsurance Plc, Nigeria and Deputy Director-
iv
General of West African Insurance Institute, Banjul, The Gambia between 2006 and
2014. He joined Africa Reinsurance Corporation in December 2014. He followed Life &
Pension Specialist Route in his Associateship Diploma Professional examination.

ACKNOWLEDGEMENT
This material is based upon the content of the Chartered Insurance Institute (CII)’s F02
Study Text 2019: General Insurance Business, which remains the copyright of the CII.
CII means The Chartered Insurance Institute.

Typesetting, page make-up and editorial services done by the Examination Directorate
of CIIN.

Printed by Mbeyi & Associates (Nigeria) Limited, Lagos, Nigeria – +234 803 331 6235.

v
 Course Aims And Objectives

To provide knowledge and understanding of basic insurance products and practice,

including underwriting and policy wordings, claims, customer service and information
and communication technology.

It is expected that a good understanding of the course contents will enable the
candidates to:
 know insurance products and associated services for general insurance business
 understand underwriting and policy wordings for general insurance business
 know how to apply knowledge on principles of premium calculation of general
insurance business to a given set of circumstances
 understand claims within the context of general insurance business
 know how to apply knowledge of principles concerning the operation of policy
conditions affecting claims for general insurance business to a given set of
circumstances
 understand information and communication technology, security, confidential
information and data protection within general insurance business
 Understand customer service within general insurance business

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 Course Outline

Chapter 1: Motor Insurance

Chapter 2: Health Insurance

Chapter 3: Package Policies

Chapter 4: Property Insurance

Chapter 5: Pecuniary Insurance

Chapter 6: Liability Insurance

Chapter 7: Non-Insurance Services

Chapter 8: Material Circumstances

Chapter 9: Underwriting Procedures and Premium Payment

Chapter 10: Policy Wordings and Renewals

Chapter 11: Valid Claims and Claims Settlement

Chapter 12: Confidentiality Information and Data Protection

Chapter 13: Customer Service

vii
 Introduction

General Insurance Business – F02 provides an overview of the products and services on
offer in the general insurance market and the various challenges faced by insurers and
brokers in providing them effectively and profitably in a continually developing
market. Please note that life insurance falls outside the scope of the F02 syllabus and
shall be treated in the F03 syllabus.

The range of products available, and the covers provided by them, play an increasingly
important role in the effective management of the lives of individuals and corporate
bodies, from the household to small businesses and large multinational corporations.

To help us understand this, we look at the basic features and outlines of the typical
covers provided within the main classes of general insurance, i.e. motor, health,
property, pecuniary and liability. We also look at those policies that combine various
covers under an overall policy heading, and how these have developed to meet the
changing needs of a variety customers.

Along with the development and evolution of the basic covers provided by insurance,
we have seen growth in accompanying non-insurance services. These are designed to
help all parties to understand the covers available and to ease their smooth operation in
practice, e.g. help lines, risk control advice, etc.

All these policies involve risks to both the insured and insurer. Therefore, we address
the need for the underwriter to fully understand the risks they are accepting. Similarly,
the insured should clearly understand their part in providing the appropriate material
information and the insurer in return ensuring that the covers being provided, based on
this information, actually meet their requirements.

This process has often resulted in misunderstandings on both sides, to the extent that
legislation has been introduced to both personal lines insurances as it applies to
consumer and non-consumer contracts; and also to commercial insurances, including
the duty to make a fair presentation of the risk.

Having gained the material information, we look at how the underwriter must then
charge an appropriate premium. We consider the principles behind how that
appropriate premium is calculated for a given set of circumstances, so that it meets the
requirements of all the stakeholders.

Some key elements in this are the cost of claims and how the claims processes, reserving
and compliance with policy terms, conditions and current legislation are managed and
understood within the context of the business concerned. These can have a significant

viii
impact, not only on the individual claim, but on the reputation and future profitability
of the insurers when applied across their customer base.

How insurers communicate with their customers (existing and prospective) has been
significantly impacted by the growth of the internet and social media. While this has
resulted in access to large amounts of data, providing great opportunities for the
marketing of products, efficient and accurate claims handling and improved customer
services, companies must also comply with increasingly stringent legislation to protect
that data and the rights of the persons to whom it relates. Failure to meet those
requirements can result in the companies facing serious penalties.

This is a market which is continuing to evolve in order to meet the changes in risks and
numerous needs of its customers.

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 Contents
Pages

Chapter 1: Motor Insurance 1 - 16

Chapter2: Health Insurance 17 - 24

Chapter3: Package Policies 25 - 46

Chapter4: Property Insurance 47 - 62

Chapter5: Pecuniary Insurance 63 - 74

Chapter6: Liability Insurance 75 - 94

Chapter7: Non-Insurance Services 95 - 105

Chapter8: Material Circumstances 106 - 121

Chapter9: Underwriting Procedures and Premium Payment 122 - 148

Chapter10: Policy Wordings and Renewals 149 - 173

Chapter11: Valid Claims and Claims Settlement 174 - 201

Chapter12: Confidential Information and Data Protection 202 - 218

Chapter13: Customer Service 219 - 236

Self-Assessment Solutions 237 – 253

INDEX 254 – 257

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 Chapter 1

Motor Insurance
Introduction
In this chapter, we start our consideration of the general insurance market by looking at
the products available. We begin by examining the most common compulsory
insurance in Nigeria and the requirements to insure liabilities incurred to third parties
while driving a motor vehicle on public roads.

In this chapter, we shall look at the different levels of cover provided by motor
insurance policies. In the field of motor insurance, the minimum cover prescribed by
law is insurance in respect of legal liability to pay damages arising out of injury caused
to any person (unlimited in amount) and damage to the property of others (subject to
certain limits and exclusions).

In this course, we will consider the following main classes of motor insurance:
• Private cars
• Motorcycles
• Commercial vehicles

and the laws governing motor insurance in Nigeria:

• Motor vehicle (3rd party)
• Insurance Act 2003

Key Terms

This chapter features explanations of the following ideas:

Commercial Motor Insurance Comprehensive Motor Insurance

No Claim Discount Road Traffic Act only (RTA only)

Specified Motor Cycle Insurance Third Party only (Third Party, Fire and Theft)

A Private Motor Insurance

Private motor insurance is the most significant compulsory insurance in Nigeria. As it

relates to insurance, it is illegal to drive, or be in charge of, a vehicle on a public road,
unless an insurance policy is in force to cover legal liability for injury to others and
damage to their property. In this section, we will examine the basic features, standard
policy cover, optional extensions and limitations of private motor insurance.

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A1 Standard Policy Cover

There are four levels of cover available:

• Road Traffic Act only (which is not available in Nigeria)

• Third party only
• Third party, fire and theft
• Comprehensive.

Most insurers issue one standard form with individual sections numbered and policy
schedule, which identifies the sections applicable to the particular insurance cover. The
same policy form can be used, irrespective of the level of cover chosen by the insured.
For example, the entire policy is used in the event of comprehensive cover, whilst a
much smaller section of the policy is used in the event of third party cover only. Let us
now examine these different levels of cover in more detail.

A1A Road Traffic Act (RTA) only

Road Traffic Act only (RTA only) is the minimum cover required to comply within the
UK in the Road Traffic Act 1988 as amended by later legislations. The insurance cover
(RTA only) is not operational in the Nigeria Insurance Market Space.

In the West African region, the ECOWAS (Economic Community of West African
States) member countries established the ‚Brown Card Scheme‛. There are currently 15
member countries in the Economic Community of West African States. The founding
members of ECOWAS were: Benin, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-
Bissau, Liberia, Mali, Mauritania (but left in 2002), Niger, Nigeria, Senegal, Sierra Leone,
Togo, and Burkina Faso (which joined as Upper Volta). Cape Verde joined in 1977;
Morocco requested membership in 2017, and the same year Mauritania requested to re-
join.

The Brown Card Scheme was established by protocol A/PI/5/82 signed by the heads of
state of the member countries in Cotonou, Benin Republic in 1982. The main objective of
the scheme is to ensure prompt and fair compensation to victims of road accidents for
damages caused them by non-residing motorists travelling from other ECOWAS
member states in the member country where the accident occurs.

The scheme operates through the member countries National Bureau network which
plays the following roles:

• ensure availability of the brown card for local motorists

• conduct investigation and settlement claims arising from an accident caused by
motorists’ holders of the brown card. This is done by the concerned bureau acting
as a ‚handling bureau‛ in such instances.

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The objectives of the Brown Card are:

• to facilitate free movement for international motorists within the ECOWAS

community
• to enable international carriers to comply with motor vehicles insurance
requirements in force in the community members’ countries.
• to enhance the development of trade and tourism exchange among member states
• to establish a common scheme for the settlement of claims arising from free
movement of goods and persons with ECOWAS member states
• to offer to ECOWAS insurance market the means to develop international links
and exchanges

A1B Third Party only

This is the minimum cover available in the Nigeria Insurance Market for motor vehicles.
The insurance provides:

• cover for vehicles while on a road or in a public place but remaining within the
territorial limits (usually defined as anywhere in the Nigeria, though some insurers
extend the full policy cover to the whole of ECOWAS members for a limited time
in any one period of insurance).
• a limit of N1,000,000.00 for third party property damage for private car which can
be increased on the payment of additional (premium)
• indemnity to anyone who is driving or using the vehicle on the insured’s order or
permission unless, as is very common, driving is restricted to named individuals
or husband and wife only
• indemnity to passengers, employers or business partners, should they be held
responsible for an accident.
• legal costs incurred in the defence of a claim.
• limited cover for legal representation costs following a prosecution for a motoring
offence that may give rise to a claim.

The specific exclusions that relate to third party liability are:

• damage to property (including the vehicle) owned, held in trust by or in the

custody or control of any person claiming indemnity under the policy.
• liability covered by any other insurance policy. This exclusion relates particularly
to the insured driving another car or motor cycle since cover may be provided
under a more specific policy covering the vehicle in question.

A1C Third Party, Fire and Theft

In addition to Third party only cover just described, third party, fire and theft cover
provides indemnification for the cost of repairs or compensation to the insured if the
insured vehicle is:

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• damaged by fire, lightning or explosion;
• damaged either during attempted theft or while it is stolen (some policies include
taking without consent); or
• stolen and not recovered.

Individuals who choose this level of cover usually do so because they do not wish to
pay the higher premium required for comprehensive cover, but still require some form
of cover for the major risks that they face. In addition to the two exclusions contained in
third party only cover, fire and theft cover specifically excludes ‘loss of use’; i.e. any
payment the insured may have to make, for example to use taxis, whilst the insured
vehicle is being repaired or recovered.

A1D Comprehensive

This is the fourth form of motor insurance cover available, offering the widest possible
protection. In addition to the cover granted by the third party, fire and theft policy, the
Comprehensive policy covers other accidental and malicious damage to the insured’s
car.

The cover granted is on the same basis as an ‘all risks’ policy, in that all losses or
damages are covered subject to specific exclusions. These are:

• loss or damage to accessories and spare parts, unless on the vehicle or in the
insured’s garage;
• wear and tear and depreciation;
• loss of use (although some insurers now grant a limited form of loss of use cover);
• mechanical and electrical failure or breakdown (although, if an unexpected
mechanical failure causes a collision – say, the brakes fail – the resulting damage to
the vehicle is covered); and
• damage to tyres caused by road punctures or bursts.

A comprehensive private motor policy usually provides cover for ‘driving other cars’ in
the same way as a third party policy. However, it is important to note that only third
party cover is granted for this extension, even under a comprehensive policy. There is
no cover for damage to the vehicle being driven.

A ‘young or inexperienced drivers’ excess applies. Insurers have a scale of extra

excesses that apply over and above any policy excess. The term ‘inexperienced’ means
either holding a provisional licence, or not having held a full licence for a period of at
least a year. Some insurers are now applying further restrictions to ‘young drivers’ by
excluding this cover entirely when the driver is under 25 years of age. Remember that
an excess is the first amount of each and every claim that the insured must bear.

4
Comprehensive cover also typically includes the following benefits:

Personal accident cover This provides certain benefits to the insured or spouse
if they are seriously injured as the result of an accident
to any car they are driving or travelling in. Benefits are
usually capital sums and apply to specific injuries, such
as the loss of a limb or sight, though some insurers also
provide a benefit for temporary total disablement
Medical expenses Although emergency treatment cover is compulsory
under the Third party only, the Comprehensive policy
includes additional medical expenses cover for the
insured or a passenger, subject to a limit of, say,
(N10,000 to 50,000)
Personal belongings and A modest amount of cover is provided, usually around
clothing N5000 although N20,000 is not uncommon, to cover
personal effects and clothing in the car that are lost or
damaged by accident, fire or theft.

A1E No Claim Discount

Most insurers offer the incentive of a ‚no-claim-discount‛ as standard in their policy

wordings. The terms ‘no-claim-discount’ and ‘no-claim-bonus’ are interchangeably
used. Rates vary, but it would not be unusual to find discounts of 25% for one year free
of claims, up to 65% or 70% for four or five years free of claims.

Generally, insurers will reduce the entitlement to a ‘no-claims-discount’ by dropping

back two years if a claim is made. For a small additional cost, a full no claim discount
may be ‘protected’, so that a modest (defined) number of claims will not affect the level
of discount.

Certain insurers offer a ‘guaranteed’ discount: once, say, five years claim free driving
has been achieved, the bonus can be protected ‘for life’ at an extra premium. It must be
noted, however, that while the bonus is protected in this way, the insurer does not
provide any guarantee regarding the levels of premium from which the deduction
is made.

A1F Uninsured Driver Promise

A number of insurers now offer cover under their comprehensive motor policies for
circumstances where the insured’s vehicle is involved in an accident with a third party’s
vehicle which does not have motor insurance. Such accidents can often involve a
lengthy claim process and considerable expense.

This extension will usually protect the insured’s no claim discount and from the
application of their policy excess – provided they can provide full details of the third
party vehicle involved. It will not apply to ‘hit and run’ accidents where the third party

5
cannot be traced and the required details are not available.

A2 Optional Extensions

Insurers do offer a number of optional extensions in addition to the standard policy

cover.

A2A Breakage of Glass

Cover for breakage of glass is included as standard in a comprehensive policy. It may

also be added to a non-comprehensive policy, subject to an additional premium. The
important point about this cover is that a claim payment made under this section alone
does not affect the insured’s ‘no-claim-discount’.

A2B Personal Belongings and Clothing

Cover for personal belongings and clothing is included as standard in a comprehensive

policy, but only for a fairly modest sum. To increase the amount covered, an additional
premium is charged. Many insurers now offer specific ‘add-ons’ to cover a range of
items, from child seats and wheelchairs to entertainment and satellite navigation
systems.

A2C Young Additional Drivers

A young driver (say, under 25 years of age), who is truly an occasional additional driver
to the main driver under the policy, may be included under the main driver’s policy,
subject to an additional premium. If a young driver is the main driver (or one of the
main drivers) but does not own the car, the insurer may grant cover, but will rate the
risk on the basis of the young driver’s age and experience rather than that of the owner.

A2D Loss of Use

Although loss of use is a specific exclusion to the comprehensive policy, some insurers
are prepared to offer such cover, limited to an amount per day and subject to an
additional premium. Most insurers will pay for a replacement vehicle for a limited
period whilst the insured’s vehicle is off the road.

In addition, some repair garages offer the use of an alternative vehicle while they hold the
customer’s vehicle for repair. These vehicles are commonly known as courtesy cars.
Insurers will insist that courtesy cars are made available from their recommended repairers
and use this fact as a marketing tool for their own product. While courtesy cars are
supposedly offered ‘free of charge’, it should be noted that the cost is included in the
charges made by the repairing garage and, therefore, ultimately is a factor in the premium.

6
A2E Personal Accident Benefits

This extension provides personal accident benefits in addition to those provided as

standard in the comprehensive policy. For example, the extension may offer increased
capital benefits or the addition of weekly benefits for the insured or their spouse.

A2F Foreign Use

All policies issued in the Nigeria (and any other country subject to the ECOWAS
protocol) must extend to provide either the minimum cover required by the country
being visited or the minimum cover required by the country where the vehicle is
normally kept, whichever is the greater. This is covered by the ECOWAS Brown card.

If a Nigerian insured wishes to have the same cover under their policy whilst driving
abroad as enjoyed whilst driving in Nigeria, they must notify their insurers of the
intention to drive their vehicle abroad. They must ask for the motor policy to be
extended to cover the ECOWAS sub-region, which will often be subject to an additional
premium. However, some insurers provide free continental cover for up to 30 days in
any one period of insurance. Many insurers issue a ‘green card’ for such trips. This is a
recognised international certificate and is always needed for travel within the sub-
region.

A2G Elections

Motor vehicles are sometimes used in connection with elections, which most insurers
may not regard as normal ‘social, domestic and pleasure’ use. An extension may be
granted for this, however, Insurers do not usually charge an additional premium for
such an extension.

A2H Racing, Competitions, Rallies and Trials

Events, such as road safety rallies, may be covered at no additional charge. However,
those involving racing are covered by only a few specialist insurers, subject to an
additional premium.

A2I Caravans and Trailers

Insurers generally provide third party cover for caravans or trailers while they are
attached to the insured vehicle. If wider cover is required, caravans are insured under
separate non-motor policies. Comprehensive cover for a trailer may be provided as an
extension to a private motor policy.

A2J Breakdown Cover

Some insurers in their comprehensive policies offer the facility to call a control centre
for assistance. The insured pays for the labour and parts used when help arrives (unless
the breakdown is as a result of an accident covered under the policy). In addition, some
insurers provide cover for the cost of the call-out charge, an hour’s roadside repair
labour and towing the car to a garage. Such an extension is subject to an additional
7
premium.

A2K Joint Policies

Insurers are occasionally asked to issue policies in joint names, e.g. a husband and wife.
Such an extension may or may not be subject to an additional premium, depending on
the cover required and whether each of the joint insureds wishes to have the benefit of
the ‘driving other cars’ cover. This benefit would usually either be deleted or stated to
apply to only one of the joint insured. Cover provides for the situation where one of the
joint insureds may have a claim against the other. Effectively the policy operates as if
each had their own policy and treats the other as a third party. This could happen
where one of the joint insureds is at fault and causes an accident injuring the other. A
claim can be made against the negligent party.

A3 Limitations

In addition to the specific exclusions already discussed, there are a number of general
exclusions applicable to all sections of the policy, including:

• driving by unlicensed drivers;

• use of the insured vehicle outside that permitted by the policy;
• contractual liability;
• war risks;
• radioactive contamination and explosive nuclear assembly;
• riot and civil commotion in Northern Ireland, for own damage cover;
• sonic bangs (i.e. pressure waves from sonic/supersonic aircraft or other aerial
device); and
• pollution and contamination unless arising from a single identifiable event.

Apart from ‘use of the insured vehicle’, the other limitations listed above are market
exclusions. There are usually other exclusions, such as using a vehicle in an
unroadworthy condition.

In addition, in order to be indemnified, the driver must hold a licence to drive the
vehicle, or have held and not be disqualified from holding or obtaining such a licence.
No person will be indemnified if they know that the person driving the vehicle at the
time does not hold a licence.

However, the Road Traffic Acts state that an insurer must pay an RTA claim, even if the
policy wording states that it is excluded. This is because the Road Traffic Acts are
designed to ensure that innocent victims of road accidents are compensated. However,
the insurer is permitted to seek to recover its outlay from the insured. Policies
invariably contain a condition stating this to be the case.

A3A Use of the Insured Vehicle

The policy excludes liability for any accident, injury, loss or damage which occurs while
the vehicle is being used for a purpose outside the description of use in the certificate of
8
motor insurance. This is becoming a key issue, given the growth of the sharing
economy, which poses a problem for the provision of appropriate insurance.

New commercial business models mean that a vehicle can be used both for personal
and commercial purposes, e.g. the increasingly common practice of peer-to-peer car
sharing over the internet, by which owners rent out their vehicle while it is not in use.
Personal car insurance policies usually exclude peer-to-peer renting. New market
platforms have found a solution by issuing separate policies to cover the vehicle and the
renter during the rental period, which supersede the renter’s personal insurance, and
which protects the vehicle owner in the event of a loss.

Even informal car sharing, such as giving a neighbour a lift to work, is a sharing
economy activity and may be excluded from a standard motor policy under the hire
and reward exclusion, although if no profit is made from the passenger contribution the
policy should remain valid. However, more complex issues may arise if the neighbour
is taken to a different work destination, e.g. under the cover for ‘commuting’ and
‘business use’ for the car as compared to the standard ‘social, domestic and pleasure
use’ cover.

From these examples you will see that even slight changes to circumstances can have a
direct impact on the actual policy coverage. Therefore, it is imperative that insurers ask
the appropriate questions when the request for cover is received.

B Motorcycle Insurance

In insurance, the term ‘motorcycle’ includes any kind of cycle propelled mechanically,
including mopeds. Consequently, there is a wide range of risk. Many of the
considerations for motorcycles are the same as for motor vehicles, both being subject to
the Road Traffic Act 1988. The options of the different levels of cover are also the same
and need not be repeated here.

The single method of insuring motorcycles is specified motorcycle insurance, where

the driver is insured for a particular motorcycle.

B1 Standard Policy Cover

The cover of the comprehensive motorcycle policy is much the same as that of the
private motor policy. Therefore, here we only need to identify the main differences:
• the accidental damage section follows that for private vehicles, except that it does
not cover theft of accessories or spare parts unless the motorcycle itself is stolen at
the same time;
• the liability section generally indemnifies the insured (or their personal
representatives in the event of the insured’s death), others permitted to drive the
motorcycle and users of the motorcycle for social domestic and pleasure purposes;
and
• there are no personal accident benefits and no cover for medical expenses (beyond
emergency treatment fees) or personal effects.
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B2 Optional Extensions

There are a number of optional extensions available, subject to payment of additional

premium, as described here.

Trailers A solo motorcycle may have a particular type of

trailer for which an additional premium is required
Driving other cycles This is usually excluded where the motorcycle is of
modest specification. However, it may be added back
at an additional premium, though in common with
private motor, this is being phased out as an extension
More than one cycle insured Insurers often allow a premium reduction if an
individual insures more than one cycle with the same
insurer
Invalid carriages/mobility It is possible to insure these under a motorcycle policy
vehicles

B3 Limitations

The policy exclusions, or limitations, of motorcycle insurance are the same as those for
private motor insurance.

C Commercial Motor Insurance

The main types of commercial vehicles are as follows:

• Goods-Carrying Vehicles: these form the largest group of commercial vehicles.

• Passenger-Carrying Vehicles: hire cars, buses and coaches.
• Agricultural and Forestry Vehicles.
• Vehicles of Special Construction: these are known as ‘special types’, and include
vehicles such as ambulances, cranes and fork-lift trucks.

Commercial motor insurance is primarily concerned with the risks which attach to the
vehicles themselves while they are being driven, left parked or being carried by sea or
air between different parts of the country. Such cover does not extend to any goods
being carried by the vehicles: this forms the subject of a separate class of insurance,
known as goods-in-transit.

In this section we outline the standard policy cover, optional extensions and limitations
of commercial motor insurance.

C1 Standard Policy Cover

Most insurers use the same standard policy wording for all commercial motor
insurances, irrespective of the type of vehicle to be covered. This standard cover is then
modified as and where necessary, depending on the vehicle being insured. Some
insurers issue separate and specific policies in respect of agricultural and forestry
vehicles and certain ‘special types’. However, here we limit our discussion to the
10
standard commercial motor policy cover.

The range of cover available for commercial vehicles is the same as for private motors
and motor cycles, as already discussed. We will identify standard comprehensive policy
cover and identify the main differences between the commercial motor policy and the
private motor policy.

C1A Third Party Liability

Private motor cover and commercial motor cover must provide unlimited indemnity for
death or bodily injury to third parties and are required to provide a limited indemnity
(currently N1,000,000.00 minimum) for third party property damage – on any one
incidence. Most insurers are prepared to increase the limits, subject to an additional
premium.

You should also be aware of the following points regarding third party liability:

Loading or unloading Cover in respect of third party liabilities also applies to

accidents occurring during loading or unloading the
vehicle. In the case of the driver or attendant this extends
beyond the boundaries of the carriageway
Indemnity to driver Generally, anyone may drive the vehicle on the order or
with the permission of the insured
Indemnity to user The insured may allow someone to use the vehicle for
social, domestic and/or pleasure purposes (though they
may not necessarily actually be driving)
Indemnity to passengers This covers the liability of passengers for their negligent
acts
Legal costs As with private motor cover, commercial motor
insurance provides cover for certain legal costs

C1B Loss of or Damage to the Vehicle

This section covers any loss of or damage to the vehicle and to its spare parts and
accessories while they are on the vehicle. In contrast to private motor cover, there is no
cover for spare parts and accessories while they are detached from the vehicle.

C1C Trailers

Insurers cover the towing of trailers under the third party liability section of the policy.
It works as follows:

Articulated and non- It is now standard practice to include third party cover
articulated vehicles for trailers whilst attached to the insured vehicle and
some policies provide comprehensive cover

11
 Disabled mechanically In most cases, third party only cover is given, so that
propelled vehicles there is no cover for damage to the vehicle on tow or to
any goods it is carrying. However, a number of insurers
now offer comprehensive cover to the broken-down
vehicle while it is attached to another vehicle for towing

C1D Private Motor Policies only

Certain cover given by a private motor policy is omitted from a commercial motor
policy. This is as follows:

Driving other vehicles Even in respect of goods-carrying vehicles, the range of

vehicles is so extensive that insurers do not want to
encourage the insured or their employees to drive other
vehicles under their policy
‘Personal benefits’ Personal accident benefits, medical expenses, personal
belongings and clothing are not covered under a standard
commercial motor policy

C2 Optional Extensions

In addition to the extensions already mentioned, a number of other benefits may be

added to the standard policy, often subject to an additional premium. Common optional
extensions are identified below:

Third party property The stated policy limit can be increased, subject to an
damage additional premium.
Medical expenses; Some insurers will extend the policy to cover medical
personal accident expenses and/or personal accident benefits to the driver
benefits and/or passengers though requests for this are unusual.
Personal belongings This item may be added to the policy, subject to an
and clothing additional premium. The reason for requesting its
inclusion is that long-distance drivers might have personal
possessions in their vehicles and, therefore, require cover
for them.
Windscreen/glass cover The insured can often negotiate an extension to the
standard policy if it does not already include windscreen
cover or has only limited windscreen cover.
Indemnity to hirers Insurers can grant cover in one of two ways:
• without an additional premium – insurers will cover loss,
damage or liability arising from the negligence of the
insured or their employees while the vehicle is in the
custody or control of a hirer; or
• subject to an additional premium – insurers will cover
the hirer for loss, damage or liability arising from their
negligence or that of their employees.
and clothing additional premium. The reason for requesting its
12
 inclusion is that long-distance drivers might have personal
possessions in their vehicles and, therefore, require cover
for them.
Windscreen/glass cover The insured can often negotiate an extension to the
standard policy if it does not already include windscreen
cover or has only limited windscreen cover.
Indemnity to hirers Insurers can grant cover in one of two ways:
• without an additional premium – insurers will cover loss,
damage or liability arising from the negligence of the
insured or their employees while the vehicle is in the
custody or control of a hirer; or
• subject to an additional premium – insurers will cover
the hirer for loss, damage or liability arising from their
negligence or that of their employees.
Indemnity to principal This operates in much the same way as indemnity to
hirers. The insured may be using their vehicle in
connection with some contract work and one of the
contract terms may require an indemnity to the other
party.
Carnivals Flat-bed lorries tend to be used in carnivals as ‘floats’.
Most insurers require notification of such a risk and might
impose an additional premium.
Sheets and ropes etc. Open lorries usually carry equipment, such as sheets and
ropes, to secure the load they are carrying. When not in
use, such equipment is stored on the vehicle itself.
Therefore, the risk of theft is very high. Such an extension
is usually subject to an additional premium and on
condition that such equipment is kept in a locked
compartment on the vehicle. This risk may be covered
under a goods in transit policy rather than a motor policy.
Loss of use This extension provides up to 80% of leasing or hire
charges if the insured is without their vehicle following
accidental damage, fire or theft anywhere in Great Britain
and Western Europe. As with all extensions, an additional
premium is usually charged, with larger charges for cover
in Western Europe and for young drivers.
C3 Limitations

Apart from the specific exclusions which relate to certain sections within the policy, the
commercial motor policy incorporates a number of general exclusions. These limitations
are, basically, the same as those contained within the private motor policy and need not
be repeated here.

13
However, the exclusion of ‘use of the insured vehicle’ is slightly different from that
given in the private motor policy. It states that the insurer is not liable if the vehicle is:
• used other than in accordance with the use stipulated in the policy schedule; or
• engaged in racing, pace-making, reliability trials or speed testing.

14
Key Points

The main ideas covered in this chapter can be summarised as follows:

Private Motor Insurance

• The four levels of cover available are Road Traffic Act (RTA) only, third party
only; third party, fire and theft; and comprehensive in the UK while the levels
available in Nigeria are three. These are third party only; third party, fire and
theft; and comprehensive.
• The lowest, RTA only, offers the minimum cover required by the Road Traffic Act
1988 as amended by subsequent legislation and third party only as required by
motor vehicle (Third party) insurance Act 1950 as amended by the insurance Act
2003.
• Comprehensive insurance offers the widest level of cover as, in addition to the
cover offered under the Third party, fire and theft policy (cover for liabilities to
third parties, and damage/loss of the insured vehicle as a result of fire and theft) it
also covers accidental and malicious damage to the insured’s car.
• A number of optional extensions to the basic cover are available, e.g. personal
belongings and clothing cover, loss of use.
• A number of general and market exclusions apply to all sections of the policy, e.g.
driving without a licence.

Motorcycle Insurance
• The term ‘motorcycle’ includes any kind of cycle propelled mechanically,
including mopeds.
• Insurance is under specified motorcycle policies and the driver is insured for a
particular motor cycle.
• The standard comprehensive policy cover is similar to that under a private motor
policy, with some differences relating to accidental damage, personal accident
benefits and liability.
• Optional extensions are available for extra premium.

Commercial Motor Insurance

• Commercial motor insurance is primarily concerned with the risks that attach to
the vehicles themselves while they are being driven, left parked or carried by sea
or air, and not with the goods being carried.
• Most insurers use the same standard wording regardless of the type of vehicle
being covered, amending it as necessary.
• The range of cover available is the same as for private motor.
• Third party cover is usually lower for commercial vehicles and certain other cover
applies which is specific to commercial vehicles, for example when loading or
unloading, or for trailers.
• As with private motor policies, optional extensions are available, often at an
additional premium.

15
Self-Assessment

1. What are the three main classes of motor insurance?

2. What is the minimum motor insurance cover required in order to comply with the
Road Traffic Act 1988 (as amended)?
3. What are the two specific exclusions in respect of third party liability?
4. What is the main difference between third party, fire and theft cover and
comprehensive cover?
5. What are five of the optional extensions to a comprehensive private motor policy?
6. What are the main differences between the standard comprehensive motor policy
and the standard comprehensive motor cycle policy?
7. What are the main groups of commercial vehicles?
8. Why is ‘driving other vehicles’ cover omitted from the commercial motor cover?

You will find the answers at the back of the book

16
 Chapter 2

Health Insurance
Introduction
In this chapter we continue our consideration of insurance products by examining the
standard policy cover, optional extensions and limitations of personal accident and
sickness insurance and medical expenses insurance.

One of the main classes of risk to which an individual is exposed to is death or bodily
injury. The risk of death or, more specifically, uncertainty as to the date of death can be
handled by various forms of life assurance (which falls outside the syllabus for this
course). However, personal accident insurance may also be used to provide
compensation in the event of death and serious injury by accident. It can be used to
mitigate loss of income and any additional expenses incurred if an individual is unable
to continue with their usual work. Sickness insurance may be arranged to provide for
disablement due to sickness. Medical expenses insurance provides cover for individuals
who seek medical treatment outside the NHIS when they are ill.

NOTE: Health Insurance is classified in Nigeria as part of the life insurance business by
the Insurance Act 2003 unlike in UK where it is classified as general insurance.

Key Terms

This chapter features explanations of the following ideas:

Accidental Benefit Policy Franchise

Legal Expenses Cover Medical Expenses Insurance
Personal Accident Insurance Sickness Insurance

A Personal Accident and Sickness Insurance

Personal accident and sickness insurance is a relatively simple form of cover. The sum
insured is paid if the insured suffers or is off work due to sickness. Such insurance is
taken out on an annual basis. The occupation of the proposer is the main rating factor
for the personal accident element, but not for sickness. The general practice amongst
insurers is to group occupation into four main classes, imposing premiums according to
the level of accident/health risk involved.

A personal accident and sickness policy is not a contract of indemnity: under a contract
of indemnity, the amount recoverable is measured by the extent of the insured’s
financial loss. Rather, a personal accident and sickness policy is a benefit policy; i.e. a
contract to pay a sum of money in the event of a certain contingency, irrespective of
whether the insured sustains a direct financial loss. However, cover is often available in
17
‘units’ (i.e. defined levels of cover), the proposer being able to purchase as many units
as desired within financial and earning capabilities.

Although this is a benefit policy, insurers try to ensure that any weekly benefit for
disablement represents no more than normal earnings. The reason for this is not that
there is any assumption that the insured will deliberately injure themselves to obtain
benefit, but that in the event of a genuine claim, there may be an inducement to remain
off work if weekly benefits are too high. This is why insurers ask a specific question on
their proposal forms requiring the proposer to declare any other policies that are in
force. In this way they can check that overall benefits from all policies are set at realistic
levels.

In the event of a claim, there is no question of contribution arising because these are not
policies of indemnity, but benefit policies. This type of insurance is available as a stand-
alone policy, but is often purchased as an ‘add-on’ to travel insurance, motor insurance
and household insurance.

A1 Standard Policy Cover

Let us consider the basic cover provided by personal accident insurance and by sickness
insurance, before considering in more detail the standard policy benefits.

A1A Accident Cover

The accident section of a standard personal accident and sickness policy provides
compensation in the event of accidental death or bodily injury. But what do we mean by
the term accidental? There is no single standard definition, but there are key elements
in most insurers’ wordings. The event must arise from an accident, in other words from
an identifiable cause, and must be fortuitous. There is a time limit from the date of the
accident to the specified event. Some insurers have definitions that specify that the
bodily injury must result in death or disablement, independently of any other cause.

Capital sums (i.e. lump sums) are paid in the event of death or certain specified injuries.
The policy usually provides a weekly benefit of up to 104 weeks or compensation if the
insured is temporarily totally disabled due to an accident. Some insurers offer reduced
weekly benefits if the insured is temporarily partially disabled. In the event of permanent
total disablement, either a capital sum or, less commonly, a ten-year annuity is paid.

A1B Sickness Cover

The sickness section of a standard personal accident and sickness policy provides a
weekly benefit of up to 104 weeks if the insured is temporarily and totally disabled from
engaging in their usual occupation due to sickness or disease.

The sickness benefit is usually subject to a time franchise, which is generally seven days.
This means that if the insured is sick for less than seven days, no payment is made.
However, if sickness continues beyond seven days, the claim covers the entire period of

18
sickness, including the initial seven days. Franchises operate as thresholds to determine
whether a claim is payable. Unlike excesses, they are not simply deducted from a claim
settlement figure.

Cover generally excludes sickness contracted within the first 21 days of the
commencement of the policy period. This ensures that the insurer is only liable for
sickness or disease contracted after commencement of the policy and not for sickness or
disease that was contracted prior to commencement, but has subsequently developed.

A1C Policy Benefits

Generally, personal accident and sickness policies cover the following:

Death
Insurers often stipulate that death must occur within twelve months of the event giving
rise to the claim. A typical capital sum payable is N100,000.00.

Total Loss of (sight in) One or Both Eyes

Loss of eyes includes total and irrecoverable loss of sight, so that claims are valid if
vision is totally impaired in one or both eyes. A typical capital sum payable is
N100,000.00. The same sum is usually payable regardless of whether sight is lost in one
or both eyes. However, some companies now offer an increased capital benefit where
sight in both eyes is affected.

Total Loss of One or Both Limbs

Benefits are usually payable only if the event occurs within a specified period (usually
12 or 24 months) of the accident causing the injury. Some insurers include the loss of use
of limbs as standard. A typical capital sum payable is N100,000.00. The benefit is a fixed
sum, regardless of how many limbs are lost. However, some companies now offer an
increased capital benefit where the use of both limbs has been lost.

Permanent Total Disablement

Compensation is usually in the form of a capital sum of, say, N100,000.00 or, less
commonly, although it may be more, an annuity of, say, N100,000.00 a year for ten
years. Compensation may not be payable until 12 or 24 months after the accident, since
it may take this length of time to determine whether the disablement is both permanent
and total.

Permanent Partial Disablement

This is not a standard element of cover, but when insurers provide this benefit, they do
so, on the basis of the loss of specified parts of limbs, for example, toes or fingers. The
percentage of the capital sum paid for such disabilities is on a sliding scale and
represents a smaller percentage than that paid for the loss of an entire limb.

19
Temporary Total Disablement

This covers temporary total disablement from engaging in one’s usual occupation due
to accident or sickness. Compensation is usually in the form of a weekly benefit, e.g.
N10,000.00 per week for a maximum of 104 weeks. Some companies will offer higher
limits, but for a lesser period of 52 weeks.

Temporary Partial Disablement

Temporary partial disablement means temporary disablement that prevents the insured
person from attending to a substantial part of their normal business due to accident
(this does not apply to sickness). Compensation is in the form of a weekly benefit of,
say, N10,000.00 per week. Traditionally this figure has been set at 40% of the temporary
total disablement amount, though there is nothing to prevent a proposer requesting a
different amount if this can be justified.

Medical Expenses
This covers medical expenses necessarily incurred for treatment following an accident.
Medical expenses may be defined as the cost of medical, surgical or other remedial
attention, treatment or appliances given or prescribed by a qualified member of the
medical profession and all hospital, nursing home and ambulance charges.

The provision is restricted to nominal sums: if an individual wish to make fuller

provision for such expenses then private health cover should be arranged.

Payment of Benefits

The maximum amount of any claim is usually limited to the capital sum. It is not
cumulative, which means that death following permanent total disablement caused by
an accident would result in only a single payment of one capital benefit. However, if
permanent total disablement follows the payment for temporary disablement, no
deduction is made for sums already paid. There are considerable variations in the size
of the capital benefits now available in the market ranging from say N100,000.00.

A2 Optional Extensions

An additional benefit provided by some insurers is legal expenses cover to pursue

actions against negligent third parties following bodily injury. Legal expenses are
covered up to, say, N80,000.00. Cover is very narrow since it only relates to incidents
involving bodily injury.

A3 Limitations

A3A Geographical Limits

Cover for accidents is usually worldwide, whereas sickness cover is usually restricted to
the Nigeria Sickness cover may be extended beyond these limits, subject to an
additional premium.

20
A3B Age Limits

Specified age ranges apply to the inception of cover, the most common being 16–70
years in respect of accident cover and 16–60 years in respect of sickness cover. However,
once it has accepted a risk, an insurer will often extend these limits for existing
policyholders. It is not uncommon, though, for renewal terms to be offered to existing
insured individuals up to five or ten years beyond the stated age ranges. In this case
insurers often ask to see some evidence of continuing good health at each renewal,
perhaps by asking for a report from the policyholder’s usual general medical
practitioner. It is likely that standard age limits will increase as people are now living
longer and leading a more active life in later years.

Family personal accident policies may also include children, with age limits ranging
from 6 months to 16 years. However, the level of benefits provided is significantly less
than those provided for adults. Some policies will increase the age limit for children up
to age 23, but only if the ‘child’ is living with, or is dependent on, the main policyholder
whilst in full time education.

A3C Exclusions

Typical exclusions are:

• the insured being under the influence of, or being affected by, alcohol or drugs,
unless under medical supervision;
• self-inflicted injury or disease;
• physical defects or infirmity which existed prior to an accident;
• the insured engaging in certain sports and pastimes, although some insurers will
cover them for an additional premium, e.g. aviation (other than air travel in a fully
licensed passenger-carrying aircraft as a passenger), motor cycling, polo, racing on
horseback or on wheels, winter sports or mountaineering involving the use of
ropes or guides;
• childbirth, pregnancy, (for female lives)
• veneral diseases such as AIDS
• war risks; and
• sickness occurring within 21 days of the commencement of sickness cover

Insurers intend to cover fortuitous losses, not those that are likely or inevitable. For this
reason, there is a policy exclusion ensuring that claims are not payable for the
consequences of pre-existing conditions. This could happen, for example, if an insured
suffers from a weak back that has given rise to periods of disablement in the past. Often
an insurer will know of previous weaknesses from the answers provided on a proposal
form, in which case specific underwriting action could be taken. However, this acts as a
reminder to the insured. There are also some circumstances in which a proposal form is
not completed (such as travel insurance that is purchased when a holiday is booked).

B Medical Expenses Insurance

Medical expenses (or health care) insurance provides cover for individuals who seek
21
private medical treatment alongside the NHIS when they are ill. It gives the individual
greater choice of specialist consultant, hospital and the timing of the treatment. It is
often arranged on a group basis by an employer on behalf of all employees or certain
groups of employees, in which case it is an employment benefit.

Whereas the premiums for personal accident and sickness policies remain fairly static
within the normal age ranges for acceptance, premiums for medical expenses cover tend
to increase as age increases.

B1 Standard Policy Cover; Optional Extensions; Limitations

Inpatients’ cover provides the following:

Hospital charges These include costs such as theatre fees, surgical dressings and
consultations
Specialist fees These include surgeons’ and anesthetists’ fees
Additional costs These include ambulance fees and nursing fees

Similar cover is available to people treated on a day care basis. Rather than optional
extensions being available to add to a standard policy, there is instead a range
of standalone policies offering differing levels of cover.

The most expensive policy provides very generous provision, whilst the low-cost policy
provides more limited benefits. In particular, low-cost policies limit the level of hospital
accommodation available under them and require the member to use the NHIS
(National Health Insurance Scheme) if treatment can be undertaken within, say, six
weeks of diagnosis.

Usually, policies exclude payments that relate to medical conditions for which the
individual has received treatment within the five years before applying to the insurer.
Also, such policies do not provide cover for long-term residential care.

22
Key Points

The main ideas covered by this chapter can be summarised as follows:

Personal Accident and Sickness Insurance

• The sum insured is paid if the insured suffers an accident or is off work due to
sickness.
• Such policies are benefit policies, not contracts of indemnity.
• Accident policies pay capital sums in the event of death or certain specified
injuries and usually a weekly benefit or compensation if the insured is
temporarily totally disabled by an accident.
• The sickness cover provides a weekly benefit if the insured is temporarily totally
disabled due to sickness.
• Limitations apply, such as geographical location and age, along with exclusions
such as self-inflicted injury or disease.

Medical Expenses Insurance

• Medical expenses (or healthcare) insurance provides cover for individuals who
seek private medical treatment alongside the NHIS.
• In-patient’s cover provides cover for hospital charges, specialist fees and
additional costs such as ambulance and nursing fees.
• Instead of optional extensions being offered for a standard policy, there is a range
of standalone policies available offering different levels of cover.

23
Self-Assessment

1. Why are personal accident insurance contracts not contracts of indemnity?

2. What are the main benefits available under a personal accident policy?
3. When must death occur if the death benefit is to become payable under a personal
accident policy?
4. What is the usual geographical scope of:
a. accident cover?
b. sickness cover?
5. What are three hazardous activities that are usually excluded from an accident and
sickness policy?
6. What cover is available to in-patients under medical expenses insurance?

You will find the answers at the back of the book

24
 Chapter 3

Package Policies
Introduction

Many forms of insurance are required by both private individuals and businesses.
Package policies may be included within one policy document to provide coverage for
all the covers required by a particular type of policyholder, whether an individual or a
business. Insurers tend to produce package policies where there is sufficient
homogeneity of risks.

Homogeneity of risks refers to the situation where many risks share similar
characteristics and follow similar trends. As more and more risks display similar
characteristics, future claims costs become more predictable. Thus it makes
administrative sense to issue standardised wordings and charge a single premium for
all classes. Given the predictability and the savings created it is not difficult to see why
insurers favour this type of policy. The savings are passed on in the form of reduced
premium levels, so for those risks meeting the acceptance criteria, this acts as a great
incentive for prospective policyholders to insure in this way.

Many individuals own and occupy houses, and may require cover in respect of, for
example, fire, special perils, theft, money and legal liability. Such cover may be grouped
together into a single policy document covering buildings and/or contents against this
range of perils. These are all standardised and there is little scope for variation, except
in the sum insured. This is known as household insurance and household policies are
package policies.

Many small businesses are faced with similar risks: fire, perils, liability and so on. They
also face other risks, such as claims made upon them for supplying defective products
or the loss of trading income following a fire. For small traders, typically shopkeepers,
insurers have found that there are enough common features to justify the introduction
of standardised arrangements for these risks. The products that they sell to such groups
are also package policies.

An individual travelling within the Nigeria or overseas, whether for pleasure or

business purposes, also faces a number of risks, such as the loss of the deposit paid for a
holiday, death or injury, theft and legal liability to third parties. Appropriate cover is
grouped together into a package policy known as travel insurance (or holiday
insurance).
Often, commercial undertakings, particularly medium sized or large firms, want a more
individualised approach to their insurance arrangements, but still wish to retain the

25
administrative benefit of cover in a single document.

In this case they may opt for a policy that is really a ‘shell’ into which a variety of
different classes of insurance may be grouped. These were traditionally called
combined policies and were really a collection of individually underwritten separate
policies that were grouped together. Most companies now offer a more integrated
approach, which would bring them more in line with the package concept.

Each insurer offers its own versions of the policies we discuss in this chapter and there
will be variations in the cover offered and in what is excluded. However, this chapter
provides information on what is generally available in the market.

Key Terms

This chapter features explanations of the following ideas:

‘All Risks’ Buildings Insurance Commercial Package Policies

Contents Insurance Household Insurance New for Old
Package Policies Single Article Limit Travel insurance
Valuables Limit

A Household Insurance

Probably the most valuable physical asset an individual will own is their home, both
building and contents. Those living in rented accommodation will generally possess
furniture and other belongings that are exposed to risks such as fire and theft.
Therefore, there is a great need for insurance for such assets. To cover such risks,
household policies are issued, covering buildings and/or contents against a wide range
of perils, including fire, additional perils and theft. Valuables and personal effects are
also covered, as is public liability, and a number of optional extensions are available.

In this section, we will examine the standard policy cover, optional extensions to and
limitations of household insurance. There are generally two options for settlement of
household claims where the item concerned is irreparable, namely the following:

Indemnity A deduction is made for wear and tear. The amount paid is
(or market value) that required to replace the item with a replacement of the
same age and in the same condition. Nowadays this option is
rarely chosen. Some insurers do not even offer it as an option
New for old (or The full cost of replacing the item as new is paid. Most
reinstatement) insurers make a deduction for wear and tear in certain
circumstances: such as claims for clothing and household
linen. A deduction may also be made if the sum insured is
inadequate or for property over a certain age (such as more
than five years-old)

26
The sum insured on the buildings section of a household policy should represent the
rebuilding cost at the time the rebuilding is complete.

There are a variety of policies available, some insurers offering a full ‘package’ whilst
others offer a more limited cover with optional extras being made available. Indeed,
there is no such thing as a ‘standard’ household policy. There are minor variations of
cover under each insurer’s policy, and wordings also vary.

In this section, we will concentrate on the basic cover most frequently provided by
insurers, namely building and contents insurance. These policies are often subject to
either an overall excess or to differing levels of excess for the different contingencies
covered.

A1 Building Insurance

Buildings, in respect of household insurance, may be defined as the main structure of

the private dwelling (house etc.) and includes garages, sheds, greenhouses and other
outbuildings. Swimming pools and tennis courts are also included as are walls, gates,
fences and paths. Anything that would normally be left behind when moving from a
house is generally considered part of the building. This would include, for example,
fitted kitchens or bedrooms, electrical fittings and double glazing.

The following cover is generally available in respect of buildings:

Fire, lightning, explosion and earthquake
This cover is self-explanatory.

Riot, civil commotion, strikes, labour or political disturbances, malicious damage or

vandalism

Although wordings vary, cover generally specifically excludes loss or damage occurring
whilst the building is unfurnished or unoccupied for more than 30 or 60 days in any one
insurance period. Cover in respect of malicious damage is usually subject to both an
excess and to the police being notified of the incident.

Storm or flood
Cover under this heading specifically excludes damage caused by subsidence, ground
heave or landslip and damage to gates, fences or hedges. Storm or flood cover is always
subject to an excess.

Falling trees or branches

Cover excludes damage to walls, gates, fences or hedges.

Escape of water
This covers the bursting (e.g. as a result of freezing) or overflowing of water tanks,
apparatus or pipes, and includes any fixed domestic water or heating installations,
washing machines and other domestic equipment. Cover specifically excludes damage

27
whilst the building is unfurnished or unoccupied for more than a certain period,
commonly 30 or 60 days in any one insurance period. An excess always applies.

Escape of oil
Damage caused by escape of oil from any fixed oil-fired heating system is covered. The
unfurnished/unoccupancy exclusion applies.

Theft or attempted theft

Cover is usually excluded whilst the premises are left unfurnished or unoccupied for
more than 30 or 60 days in any one insurance period. There is no definition or other
restriction on the use of the term ‘theft’, so that insurers cover theft as defined in the
Theft Act 1968. The Act states that a person is guilty of theft if they dishonestly
appropriate property belonging to another with the intention of permanently depriving
the owner of it.

Impact
Cover is for impact or collision with aircraft or other aerial devices, or with articles
dropped therefrom, road vehicles, or animals. There may be an excess imposed for the
insured’s or their family’s vehicles or animals. Damage caused by pets is usually
excluded.

Subsidence; Ground Heave or Landslip

This covers subsidence, ground heave or landslip of the site. It excludes loss or damage
caused:

• by normal shrinkage or settlement;

• by faulty workmanship or design or faulty materials;
• during demolition, structural alteration or repair;
• by coastal or riverbank erosion;
• from movement of solid floor slabs, unless the foundations below the external
walls are damaged at the same time; and
• to fixed fuel oil tanks, swimming pools, tennis courts, walls, gates, fences, terraces,
patios and drives unless the house is damaged at the same time by the same cause.

A substantial excess of, say, N100,000.00 or expressed as a percentage of the sum

insured is always imposed.

Breakage or collapse of television or radio receiving aerials, aerial fittings and masts:
This covers damage to the buildings caused by the collapse of the aerials, but not
damage to the aerial itself, which is normally covered under the ‘contents’ section.

Accidental damage to drains, pipes, cables or underground pipes: This covers

accidental damage to water, oil, gas, sewage and drain pipes, underground telephone,
television and electricity cables serving the building.

Accidental breakage of glass and sanitary fixtures: This covers accidental breakage of
28
fixed glass in windows, doors, fanlights and skylights or greenhouses, conservatories
and verandas forming part of the building. It also covers accidental breakage of fixed
wash basins, cisterns, baths and other sanitary fittings. The unfurnished/unoccupied
exclusion applies.

Legal fees, architects’ and surveyors’ fees, cost of debris removal: This covers
reasonable legal fees and architects’ and surveyors’ fees necessarily incurred in the
reinstatement of the building following loss or damage. The costs of demolition or
shoring up the building and debris removal are also covered. Cover excludes any costs
involved in preparing the insured’s claim.

Loss of Rent: Cover is given in respect of ground rent (amounts payable by a

leaseholder to the owner of the freehold) for a maximum period of two years and loss of
rent for any part of the premises not occupied by the insured which has become
uninhabitable. It also covers the reasonable cost of alternative but similar
accommodation whilst the premises are uninhabitable as a result of an insured peril. A
limit of 10–15% of the buildings sum insured usually applies, although some insurers
will offer ‘reasonable accommodation expenses’ taking all of the circumstances of the
claim into account, including the individual’s needs, the length of time for which
accommodation is needed and the alternative (and comparable costs of)
accommodation available locally.

Non-Automatic Extension: As well as the optional extensions that relate to the

household policy in general, accidental damage is also available as an extension. Many
insurers offer such cover, subject to a higher premium rate and always subject to an
excess of a stated absolute minimum amount or a percentage (whichever is greater).
Such cover would include, for example, drilling through a pipe, hammering a nail
through an electric wire or putting a foot through a ceiling.

Cover excludes damage whilst the dwelling is let; wear and tear; settlement or
shrinkage; wet or dry rot, fungus, vermin or insects; damage caused by household pets
and any risk specifically excluded under the standard buildings section, such as storm
damage to fences.

A2 Contents Insurance

Contents, in respect of household insurance, may be defined as household goods and

personal effects belonging to the insured or a family member living in the property.
This includes cash and stamps (not part of a stamp collection) up to, say, N10,000.00 in
total and any fixtures and fittings belonging to the insured are also covered. The
schedule attached to the policy will usually show the applicable limits.

Anything that forms part of the structure, such as ceilings, wallpaper and the like are
not covered. Radio and television aerials are usually included in the contents definition
as these are generally considered to be an extension of the radio or television itself.
Satellite dishes and receivers, however, may be excluded.

29
The perils covered under the contents section are basically the same as those covered
under the buildings sections, although there are certain minor differences which should
be noted.

• Theft or attempted theft of cash, currency, bank notes and stamps is generally
excluded if it does not involve forcible and violent entry or exit.
• Theft or attempted theft by deception is normally excluded, unless the only
deception used is to get into the home.
• Theft or attempted theft while the building is lent, let or sub-let in whole or in part,
or if the building is unfurnished, is normally excluded if it does not involve
forcible and violent entry or exit.
• Accidental damage cover, which may be added to the ‘standard cover’ is subject to
the same excess and exclusions as under the buildings section. However, certain
contents are excluded: clothing, contact lenses, money, stamps, coins, medals,
plants, food and drink, sports equipment and bicycles are among these, but the list
varies from insurer to insurer.

A2A Limits

There are limits on single articles of value and some insurers limit the total amount of
valuables.

Single Article No picture or other work of art, stamp collection, precious metal,
Limit jewellery or fur will be treated as being of greater value than, say,
5% of the total contents sum insured, or than a fixed amount of,
say, N15,000.00. Insurers are usually prepared to include items
that exceed policy limits, provided that they are specified and
evidence of their value produced
Valuables Limit The total value of articles of precious metal, jewellery or fur may
be restricted to, say, one-third of the total contents sum insured.
This limit may be extended where necessary upon payment of an
additional premium, but the insurer will wish to be satisfied with
the security precautions in the home

A2B Automatic Cover

As well as the optional extensions that relate to the household policy as a whole, the
following elements of cover are usually included automatically within the contents
section and are not subject to any additional premium:

• Temporary Removal: The policy is automatically extended to cover the contents

while temporarily removed but remaining in the country where the cover was
incepted. Some insurers may limit the amount covered at any one time under this
extension to, say, 20% of the contents sum insured. However, the risk of storm and
flood as regards property that is not in a building, is excluded.

30
Theft or attempted theft is only covered:

– at any bank, safe deposit or whilst being taken there;

– in any building where the insured or a family member is temporarily residing, or
working;
– in the course of removal to or from any bank or safe deposit whilst in the insured’s
or the insured’s family’s charge.

• Clothing and Personal Effects. Clothing and personal goods, other than cash,
currency notes, bank notes and stamps, of the insured’s domestic servants (for
example, a nanny or ‘au pair’) are covered.
• Accidental Breakage: The policy covers accidental breakage of mirrors and glass
on or fixed to furniture.
• Loss of Rent. Cover includes loss of rent and reasonable additional expense
incurred for alternative accommodation in the event of the premises becoming
uninhabitable. Cover is usually limited to, say, 10–20% of the contents sum
insured, although some insurers will offer ‘reasonable accommodation expenses’
taking all of the circumstances of the claim into account, including the individual’s
needs, the length of time for which accommodation is needed and the alternative
(and comparable cost of) accommodation available locally.

A2C Non-Automatic Extensions

As well as the automatic cover, the contents section may be extended to include the
following, usually subject to the payment of an additional premium:

• Accidental Damage to Entertainment Equipment. This extends the normal cover

to include accidental damage to radios and television, and may also include audio,
video or computer equipment and ceramic hobs whilst they are within the home or
outbuildings. Cover is subject to the standard accidental damage exclusions and
may exclude portable equipment and tapes etc.
• Accidental Damage While in the Course of Removal. This covers accidental
damage whilst in the course of removal by professional removers or in temporary
(usually seven days) storage in a furniture depository. An excess applies.

Other non-automatic policy extensions include loss of oil or metered water from a fixed
domestic water or heating installation or washing machine; cost of replacing door locks
following theft of keys; and temporary increases in sums insured at certain times of the
year, e.g. Christmas. An extension covering the personal effects of children while away
at university/college is also often offered.

Some insurers include certain of these covers within their standard policy forms.

A2D Specific Exclusions

Typical exclusions are as follows:

• property more specifically insured under another policy;

• deeds, bonds, bills of exchange, promissory notes, cheques, securities, documents
31
 and manuscripts;
• medals and coins, unless specifically insured;
• motor vehicles; and
• livestock (other than horses).

A3 Legal Liability: Building and Contents

All household policies include specific liability cover as part of the basic cover, as
follows.

Buildings This section includes liability incurred by the insured as owner of the
property and liability incurred under the Section 65 of Insurance Act
2003 for faults in property formerly owned and occupied by the
insured
Contents This section protects the interest of the insured as:
• occupier, rather than owner, of the property. i.e. it covers
liability incurred as occupier of the property or any other premises
used for temporary holiday accommodation;
• a private individual for personal liability, in other words, the
liability does not need to be linked to the occupation of property; and
• as an employer of domestic employees

A4 Optional Extensions

As we have just seen, the basic household policy covers the buildings and/or contents of
a private dwelling. Many insurers now offer their proposers the option of insuring
household buildings and/or contents on an ‘all risks’ basis, as opposed to the specific
perils basis outlined above. This option means that the property is insured against any
peril that is not specifically excluded. Generally, insurers favour adding an ‘accidental
damage’ option to their standard cover. This is so that they can retain the specific
exclusions that relate to particular perils, such as the unoccupancy/unfurnished
exclusions for theft not accompanied by violent entry or exit.
Apart from the ‘standard’ cover there are extra sections that can be added to a
household policy and these are outlined in the following sections.

A4A ‘All risks’

‘All risks’ cover is available for personal possessions regularly taken outside the
property. Such cover is particularly suitable for personal jewellery, watches, cameras,
laptops, tablets etc. Usually such cover is only available in conjunction with contents
cover. Insurers will insist upon a separate sum insured for specified items above a
certain sum, e.g. N15,000.00, but will be happy to cover unspecified items subject to a
limit for any one item.

The definition of unspecified items may be very wide (e.g. clothing, personal effects
and valuables) or may be more restrictive (e.g. some insurers may require a separate
item for clothing). Cover is provided while they are away from the insured address.
The single article limit can vary between, say, N1,000.00 and N5,000.00.
32
Specified items are those which either exceed the unspecified single article limit or to
which special terms apply, e.g. jewellery, furs and photographic equipment. The sum
insured should represent the replacement value.

Specific exclusions for the section as a whole are as follows:

• wear and tear, depreciation etc.;

• insects or vermin;
• corrosion, rot, mildew, fungus or atmospheric conditions;
• any process of heating, dyeing, alteration or repair;
• mechanical or electrical breakdown or derangement;
• scratching, denting, faulty workmanship/materials;
• official confiscation or detention; and
• deeds, bonds, documents etc.

Some insurers also exclude loss by deception or caused by the failure of a computer to
recognise a date.

A4B Money and Credit Cards

Money
The money extension provides a form of ‘all risks’ cover that is much wider than that
included under the contents section. ‘Money’ usually covers cash, cheques, postal
orders, bankers’ drafts and postage stamps/certificates, premium bonds, luncheon
vouchers, gift tokens and travel tickets. Cover relates to accidental loss of money and a
limit of indemnity of between N2,000.00 - N5,000.00 applies, with an excess often
around N1,000.00. Specific exclusions may apply, including:

• shortages due to error/omission; and

• losses not reported to the police within 24 hours.
Credit Cards
Cover is provided for financial loss following loss or theft of a credit card and its
subsequent misuse. A standard condition is that any loss is reported to the card issuer
and to the police within 24 hours of discovery. Credit cards usually include cheque
cards, cash cards and charge cards, as well as credit cards. Some insurers offer
additional services to the basic cover, such as emergency cash (a temporary measure)
and a card registration scheme. A limit of liability, typically N5,000.00 applies.

Specific exclusions apply, including:

• unauthorised use of the credit card by one of the insured’s household; and
• breach of the issuer’s terms and conditions.

A4C Bicycles

The bicycles extension provides cover for pedal (not motor) cycles and accessories on
an ‘all risks’ basis. There may be a separate sum insured per cycle or, more usually, a
limit per cycle of between N1,000.00 and N5,000.00 for all cycles owned by the insured
or family members. An excess of, say, N250.00 - N500.00 is typical.
33
Specific exclusions are as follows:

• loss or damage to parts or accessories, unless the cycle is damaged at the same
time;
• use for racing, pace making or trials; and
• some insurers exclude theft in certain circumstances; for example, whilst
unattended, unless in a locked building or otherwise secured.

Bicycles are increasingly sophisticated, with values of several thousands of naira. Much
ancillary equipment is available too, e.g. GPS units and helmet mounted cameras. When
a whole family is involved in cycling this can amount to a significant sum to be insured
and will probably require special terms to be agreed.

A4D Freezer Contents

Cover applies for the deterioration of freezer contents due to a change in temperature
(e.g. following a power failure) or contamination as a result of accidental escape of
refrigerant or refrigerant fumes. Some insurers provide cover against a change in
temperature from any cause, such as electrical breakdown, or the cost of hiring
alternative freezer space. A limit of indemnity of, say, N6,000.00 is set by some insurers,
while others require the insured to set their own limit.

Examples of specific exclusions are as follows:

• fire, lightning or explosion damage (as such cover is provided by the basic policy);
• deliberate restriction of supply by the supplying authority;
• willful or deliberate act of the insured, such as turning off the supply at the mains;
and
• damage after the freezer has reached, say, 15 years of age.
A4E Caravans

Most insurers provide cover for caravans under the following three sections:

Caravan and Cover is in respect of ‘all risks’ of accidental loss of or

equipment damage to the caravan, its fixtures, fittings, awnings,
furniture, furnishings and utensils
Clothing and This provides ‘all risks’ cover whilst the property is in the
personal effects caravan, awning or towing vehicle
Liability This covers legal liability for bodily injury or damage to
property caused by or in connection with the caravan up to a
limit of indemnity of, say, N500million

Cover applies anywhere in the Nigeria, usually with an extension for up to 30, 60 or 90
days whilst in ECOWAS member state, including short sea transit. Some policies also
provide cover for post-accident and recovery expenses and the cost of getting the family
home.

Specific exclusions that usually apply are as follows:

34
• the ‘all risks’ exclusions, such as wear and tear;
• theft while left unattended, unless closed and locked;
• hire or reward;
• business use; and
• storm or flood damage to an awning.

As the level of sophistication has increased, this cover is now more commonly issued as
a standalone policy, rather than as an extension to a household policy.

A4F Small Craft

Some household policies extend to cover ‘small craft’. However, definitions of what
constitutes a small craft in the market vary widely ranging from small sailing dinghies
of under 25 feet and canoes to yachts and motor boats limited by maximum speeds and
value, therefore you should check each wording carefully to ensure whether a policy is
providing the required cover.

Cover is usually provided under four sections, namely:

• accidental loss or damage to craft, machinery and equipment;

• personal effects;
• salvage charges; and
• liability to third parties and passengers: with a limit of indemnity of, say,
N500million.

Cover may be excluded in respect of:

• use for hire or reward, or business purposes;

• liability for injury to employees; and
• theft of outboard motors, gear and equipment, though this may be included
subject to the taking of specified security measures.

A4G Sports Equipment

Cover is available for accidental loss of or damage to sports equipment and specialist
sports clothing owned by any member of the insured household. Cover usually applies
anywhere in the British Isles and for a limited period (say, 60 days) worldwide in any
one period of insurance. Specific exclusions include:

• motor vehicles, trailers, caravans, boats etc;

• damage while the equipment is in use;
• living creatures;
• non-specialist sports clothing;
• pedal cycles;
• golf balls;
• camping equipment; and
• equipment for certain hazardous pursuits such as parachuting and
mountaineering.

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A4H Personal Accident, Hospital Cash Benefit and Creditor Insurance

Cover is available against the risk of personal accident and/or sickness, redundancy or
unemployment for the insured and their family. Personal accident cover is subject to
the standard terms and conditions of the personal accident and sickness policy. Cover is
also available against the inability to continue credit instalment payments or a mortgage
in the event of redundancy or unemployment. A set monthly amount is covered,
usually for a period of up to 24 months, excluding the first month of any period.

A4I Domestic Animals

Cover is available for horses, ponies, domestic cats and dogs as follows:

Horses and Ponies Cover includes death from accident, sickness or disease,
economic slaughter and loss by theft or straying. Cover may
also include temporary incapacity, veterinary fees, saddles,
bridles or other riding tack, third party liability, personal
accident to the rider and accidental damage to the horsebox
trailer.
Cats and Dogs Cover includes veterinary fees, accidental death, death from
illness, loss by theft, kennel fees while the owner is
hospitalised, advertising and reward, third party liability
and holiday cancellation following emergency surgery to
the pet.

The market for this particular cover has increased in recent years and it is now more
commonly provided as standalone cover, with significant policy limits and helpline
facilities in UK but not yet in Nigeria.

A4J Legal Expenses

The legal expenses extension provides cover for the following costs:

Recovery costs for legal action taken to enforce the legal rights of the insured
against third parties
Civil defence costs for the defence of certain types of civil claims not covered by
other forms of insurance
Prosecution for the defence of certain criminal charges which may arise from
defence costs unwitting acts of the insured
Employment for the cost of protecting the insured’s rights as an employee
dispute costs through the tribunal process

In the UK, the limit of liability is usually up to £50,000.00 for incurred costs and
expenses, while there is no uniform limit yet in Nigeria.

Specific exclusions are as follows:

• claims relating to events occurring outside the British Isles;

36
• fines and compensation payments;
• costs and expenses not agreed by the insurer; and
• claims arising out of the insured’s business, deliberate or criminal act or omission,
libel and slander, divorce or matrimonial matters and disputes between landlord
and tenant.

A4K Identity Fraud

The identity fraud section of the policy provides cover for expenses incurred by the
insured in respect of:
• administration fees for reapplying for a loan that had previously been refused as a
result of incorrect data being provided by a credit reference agency;
• attendant costs, such as loss of earnings arising from taking time off work to attend
meetings with financial institutions and the police etc; and
• the cost of notarising necessary documentation.

Individual limits will usually apply to each section, subject to an overall limit in the
region of N6million.

A5 Limitations

As well as the specific exclusions that we have considered in relation to the various
sections of the household policy, the standard market exclusions of war, radioactive
contamination, sonic bangs and pollution also apply. In addition, insurers generally
impose a matching pairs or matching items clause, which states that the insurer is not
liable for the cost of replacing any undamaged item that is part of a set or suite or items
of a uniform nature. This often includes carpets and floor coverings where damage
occurs to an identifiable area. Market wordings vary.

In recent years there has been a growth in peer-to-peer accommodation, i.e. transactions
between individuals and organisations via internet platforms, where households are
sharing access to unused space in their home or renting it out to travellers.

As with motor insurance, this raises questions as to what the standard household policy
will cover. Whilst the standard policy will often provide a degree of cover for a guest
and their property, this would not normally apply to anyone paying to stay in the
property. Therefore, a paying guest would affect the validity of the policy if not
disclosed at inception. The host may, therefore, wish to consider taking out a specialist
property owners or landlords insurance policy or such insurance coverage as supplied
by the online platform.

Such policies are outside the scope of this section. Nevertheless, underwriters and
brokers need to be aware of the existence of such transactions. They must ask
appropriate questions when household cover is requested to ensure all the necessary
material information is obtained at inception.

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B Travel Insurance

Individuals travelling within the Nigeria or abroad, whether on holiday or on business,

face a number of risks both before and during the journey. Risks include cancellation
charges, injury, death, medical fees following illness, loss of personal possessions and
third party liability. Cover is usually for a maximum period of three months, although
annual policies are available for regular travellers.

In this section, we will examine the basic features, standard policy cover, optional
extensions to and limitations of travel insurance.

B1 Standard Policy Cover

Most policies provide the following basic sections of cover. There is no standard market
wording for travel insurance policies. Therefore, the actual wordings and monetary
limits quoted here should be treated as indicative of the market.

B1A Personal Accident Benefits

A benefit of between N100,000.00 and above is usually provided for death, loss of eyes
or limbs, or permanent total disablement following an accident. The death benefit is
usually reduced for children under 16 years. Some insurers include weekly benefits for
temporary total or partial disablement.

Hazardous activities, such as winter sports, water-skiing, pot-holing or mountaineering,

are excluded. However, such activities can be specifically insured by payment of an
additional premium or by arranging a separate policy.
B1B Medical and Associated Expenses

Reasonably incurred medical expenses are covered in respect of the following:

Medical treatment including surgical fees, hospital charges and

emergency dental treatment
Additional hotel/travelling of the patient or a friend, member of the family or a
expenses nurse travelling with the patient
Additional cost of bringing including the use of an air ambulance
home the patient
Additional expenses of who are delayed as a result of the injury or illness, up
those in the insured’s party to, say, N10,000.00

A sum insured of N1,000.000.00 is not uncommon, with some covers now providing
significantly more. The cover may also be limited to a specified amount like to
N100,000.00 for holidays in Nigeria. An excess of a relatively small amount, say,
N500.00 usually applies to this section.

Many insurers have increased the age limits applicable to both the personal accident
and medical expenses sections, given that many people are now travelling well into
their 80s. However, the benefits are usually scaled down accordingly, accompanied by a

38
more rigorous medical screening process with regard to any medical pre-existing
condition(s).

B1C Loss of Deposits

The loss of deposits section provides for reimbursement of deposits and payments
made for transport and accommodation booked and not used by the insured due to the
necessary and unavoidable cancellation of the holiday or journey as a result of causes
beyond their control.
Possible causes are as follows:

• Death, illness or accident of the insured, defined close relatives, any person with
whom the insured intends to travel or a close business associate.
• The insured being called for jury service or as a witness.
• Unemployment through redundancy (prior notice not having been given).
• Unforeseen accumulation of work.
• Theft or fire at home or work.

In all cases, cancellation must be a direct and necessary consequence, and not merely
due to a disinclination to travel or as a result of financial difficulties. An excess, no
matter how little, usually applies.

B1D Baggage, Personal Effects and Money

Baggage cover includes loss of or damage to personal baggage, including clothing and
personal effects. Some insurers exclude losses of unattended baggage.

The sum insured is generally between N10,000.00 and N100,000.00, with a single article
limit of N50,000.00 and a limit on valuables of between N5,000.00 and N10,000.00. An
excess of, say, N500.00 is imposed.

Travel insurance, as a ‘package’ policy, caters for the average holiday-maker, as

reflected in the sum insured for baggage and personal effects. A tailor-made policy
would need to be taken out if sums insured exceeded such limits. For example, someone
enjoying a first-class cruise around the world would probably require a much larger
sum insured than that available in a standard travel policy.

Money cover includes loss of cash, bank or currency notes, cheques, postal or money
order, travellers’ cheques, travel tickets, petrol or credit vouchers. The sum insured is
between N1,000.00 and N5,000.00, and more if credit cards and passports are included.

B1E Personal Liability

The personal liability section covers an insured’s legal liability for injury to third
parties or accidental loss of or damage to third party property. The limit of indemnity is
awarded by the court by the insurer can put a policy limit say N5,000.00

39
B1F Delayed Baggage

Cover is for the cost of buying essential items of clothing and toiletries required
following the delay of baggage for a certain period beyond the time at which it should
have arrived, usually twelve hours. The sum insured is usually N5,000.00 per person,
although some insurers provide cover up to N1,000.00 - N5,000.00.

B1G Hospital Cash Benefits

The hospital cash benefits extension provides a daily benefit of N1,000.00 to N1,500.00
whilst the insured is confined to hospital, subject to a limit of between N2,000.00 to
N6,000.00.

B1H Travel Interruption

The travel interruption section covers the failure of public transport to deliver the
insured to the departure point on either the outward or return journey in time to take
the trip booked. The cost of additional accommodation and travel is covered up to
around N10,000.00 per person.

B1I Travel Delay

Delay of the aircraft, ship etc., in which the insured has arranged travel, for at least
twelve hours of original departure time due to strike, industrial action, adverse weather
conditions, mechanical breakdown or structural defect affecting the aircraft etc is
covered.

The limit of indemnity is approximately N500.00 for the first twelve hours and N250.00
for each full twelve hours thereafter, up to a specified maximum of, say, N5,000.00.

B2 Optional Extensions

In addition to the basic policy sections, cover may be extended to cover additional risks.
Most insurers provide the option of a ‘package’ policy, including all sections for
specified sums insured, or a ‘combined’ policy, in which sections and sums insured are
chosen to meet individual requirements. Let us briefly consider the main optional
extensions.

Failure of tour organizer This section is usually provided in policies covering

holidays booked through a member of the Association
of British Travel Agents (ABTA) or ABTA licensed tour
operator, coach operator, shipping line, railway
company, or airline and/or a Nigeria Civil Aviation
Authority (NCAA). (Note: most firms who sell air
travel in the Nigeria are required by law to hold a
licence called an Air Travel Organiser’s Licence

40
 (ATOL)). Cover up to N25,000 is provided following
financial failure of the tour organiser etc., to whom
advance monies have been paid.

Lack of services or This section operates where there is a substantial

amenities withdrawal of services (such as water and electricity
facilities, kitchen services and swimming pool facilities)
at a hotel where the insured is staying, as a result of
strike or industrial action lasting for at least 48 hours.
Benefit is approximately N5,000 per day, up to a
maximum of N27,000 in all.

Loss of passport This extension covers additional travelling and

accommodation costs incurred in obtaining a
replacement passport following loss or theft. The sum
insured is between N100,000 and N25,000.

Legal expenses This covers legal costs and expenses in pursuing claims
for compensation and/or damages arising out of death
or injury of the insured. Sums insured vary between
N100,000 and N5 million.

B3 Limitations

Policy exclusions are designed to protect the insurer from extraordinary situations.
Some of the specific exclusions may be ‘deleted’ by paying an additional premium,
whilst some cannot be deleted.

Apart from the specific exclusions already discussed, the general exclusions within a
typical policy are as follows:

• Death, bodily injury or sickness caused by unprescribed drugs or intoxicants; due

to insanity, pregnancy or childbirth; consequent upon any physical or mental
defect; while taking part in certain hazardous activities; or as a result of suicide or
self-inflicted injury.
• Loss of luggage caused by confiscation; stamps, manuscripts, documents; camping
equipment; cash/cheques unless reported to the police within 24 hours.
• Damage to fragile objects.
• Terrorism is a standard exclusion, although it may not apply to claims made for
emergency medical expenses and under personal accident sections, providing the
disturbances were not taking place at the start of the insured trip. It is important to
ensure that any country it is planned to visit, whether on business or pleasure, is
validated as safe to visit by the Foreign and Commonwealth Office (FCO).

Geographical limits vary among insurers, but the most common areas to which different
premium rates apply are:

41
• Nigeria;
• Europe and countries bordering the Mediterranean, Madeira and the Canary
Islands;
• Worldwide, excluding North America, the West Indies, the Bahamas and
Bermuda; and
• Worldwide.

C Commercial Insurance

Most small businesses, such as traders and shopkeepers, face many of the same risks
and require more than one type of insurance, e.g. fire, business interruption, theft,
money, glass, liability etc. Package policies were introduced to cater for these types of
small business and cover these various classes of insurance within one policy. For very
large risks, or those where a single insurer cannot provide the best cover for a client,
either in terms of wording or cost-effectiveness, separate policies will be more
appropriate.

Package policies are available for most shopkeepers and hoteliers as well as other
specified trades. Generally speaking, the fabric of the building is insured separately (or
at least rated separately) because the package arrangements are geared towards the
actual trade risk – most rating structures for shopkeepers’ risks are geared to the
contents sum insured.

For a given trade (such as small hotels), the policy wording will be tailored to that
particular trade and often wider cover may be provided.

In this section, we will examine the standard policy cover, optional extensions and
limitations of commercial package insurance policies.

C1 Standard Policy Cover

C1A Property Covered

Almost everything in the trade premises or shop is covered, including stock. In some
cases, the sum insured for certain goods, such as wines, spirits or cigarettes, is
restricted. Removal of such restrictions is possible, subject to an additional premium.
Many policies include, automatically, additional specified amounts of cover (usually a
percentage increase) for seasonal increases in stock.

Fixtures and fittings and internal decorations for which the insured is responsible as
tenant are included, unless the insured is the owner of the building. If the insured is the
owner, buildings insurance will be required, although as we have noted some
insurances can be extended to include buildings cover.

As we have seen with other package policies, monetary limits for the various sections
can vary, sometimes significantly. Therefore, the limits stated here are simply indicative
of what is available in the market.

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C1B Risks covered

The risks covered are as follows:

This covers fire, lightning, explosion, earthquake,

aircraft, riot, malicious damage, storm, flood, escape of
Fire and additional perils water, impact, damage to underground pipes or cables,
escape of oil used for central heating, and collapse of
television aerials.
This covers the loss of trading profit and increases in
the cost of working due to an interruption of the
business arising from damage caused by an insured
peril, up to (typically) a period of twelve months from
Business interruption
the date the damage occurred. A ‘standard’ sum
insured is usually provided, which is a multiple of the
contents sum insured (and may be increased as
necessary).
Cover applies in respect of forcible and violent entry or
Theft
exit.
Cover is provided for loss of money, with typical limits
as follows:
• during business hours out of a safe or in transit:
N10,000.00;
Money
• after business hours in a locked safe: N7,500.00;
• after business hours out of locked safe, at the
insured’s home or that of an authorised employee
between N2,500.00 - N5,000.00

Damage to safes is sometimes included, as is damage to the clothing and personal

effects of employees attacked in the course of a robbery.

This covers plate glass windows, internal glass and damage to

shopfronts. There is a limit of liability, which may be waived
Glass
subject to payment of an additional premium, and usually with an
imposition of an excess.
This covers the insured or employees who may be assaulted by
thieves. Provision is in the form of a lump sum of N50,000 in the
Assault
event of death or permanent total disablement, together with a
weekly benefit for temporary disablement.
Cover is available up to, say, N50,000 in respect of goods being
Goods in transit
carried in the insured’s vehicle, subject to a modest excess.
Employers’ liability insurance is not required by law but arise but
Employers’
can be included in the standard cover of trader’s combined
liability
insurance.
This covers legal liabilities in respect of claims by members of the
Public liability public, up to a limit of liability of, say, N5million any one

43
 occurrence.

Liability arising from goods sold or supplied is also covered up to

Product
a limit of, say, N1million any one occurrence and during any one
liability
period of insurance.

C2 Optional Extensions

Many of the items in the standard policy may be increased or amended to suit the
insured’s particular requirements. In addition, a number of optional extensions are
available, including the following:

This extension covers spoilage of freezer contents due to

Refrigerated stock breakdown of the appliance or failure of the public electricity
supply. Deliberate action by the supply authority is excluded.
Also known as extended theft, this covers accidental loss or
damage and is bought as extra protection for fixtures, fittings,
Business ‘all risks’
trade equipment and, possibly, stock. Such cover excludes
pilferage and shoplifting and is subject to an excess.
This covers the trader’s legal costs in defending an action
brought by a customer, employee or neighbour, as well as the
Legal expenses
costs of an action initiated by the trader faced with loss or
possible loss as the result of someone else’s action.

C3 Limitations

Each specific section of cover within the policy has certain exclusions. We need not
repeat them here, as they are outlined in the chapters covering the various insurances
concerned.

44
Key Points

The main ideas covered by this chapter can be summarised as follows:

Introduction
• A package policy includes within one policy document all the covers required by a
particular type of policyholder.

Household Insurance
• Household policies cover buildings and/or contents against a wide range of perils,
cover for valuables and personal effects and also public liability cover.
• Claims can be settled on an indemnity or new for old basis, depending on the terms
of the policy.
• Buildings may be defined as the main structure of the private dwelling, including
garages, sheds, greenhouses, swimming pools and tennis courts, walls, gates, fences
and paths.
• However, not all of these are covered under every part of the policy, for instance
cover for storm or flood excludes gates, fences and hedges. Also an unoccupied or
unfurnished exclusion applies.
• Contents may be defined as household goods and personal effects belonging to the
insured or their family members living in the property.
• There will usually be a single article limit and/or valuables limit.
• The legal section of the buildings policy covers the insured for liability incurred as
owner the property; under the contents policy it covers liability incurred as occupier
of the property and as a private individual for personal liability.
• A large number of optional extensions and extra sections to the policy are available.

Travel Insurance

• Travel insurance covers the risks faced by individuals when travelling in the Nigeria
or abroad.
• It provides cover for personal accident, medical expenses, lost deposits, lost,
damaged or delayed baggage, personal liability and delayed or interrupted travel.
• Optional extensions are available and the removal of some limitations is possible on
payment of additional premium.

Commercial Insurance
• A package policy covers the main insurance needs of a small business including fire
and special perils, business interruption and employers’, public and product liability.
• Optional extensions are available and limitations apply.

45
Self-Assessment

1. How are buildings defined in a typical household policy?

2. What are three risks that are excluded if the building is unfurnished or
unoccupied for more than 30/60 days?
3. What are three automatic extra covers provided by the contents section of a
household policy?
4. What, in no more than one sentence, is the scope of liability cover in a household
policy?
5. What is the extent of cover available for freezer contents?
6. What is the scope of cover for horses and ponies under the domestic animals’
extension?
7. What are the basic sections of cover provided by travel insurance?
8. What type of benefit is provided by the delayed baggage extension?
9. What risks are covered in a typical commercial package policy?

You will find the answers at the back of the book.

46
 Chapter 4

Property Insurance
Introduction
There are a number of ways in which property can be damaged. You need only think of
a factory, office block or shop to imagine what can be damaged and the ways in which
damage can be sustained. Fire and theft probably come to mind first, but there are many
different forms of damages that could occur. In this chapter we look at the ways in
which property can be insured. We looked at private dwellings in the last chapter. Here
our focus is on commercial property.

Key Terms

This chapter features explanations of the following ideas:

‘All Risks’ Insurance Fire and Special Perils Insurance Glass Insurance
Money Insurance Special Perils Standard Market Exclusions
Standard Perils Theft Theft Insurance

A Fire and Special Perils Insurance

Unless it is part of a package arrangement, a standard fire policy is used as the basis for
almost all business insurances. The purpose of such a policy is to provide compensation
to the insured person or firm in the event of damage to the property insured (i.e.
buildings, stock and other contents). In the commercial world, it is much more common
to find specified perils added to a fire policy.

This means that the cover is ‘built up’ to meet the insured’s requirements, rather than
pre-packaged as with household type policies. Wider ‘all risks’ cover is available, as we
shall see later, and is becoming increasingly popular.

The standard fire policy covers damage to property caused by fire, lightning and, to a
limited extent, explosion.

However, because of the narrow range of cover offered by the standard fire policy in its
basic form, a number of extra perils, known as special perils, can be added to the basic
policy.

47
A1 Standard Policy Cover; Optional Extensions; Limitations

The members of Nigerian Insurers Association (NIA) issued ‘recommended’ wordings

for fire and special perils, called the Standard Fire and Special Perils Policy (Material
Damage). Within the recommended policy wording, the word ‘DAMAGE’ in capital
letters means loss or destruction of or damage to the property insured.

A1A Standard Perils

The standard fire cover is made up of three parts: fire, lightning and limited explosion.

Fire The policy covers damage to property caused by fire, excluding:

• explosion resulting from fire;

• earthquake or subterranean (below ground) fire;
• its own spontaneous fermentation (ignition) or heating or its
undergoing any heating process or any process involving the
application of heat.

The effect of the exclusion of spontaneous fermentation is to

exclude cover for the specific item which ignites spontaneously,
without external cause but not the further effects of the fire; for
example, if the fire spreads to the insured’s adjacent property.
Lightning Because lightning is listed as a separate peril, it is unnecessary for
fire damage to be involved: all damage or destruction caused by
lightning is covered.
Explosion Damage caused by explosion is not fire damage. However,
limited explosion cover is provided within the standard fire
policy. This is restricted to explosion of boilers or gas used for
domestic purposes only. ‘Domestic purposes’ has been defined by
the courts as purposes related to the home, irrespective of the
occupation of the actual building. For example, a boiler used for
supplying hot water in a factory canteen or for a central heating
system is used for ‘domestic purposes’.

A1B Special Perils

The special perils for which cover is usually available may be grouped under the
following broad headings.

Perils of a chemical explosion, spontaneous fermentation or heating

type
Social perils riot, civil commotion, strikers, locked-out workers, persons
taking part in labour disturbances, malicious persons
Perils of nature storm, flood, earthquake, subterranean fire, subsidence,
48
 ground heave, landslip
Miscellaneous escape of water, aircraft, impact
perils

It is important to remember that these special perils must result in damage to the
property: it is good to get into the habit of preceding each peril by saying ‘damage to
the property caused by<’.

The special perils are briefly outlined below, in the order in which they appear in the
policy wording.

Explosion

As we have seen, limited explosion cover is given under the standard fire section of the
policy. The special perils section offers additional explosion coverage.

There are still some specific exclusions that apply to this wider cover as follows:

• Explosion of the insured’s own steam and other pressure vessels that are subject to
inspection under statutory regulations; such items are insurable under an
engineering explosion policy.
• Fire resulting from explosion: this is covered within the standard fire section of the
policy.
• ‘Domestic’ explosion is excluded: again, this is covered within the standard fire
section.
• Pressure waves from sonic/supersonic aircraft or other aerial devices are also
excluded: this exclusion is known as sonic bangs and is a standard exclusion
incorporated in all material damage insurance. The Government generally
compensates for damage caused by military aircraft going through the sound
barrier. Civilian aircraft are not permitted to travel at supersonic speeds over land.
If they do so, the airline will be responsible for compensation.

Explosion due to other causes is covered. These are mainly those emanating from
chemical reactions that produce suddenly expanding gases. Flammable vapours and
gases are encountered in many industries, often being released from solvents that are
present in, for example, paints, sprays and adhesives. In other industries, potentially
explosive dusts are used or produced as part of the manufacturing process, examples
being in the production of fertilisers and flour. The bulk storage of cereals and sugar
also gives rise to explosion hazards.

Aircraft
Cover applies in respect of damage caused by the crashing of an aircraft or other aerial
device (for example, missiles, rockets, spacecraft and satellites) or part of an aircraft or
aerial device. Cover includes damage by articles dropped from aircraft. The ‘aircraft’

49
extension is concerned solely with damage other than by fire (fire damage being
covered under the standard fire section of the policy). The sonic bangs exclusion
applies.

Riot and Civil Commotion

Two distinct types of cover are available. The first type provides cover for fire as a result
of riot or civil commotion. However, it is rare for this narrow form of cover to be
requested. The second is a wider form of cover and includes any damage caused by riot,
civil commotion, strikers, locked-out workers or persons taking part in labour
disturbances or malicious persons acting on behalf of or in connection with any political
organisation. Whichever form of cover is adopted; cover excludes damage as a result of:

• cessation of work; or
• confiscation, requisition or destruction by order of the Government or any public
authority.

Malicious Damage

Cover for damage caused by malicious persons is only available as an extension of the
riot cover. Cover is in respect of malicious damage of any kind, extending the ‘political’
malicious damage to all malicious damage. Cover in respect of such ‘non-political’
malicious damage specifically excludes damage:

• arising from theft; and

• to any building that is empty or not in use.

An excess is always applied on the malicious damage claim, usually at least N5,000.00.

Earthquake
The standard fire section of the policy specifically excludes fire caused by earthquake.
However, the peril may be included within the special perils section of the wording
either for shock risks only (which would be very unusual) or for fire and shock risks.

Subterranean Fire
Loss, destruction or damage caused by subterranean fire is also excluded within the
standard fire section. Again, this peril, like earthquake, may be included as a special
peril.

Spontaneous Fermentation or Heating

The exclusion of this peril in the standard fire section of the policy applies only to
property which itself spontaneously ferments or heats: the resulting damage to other
property is covered.

Although requests for the extended cover are infrequent, farmers will often need the
50
cover for hayricks and crops stored in bulk. The storage of property in bulk occasionally
gives rise to a request for the inclusion of this special peril.

Storm
The word ‘storm’ means a violent disturbance of the atmosphere with strong winds and
usually with thunder or rain or snow. All buildings are subjected to differences of
weather, but, if properly designed, constructed and maintained, they will not suffer
damage as a result of normal weather conditions.

This special peril specifically excludes damage:

• caused by the escape of water from the normal confines of any natural or artificial
water course, lake, reservoir, canal or dam; and/or caused by inundation from the
sea (this would be ‘flood’ cover);
• resulting from a change in the water table level;
• caused by lightning, frost, subsidence, ground heave or landslip; and
• to moveable property in the open, fences and gates.

An excess is always applied on this section also, usually at least N5,000.00, to each
separate premises insured.

Flood

Flood cover is only granted in conjunction with storm cover. The insurance is then
expressed as storm and flood cover and the first exclusion identified above (i.e. damage
caused by the escape of water etc.) is omitted from the wording.

The result is that flood cover is still subject to the remaining three exclusions identified
above and the same excess amount applies.

Escape of Water

Cover applies in respect of damage following the escape of water from tanks, apparatus
or pipes. An excess of at least N5,000.00 applies.

The special peril specifically excludes damage:

• by water discharged or leaking from any automatic sprinkler installation (this is

insurable as a special peril or under a separate policy); and
• to any building that is empty or not in use.

Impact

Cover is restricted to losses resulting from vehicles or animals owned or under the
control of third parties (not the insured) against whom the insured generally has a right of
recovery. Animals and vehicles owned by the insured, occupiers of the premises and their
51
employees are excluded. Where requested, ‘own impact’ cover is available, subjectto an
excess of at least N5,000.00. This extended cover is often requested in an industrial situation
where, say, a number of fork-lift trucks are used in a factory.

Sprinkler Leakage

A sprinkler system is a series of pipes, usually charged with water from the mains, with
valves (known as sprinkler heads) that open when a pre-determined temperature is
reached, releasing the water in a spray. The peril insured against is accidental escape of
water from any automatic sprinkler installation. Common causes of leakage include
damage to a sprinkler head by impact from some object; a mechanical defect in the
installation and the water freezing causing the pipes to burst. The peril specifically
excludes damage caused by:

• freezing while the premises are empty or not in use; and

• explosion, earthquake, subterranean fire or heat caused by fire (covered by other
policy sections).

Subsidence, Ground Heave and Landslip

The peril covers subsidence or ground heave of any part of the site on which the
property stands, or landslip. As we shall see, there is a list of specific exclusions.
However, it may be helpful to consider the types of event that would give rise to a valid
claim.

Subsidence This is the movement of the land on which the premises stand
due to movements, falls or changes in underground workings,
such as coal mines; movement of foundations made on
dissimilar types of soil, such as sand and clay, which react
differently to changes in moisture content, causing movement;
and/or other changes in moisture content.
Ground heave This is what happens when ground previously having a low
moisture content is suddenly able to absorb more moisture; for
example, post-drought conditions. The ground quickly takes up
moisture, swells and ground heave results.
Landslip This has been legally defined in Oddy v. Phoenix Assurance Co.
Ltd (1966) as ‘a small landslide. It is a rapid downward
movement under the influence of gravity of a mass of rock or
earth on a slope.’ It may occur, for example, after prolonged
heavy rain on a sloping site.

An excess is always applied to cover for subsidence, ground heave and landslip. It is not
uncommon for this to be a minimum of N1,000.00.

The peril specifically excludes damage:

52
• to yards, car-parks, roads, pavements, walls, gates and fences, unless the insured
building is also affected;
• caused by or consisting of the normal settlement of new structures; the settlement
or movement of made-up ground; coastal or river erosion; defective design,
workmanship or materials; fire, subterranean fire, explosion, earthquake or the
escape of water;
• which originated prior to inception of the policy; and
• resulting from demolition, construction, structural alteration or repair of any
property; or ground-works or excavation.

A1C Standard Market Exclusions

The standard market exclusions are listed below. These exclusions apply not only to the
fire and special perils policy, but also to other property insurance policies, as discussed
in this chapter.

The exclusions are as follows:

• riot or civil commotion (although this exclusion may be removed on payment of an

additional premium);
• war risks;
• radioactive contamination/explosive nuclear assemblies;
• Northern Ireland excluded perils;
• terrorism;
• pollution or contamination;
• marine policies;
• ‘more specifically insured’ clauses; and
• ‘consequential loss’ exclusion, i.e. loss following and consequent upon a loss
proximately caused by an insured peril.

B ‘All Risks’ Insurance

Uncertainty of loss is not restricted to events brought about by fire and special perils,
nor is it limited to events occurring on or about the insured’s premises. Commercial
pressure from customers and intermediaries persuaded insurers that they should offer a
broader form of cover: one in which problem covers were excluded rather than having
to build up cover by adding more and more contingencies. The result was the
development of ‘all risks’ policies.

The term ‘all risks’ is unfortunate in that such insurance does not provide cover against
every risk, as there are a number of exceptions; but it is, rather, an improvement on the
scope of cover available under a fire and perils policy.

In this section we will outline the policy cover and specific exclusions of ‘all risks’ insurance.

53
B1 Standard Policy Cover

The ABI has also issued recommended wordings for ‘all risks’ property insurance,
called the Standard ‘All Risks’ Policy (Material Damage). Whereas the fire and special
perils policy offers a choice of perils to be insured, each of which has its own specific
exclusions, the ‘all risks’ policy covers ‘accidental loss or destruction of or damage to the
property insured’.

Therefore, all loss or destruction of, or damage to, the property insured is recoverable,
provided that it has occurred accidentally so far as the insured is concerned, and
provided that the cause is not specifically excluded from the policy.

There are no optional extensions to the policy as such: all loss or destruction is covered
unless specifically excluded or restricted in some way.

B2 Limitations

Exclusions

The exclusions are extensive because there are many aspects that insurers are unwilling
to cover, for example, those excluded under a standard fire and perils policy for
particular perils. Exclusions may be divided into the following four groups (the
examples of exclusions are not exhaustive).

Those exclusions which are absolute These include war, nuclear assemblies,
exclusions terrorism, pollution or contamination,
marine risk, specific insurance, consequential
loss (the standard market exclusions) plus
certain ‘trade’ risks (such as faulty
workmanship).
Those exclusions which relate to an They are by no means automatically
aspect of cover which can sometimes insurable since they are the gradually
be included in the policy, but only operating exclusions such as corrosion, rust,
with careful underwriting change in temperature, wind or rain damage
to moveable property in the open and
malicious damage cover in respect of empty
buildings. This list also includes terrorism in
Great Britain. It is possible to insure
terrorism risks, usually on a limited basis.
Those exclusions which relate to an This group includes money, jewellery, glass,
aspect of cover which can be written computers, goods in transit, theft,
into the policy subsidence, ground heave and landslip.
Those exclusions which relate to This group includes motor vehicles,
property or risks which are more watercraft, aircraft, livestock and buildingsin
appropriate to another class of the course of erection.
54
 business and therefore cannot be
covered

Limits of Liability

The ‘all risks’ policy contains references to limits of liability. In very large insurances
covering many premises, insurers often cover the insurances of all property of one type
at all locations, provided that their total sum insured (the maximum amount of the
insurer’s liability under the policy) at any one location does not exceed a pre-agreed
monetary limit.

Some perils may be insured on a first loss basis, whereby the insured requests cover up
to an amount significantly less than the total value of property insured. They do this on
the grounds that total destruction by the perils insured is very unlikely. Perils where
this basis of cover is popular include theft, storm, flood, sprinkler leakage and impact.
Insurers allow premium discounts for first loss cover only if the lower figures actually
reduce their exposure to loss.

C Theft Insurance

In this section we will examine the standard policy cover, optional extensions and
limitations of theft insurance.

The property to be insured, in respect of business premises, is the same as under the
standard fire policy except, of course, that it does not relate to buildings. Damage to the
building, provided the insured is responsible for the cost of repair, occurring during
theft or attempted theft is covered, usually with a limit. Whereas fire policies rarely
distinguish between different types of stock in the policy wording, theft policies always
do. Specific items and sums insured apply to stock depending upon its attractiveness to
thieves. The policy limitations are important, as well as the fact that this is a key feature
in rating this class of business.

The Theft Act 1968 states that a person is guilty of theft if they ‘dishonestly appropriate
property belonging to another with the intention of permanently depriving the other of
it’. This legal definition is, however, wider than that which insurers are prepared to
offer cover for, especially for business premises, since the definition did not mention
any need for there to be force or violence in committing a theft. This meant that
shoplifting, for example, was ‘theft’; and this kind of risk had traditionally been
uninsurable. To remedy this problem, insurers include in their business premises cover
a phrase to the effect that theft must include force and violence, either in breaking into
or out of the insured premises. The word ‘violence’ here means violence to property, not
necessarily to the person, and does not need to be excessive.

C1 Standard Policy Cover

55
Although there is no ‘standard’ market wording for theft cover (unlike fire and special
perils cover and ‘all risk’ cover), in practice wordings do not differ very much among
insurers. A typical policy incorporates the following wording:

 Theft involving entry to or exit from the premises by forcible and violent
means.

A more restricted theft wording does not cover entry into the premises by:

• a key;
• a trick; or
• hiding on the premises while it is open for business.

However, if entry were gained by such means, cover would apply if there was an
element of force or violence used in exiting the premises, such as forcing a locked door.
Usually, cover will apply if keys are obtained as a result of threats to or force used
against directors, employees or their families.

Occasionally, however, if a particularly hazardous risk is involved, such as a jewellery

shop or a warehouse selling quality electrical goods, insurers may impose the following
more limited form of cover:

 Theft following forcible and violent entry.

This eliminates the risk of persons hiding on the premises and their subsequent escape,
irrespective of whether the exit was by forcible means.

Cover may also be extended to include the risk of hold-up. Hold-up can be defined as
theft accompanied by assault or violence (or the threat of it) to the insured or their
employees, irrespective of whether forcible entry takes place. In recent years, hold-up
cover is often automatically included, as increases in violent crime have led
policyholders to demand it.

C1A Under-Insurance

Theft policies, in common with many other property insurances, rely upon the full
value being declared. The condition of average applies to theft policies, unless the
insurance is on a ‘first loss’ basis. The insured must choose the first loss sum insured for
such policies, but must also declare the full value. Claim settlements are adjusted on the
basis of the full value at risk compared with the declared full value.

C2 Optional Extensions

We are listing these extensions as optional, though in some cases these extensions form an
integral part of the cover for a particular insurer. Where they are treated as optional

56
extensions they are included through the payment of an additional premium.

Common extensions, included automatically by some, are as follows:

Breakage of glass This is limited to glass breakage following or during theft or

attempted theft, but only if glass is not insured under a
specific glass policy
Replacement of locks Cover is provided for the costs incurred in replacing locks
following the theft of keys
Temporary removal Cover is provided for items (other than stock) temporarily
removed for cleaning or repair, but remaining in Nigeria
Index linking This ensures that sums insured are kept reasonably up to
date. In effect, sums insured are adjusted on a monthly basis
by the percentage change in the Retail Prices Index (RPI),
without additional premium being charged to the insured.
The RPI is one of the indexes used to measure inflation in
the UK. The resultant increase in the sum insured after
twelve months will, however, be taken into consideration at
the renewal of the policy, when the premium is set for the
forthcoming period of insurance cover

The following three extensions of theft cover are available, subject to careful
underwriting and, usually, an additional premium.

Collusion For example, plotting and agreement between thief and

employee(s) on how to gain entrance and/or go quickly to the
‘target’ of the theft
Extended or full Deletion of the phrase ‘forcible and violent entry or exit from
theft the premises’ provides a considerably wider form of theft
cover. In giving the extended or full theft extension, cover is
given for losses when entry and/or exit is achieved via open
doors and windows. Equally importantly, property in the open
is also covered
Robbery and This extension provides cover for loss (mainly related to stock)
aggravated where premises are open for business. For robbery there must
burglary be some use of force, or the fear of force being used;
aggravated burglary involves the possession or use of firearms
(or imitations) or explosives

C3 Limitations

Exclusions

Apart from the standard market exclusions (war, radioactive contamination etc.), which
57
appear in most property policies, the specific exclusions are as follows:

• Collusion. This can sometimes a ‘buy-back’, as we’ve just seen.

• Fire and explosion. The theft policy excludes fire and explosion as they should be
otherwise insured (i.e. under the standard fire policy).
• Cash and bank notes etc. These are more properly insured under a money policy.
• Livestock. Unless specifically included under the theft policy, cover should be
granted under a standard livestock policy.

Limits of Liability
Cover is often sought on a first loss basis because the insured recognises that a potential
thief will be selective in what they steal. Insurers usually allow a small premium
discount for such cover provided that they are satisfied that their true liability is
potentially reduced.
It is becoming increasingly common for theft insurances to be subject to an excess.

D Glass Insurance

This class of property insurance is not restricted to plate glass, but extends to include
covers for practically all kinds of fixed glass, such as sheet, silvered, wired and types of
ornamental lettered glass.

In this section we will outline the standard policy cover, optional extensions and
limitations of glass insurance.

D1 Standard Policy Cover

The standard policy covers destruction or damage to all fixed glass. This includes
windows, doors, fanlights, showcases, mirrored glass and glazed partitions. Policies
include cover for the cost of boarding up damaged glass until replacement can be
effected. Cover is on an ‘all risks’ basis, although damage by scratching or chipping is
usually excluded. It includes alarm foil applied to shop fronts and any lettering or
display on the glass. Damage to window frames is also covered. Insurers always give
themselves the options of repair, replacement, reinstatement or cash settlements.
However, this class of business is almost invariably dealt with by replacement. The
insurer will have negotiated favourable arrangements with one or more major national
glazing companies, who will board up and replace glass as necessary.

D2 Optional Extensions

The following optional extensions may be added to the policy, subject to additional
premiums:

• damage to shop front contents as a result of broken glazing; and

• damage to wash basins and sanitary fittings in hairdressing salons.

58
D3 Limitations

It is standard practice to exclude damage by fire, lightning and explosion. This is

because these perils are more appropriately covered under a standard fire policy. An
excess is always applied in order to avoid claims for small losses.

E Money Insurance
Money insurance is an important class of insurance in view of money’s attractiveness
and vulnerability to theft. The definition of money varies between insurers. It is an
extensive list of items and always includes cash, bank and currency notes, cheques,
postal and money orders, postage stamps, national insurance cards and luncheon
vouchers.

E1 Standard Policy Cover

Money insurance is on an ‘all risks’ basis, covering all risks of loss or destruction of or
damage to money in different situations. Each of these has a separate policy limit. The
situations covered are as follows.

• In transit or being carried by the insured or their employees.

• On the insured’s premises during business hours.
• In a bank night safe.
• In a locked safe or strong room out of business hours (for large amounts, insurers
will wish to approve the safe).
• On the insured’s premises out of business hours and not in a safe, but usually with
a low limit, say N20,000.00.
• In the private residence of any principal or employee of an insured company
(again, with a low limit).
• In the custody of collectors or travellers while in transit, usually with a time limit,
say within 24 hours of collection.
• In the custody of a professional carrier or security company.

The cover includes damage to safes or strong rooms occasioned in the course of theft or
attempted theft.

Unlike fire and theft policies, a money policy is not subject to average. This is because
the sums chosen are limits, not sums insured. The premium is not based solely upon
these limits, but takes into account the total amounts of money being carried. Policies
are issued on an adjustable basis, requiring a declaration of actual carryings at the end
of each period of insurance.

E2 Optional Extensions

Typical extensions to the standard policy cover are as follows.

59
 Personal accident This cover is often bought where employees are potentially
assault exposed to robbery or attempted robbery (i.e. personal
assault). It provides monetary compensation to any victim.
This extension also often includes cover for damage to items of
clothing and personal effects. Insurers usually charge a small
additional premium for this extension, although some may
automatically include such cover within the basic policy
Credit cards Credit cards are not covered by a standard money policy.
Provision to cover the fraudulent use by unauthorised persons
can be included by way of a policy extension

E3 Limitations

Apart from the standard market exclusions (war, radioactive contamination etc.), the
main specifics are:
• loss due to an error or omission in accounting/counting/book-keeping;
• loss due to the dishonesty of an employee, not discovered within seven days;
• loss, destruction or damage arising outside Great Britain, Northern Ireland, the Isle
of Man or the Channel Islands; and
• loss resulting from the safe or strong room being opened by a key or by using the
combination to a safe where this has been left on the insured’s premises while
closed for business.

Limits of Liability

The limits for different situations vary considerably. For example, it would be unusual
to find a limit of more than N20,000.00for money left out of a safe on the business
premises overnight, whereas a limit of N1,000,000.00 is not uncommon in respect of
money in transit.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Fire and Special Perils Insurance

• The standard fire policy covers damage to property caused by fire, lightning and,
to a limited extent, explosion.
• The special perils for which cover is usually available may be grouped as perils
of a chemical type, social perils, perils of nature and miscellaneous perils.
• Exclusions continue to apply under these special perils.
• An excess can apply to certain special perils.
• There are a number of standard market exclusions that apply to all property
insurance, e.g. war risks.
• The ABI and Lloyd’s have both produced standard wordings.

‘All Risks’ Insurance

• ‘All risks’ insurance was developed to give broader cover than the standard
policy and excludes problem risks rather than adding contingencies.
• Although called ‘all risks’ it does not cover all risks, but all loss and destruction is
covered unless excluded or restricted in some way in the policy.
• Policies contain limits of liability and some provide cover on a first loss basis.

Theft Insurance
• Insurers extend the legal definition of theft to include the use of force and
violence in breaking in or out of the insured premises.
• A number of optional extensions are available, e.g. the replacement of locks.
• Apart from the standard market exclusions a number of others apply, and there
is also a limit of liability and, increasingly, an excess.

Glass Insurance
• Includes cover for all types of fixed glass.
• Can be extended to cover damage to goods in a shop window as a result of glass
breakage.
• It is standard practice to exclude damage caused by fire, lightning or explosion as
these are covered under a standard fire policy.

Money Insurance
• Money insurance is provided on an ‘all risks’ basis.
• Each situation covered has its own policy limit.
• The sum chosen is the limit, so average does not apply.
• Extensions are available, exclusions and limits of liability apply.

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Self-Assessment

1. What are the three perils covered by the standard fire policy?
2. What are the four broad headings for special perils?
3. ‘All risks’ exclusions may be divided into four groups or headings. What are
these headings?
4. How have insurers amended the theft wording, as defined in the Theft Act 1968?
5. What is one optional extension to a standard glass policy?
6. What, in one sentence, is the cover generally provided under a standard money
policy?
7. What are two optional extensions to a standard money policy?

You will find the answers at the back of the book

62
 Chapter 5

Pecuniary Insurance
Introduction

As we saw in chapter 4, property insurance is concerned with tangible materials,

whereas Pecuniary insurance, on the other hand, is concerned with intangibles, such as
income, revenue or value. The same basic legal principles apply equally to each form of
insurance.

For business interruption cover (under pecuniary insurance) in particular we have

defined indemnity differently from the definition used for property insurance. This is
because the intention of such policies is not to establish a value representing what has
been lost. It is forward-looking in trying to reflect the trading position that the insured
would have been in had the loss not occurred.

Key Terms

This chapter features explanations of the following ideas:

Business Interruption Insurance Commercial Legal Protection Policies

Engineering Group Legal Benefit Policies
Increase in (or Increased) Cost of Working (ICOW) Cover
Legal Expenses Insurance Material Damage Warranty Turnover

The basic purpose of legal expenses insurance is to provide indemnity for costs arising
out of the need to seek legal advice or to pursue or defend a civil action.

Civil actions are those that are not prosecuted in the criminal courts. Crimes are
prosecuted by the State and involve some kind of punishment for wrongdoers. Civil
actions tend to relate to a situation where one party is seeking legal redress, such as
compensation for injury or damage or perhaps a different remedy, such as an
injunction.

Originally, such cover was mainly provided for individuals who would thus be relieved
of the costs involved in consumer or domestic disputes. However, in recent years, ever-
widening cover has become available, not only to individuals but also to companies,
groups and corporate bodies. The extent of cover varies among insurers in what is a
relatively specialist market. Within their package type policies many insurers continue
to outsource the provision of this cover, along with the associated advice and helplines,
to specialist insurers.

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In this section, we will cover commercial policies only.

A1 Standard Policy Cover

There are two main types of policy cover to consider; namely group legal benefit
policies and commercial legal protection policies. Within both types of policy, insurers
provide cover under various headings, which describe the circumstances in which the
policy will respond. The proposer can choose which to buy the covers that are
appropriate to them. Cover is limited to an amount per claim, though there is no overall
limit per policy period.

A1A Group Legal Benefit Policies

Group legal benefit policies are designed to operate on behalf of a group of people, such
as the employees of a company, and the immediate family of each member. Where
cover is arranged by an employer, it is in the manner of an employee benefit.

The four sections of the policy, from which the proposer may choose cover, are:

Employment cover • Defence of any claim or legal proceedings brought

against a member arising out of and in the course of their
employment
• Defence and compensation awards resulting from
actions brought under specified legislation, such as the
Equality Act 2010
• Costs of claiming for compensation arising out of the
member’s employment, such as wrongful dismissal, racial or
sexual discrimination or injury arising out of employment
Personal cover Cover the costs of pursuing personal rights or defending a
personal action against the member
Motor cover Covers the costs of defending claims arising out of the
ownership or use of a motor vehicle (where not covered by an
ordinary motor policy)
Conveyancing Covers the legal costs involved in buying and/or selling one’s
cover house, up to a specified limit (commonly £1,000)

A1B Commercial Legal Protection Policies

Commercial legal protection policies are designed to cover firms or companies in their
capacity as employers, manufacturers, property owners, traders, or any other capacity
where their business activities may expose them to litigation. Legislation (including the
Employment Relations Act 1999, the National Minimum Wage Act 1998 and the Data
Protection Act 2018) gives employees and customers many rights, emphasising the
importance of legal expenses cover for businesses.

In addition to covering the cost of needing to take action in the courts or of defending
an action brought against the insured, the commercial policy covers the cost of the

64
insured’s and/or employees’ time spent in court. We do not have such laws in Nigeria
hence this types of policies are not yet in the Nigerian market.
There are five main sections of the policy from which to choose:

Employment cover Covers the costs of defending an action by an employee

against the firm for unfair dismissal or racial or sexual
discrimination, plus awards made against the company if
the defence is unsuccessful
Criminal prosecution Covers the costs of defending an action brought against the
defence cover company, usually under Health and Safety at Work
legislation. It includes costs incurred by an employee
appearing in court, but not the fines which may be imposed
(as this is against the public interest)
Property disputes cover Covers costs incurred in disputes between, for example,
landlord and tenant involving the possession of freehold or
leasehold of business premises
Motor cover Covers costs incurred in:
• pursuing uninsured loss recoveries after a motor
accident;
• pursuing or defending actions brought in connection
with the purchase, sale, lease, hire, service, test or
repair of vehicles where a dispute has arisen;
• pursuing damages following a road accident; and
• defending motoring prosecutions.
Not all insurers offer this option. This may be added as a
section to a motor insurance policy
Patents, registered Covers costs incurred in pursuing an action against any
designs, copyright and person alleged to be guilty of infringing the insured’s
trademarks cover interest in patents, registered designs etc.

A2 Optional Extensions

The covers outlined in section A1 are those that apply generally. Many companies have
an exposure to legal costs peculiar to their particular type of business. Appropriate
cover can be made available to them, including cover for the cost of:

• defending libel and slander charges;

• involvement in public enquiries;
• investigations by professional bodies; and
• taxation proceedings, e.g. a dispute with HMRC following a compliance check into

PAYE and/or National Insurance contributions, or over alleged VAT arrears.

Insurers monitor events and legislation in order to keep their legal expenses cover up-
to-date.

A3 Scope of Cover

65
It is important to recognise the different types of cover available for commercial
concerns as distinct from those available to private individuals. Landlord and tenant
issues are specifically excluded from the cover available under household policies.
Whilst this is not available as an option under group legal benefit arrangements, it is a
specific area of cover under a commercial legal protection policy for a company.
Similarly, whilst no cover is provided for individuals in relation to criminal
prosecutions, defence cover is available to companies for such issues as prosecution
under the terms of Health and Safety at Work Legislation.

A4 Limitations

Commercial legal protection insurance does not cover any legal action for which
indemnity in respect of its costs is recoverable elsewhere, such as under the insured’s
employers’ liability policy or public/product liability policy. It is also usual for losses
incurred prior to written acceptance of the claim by the insurer to be excluded.

Cover is not provided where a legal action is pursued by the insured against the advice
of the insurer’s nominated solicitor. This is an important proviso that applies to all types
of legal expenses insurance. It is designed to ensure that an impartial view is taken
regarding the likely success of the action in order to protect the insurer from paying
costs for frivolous or unwinnable cases. The insured may otherwise display a highly
biased attitude if the decision were to remain solely in their hands.

B Business Interruption Insurance

When property is destroyed or damaged by, say, fire, the insured is indemnified under
their property insurance cover (for example, their fire and special perils policy). If they
have adequate insurance this will enable them to restore the buildings and contents to
their pre-fire condition.

If, however, the property was used by the insured for business purposes, they have also
lost their productive capacity or future earnings power. Their normal business activities,
whether as a manufacturer or a trader, may cease or be reduced, depending on the
extent and form of the damage. Their insurance on the property only covers the direct
material loss following its damage or destruction by an insured peril; it does not cover
any indirect or consequential loss that may result.

This loss, which they suffered as a result of the fire, cannot be assessed or quantified
until some uncertain future date, when they regain their earning power through the
reinstatement of their property or by some other means. They may also incur extra
immediate costs in an attempt to maintain turnover. It is this intangible future loss that is
referred to as ‘time loss’, ‘consequential loss’ or ‘loss of profits’. This is the main subject of
business interruption insurance, in addition to the extra costs necessarily incurred.

In brief, property insurance covers the direct material or physical loss following damage
or destruction. On the other hand, business interruption insurance covers the actual or
potential loss of earnings and additional expenses incurred as a result of that material
66
loss.

B1 Basic Features

Business interruption cover has two dimensions: the monetary amount that needs to be
insured and the time that the interruption will affect the business. Both of these are
defined in the policy. The time that the interruption will affect the business is known as
the indemnity period and is defined as:

‚The period beginning with the occurrence and ending not later than the
Maximum Indemnity Period thereafter, during which time the business is
affected by the interruption occasioned by the damage‛.

The length of the maximum indemnity period is chosen by the insured and defined in
the policy schedule in terms of months or years. A twelve-month period is often
selected, but a much longer period may be required, depending upon the type of
business, type of customer, the need for specialist machinery and other factors that may
have an impact upon the firm’s recovery to its expected trading position.

B1A Turnover

To understand what is covered by a business interruption policy we need first to look at

the way that the turnover of a firm is earned. Take a manufacturing company as an
example. In essence, the firm earns its money (turnover) by the following sequence of
events.

Turnover is the total income arising from the activities of the business. However, the
insurance cover is not designed to replace the whole of the turnover. We can see why by
breaking down the turnover into its constituent parts: costs that are associated with the
business and net profit. Costs can be divided between those that vary in direct
proportion to the turnover (raw materials may fall into this category), and those that do
not vary in this way (such as rent, which will be payable regardless of whether the
business is functioning).

67
We now have three categories namely:

Net Profit Variable Charges Fixed Charges

There is need to take time to decide which of these categories should be insurable under
a business interruption policy by considering which two items may result in a loss to
the insured.

The answer is net profit and fixed charges (often called ‘standing charges’). The variable
charges will reduce in direct proportion to the turnover, so if the turnover reduces the
insured does not suffer a loss under this heading. The term that insurers use for the
addition of net profit and standing charges is ‘gross profit’. Rather than have the
insured list all the standing charges, insurers favour the difference basis of cover. This
works by deducting the uninsured working expenses (the variable charges) from the
turnover. The figures are adjusted for differences between opening and closing stock.
Wages and salaries do not vary in direct proportion to the turnover. Insurers are
prepared to rate these separately from other items of expense. In the UK they are
invariably included in the overall sum insured but identified separately, so that a lower
rate may be charged for this element.

B1B Basis of Fixing Sums Insured

There are two methods used for fixing the sum insured for a business interruption
policy. The first involves taking the projected turnover of the firm for forthcoming years
and assuming a ‘worst case’ scenario in terms of the timing of a future loss. In other
words, it is assumed that the claim incident may arise on the last day of the period of
insurance. The interruption period would then begin and could last the whole length of
the indemnity period.

However, this method requires projections to be made into the distant and, by
definition, uncertain future. Insurers, therefore, operate a system to deal with this.
When, at the end of the period of insurance, the actual gross profit is known, the
policyholder’s accountant provides this figure to the insurer who will then allow a
rebate of premium based upon it. So the policyholder is required to project figures
initially, but only ends up paying a premium based upon what actually happens.

In recognition of the fact that making projections so far into the future may be difficult,
insurers offer a more straightforward option known as a ‘declaration linked’ policy.
With a declaration linked type of arrangement of cover the policyholder is only
required to estimate the figures for the forthcoming year. Insurers then apply a one-
third uplift automatically to take account of any future growth in turnover.

B1C Extra Costs

Insurers also recognise the fact that certain expenses will actually increase following
loss or damage. New premises may need to be rented, more staff employed, advertising
may be needed to reassure customers, some work may need to be sub-contracted and so
68
on. Cover is provided for such risks so long as there is an equivalent saving in the claim
that would otherwise be paid. In other words, insurers will not give a ‘blank cheque’ for
money to be spent extravagantly. This element of cover is known as Increase in (or
increased) Cost of Working (ICOW) cover.

Accountants’ or auditors’ fees will be incurred in preparing a claim. There is usually no

separate sum insured for this item. The policy often simply states that the insurer will
cover the insured for the ‘reasonable charges’ payable by the insured for such services.
However, prudent insurers will usually incorporate a suitable limit within the wording.
This is the only class of business that allows for the preparation of the insured’s claim to
form part of the claim itself.

Insurers tend to employ loss adjusters or their own staff to settle fire claims, calling
upon outside specialists as necessary, and do not therefore require any expert assistance
from a specialist employed by the insured. For business interruption claims, however,
an understanding of the insured’s finances will require the input of the insured’s
accountants/auditors. Insurers recognise this in making provision for this cover.

B2 Material Damage Warranty

A requirement in virtually all business interruption policies is that there must be in

place a policy which covers the physical damage leading to loss of earnings, before the
business interruption policy comes into operation. This requirement is known as the
material damage warranty.

Accordingly, the perils in the business interruption policy must, without exception,
have a coinciding peril within the material damage cover if a claim is to become
payable. However, there are some policies issued that do not contain this warranty. This
practice has become very common in engineering business interruption insurance and
has also come to be followed to a lesser extent in fire insurance.

The main reasons for the inclusion of the warranty are:

• the insurer knows that there are funds for completing the rebuilding and this may
limit the length of the interruption period; and
• the insurer will obtain the benefit of any warranties that may apply to the material
damage cover (there are no equivalent warranties in a business interruption
policy).

B3 Standard Policy Cover; Optional Extensions; Limitations

The most common business interruption policies are:

Fire and Special Perils ‘All Risks’ Engineering

Let us briefly examine each of these forms of cover.

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B4 Fire and Special Perils

As well as producing a fire and special perils policy in respect of material damage, the
Nigerian Insurer Association (NIA) has also issued the Standard Fire and Special Perils
Policy (Business Interruption). The perils under the business interruption wording may be
divided into standard perils and special perils, as with the material damage wording.

B4A Standard Perils

The standard perils covered by the business interruption policy are the same as those
covered by the material damage policy. They are extended to include the explosion of
‘any other boilers or economisers on the premises’, i.e. ‘non-domestic’ boilers, in
addition to ‘domestic’ boilers as covered in the material damage policy.

B4B Special Perils

The special perils for which cover is given under a business interruption policy are,
basically, the same as those given under the material damage policy, with the same
specific exclusions.
However, the business interruption policy may be extended to include six special perils,
relating to engineering cover, that are not usually capable of being covered under the
material damage policy.

These special perils are:

• explosion and collapse of steam pipes;

• explosion of vessels;
• explosion and collapse of vessels;
• collapse of boilers;
• overheating of tubes; and
• overheating of boilers and economisers.

B5 ‘All risks’

The ABI has also produced a Standard ‘All Risks’ Policy (Business Interruption). Since the
material damage warranty applies, it is essential that cover is the same under each
policy. To ensure this uniformity of cover, insurers usually issue a combined material
damage and business interruption ‘all risks’ policy.

The same standard policy cover and exclusions apply to the business interruption
policy as to the material damage policy. This includes the extent to which some
excluded perils may be ‘bought back’. The terrorism exclusion (in Great Britain), for
example may be insured on the same basis as the material damage risk.

B6 Optional Extensions

Whether issued to provide fire and special perils or ‘all risks’ cover, the policy in its
standard form only covers such losses that are consequent upon insured damage at the
insured’s own premises. The insured’s business may be, in part, also dependent on the
70
continued existence of the premises of suppliers, customers and/or other people or
bodies from whom they receive services or facilities. There may also be the possibility of
the business being affected by loss or damage nearby that prevents access to the
insured’s premises.

The policy can be extended to cover business interruption losses resulting from damage
by the insured perils at such other places. Such extensions are subject to an additional
premium but not to the material damage warranty.

Extensions commonly found are as follows:

Specified suppliers premises of named suppliers from which components,

goods or materials are obtained, manufactured or
processed or where work is carried out in connection with
the business.
Unspecified suppliers premises of unnamed suppliers, including premises not in
the occupation of the insured where the property of the
insured is stored.

Specified customers the extension is based on the estimate of maximum trading

to each named customer.

Transit property of the insured whilst in transit.

Prevention of access access to an insured’s premises may be prevented by

damage to nearby premises. Cover may be extended to
include prevention of access due to a bomb threat. This is
also known as denial of access (DOA) cover.
Public utilities this applies to damage at any electricity generating station,
public gas supply undertaking, public water supply
station or public supply of telecommunications services
which causes an interruption in supply to the insured.
Notifiable disease, the potential insured are subdivided into three categories,
vermin, defective namely hotels/restaurants/public houses; schools/private
sanitary arrangements, hospitals etc.; and food processors and distributors. Each
murder and suicide category has its own specific extension wording, catering
for its own individual potential exposure.

71
There is a limit, expressed as either a percentage of the sum insured or as a fixed
amount, placed upon the cover provided by each of these extensions.

B7 Engineering

Having already outlined the engineering cover available under the Standard Fire and
Special Perils Policy (BI), let us now briefly consider the cover and limitations of a specific
engineering business interruption policy.

There is no standard policy cover, however the perils covered usually fall under one of
the following two headings:

• failure of the public supply of gas, electricity, water or telecommunications at the

supplier’s feed to the premises; and
• sudden and unforeseen damage from any accidental cause, not specifically
excluded, to specified items of machinery and plant.

Policies usually exclude the following:

• perils covered by the ABI Standard Fire and Special Perils Policy;
• general market exclusions (war etc.);
• a scheme which rations supplies by a supply authority; and
• deliberate act of a supply authority.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Legal Expenses Insurance

• The basic purpose of legal expenses insurance is to provide indemnity for costs
arising out of the need to seek legal advice or to pursue or defend a civil action.
• Policies can be group legal benefit policies or commercial legal protection
policies.
• The proposer chooses the cover they require from various sections, e.g.
employment cover.
• Cover is limited to an amount per claim, though there is no overall limit per
policy period.
• Commercial legal protection policies are taken out by businesses to protect
themselves in their capacity as employers, manufacturers, property owners etc.

Business Interruption Insurance

• Business interruption insurance covers the actual or potential loss of earnings
and additional expenses incurred as a result of a material loss.
• It has two dimensions: the maximum amount that needs to be insured and the
maximum time the interruption will affect the business.
• The total amount insured includes the gross profit (i.e. net profit plus standing
charges), wages, salaries and additional expenses, e.g. renting alternative
premises.
• The material damage warranty demands that a policy covering the physical
damage that led to the loss of earnings must be in place and valid.
• The most common BI policies are fire and special perils, ‘all risks’ and
engineering.
• A fire and special perils or ‘all risks’ policy can be extended to cover damage at
suppliers and/or customers where a business’s continued existence depends on
them.

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Self-Assessment

1. What, in one sentence, is the basic purpose of legal expenses insurance?

2. What are the two main types of policy cover available in respect of legal expenses
insurance?
3. What optional extensions are available to an insured when taking out legal expenses
insurance?
4. What is the purpose of business interruption insurance?
5. In what way do the standard perils covered by the business interruption policy differ
from the standard perils in the material damage policy?

You will find the answers at the back of the book

74
 Chapter 6

Liability Insurance
Introduction
We may be liable at any time to pay damages (i.e. compensation) to someone who suffer
injury or loss, which they can prove resulted from our negligence (‘lack of proper care’).
Negligence accounts for the vast majority of actions leading to damages. Even if we can
prove that we were not the cause of the alleged injury or damage, costs and expenses
may be incurred in taking legal advice or defending an action in court. Both aspects can
be taken care of by liability insurance. We have already discussed liability cover in
respect of motor insurance (i.e. legal liability to third parties). In this chapter we will
consider the following types of liability insurance:

• employers’ liability insurance;

• public liability insurance;
• product liability insurance;
• directors’ and officers’ insurance; and
• professional indemnity insurance.

We will then outline the basic features of an extended warranty policy.

Key Terms

This chapter features explanations of the following ideas:

Charity Trustees Damages Directors’ and Officers’ Insurance

Employers’ Liability Extended Warranties Legal Liability
Limitations Pension Fund Trustees Product Liability
Professional Indemnity Insurance Public Liability Trustee Insurance

A Employers’ Liability Insurance

In this first section, we will consider the scope of employers’ liability insurance: its basic
features, standard policy cover, optional extensions and limitations.

If we are negligent then we can be liable at any time to pay damages, costs and expenses
to someone who suffers injury or loss, if they can prove that these things resulted from
our negligence. An employer may be liable for injury to an employee. Therefore, the
employer needs to effect employers’ liability (EL) insurance, so that, if a court action is
lost, the employee’s successful claim for damages is covered by the insurance.

In practice, most claims are settled without the need to resort to a court action, although
75
the level of awards in previous court decisions will be important in negotiations.

Apart from third party motor risks, employers’ liability is the only other major form of
liability insurance that is compulsory in Nigeria and the UK. The Employers’ Liability
(Compulsory Insurance) Act 1969 stipulates that employers in Great Britain (with
certain exceptions) must be insured against liability for bodily injury or disease
sustained by their employees arising out of and in the course of their employment in the
business. An employer was required to display a certificate of insurance at each place
of business to signify that it was insured against legal liability for injury or disease to
their employees. However, the Employers’ Liability (Compulsory Insurance)
(Amendment) Regulations 2008 (effective 1 October 2008) removed this requirement. It
is now sufficient to have an electronic copy of the certificate, as long as employees have
reasonable access to it. Equivalent legislation is applicable in Nigeria also.

In the United Kingdom, the provisions of the Employers’ Liability (Compulsory

Insurance) Act 1969 were extended by the Employers’ Liability (Compulsory
Insurance) Regulations 1998.The key extension increased the minimum limit that must
apply under an insurance policy from £2 million to £5 million. In practice, insurers have
provided a £10 million limit since January 1995. Equivalent legislation is applicable in
Nigeria.

The effects of many industrial illnesses and some accidents may take some time to
materialise, often resulting in difficulties ascertaining who might be held responsible
and liable for the subsequent employer’s liability claim. The original company who
employed the claimant at the time the illness was contracted, or the accident occurred,
may have:

• changed insurers;
• been taken over by another and changed its name/insurer; or
• ceased trading due to bankruptcy etc.

Similarly, the original insurer may have been taken over/ceased trading.

A1 Standard Policy Cover

There is no ‘standard’ EL policy, with wordings varying between insurers. There are
very few separate EL policies issued, as it is common to issue ‘combined’ liability
policies which include employers’, public and product liabilities: although separate
sections and clauses usually apply to each type of liability.

Although wordings vary, all EL policies provide an indemnity to the insured for legal
liability for damages (including claimants’ costs and expenses) in respect of bodily injury to
or death, disease or illness sustained by any person under a contract of service or
apprenticeship with the insured:

• caused during the period of insurance;

• arising out of and in the course of their employment by the insured;
• in connection with the trade or business; and
76
• occurring within certain territorial limits.

Let us now analyse certain parts of the above paraphrased wording in order to see
exactly what is covered by a typical EL policy.

A1A Legal Liability

The EL policy only indemnifies the insured in respect of their legal liability to pay
damages etc. There are many accidents which are ‘pure’ accidents (i.e. not the result of
negligence). In these circumstances the employee must rely on personal accident and
sickness insurance or the social security system to obtain benefits.

A1B Damages

If a person suffers injury etc. as the result of their employer’s negligence or breach of
statutory duty, they will be entitled to seek damages or compensation: compensation for
any expenses incurred, loss of earnings, possible loss of future earnings, pain and
suffering, and perhaps other items. This applies equally where the actual act of
negligence was perpetrated by a fellow employee of the victim. In law, the employer is
liable for the negligence of employees arising in the course of their employment. This is
termed vicarious liability.

It is important to stress that, although an employer may have a liability for an

employee’s property, this is not covered under an EL policy. The EL policy is concerned
only with disease, injury or death. Any liability for loss of or damage to property would
be the subject of a public liability policy.

A1C Claimants’ Costs and Expenses

Claims are settled out of court as far as possible to avoid unnecessary legal costs.
Whether a claim does end up in court or not, claimants’ costs and expenses are covered.
These are factual amounts paid or payable by the claimant to pursue the claim. In the
case of those claims that do reach the court, the employer, if found liable, will usually
have costs awarded against them in addition to the compensatory award for the injured
person.

In this scenario costs will be incurred for the use of expert witnesses to examine the
machinery at the scene of the accident. There will still also be legal fees to pay, even
though the case has been settled out of court.

A1D Definition of Employee

An employee is defined as ‘any person who is under a contract of service or

apprenticeship’ with the insured. Most policies extend the category of ‘direct’ employee
to include, for example, self-employed persons, hired persons and students on work
experience. The list of such persons is extensive. The intention is to ensure that the
insurer receives an adequate premium by asking for a declaration of wages/earnings for
each category – this figure is used to fix and adjust the premium.
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A1E Arising Out Of and In the Course of Employment

The injury or disease e.t.c. must arise out of, and in the course of, employment. As a
simple example, when an employee enters their employer’s premises for the purpose of
going to work, they are usually acting in the course of their employment from the
moment they pass through the ‘boundary gates’. However, even this cannot be taken as
an absolute rule, especially during break periods. Activities outside the insured’s
premises will depend upon the circumstances.

A1F Trade or Business

The injury or disease etc., must arise in connection with the trade or business. The
insurer usually restricts cover to the particular trade or activity for which the insured
has paid a premium. However, it is usual to extend cover to include the ancillary
activities of the insured that directly form a part of the business; for example, services
for the safety and welfare of staff, such as first-aid facilities, canteens, private fire
brigades and private ambulance services and any private work carried out for any
director, partner or employee of the company. It is important that the trade or business
is fully defined in the policy. This is to avoid problems with claims that arise from work
carried out that goes beyond the business stated in the schedule.

A1G Territorial Limits

Territorial limits generally apply, although not all insurers apply the same wordings. It
is usual to stipulate the jurisdictions where the bodily injury e.t.c. must be sustained
before liability can be said to be engaged. Generally, insurers require notification of
activities outside the territorial limits to assess the extra risk.

A1H Period of Insurance

Cover applies in respect of bodily injury or disease caused during the period of
insurance. Some diseases develop over a period of time and may not become apparent
until some years after they first started, possibly after the relevant policy has expired.
Provided the injury or disease was caused during the period of insurance, the insurers
are liable and it is immaterial that the policy may have expired. For gradually
developing diseases that have been progressively worsening, such as asbestos-related
diseases, insurers that have covered the employers’ liability risk over the development
period will share the costs according to the length of time that they were on risk.

This is why requirements for retaining EL certificates were originally introduced.

However, their removal should not be seen as lessening the need to keep relevant
records, it was simply that enforcement of the law as it stood was seen as impractical.
How, for example, could the requirement to retain certificates be enforced against a
company that no longer exists, having been wound up?

A2 Standard extensions

We have discussed the basic and compulsory aspects of EL cover. However, all EL
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policies include additional clauses in their policies to provide extra cover or to extend
some of the standard terms. Here are two of these extensions:

Defence costs and In addition to paying compensation to the claimant and

expenses their costs and expenses, the EL policy also indemnifies the
insured in respect of their own costs and expenses incurred
in settling or defending a claim, though the insurer will
expect to be in charge of this process and in practice will
appoint legal representatives, as appropriate
Additional persons An EL policy usually provides that cover is also available in
insured respect of, for example, any director, partner or employee of
the insured for any action brought against them, in their
personal capacity, for which the insured would be entitled
to indemnity under the policy. Indemnity to any principal is
also provided

A3 Limitations

There are very few standard exclusions in an EL policy, mainly because they are not
permitted by the EL compulsory insurance legislation. In fact, there is not even a
standard war risks exclusion.

However, cover may be limited by an insurer as part of the underwriting process in

terms of applying trade clauses:

• by restricting the definition of ‘business’;

• by excluding certain kinds of work; or
• by excluding certain machines and/or processes.

Policy conditions will usually include a ‘reasonable precautions’ condition affirming

that the employer will comply with statutory regulations and a condition stating how
the premium will be adjusted. Most EL policies are rated on wages for different
categories of job type. This is usually estimated at the beginning of the period of
insurance and a provisional premium paid. It is then adjusted on actual figures at the
end of the period – the insured either paying an additional premium or receiving a
rebate. A more recent practice is that of applying ‘minimum and deposit’ premiums. It
is prompted by the insurer’s desire to retain at least the quoted premium. In such cases,
premiums either remain the same (if the declared figures are equal to or lower than
original estimates) or an additional premium is charged for higher actual figures.

For motor-related accidents, the law states that the employer’s liability towards the
driver of a vehicle is covered by an employer’s liability policy. This could happen if the
employer supplies a defective vehicle. However, claims for employees who are
passengers are dealt with under the motor insurance policy, even where the accident
occurs during the course of employment.

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B Public Liability Insurance

It is useful to think of a public liability policy as being an ‘open’ policy as opposed to a

‘specific’ policy. An employers’ liability policy is a specific policy in that it relates to
injury to employees. Likewise, product liability and professional indemnity policies are
specific: the former relating to defective products and the latter covering professional
negligence.

The public liability policy is an open policy in that, instead of the scope of cover being
specified by insured perils, it is defined by the exclusion of specific perils.

Public liability insurance is designed to compensate an insured in respect of claims for

legal liability from members of the public or companies who may suffer due to their
negligence or that of their employees. Cover is provided for damages, as well as costs
and expenses incurred in the event of a claim for injury or for damage to property. A
business may have offices, factories, shops, buildings or other sites. It may have signs
and/or goods outside its premises, trap-doors and other situations where a member of
the public may incur injury, which they allege is the fault of the owners of the business
or their employees.

B1 Standard Policy Cover

A public liability policy provides an indemnity to the insured for legal liability to third
parties for damages (including claimants’ costs and expenses) in respect of bodily
injury, death, disease or illness. It also provides cover for any loss of, or damage to,
property which happens in connection with the business insured under the policy and
occurring during the period of insurance.

The legal liability referred to here covers all forms: negligence, which is by far the most
common cause of claims, but also nuisance, trespass and liability under statute.

We have already examined some of the expressions used in the above paragraph, when
studying EL cover. The same remarks regarding legal liability, damages and claimants’
costs and expenses apply, and need not be repeated here.

B1A Accident

Some policies make reference to ‘accident’ in the policy cover, as it is only intended to
cover unexpected events. They will use a phrase such as ‘accidental death of or bodily
injury to<’. Where the word ‘accident’ is not used, it is usual to incorporate an
exclusion for injury or damage which results from a deliberate act or omission of the
insured.

B1B Injury to Persons

‘Injury’ to persons relates to bodily injury to or death, illness or disease of any person.
The words ‘bodily injury’ make it clear that there must be some form of physical or
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medical impairment.

B1C Loss of or Damage to Property

Most insurers insure only the risk of physical damage to material property, excluding
cover for intangibles (such as copyrights, patents and trademarks) or indirect economic
loss. Liability for loss of property is also covered. For example, an insured could be
liable for the theft of customers’ goods from their premises or for employees’
belongings.

B1D Consequential Loss

The public liability policy also covers losses directly flowing from accidents resulting in
injury to persons or damage to property. For example, if a builder negligently and
accidentally drops a roof tile, damaging the bodywork of a car, they will be liable for the
cost of repairing the damage. They may also be liable for the cost of hiring another car
while the third party’s car is being repaired.

B1E Financial Loss

As well as providing consequential loss cover, public liability policies may also provide
a limited form of cover for ‘pure’ financial loss; i.e. financial loss which a third party
may be able to claim even in the absence of injury to persons or damage to property.
The cover applies to premises for which the insured still retains a liability but which
may have been sold or vacated.

B1F Limit of Indemnity

The maximum amount insurers are prepared to pay following a claim is specified in the
policy. Usually, this is a limit for any one occurrence. Nowadays, the limit applied is
usually £2 million, although figures of up to £10 million are not uncommon.

B2 Optional Extensions

The following two optional extensions are those most commonly provided:

Tenants’ liability This extension covers legal liability for loss of or damage to
leased or rented premises (including fixtures and fittings),
usually subject to an agreed excess.
Defective This extension covers legal liability for defects in premises that
premises have been owned or occupied, as long as the insurance
remains in force. It is needed because of the requirements of
the Defective Premises Act 1972 that impose continuing
liabilities for up to seven years after the disposal of property
previously owned

B3 Limitations

A public liability policy has a wider scope than an EL policy therefore it contains a
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number of exclusions. The exclusions are as follows:

• Injury to employees: covered under an EL policy.

• Property belonging to the insured: covered under a material damage policy.
• Product liability: covered under a specific product liability policy.
• Contractual liability.
• Cost of rectifying defective work.
• Professional negligence: covered under a specific professional indemnity policy,
which may also include the advice risk, if given separately for a fee.
• Deliberate acts: if the policy is not on an ‘accident’ basis, this exclusion is imposed.
• Motor vehicles: covered under a motor policy.
• Vessels and craft: covered under a marine policy.
• Lifts, elevators and boilers: covered under an engineering policy, although this
exclusion may be ‘bought back’.
• War risks.
• Radioactive contamination.

Premiums for public liability policies may be adjustable in the same way as employers’
liability insurance, or may have a different measure if more appropriate (for example,
for a hotel the measure may be the number of rooms). ‘Flat rates’ are common where the
risk relates only to activities at the premises.

C Product Liability Insurance

Under product liability insurance, cover may be provided in a number of ways, with
practice varying over the years. As already stated, combined liability policies are
commonly issued. Alternatively, a public liability policy may be extended to cover
product liability risks. It is not usual to offer cover that is independent of the basic
public liability policy.

All sellers of goods, whether they are manufacturers, intermediaries or retailers, may
incur liability to their customers and others for injury, illness, loss or damage arising
from the supply of goods. This can occur through inadequate design, faulty
manufacture, misuse, inadequate instruction, contamination or damage prior to supply.

Typical hazards are as follows, although the possibilities are almost endless:

• Electrical appliances: use of faulty material or incorrect assembly of, say, electric
blankets, kettles and irons can result in claims for personal injury or for fire
damage to property.
• Food manufacturers: the widespread distribution of contaminated foodstuffs could
affect thousands of individuals, resulting in a potential heavy liability.
• Tyres: new tyres can be defectively manufactured.
• Weed killers and fertilisers: these may damage crops if they are not applied
properly, and it is important that manufacturers issue clear and precise handling
instructions.

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C1 Standard Policy Cover

The standard policy covers legal liability for bodily injury or property damage,
happening during the period of insurance, which arises out of goods or products
manufactured, constructed, altered, repaired, serviced, treated, sold, supplied or
distributed by the insured.

The following points regarding cover should be noted:

• the policy covers consequential losses incurred by a third party only if these flow
directly from loss or damage for which the insured is legally liable;
• financial loss is not usually covered unless resulting from actual bodily injury or
loss of or damage to property;
• the basic cover is usually dependent on an element of accident, although wordings
vary, and there must be injury or damage which results from the supply of the
product;
• the injury or damage must occur during the period of insurance, not necessarily
the supply of goods or services; and
• product liability policies (or extensions) are subject to a limit of indemnity chosen
by the insured in the same way as public liability policies.

It is usual to specify a yearly aggregate limit of indemnity; i.e. a limit applying to all
injury and damage occurring during any one period of insurance; usually the same
figure as the amount any one occurrence.

C2 Limitations

A product liability policy is subject to the exclusions that apply to a public liability
policy, but also excludes the following:

Contractual This is where the insured has entered into a specific contract
liability with another party and has accepted more restrictive conditions
than would normally apply. The exclusion makes it clear that
what is not covered is liability which exists only because of the
agreement which has been made.
Damage to goods The cost of repairing, renovating, replacing or recalling
supplied unsuitable or defective goods is not covered. This is a ‘trade’
risk, which the manufacturer or supplier must accept and either
pay for themselves or obtain specialised insurance for (e.g.
products recall insurance).
Faulty design or This excludes any claims arising through faulty or defective
formula design or formula.
Unsuitability or The unsuitability of the goods for the purpose for which they
failure to perform were designed or the failure to perform their intended function.

Premiums for product liability policies are usually adjustable in the same way as
employers’ liability insurance based on turnover.

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D Directors’ and Officers’ Insurance

The first thing we must do is to establish the need for this cover. After all, we have
already noted that a company may be insured for its legal liabilities in relation to its
business activities and supply or servicing of products. Legislation places statutory
responsibilities on the shoulders of those who run businesses. In addition, there has
been a growing trend towards action being taken against individual directors (or
officers) of a company.

At common law, a director’s primary duty is to the company and not ‘the shareholders’
of the company. The Companies Act 2006 codified certain responsibilities of directors.
They are required to act honestly and in good faith, and carry out their duties with
reasonable care and skill. The Act imposes upon directors’ and officers’ responsibilities
not only to their company, but to its shareholders, its employees, its creditors and to the
public.

There is now a statutory list of duties for directors. Directors are to:

• act within powers: acting within the company’s constitution and properly
exercising powers;
• promote the success of the company: this is for the benefit of its members as a
whole;
• exercise independent judgment;
• exercise reasonable care, skill and diligence;
• avoid conflicts of interest: directors must authorise any individual director’s
conflict of interests and may do so, provided there is no conflict with the
constitution of the company;
• not accept benefits from third parties: unless unlikely to give rise to a conflict of
interests; and
• declare an interest in any proposed transaction with the company: they must
declare the nature and the extent of that interest.

Promoting the success of the company includes such things as taking account of the
likely long-term consequences of any decision and the need for the company to
maintain a good reputation for business conduct. ‘Success’ in this context includes the
interests of the company’s employees. In a wider context, they must consider the impact
of the company’s operations on the community and the environment and there is need
to act fairly as between the members of the company.

Directors and officers may be prosecuted for failures and civil remedies may also be
permitted against them. Under legislation the liability of directors is unlimited in
amount.

The Companies Act 1985 had imposed restrictions on the indemnity that a company
could make to its directors (a fact which continues to influence policy wordings as we
shall see), the position has changed. The Companies (Audit, Investigations and
Community Enterprise) Act 2004 allows companies to assist their directors financially
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while litigation or other proceedings are going on. It also permits them to indemnify
their directors against certain liabilities to third parties, even if the directors are at fault.

Companies may therefore choose to indemnify their directors in respect of proceedings

successfully brought by third parties, including legal and financial costs. However, they
may not reimburse the legal costs of the unsuccessful defence of criminal proceedings or
criminal fines and penalties.

Liability may arise under common law from:

• negligent advice or misstatement, particularly in the context of a merger or take-

over;
• acts outside the company’s constitution, e.g. excessive borrowing or unauthorised
payments;
• failure to disclose conflicting interests – or the full extent of the director’s interests;
• errors of judgment, e.g. a failure to recognise insolvency;
• negligent supervision, e.g. of delegated responsibility; and
• imprudent investments.

D1 Standard Policy Cover

As we noted, the Companies Act 1985 imposed restrictions on the indemnity that a
company could provide for its directors. Policies continue to reflect this, being
structured in two parts. The two elements of cover are:

• cover for the directors and officers in their personal capacity when they are unable
to claim an indemnity from the company; and
• cover to protect the company in circumstances where it is permitted to indemnify
the directors or officers, such as the repayment of legal defence costs.

The basis of cover is ‘claims made’. This means that the policy covers all claims notified
to the insurer or the insured during the period of insurance, no matter when the event
giving rise to the loss occurred.

The policy covers past, present and future directors. In common with other liability
policies, the policy also indemnifies the personal legal representatives in the event of
death, insolvency or bankruptcy of the insured.

The policy limit is an ‘annual aggregate’, meaning there is only one single limit for all
the claims against all the insureds during the policy year.

D2 Policy Extensions

Insurers are willing to extend the time limit in which discovery must be made. This
would be in circumstances where a director leaves the company but may still have
ongoing responsibility for incidents reported in the future.

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D3 Policy Exclusions

There are a number of exclusions that may be present in policies, though there is no
standard wording in the market.

The main exclusions and limitations are:

• prior notification: circumstances known (or which ought to be known) prior to

cover commencing;
• prior and pending litigation: similar to notification;
• a jurisdiction clause;
• bodily injury and property damage;
• pollution and contamination;
• claims based upon improper personal gain by a director;
• fraud or dishonesty of a director;
• ‘insured v. insured’: this is to avoid internal conflicts in the organisation;
• breach of professional duty: usually covered under a professional indemnity
policy; and
• fines, penalties and punitive damages.

E Professional Indemnity Insurance

Professional indemnity insurance is a specialised branch of liability insurance. There are

no standard policy wordings. Professional indemnity insurance protects a professional
person against claims which might be made alleging that injury or loss resulted from
their actions or advice.

Examples of professional indemnity risks and the professions involved are:

• an insurance broker may confirm cover but omit to arrange it;

• an investment consultant may give incorrect advice, resulting in financial loss; or
• a surveyor may give advice resulting in the purchase of defective property.

Professional indemnity insurance is compulsory for many professions, either under

statute (as in the case of solicitors) or as a regulatory requirement (as in the case of
insurance brokers and financial advisers).

In this section we will outline the standard policy cover, optional extensions to and
limitations of professional indemnity insurance.

E1 Standard Policy Cover

The standard policy covers the liability of members of a profession for injury, damage
or financial loss to clients or the public as a result of a breach of their professional duty
or negligent acts, errors or omissions in their professional capacity.

The law generally recognises claims for bodily injury and property damage (and for
financial loss consequent upon such injury or damage), but it does not usually allow

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claims for financial loss without injury or damage. An exception to this is in the area of
professional negligence, where the courts may award damages for pure financial loss.

When we considered employers’ liability, public liability and product liability

insurances we noted that these are all on a ‘claims occurring’ basis. In other words, so
long as the event giving rise to a claim happens during the period of insurance, the
policy will respond, even when the claim is notified after the policy has expired.
Professional indemnity policies, like directors’ and officers’ policies, are always on a
‘claims made’ basis.

E2 Optional Extensions

The following extensions of cover are available.

• Continuation of cover beyond the date of cancellation in the event of the firm being
wound up. This is to allow a period for claims to be made following negligent acts
committed prior to the closure of the firm.
• Liability for breach of warranty of authority, in case an insured takes an action in
good faith on behalf of a client which they are, in fact, not authorised to do.
• Liability for financial loss caused by loss of documents.
• Collateral warranties.
• Cover for any other person or firm acting jointly with the insured.
• Fidelity guarantee.

E3 Limitations

In Nigeria the following liability policies are compulsory by virtue of Insurance act
2003, the following six (6) insurances are compulsory in Nigeria.

Compulsory Insurances are those insurance policies which every person must have or
face penalties for default and it is therefore important for people known what insurance
policies are compulsory. In Nigeria, there are six (6) insurance policies made
compulsory by the law. It is important to emphasize that these six (6) classes of
Insurance are mad compulsory under their enabling laws and failure to comply with
the law is regarded as a criminal offence and employees can also sue for compensation
in a civil suit. The policies and their relevant legislation are as follows:

 Motor Third Party Insurance as required by the Motor Vehicles (Third Party
Insurance) Act of 1950. This is the minimum insurance that owners of motor
vehicles plying Nigerian roads are required to have. The policy covers liability for
death or bodily Injury to a third party arising from the use of the vehicle. Section
68 of the Insurance Act 2003 extends the liability to cover damage to the property
of a third party to the tune of One Million Naira. It also makes it a criminal offence
not to have a motor vehicle third party insurance policy and the penalty for non-
compliance is imprisonment for one year or a fine of N250,000 or both.
 Employees Group Life Insurance as required by the Pension Reform Act of 2004
(amended by the Act of 2014). Section 9 (3) of that Act requires every employer of
labour with five (5) or more employees to take out a life insurance policy for a
87
 minimum of three times the annual total emolument of comply with this provision
is an offence punishable with imprisonment for up to one year or a fine of
N250,000 or both.
 Health Care Professional Indemnity as required by the National Health Insurance
Scheme Act of 1999. Section 45 of that Act requires all licensed health care
providers to have a professional indemnity policy. The law defines a health care
provider as any registered Government or private healthcare practitioner and
hospital or maternity center.
 Insurance of Public Building as required by the Insurance Act 2003, Section 65 of
the Act requires the owner or occupier of every public building to be insured
against liability for loss or damage to property or death or bodily injury caused by
collapse, fire, earthquake, storm or flood. The Act defines a public building as one
to which members of the public have access for educational, recreational, medical and
commercial purposes. The penalty for non-compliance is a maximum fine of N200,000 or
one year imprisonment or both.
 Insurance of Building under Construction as required by the Insurance Act of
2003, Section 64 of that Act requires every owner or contractor of any building
under construction with more than two (2) floors must take out an insurance
policy to cover liability against construction risks caused by his negligence or that
of his servants, agents or consultants which may result in death, bodily injury or
property damage to workers on site or members of the public. This insurance
policy also covers liability for collapse of building under construction. Failure to
comply with this provision is an offence punishable with a fine of N250,000 or
three years imprisonment or both.
 Employers Liability Insurance as required by the Employee Compensation act of
2010 (which repealed the Workmen Compensation Act of 1987). The Act requires
every employer, within the first two years of the commencement of the 2010 Act, to
make a minimum monthly contribution of 1% of the total monthly payroll of
employees to the Employees Compensation Fund. The fund shall be used to pay
adequate compensation to employees or their dependants for any death, injury,
disease or disability arising out of or in the course of their employment.

F Trustee Insurance

There are principally two types of trustee for whom cover is required:

• pension fund trustees; and

• charity trustees.

Broadly speaking the need for this cover arises because, although trustees are given
certain powers, the law also places duties upon trustees.

F1 Pension Fund Trustees

In Nigeria, by virtue of the pensioner from (PRA) Act 2014. Pension Fund Custodians
(PFCs) are responsible for keeping safe custody of pension assets on trust on behalf of
contributors. The Pension Act 1995 and subsequent regulations impose a wide range of
duties upon trustees. Individual trustees may be held personally liable for their own (and
88
fellow trustees’) actions or failures to act. Trustees are also liable to civil penalties imposed
by The Pensions Regulator (TPR). Trustees are expected to inform on any perceived
irregularity in the way the employer or its advisers carry out the duties imposed them.
Trust principles and a code of practice are issued by TPR.

This insurance is specifically designed to cover internal maladministration of a pension

fund resulting in court awards against trustees, losses to the pension fund and the
employer, plus defence costs. In common with professional indemnity insurance, cover
is always on a ‘claims made’ basis.

F1A Standard Policy Cover

Trustee indemnity insurance provides cover for trustees against the risk of personal
liability for the commission of a wrongful act. Cover is also provided for claims made
against the employer company in their administration of the scheme. Theft of fund
assets and loss of documents cover is also provided. Reimbursement cover may be
granted for the pension scheme or the employer company.

F1B Limitations

One of the principal limitations is the definition of the term ‘wrongful act’. Wordings
vary, but in essence they relate to breach or alleged breach of duty or trust; neglect;
error or omission and includes libel or slander. Principal exclusions relate to bodily
injury and property damage, pollution, fraud or willful act, and failure on the part of
the employer to fund or collect contributions.

F2 Charity Trustees

Under the terms of the Charities Act 1993 and the Trustee Act 2000 clear
responsibilities are given to trustees of charities.

There will be a document setting out a charity’s purpose and its administration. It may
be a trust deed, constitution, Memorandum and Articles of Association, Scheme of
Commissioners, conveyance or will. Duties may be imposed by this document, or they
may arise from the requirements of the law or from an order of the court or the Charity
Commissioners. Duties arising from law would include the need to insure a motor
vehicle owned by the charity for third party risks. Employer’s liability insurance would
also fall under this heading.

The Trustee Act 2000 gives the trustees of a charity the power to insure any property
that is subject to the trust against risks of loss or damage due to any event, and to pay
the premiums out of the trust funds. They also have a duty to safeguard the property of
the charity, not only from direct loss or damage, but also from third party liabilities. If
they unreasonably fail to discharge this duty of either safeguarding or insuring, they
may be personally liable to make good the charity’s losses.

In addition, trustees have responsibility to have an appropriate risk management

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strategy. Having carried out this process, and provided the trustees have acted
reasonably and have taken advice where appropriate, the charity will have to meet the
consequences of any loss not covered by insurance. Trustees who fail to take advice or
to heed advice given, will face the risk of being found in breach of trust and must face
the financial consequences.

Trustees may apply to the Charity Commission for advice. If they do so and follow the
advice they are deemed to have acted in accordance with their trust.

This insurance is specifically designed to cover the management risks incurred by

charities and their trustees. Cover goes beyond that of a fidelity guarantee policy (which
would indemnify the charity for the deliberate theft or illegal use of its funds by
employees or trustees) and provides a personal indemnity to the trustees. It must be
distinguished from trustee reimbursement insurance. The latter covers the situation
where trustees of an unincorporated charity are faced with personal liability for a claim
that should be met out of the charity’s assets, but those assets are insufficient.

F2A Standard Policy Cover

Trustee indemnity insurance provides cover for trustees against the risk of personal
liability, whether to the charity or a third party, arising from their breach of trust. Any
personal liability for their wrongful acts as a company’s directors or officers is also
covered.

F2B Limitations

The Charity Commission states that trustee indemnity insurance cannot as a matter of
public policy provide indemnity for:

• fines;
• the costs of unsuccessfully defending criminal prosecutions for offences arising out
of the fraud or dishonesty or willful or reckless misconduct of a trustee; and
• liabilities to the charity arising from conduct which the trustee knew, or must be
assumed to have known, was not in the interests of the charity, or which the
trustee did not care whether it was in the best interests of the charity or not.
G Extended Warranties

The personal insurance offered to purchasers of consumer durables, usually electrical

goods, is known as extended warranty insurance.

The term ‘extended warranty’ refers to the fact that the manufacturer’s own guarantee, or
warranty, for an item usually provides cover for repairs or defects for a period of twelve
months. Extended warranty insurance is effectively a time extension of this warranty.

G1 Standard Policy Cover

Cover offered under extended warranty insurance is for free repairs following electrical
and mechanical defects for a period of up to five years. The cover is usually marketed

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by retailers, although free cover is also now offered by some major credit card
companies when items, such as household appliances, are purchased using their card.

The policies are underwritten by an authorised insurance company or Lloyd’s

syndicate. There are now policies available on the market that covers all the electrical
products in the insured’s house, rather than single items purchased. Often, an annual
premium or flat premium for the full five years’ cover will apply.

Some insurers state that if the equipment is beyond economic repair within the first five
years from purchase date, they will replace it with the nearest current equivalent model.

G2 Limitations

It is often a condition of the policy that repairs must be carried out by the supplier of the
equipment. Exclusions to extended warranty insurance include:

• failure to comply with manufacturer’s instructions or negligent handling;

• risks normally covered by a household contents policy;
• war etc.; and
• costs of repairs to bulbs, aerials, external wires, knobs, handles, driving belts etc.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Employers’ Liability Insurance

• Employers’ liability (EL) insurance is compulsory in the UK under the Employers’
Liability (Compulsory Insurance) Act 1969.
• EL insurance covers the liability of employers for injury to or sickness of an
employee arising out of and in the course of employment.
• There is no ‘standard’ EL policy and wordings vary between insurers.
• Policies generally define who is an employee.
• Its compulsory nature means that it is hard for insurers to restrict liability, though
they do have recourse to redress from the employer if necessary.

Public Liability Insurance

• Public liability insurance is an ‘open’ policy in that the scope of cover is defined
by the exclusion of specific perils.
• It covers the insured’s legal liability to third parties for damages in respect of
bodily injury, death, disease or illness and for loss of or damage to property,
arising from the business insured.

Product Liability Insurance

• Product liability insurance is designed to cover the liability that all sellers of
goods, whether manufacturers, intermediaries or retailers, may incur to their
customers and others for injury, illness, loss or damage arising from the supply of
goods.
• Wordings vary, but there is usually an element of accident, and the injury or loss,
not the sale, must occur during the period of insurance.

Directors’ and Officers’ Insurance

• This provides cover for directors and officers in their personal capacity when they
are unable to claim an indemnity from their company, and for their company
when it can indemnify them.
• Cover is on a ‘claims made’ basis, i.e. it covers all claims made during the period
of insurance, no matter when the loss occurred.

Professional Indemnity Insurance

• PI insurance protects a professional person against claims alleging that injury or
loss has resulted from their actions or advice.
• It covers liability for injury, damage and financial loss.
• Cover is on a ‘claims made’ basis.

Trustee Insurance
• Insurance for pension fund trustees covers court awards against trustees, losses to

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 the pension fund and employer plus defence costs.
• Cover is on a ‘claims made’ basis.
• Insurance charity trustees’ insurance covers the management risks incurred by
charities and their trustees and provides a personal indemnity to the trustees.

Extended Warranties
• Extended warranty insurance is a personal insurance offered to purchasers of
consumer durables.
• It provides a time extension to the manufacturer’s guarantee of up to five years.

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Self-Assessment

1. What is the legislation by which employers’ liability insurance is made

compulsory and the minimum limit of indemnity permitted?
2. What cover is given under an employers’ liability policy?
3. How may cover under an employers’ liability policy be limited?
4. What monetary limit do most insurers impose on employers’ liability policies in
the UK?
5. In respect of public liability insurance, what are the definitions of ‘injury’ and
‘damage’?
6. What are the two most common optional extensions to a public liability policy?
7. What is the basic purpose of product liability insurance?
8. What is the purpose of directors’ and officers’ insurance?
9. What is the purpose of professional indemnity insurance?
10. What cover is provided by an extended warranty policy?

You will find the answers at the back of the book.

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 Chapter 7

Non-Insurance Services
Introduction

In addition to standard insurance products, there are a number of non-insurance and

associated services available. In this chapter we will look at many of these and examine
how they interact with the insurance products on offer. These services range from
providing advice in an emergency or on how to control risks to the provision of repairs
and replacement goods from the insurer’s authorised workshops and suppliers. We will
also look at the services provided to help with those losses that are not insured under a
policy.

Key Terms

This chapter features explanations of the following ideas:

Authorised Repairers Authorised Suppliers

Fire Protection Association (FPA) Nigeria Insurers Association (NIA)
Helplines Risk Control
Risk Managers Society of Nigeria (RIMSON) Uninsured Loss Recovery

A Helplines and Advice

Many general insurers provide emergency assistance and/or expert advice to their
policyholders. This is usually provided in the form of a 24-hour helpline, the cost of
which is included in the standard premium. Examples of such facilities may be found in
private motor insurance, household insurance and travel insurance, as follows.

Private motor Many motor insurers provide a 24-hour helpline, offering

insurance their policyholders the ability to telephone control centres
at any time for assistance. When help arrives, the insured
has to pay for the labour and parts used (unless the
breakdown is due to an accident covered by the policy in
which case the recovery costs are payable by the insurer).
Household insurance • Legal advice/legal costs services: advice can be given
on any private legal problems; for example, accidents,
consumer or employment disputes.
• Emergency services: immediate assistance is provided
in all emergencies, whether or not relating to a claim.
Such emergencies include roof damage, blocked
drains, risk of loss or damage, or physical danger. The
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 policyholder is put in touch with a reliable contractor,
who will carry out the work at a reasonable charge.
• Glazing service: following breakage of glass in doors
or windows, a replacement service is provided by a
specified supplier, usually at a discount from standard
prices.
Travel insurance Most travel insurers provide a medical emergency service.
This is usually operated by a specialist company that will
provide a 24-hour multi-lingual helpline facility. In the case
of an emergency, the company will advise or organise the
necessary medical treatment. They will also make the
necessary arrangements to repatriate the insured, if the
emergency takes place abroad.
Pet insurance • Help with finding the location of a veterinary surgeon
if away from home and/or direct veterinary advice.
• Legal advice.
• Bereavement counselling to owners.
• Replacement pets.
The early warning such a helpline provides of illness or
potential illness can help to avoid unnecessarily high
veterinary costs.

Many insurers now also incorporate these helplines into special apps, which can be
uploaded onto smart phones and tablets etc. These provide many of the services just
described and more, e.g. the ability to provide a record of email/text messages, instant
pictorial/video evidence and the ability to provide regular updates. Such apps also
enable the insurer to obtain immediate feedback on how well it is performing in the
opinion of the insured.

There are a number of benefits to the insurer in providing this sort of service. These
relate mainly to control of the potential claim.

• The provision of a helpline will help the policyholder get the repairs carried out
quickly, which minimises the chances of a larger claim by ensuring that the
property is secure; for example, a subsequent theft claim occurring following a
delay in repairing a broken window.
• The insurer can control the standard of work completed by the repairer because it
is ultimately the insurer that pays for the work. For example, where there is
damage to the frame as well as to the glass, the insurer can implement service
standards with the helpline that repairs (rather than replacement of the frame) will
be attempted if possible. Audits of work completed can help to show whether the
service standards are being met.
• The insurer can also control the costs involved in the repair and will use its bulk
buying power to negotiate favourable rates for repairs.

B Authorised Repairers and Suppliers

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B1 Authorised Repairers

Household insurers offer emergency and glazing services, whereby contractors and
suppliers are recommended and/or provided. These contractors and suppliers are, in
effect, authorised repairers.

However, the term is usually applied in private motor insurance when insurers have
authorised or ‘approved’ repairers. A motor insurer’s main concerns are that the
repairers should be competent, fairly priced and that a long-distance tow should be
avoided where a vehicle has been disabled as a result of an accident. Many motor
insurers have arrangements with nominated repairers who, because a certain amount of
work is guaranteed, allow a price reduction on both parts and labour. Such repairers
also provide guarantees of standards of workmanship.

The benefits of approved repairer schemes for the motor policyholder include:

• collection and delivery of the vehicle;

• no requirement to obtain repair estimates; and
• provision of a loan car whilst repairs are carried out.

B2 Authorised Suppliers

Insurers incorporate into their property policies different options that they may choose
to exercise when settling claims. Authorised repairers, as we have seen are very popular
with motor insurers. Increasingly, insurers are using authorised suppliers when they
wish to exercise their right to replace property, particularly household goods under a
household contents policy.

Many insurers have arrangements with major department stores or other well-known
retail outlets. In the event of a total loss claim for household items (three piece suites,
televisions, refrigerators etc.) policyholders are advised to obtain a replacement item
from the specified supplier.

There are a number of benefits that arise from this type of arrangement:

• the insured obtains the benefit of the guarantees provided by the retailer
(many offering an automatic 10 or 15 day period for a full refund if goods are
returned for any reason);
• insurers benefit from the preferential rates that are available to them from
such outlets; and
• there is no need for any (potentially lengthy) negotiation over the price, which
may otherwise have been necessary if a cash settlement option had been chosen by
the insurer.

C Risk Control and Advice

Insurers and intermediaries are very willing to become involved in providing advice in
areas of risk control because it is in everybody’s interest to reduce the number and cost
of claims. Independent intermediaries provide advice to clients as part of the service
that they provide and some employ their own property surveyors for this purpose.
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There is a major difference between the insured’s approach to risk management and
that of the insurer. The insured is concerned about any issue that affects the balance
sheet; this would include issues such as competition, labour relations and so on. The
insurer, on the other hand, is concerned with those areas that have some direct impact
upon the risks proposed for insurance; this would embrace the guarding of machinery
for employer’s liability risks but not the much wider realm of labour relations.

Some independent intermediaries carry out a wide-ranging role in the provision of

advice on areas of risk management. This may go beyond the more limited focus of
insurers, and depends entirely on the terms of agreement between client and
intermediary and the intermediary’s expertise in the wider aspects of risk management.

For personal insurances, many insurers provide advice regarding the adequacy of locks
and other security measures. They encourage the use of, for example smoke detectors,
by discounting premium rates.

Here we will focus on risk control and advice in a commercial setting.

C1 Insurer’s Role

Insurers are willing to become involved (and sometimes insist upon doing so) in aspects
of the risk management process for different classes of insurance. These include:

• material damage (fire, perils, all risks);

• business interruption;
• theft;
• money;
• employers’ liability;
• public and product liability;
• motor fleet; and
• engineering.

C1A Material Damage

Every category of risk is classified for fire insurance purposes by the occupation of a
building and its construction. Current levels of protection and detection equipment are also
considered. Each insurer will have decided the maximum exposure (sum insured) that they
are prepared to accept without the need for a survey to be carried out (usually by the
insurer’s surveyor).

For fire and special perils risks, the surveyor is concerned with the physical aspects of
storage and of the manufacturing processes. They are concerned about the fire and
explosion risks, the susceptibility of property to damage by water perils and any
geographic considerations for perils such as earthquake, aircraft and subsidence.

Apart from describing the physical risk, the survey report will always give the
surveyor’s view of:
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• the management and housekeeping standards;
• the adequacy of the sum insured;
• the estimated maximum loss (EML) from an insured peril;
• risk requirements: things that need to be done to make the risk acceptable for
insurance; and
• risk recommendations: actions that are desirable to reduce the loss potential and
often result in a premium reduction if carried through.

C1B Business Interruption

Many aspects of the proposed risk will impact upon both property insurance and
business interruption cover. However, in addition the surveyor will consider aspects
that may be unique to business interruption cover, such as bottlenecks in the production
processes, as these may present a high likelihood of business interruption from a
relatively minor incident. The adequacy of the sum insured, the EML, which may
require a review of the insured’s supply chain facilities, and any requirements and
recommendations will feature separately from those for material damage in the report.

C1C Theft Insurance

Recommendations and requirements for theft cover are usually related to improving
physical security, improving detection or methods of deterring would be thieves. In
other respects, a similar approach is taken to other property covers, including EML
assessment.

C1D Money Insurance

Money insurance has its own particular requirements because of the nature of the risk.
It is unusual for a survey to be carried out for this class of business. However, this does
not mean that it is any less important. It is simply the fact that the insurer is able to
consider the risk from the information provided in a proposal form. Sometimes a
supplementary questionnaire is used to elicit greater detail.

Some aspects of the money risk have similar characteristics to those for the theft risk.
Money kept on the premises overnight either in or out of a locked safe are examples of
such risks. Insurers make recommendations (or requirements) regarding the adequacy
of a particular safe for the sums of money at risk. On the other hand, the transit risk has
quite different considerations. Here insurers will be looking carefully at:

• the sums involved;

• the method and frequency of transit;
• the number of cars/people involved;
• the routes used and whether they are varied; and
• the use of specialist security firms.

C1E Employers’ Liability

Specialist surveyors are sometimes used to carry out surveys or provide advice on

99
employers’ liability risks. Often these are the high hazard risks, such as foundries, or
one-off risks such as those to do with a major civil engineering contract.

For risks confined to the insured’s premises, insurers consider such things as the
adequacy of safety warnings and fire exits as well as the guarding of dangerous
machinery. Of equal concern will be those aspects of the risk that we could describe as
relating to moral hazard.

These include:

• the terms and conditions of employment;

• the adequacy of training;
• the cleanliness and tidiness of the premises;
• the control or prohibition of smoking;
• compliance with health and safety requirements;
• staff relations; and
• storage arrangements for dangerous substances.

It is in these areas that insurers provide guidance (or impose requirements) for risk
improvement. For those risks where employees are working away from the insured’s
premises, issues such as safety codes and the supervision of staff are important. These
surveys also help the insured ensure that it complies with the increasing number of
regulations connected with health and safety.

C1F Public Liability

Public liability risks fall broadly speaking into two categories, namely those:

• where the risk is related to the insured’s premises, and

• involving employees working away from the premises.

The first category rarely requires a survey. The insurer may provide advice in relation
to such risks, but this is rare in practice because the main risk arises from visitors to the
premises being injured (or having their property damaged) while there. For
manufacturing risks, it would be very unusual for the public or clients to have general
access to the premises; a member of staff would always accompany them. For retail
risks, often the claims experience highlights any problem areas.

‘Away’ risks do pose greater problems because of the potential for injury or damage at a
third party’s premises. The activity undertaken and the potential for loss or damage will
be critical, and it is difficult to generalise about the approach taken by insurers. It can be
illustrated by considering painters and decorators who work using blow lamps to burn
off old paintwork. Over the years this has proved to be the source of many property
damage claims. Insurers tend to impose restrictions in the way that this work is carried
out, both in terms of safety measures to be taken during the process involving heat, and
supervision of the site afterwards.

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C1G Product Liability

As with all liability areas, the variety of risks presented to insurers require something of
an individual approach to each one. However, there are certain areas where insurers
tend to make recommendations or impose requirements:

• storage arrangements that are consistent with the shelf-life of products;

• labelling for clarity;
• packaging (which may include such things as ‘safety caps’ for dangerous liquids);
• warning notices; and
• quality control methods used in manufacture.

C1H Motor Fleet

Many fleet rated motor risks are placed with an insurer on the basis of the historical
claims experience. The insurer makes an assessment about likely future claims costs and
terms are quoted accordingly. However, there is sometimes a request for something
more than this – or perhaps the claims experience indicates that something needs to be
done in the area of managing the risk.

Insurers may offer some or all of the following:

• analysis of claims by type, time, use, age or any other common factor with a view
to recommending changes in practice or policy cover;
• reviewing the management of the fleet, including maintenance issues and the use
of telematics to provide additional data; and
• recommending advanced driving or defensive driving courses.

C1I Engineering

Engineering is probably the insurance area that employs most specialist surveyors.
Engineering cover, particularly for boilers, air receivers and lifting plant and machinery
is very closely linked to the physical inspection of the items. There is often a contract
(policy) that caters for both because of the legal requirements that such items should be
inspected regularly.

For such risks, the specialist engineers carrying out the inspections advise on
requirements and recommendations relating to the physical condition of the particular
plant or machinery. Often the action that needs to be taken to remedy defects is not so
much an insurance requirement as a legal obligation, though there may be areas in
which improvement is desirable but not essential.

C2 Nigerian Insurers Association (NIA)

The objects of the Association are to:

 protect, promise and advance the common interest of insurer and Reinsurer in
Insurance
 advise members as any action or proposed action by Government or any other

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 Authority in connection with any legislation or policy.
 advise or consult with the Government regarding any act or thing done or being
contemplated by it or its Agencies or other statutory bodies with regard to any
matter relating to Insurance business.
 guide and assist members in complying with any statute, regulation order and
Government directive relating generally to the business of Insurance.
 create the furtherance of knowledge and research on Insurance and related
matters.
 collect, collate and disseminate statistical, economic and other information relating
to Insurance.
 maintain constant dialogue with other trade Association in the Insurance industry
with a view to fostering good relationships between them as well as the insuring
public.
 confer, consult, maintain, contact and co-operate with any individual associations,
societies, institutions or bodies within or outside Nigeria having objects similar to
those of the Association.
 promote personal and friendly relationship among members of the Association;
holding conferences and meetings for the discussion of technical and professional
matters, relevant to Insurance.

C3 Fire Protection Association (FPA)

The Fire Protection Association (FPA) provides advice and guidance in specialist areas.
Whereas the ABI provides consumer information free of charge, the FPA makes a

charge for its publications. The range is extensive and includes a business fire risk
assessment guide. A range of DVD training products is also produced by this
organisation.

Risk Managers Society of Nigeria (RIMSON)

RIMSON’s objectives revolve around the core values aimed at promoting Risk
Management culture in Nigeria. These objectives include the following:

 Promoting Risk Management practices for improved performances.

 Providing Risk Management Training, Education and Research.
 Collaborating with other professional bodies globally.
 Entrenching Risk Management Professionalism.
 Promoting Risk Management practices among Government, Corporate Bodies and
individuals for the safety and betterment of all stakeholders.
 Exchanging Risk Management information and materials locally and
internationally.
 Sensitizing all Stakeholders on the latest risk management initiatives.
 Attracting more members into the Society and increase participation in the
Training/Conferences.

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C4 Summary

From this brief look at the areas with which insurers, intermediaries and other bodies
are concerned, we can see something of the value that these services provide. Some are
freely available before deciding to insure, others are part of the insuring process.

In general terms, insurers insist on those things which, from their viewpoint, bring the
risk up to an acceptable standard for cover to be granted. These are termed
‘requirements’. Beyond that, recommendations include areas where the risk would
benefit from the particular measure and often there is an incentive by way of a premium
reduction if it is carried through.

D Uninsured Loss Recovery Services

A number of situations arise in motor insurance where a policyholder has no insurance

cover, but has a legal right to recover losses from another person. Examples of these
situations include the following.

Third party only A motorist who only insures against third party risks may
cover have damage caused to the insured vehicle by another
motorist. The policyholder may be entitled to recover the
amount of the damage from the other motorist.
Excess Even with comprehensive cover an excess probably applies to
the policy. In the event of damage to the car caused by
someone else, the insured will wish to recover that excess from
the person who was responsible for the loss.
Hire car A motorist whose car is damaged and off the road for repairs
through someone else’s negligence may need to hire a car and
will want to recover the cost from the responsible party.
Compensation for If negligence can be proved against a third party for injuries
personal injuries suffered as a result of a motor accident, the claim will need to
be pursued (usually against the guilty party’s insurer).

A number of insurers and/or intermediaries offer to assist their clients in recovering

items, such as these, that are not insured under the insured’s motor policy. Other
specialists may also be involved, most notably solicitors, who will pursue claims on
behalf of their clients and tend to be used for the higher value claims involving personal
injury. This help may be offered as a ‘legal expenses’ policy, or for a fee, or merely as
part of the service to the client.

Accident management companies pursue claims for uninsured loss recovery where they
feel that their client is completely blameless. They usually offer a ‘no win – no fee’ type
arrangement. Successful claims result in a percentage of the personal injury damages
being retained by the accident management company. They may also become involved
in the provision of a car for hire and the storage of vehicles pending inspection.

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Key Points

The main ideas covered by this chapter can be summarized as follows:

Helplines and Advice

• Most insurers provide emergency assistance and/or expert advice to their
policyholders often in the form of a 24-hour helpline.
• Helplines exist for private motor insurance, household, pet and travel
insurance.
• They assist the policyholder in getting repairs done speedily and help the
insurer retain control of their costs and standard of work.

Authorised Repairers and Suppliers

• Authorised repairers are often used in motor insurance to ensure that repairs
are carried out economically and to a good standard.
• Authorised suppliers are used by insurers wishing to exercise their right to
replace property, particularly household goods under a household policy.

Risk Control and Advice

• Insurers and intermediaries are willing to offer advice on controlling risks in
order to reduce the number and cost of claims.
• Insurers are concerned with those areas that have some direct impact on the
risks proposed for insurance, whilst some intermediaries may offer a more
wide-ranging service.
• The information looked for and the approach taken by insurers depends on the
class of insurance, the circumstances of the proposer and decisions made within
the insurer as to what is an acceptable level of risk.
• The ABI produces a range of consumer information materials covering a
number of insurance issues and the Fire Protection Association provides advice
and guidance in specialist areas.

Uninsured Loss Recovery Services

• In certain circumstances a policyholder has no insurance cover but has a legal
right to recover losses from another person, e.g. where there is an excess on a
policy.
• A number of insurers and intermediaries help their clients to recover such
items.
• Solicitors provide the same service: their fees may be met under a legal
expenses policy or they may offer a ‘no win – no fee’ arrangement.

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Self-Assessment

1. What are the most common non-insurance services available?

2. What types of advice and/or assistance are provided in association with household
insurance?
3. What are the main benefits of approved motor repairer schemes?
4. For business interruption insurance, identify one area where an insurer may
provide advice or recommendations.
5. What are the key elements of a property surveyor’s report?
6. What are the areas in which an insurer will provide advice for money insurance?

You will find the answers at the back of the book.

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 Chapter 8

Material Circumstances
Introduction
In this chapter we will examine the concept of material circumstances and explain the
significance of physical and moral hazard. We will also outline the importance of
proposal forms and alternative or additional methods of obtaining material information.

Key Terms

This chapter features explanations of the following ideas:

‘All material information’ Declaration Material Circumstances

Moral Hazard Physical Hazard Proposal Forms
Slips Spent Convictions Supplementary Questionnaires
Surveys

A Material Circumstances in Risk Assessment

We can say that a material circumstance is any information which would affect the
judgment of a prudent (or reasonable) insurer in considering:

• whether or not to accept the risk; and

• if willing to accept the risk, at what rate of premium and on what terms and
conditions.

The proposer has a duty to:

• take reasonable care not to make a misrepresentation if a consumer; or

• make a fair presentation of information relating to the risk to be insured if a non-
consumer.

Similarly, details of previous losses (irrespective of whether or not insured), of any

special terms or conditions imposed by past insurers or of declinature (an insurer’s
refusal either to accept a proposal for insurance or to renew an existing policy) ought to
be disclosed.

There are some circumstances, which although relevant, but do not need to be disclosed
by insured/proposer. These are:
 circumstances that lessen the risk
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 circumstances the insurer knows
 circumstances the insurer ought to know
 circumstances the insurer is presumed to know
 circumstances where the insurer has waived its rights
 circumstances that a survey would have revealed

Included within the definition of facts that do not need to be disclosed are ‘spent’
convictions under the Rehabilitation of Offenders Act 1974, as amended (for England
and Wales) by the Legal Aid, Sentencing and Punishment of Offenders Act 2012
(LASPO). These Acts state that after varying periods of time, depending upon the
severity of the original sentence imposed, convictions become ‘spent’. They are treated
as never having happened and therefore need not be disclosed to insurers as material
circumstances. Rehabilitation periods are given in table 8.1. They are halved for those
below 18 years of age at the date of conviction, except for custodial sentences of up to
six months, where the buffer period (i.e. the period that runs beyond the length of the
sentence) is 18 months.

Table 8.1: Rehabilitation of Offenders

Sentence Rehabilitation period = length
of sentence PLUS:
Custodial 0–6 months 2 years
Sentences
6–30 months 4 years
30 months–4 years 7 years
Over 4 years never spent
Non-Custodial Community Order and 1 year
Sentences Youth Rehabilitation Order
Fine 1 year from date of conviction
Conditional Discharge, period of the Order
Referral Order etc.

The above rehabilitation periods apply to England and Wales only. A similar system
operates in Scotland where The Rehabilitation of Offenders Act 1974 is subject to the
Rehabilitation of Offenders Act 1974 (Exclusions and Exceptions) (Scotland)
Amendment Order 2015, which disapplied certain provisions of the 1974 Act that
would stop a person having to disclose a spent conviction.

However, a key provision of the 2013 Order introduced ‘protected convictions’, which
in essence means that if a conviction is ‘protected’, the exclusions in the 2013 Order do
not apply and the law reverts to the protections provided by the 1974 Act. The
Rehabilitation of Offenders (Northern Ireland) Order 1978 applies in Northern Ireland.

Similar enactments are also applicable in Nigeria.

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For example, Emmanuel, aged 36, commits a crime and is sentenced to two years (24
months) in prison. On his release, he will need to declare his conviction for the
following amount of time:

 length of his sentence + buffer period = 2 years + 4 years = 6 years

Thus Emmanuel’s rehabilitation period is 6 years.

A1 Disclosure by Private Individuals

Disclosure by private individuals (i.e. consumers) is covered by the Consumer

Insurance (Disclosure and Representations) Act 2012 (CIDRA), which came into force
on 6 April 2013.

Under CIDRA, consumers are required to take reasonable care not to make a
misrepresentation and the emphasis is on insurers to ask the right questions in a clear
way. CIDRA provides different remedies for the insurer in cases where it has been
induced by misrepresentation to enter into an insurance contract. These are as follows.

If the misrepresentation was The insurer must pay the claim

honest and reasonable
If the misrepresentation was The insurer can act as it would have done if the
careless question had been answered correctly. For
example, if the insurer would have applied an
exclusion, it is not required to meet claims falling
within that exclusion. If the insurer would have
charged a higher premium it can pay the claim in
proportion to the reduction in premium gained by
the non-disclosure
If the misrepresentation was The insurer is entitled to treat the policy as void
deliberate or reckless and decline all claims

The Act also abolishes ‘basis of contract’ clauses, which enabled insurers to avoid a
policy for any breach of the insured’s warranting the truth of the information. This
brings the law in this area into line with industry practice and the approach of the
Financial Ombudsman.

A2 Business Insureds

The Insurance Act 2015 (IA 2015) became effective from 12 August 2016 and applies to all
consumer and non-consumer insurance contracts placed or varied since that date. Certain
provisions only apply to non-consumer, i.e. commercial, insurances, including the duty to
make a fair presentation of the risk. This is what we will focus on in this section.

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Making a fair presentation of the risk involves disclosing every material circumstance
which the insured knows or ought to know or providing sufficient information for a
prudent insurer to recognise that it needs to make further enquiries. Making a fair
presentation also means presenting the information in a way that is clear and accessible
to the insurer. This means insurers need to take responsibility for asking questions and
probing for information about a risk.

What the insured is deemed to know or ought to know is described by the Act and
includes:

• knowledge held by the insured’s senior management and by the persons

responsible within the organisation for arranging the insurance for the business;
• what ought to be known in the ordinary course of the insured’s business;
• information there was a suspicion about, but a deliberate decision was taken not to
enquire further about that suspicion;
• information that ‘should reasonably have been revealed by a reasonable search’;
and
• information held within the insured’s own organisation and by others;
– while this may include information held by an agent /broker, the insured will
not be imputed to know confidential information acquired through a business
relationship unconnected to the contract of insurance in question.

This effectively sets out a structured framework and contains a lot of detail as to whose
knowledge is relevant (especially senior management) and the amount of information
deemed sufficient for the insurer to make further enquiries.

In Nigeria, the Insurance Act 2003, Part IX – Disclosure, Condition and Warranty, has
modified the duty of disclosure such that the insured duty of disclosure is limited to the
questions on the proposal form.

Insurance Act 2003 – Part IX – Disclosure, Condition and Warranty

54 (1) Where an insurer requires an insured to complete a proposal form or other
application form for insurance, the form shall be drawn up in such manner as to
elicit such information as the insurer considers material in accepting the
application for insurance of the risk and any information not specifically
requested shall be deemed not to be material. 55 (1) In a contract of insurance, a
breach of term whether called a warranty or a condition shall not give rise to any
right by or afford a defence to the insured unless the term is material and relevant
to the risk or loss insured against.

(2) Notwithstanding any provision in any written law or enactment to the country,
where there is a breach of term of a contract of insurance, the insurer shall not be
entitled to repudiate the whole or any part of the contract or a claim brought on
the grounds of the breach unless.
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  The breach amounts to a fraud; or
 It is a breach of fundamental term of the contract.
 Where there is a breach of a material term of a contract of insurance and the
insured makes a claim against the insurer and the insurer is not entitled to
repudiate the whole or any part of the contract, the insurer shall be liable to
indemnify the insured only to the extent of the loss which would have been
suffered if there was no breach of the term.
 Nothing in this section shall prevent the insurer from repudiating a contract of
insurance on the ground of a breach of material term before the occurrence of the
risk or loss insured against.
 In subsection (2) of this section ‚fundamental term‛ means a warranty, condition
or other term of an insurance contract which a prudent insurer will regard
as
material and relevant in accepting to underwrite a risk and in fixing the amount of
premium.
IA 2015 also details what information the insurer should be able to find within its
own organisation rather than expecting the insured to disclose it. This is information:

• held by the insurer and accessible to the underwriter relevant to the risk;
• that an insurer writing this type of risk would reasonably be expected to
know;and
that is common knowledge.

It is crucial to know that it is possible to contract out of the duty of fair presentation.
However, the insurer must show that the terms included in the contract were fully
explained to the insured. Where parties have agreed that the provisions of IA 2015 will
not apply, the previous law on disclosures applies.

Under the previous law, an insured was required to make a full and complete
disclosure of all the material facts relating to the contract. If they breached this duty, the
insurer was entitled to avoid the contract entirely from the beginning.

Breach of the Duty of Fair Presentation

IA 2015 follows a similar approach to cases of material non-disclosure or

misrepresentation as provided for by CIDRA. An insurer only has a remedy against an
insured for a breach of the duty of fair presentation where it can show that but for the
breach it would either:

• not have entered into the contract at all; or

• would have done so on different terms.

Such a breach is a qualifying breach. However, before an insurer can consider applying
any remedy it has to establish whether the breach was:
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• deliberate or reckless, i.e. the insured either knew or did not care that it was in
breach of its duty of fair presentation; or
• neither deliberate nor reckless.

It is for the insurer to prove that the breach was deliberate or reckless.

Remedies

If the insurer can prove that the breach was deliberate or reckless it can:

• avoid the contract and refuse to pay claims; and

• not return any of the premiums paid.

If the breach was not deliberate or reckless then new proportionate remedies can be
applied. These remedies are:

1. If the insurer would not have written the risk on any terms if it had known the
information which has come to light, then it can avoid the contract but must return
the premium paid.
2. If the insurer would have charged a higher premium, then it can proportionately
reduce any claims payments.
3. If the insurer would have included new terms or imposed different terms (other
than in respect of the premium), such as conditions/warranties, exclusions,
different extensions or sub-limits then the contract is to be treated as if it had been
entered into on those terms. However, the insurer cannot seek to avoid the policy.

For example, Messrs. ABC Insurance Company covers a commercial risk but then
discovers that there has been a high incidence of thefts of equipment from that business,
which the insured failed to report. The risk is such that had it known about it, ABC
Insurance Company would have imposed a theft exclusion on that policy.

More equipment is stolen from the business during the policy period. ABC Insurance
Company refuse to pay the claim because the policy is treated as containing the theft
exclusion.

If the loss had been caused by another peril, covered by the policy, then ABC Insurance
Company would be liable pay the claim.

ABC Insurance Company cannot seek to avoid the policy. It can only do this if it can
prove that the insured’s failure to tell them about the high incidence of theft was either
deliberate or reckless.

Basis of Contract Clauses

In the past some insurance proposal forms contained clauses that included a statement
effectively turning everything on that form into a warranty, allowing the insurer to avoid a
claim if any information on the form, however immaterial, was inaccurate. IA 2015
abolished such clauses from business insurance contracts, reflecting the approach already
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taken in CIDRA.

Warranties and Fraudulent Claims

IA 2015in the UK and the Insurance Act 2003 Section 55 (1) in Nigeria, also introduced
changes to how warranties work and provides insurers with remedies for fraudulent
claims. In a contract of insurance, a breach of term whether called a warranty or a
condition shall not give rise to any right by or afford a defence to the insured unless the
term is material and relevant to the risk or loss insured against.

In Nigeria, Section 55 (2) Notwithstanding any provision in any written law or

enactment to the contrary, where there is a breach of term of a contract of insurance, the
insurer shall not be entitled to repudiate the whole or any part of the contract or a claim
brought on the grounds of the breach unless-

(a) the breach amount to a fraud.

B Physical and Moral Hazard

The primary task of the underwriter is to assess the risk that each individual brings to
the common pool. A key issue is the physical and moral hazard each insured represents.
We need to differentiate between peril and hazard. We can do this by saying that:

Peril is the event giving rise to the loss itself, e.g. fire.
Hazard is the factor that might alter the frequency and severity of the
peril occurring, e.g. trade processes, construction of the
building.

Therefore, factors that may influence the outcome are referred to as ‘hazards’. These
hazards are not themselves the cause of the loss, but they can increase or decrease the
effect if a peril operates and may make the operation of a peril more likely.

The underwriter has the task of assessing the hazards that are associated with the
various risks brought to the common pool. This consideration of hazard is important
when deciding whether or not to accept a risk, what premium to charge and what terms
to apply.

The underwriter is concerned with two distinct types of hazard: physical and moral.
There is ‘good’ physical hazard or ‘poor’ moral hazard and we need to understand what
we mean by these terms.

B1 Physical Hazard

Physical hazard relates to the physical characteristics of the risk, in other words the
measurable dimensions. We will look at examples of physical hazard relating to various
classes of insurance to help you fully understand what is meant by this term.

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 Fire insurance Nature of construction of the building; provision of fire
fighting equipment; trade processes.
Theft insurance Nature of construction of the building; security features;
nature of contents of building.
Motor insurance Age of the driver; make and model of the vehicle, place
where it is usually kept, its use.
Employers’ liability Industrial processes in a factory; guarding of machinery.
insurance
Personal accident Proposer’s occupation; dangerous pastimes.
and sickness
insurance

B1A Good and Poor Physical Hazards

Aspects that are likely to reduce the likelihood of loss or its severity compared to an
‘average risk’ are termed good physical hazards. Similarly, aspects that are likely to
increase the incidence of loss or the potential severity may be regarded as bad or poor
physical hazards.

Again, the best way of understanding these concepts is to consider examples from
various classes of insurance.

Good physical hazards Poor physical hazards

Fire insurance Brick or concrete fire-resistant walls; Buildings of wooden
metal fire doors; automatic construction; thatched
sprinklers; alarm systems; roofs; storage of dangerous
segregation of dangerous processes chemicals; oils;
and goods from the less dangerous combustible packing
area in a factory. materials.
Theft insurance Security locks; intruder alarms; low Buildings of lightweight
risk premises, such as a baker’s shop, construction; flimsy
which has stock and machinery that window catches; high risk
is unattractive to thieves. premises, such as a
jewellery shop or an off-
licence carrying high value,
easily portable items.
Motor A vehicle which is securely garaged; Young or inexperienced
insurance use of vehicle in areas of low density drivers; use of a vehicle for
traffic. certain trades (such as a taxi
or a sales representative’s
vehicle); vehicles that are
costly to repair (e.g. a
Porsche).
Employers’ Use of extractor fans; protective Use of chemicals and oils;
liability clothing, goggles and masks; creation of dusts and
insurance machinery which is well-guarded (in vapours; excessive noise
respect of industrial processes). (in respect of industrial
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 processes).

Personal Clerical type occupation; good Hazardous occupation,

accident and health record. such as scaffolding; history
sickness of recurring illness; an
insurance excessively overweight
person.

All of these examples relate to the physical nature of the subject-matter of insurance.
Even in those examples in which we mentioned people, the emphasis was on the
physical hazard attaching to the subject-matter of insurance. We were not commenting
on the insured’s personal attitude or behaviour.

B2 Moral Hazard

Moral hazard relates to the human aspects that may influence the outcome of the risk. It
is concerned with the attitudes and conduct of individuals or society, rather than what
is being insured. In insurance, the prime consideration in relation to moral hazard is the
insured person. However, the conduct of the insured’s employees, and of society in
general, have an ever-increasing influence when considering moral hazard.

Let us look at a number of examples of good and bad (or poor) moral hazard:
• The most serious example of poor moral hazard on the part of the insured is the
submission of false or exaggerated claims or where the insured has withheld or
misrepresented essential information.
• A common example of poor moral hazard is lack of care on the part of the insured;
the individual who fails to take reasonable care to prevent loss of or damage to
property or has little regard for the safety and well-being of employees or the
public in general.
• An example of good moral hazard is where the insured is strictly honest and takes
all steps to protect property and employees.

It is sometimes difficult to distinguish between physical and moral hazard. Very often,
when a poor physical hazard exists, it is only the result of a poor moral hazard at an
earlier stage. For example, an untidy or dangerous workplace (poor physical hazard)
may be as a result of poor housekeeping and supervision (poor moral hazard).

C Proposal Forms

The proposal form is the most common mechanism by which the underwriter receives
information regarding the risk to be insured. It is a type of questionnaire asking
questions about the subject matter of the insurance. The proposal form is used in most
classes of insurance, where it is completed by the proposer and submitted to the
underwriter. These forms may be requested directly from the insurer (underwriter) or
may be provided by an intermediary.

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Obviously, it is more convenient, speedy and cost-effective for insurers to issue
proposal forms than to enter into correspondence with each individual proposer.

Since the underwriter uses the information provided in response to these questions to
assess the risk and calculate the appropriate premium, it is important that they know all
material information.

When dealing with a consumer CIDRA, places the onus on the insurer to ask all the
relevant questions. The clarity and scope of the insurer’s questions will be taken into
account in determining whether a consumer’s subsequently discovered
misrepresentation was reasonable. The importance of asking the right questions has
been increased by the growth of peer-to-peer arrangements. Questions need to ascertain
whether the proposer is involved in such arrangements when considering motor and
household covers, e.g. car sharing/business use, or households sharing unused space
and involvement with online sharing platforms, as these may influence the
underwriter’s opinion of the desirability of the risk.

A similar situation exists for non-consumer business under IA 2015. A business must
make a fair presentation of the risk. This is defined as:

One which makes disclosure of every material circumstance which the insured
knows or ought to know or disclosure which gives insurers sufficient information to
put a prudent insurer on notice that it needs to make further enquiries for the
purpose of revealing those material circumstances.

As for consumers, IA 2015 means insurers have to take responsibility for asking the
necessary questions and for probing for information about a risk.

Proposal forms should be simple to understand and easy to complete. Insurers

endeavour to ensure that their proposal forms contain clear questions on all matters that
they know to be material to risk assessment for a particular type of risk. Usually, the
details from the form are transferred to a computer file, and this is reflected in the style
of questions and response required: usually, confining answers to the ticking of boxes.
Possibly the majority of personal lines business and smaller commercial business is
currently done through proposal forms that can be completed directly on-line. This is
particularly true where aggregators are involved, representing a potentially significant
number of insurers.

Proposal forms are of variable length and complexity, depending on the nature of the
risk and the information that the underwriter needs to be able to underwrite the risk.

C1 Proposal Form Questions

Rather than examining a proposal form for each class of general insurance, let us
consider two examples in order to draw some general conclusions. You should refer to
an example of a private car insurance (personal insurance) proposal form; and an
example of a liability insurance (commercial insurance) proposal form. Looking at these
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two forms, you will be able to see that there are general and specific questions. We also
suggest that you look at other proposal forms, where the structure will again reflect the
complexity of the risk.

C1A General Questions

There are questions that are not necessarily specific to the actual class of insurance. Such
questions are common across a range of insurances. General questions are usually as
follows:

The proposer’s name This is needed for identification purposes and to check
previous insurances, claims or refusals. For commercial
insurances, this would be the corporate or business name.
Insurers will ask for any previous trading names.
The proposer’s This is needed for communication purposes and, in many
address insurances, for rating purposes (such as motor insurance).
The proposer’s In many classes of insurance, such as personal accident, this
occupation is an important rating factor. In liability insurances, the
business definition is referred to when defining the scope of
cover. Only those activities falling within the business
definition will be covered. Similarly, with business
interruption polices it is vital to ensure that all income
sources are covered.
The proposer’s age This clearly is not relevant for commercial insurers (except
for specific drivers under a motor policy) but may be an
important underwriting (rating) factor in personal accident
medical expenses and motor insurance. For example, higher
premiums and higher levels of excess are usually imposed
on young drivers for motor insurance.
Details of past Questions ask whether the proposer has been insured before
insurance history and, if so, whether any special terms have been applied and
also whether an insurer has refused to renew a previous
insurance or has specially increased the premium for the
particular risk.
Details of other Insurers will request details of other insurances covering the
insurances same risk. For indemnity contracts this will alert them to
potential contribution rights at the time of a claim. For
benefit policies insurers will wish to satisfy themselves that
cumulative policy benefits, especially weekly benefits, will
not act as an incentive for the insured to stay off work
longer than necessary in the event of a claim.

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In addition, the form will ask about the following:

Details of Previous Claims

This is an important factor for a number of reasons. Some risks are heavily dependent
upon past losses for rating purposes (e.g. motor fleets). In every case a history of claims
showing a higher than expected frequency of losses will suggest that the insurer should
take some action. The risk may possibly be unacceptable to the insurer, or perhaps only
acceptable at a higher premium than normal or subject to some restriction in cover. For
private motor insurance there is the added factor that the precise number of claim-free
years will determine the policyholder’s entitlement to a particular level of no-claim
discount.

Insurers wish to know of any incidents that have occurred which would be covered by
the insurance being proposed, whether or not they gave rise to an actual claim. The
question is worded in such a way as to elicit this information. It could be the case, for
instance, that a number of incidents have arisen that in value fell below the level of an
excess in place at the time or were not followed up by the potential claimant.

Period of Insurance

This is usually annual. However, provided that there is a genuine reason for requesting
it, insurers are prepared to grant cover for shorter or longer periods to coincide for
example, with a financial year end, without charging rates based upon a short period
scale.

Subject-Matter of the Insurance

This is the actual property or object being insured. Examples are the house in a fire
insurance and a motor vehicle in motor insurance i.e. it varies according to the policy
class. For property insurance, it is the physical risk insured; liability risks define the
scope of the business activities covered; motor risks define both the vehicle(s) covered
and the liabilities arising from the use of the vehicle(s), e.t.c.

Sum Insured or Limit of Liability

Each of these determines the insurer’s maximum liability under the policy. In the case of
property insurances (including household insurances) it is also the amount upon which
the premium is directly based: a rate per cent (N100) or per mille (N1,000) is applied to
this figure. Different rates may apply to different elements. Premiums for commercial
liability insurances are generally related to an appropriate underlying measure of
exposure (e.g. turnover). Rates are adjusted to reflect the actual limit of liability chosen.

C1B Specific Questions

Some questions are risk specific in that they relate to a particular class of business.
Every class of insurance has its own specific questions.

To illustrate this, here are some examples:

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 Motor insurance Ages of drivers and criminal prosecutions pending or
convictions.
Liability insurance Noise risks, pollution hazards, work away from the premises,
contracts entered into.
Fire insurance Manufacturing processes, storage arrangements, building
construction.
Theft insurance Breakdown of types of stock, security precautions.

With particular regard to non-consumer business the processes, hazards etc. involved
can often be complex, requiring detailed knowledge of them to enable a fair
representation of the risk to be presented. IA 2015 specifies what this knowledge is (e.g.
what ought to be known in the ordinary course of the insured’s business) and who
should know it (e.g. senior management and those responsible for arranging the
insurance).

C1C Declaration

On all proposal forms there is a declaration which the proposer signs and which
declares that, to the best of the proposer’s knowledge and belief, the answers given on
the proposal form are true. However, it is not possible to convert information contained
in a proposal form, application or similar document into a warranty by stating that it
forms ‘the basis’ of the contract, or similar. Such basis clauses were abolished from all
insurance contracts under IA 2015 and it is not possible to contract out of this provision.

D Other ways of obtaining material information

We have said that proposal forms are the most common way for the underwriter to
obtain vital information. However, there are alternative methods available to
underwriters. You should know the main additional ways of obtaining material
information. Depending on the class of insurance involved, these are described in the
following sections.

Surveys are often used in property insurance for larger risks; for example, a large
manufacturing plant. The risk surveyor acts as the ‘eyes and ears’ of the underwriter
providing a report with detailed information and (often) a plan showing the layout of
the premises.

Supplementary questionnaires are popular with some insurers when dealing with
particular aspects of risks. The underwriter will have noted a particular dimension of
the risk that requires further investigation and there will be a sufficient number of risks
of the same type to justify the development of such a questionnaire.

There are many areas where questionnaires can be used, some of which are listed here
to illustrate the diversity of their applications.

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 Public liability • The provision of professional advice: where this is not
risks associated with supplying a product it may point to the need
for professional indemnity cover.
• Hairdressers: the extent of dyeing, tinting and use of
chemical treatments and the experience of staff in these areas.
• Hotels: the extending of activities to include discos or
specialist functions, marquees etc.
Product risks Involving safety equipment or fire prevention equipment:
insurers will want to know the extent of risk in the event of
failure of the product.
Money risks Involving very high value transits: insurers may require
greater detail of vehicles, routes, personnel, types/makes of
safes etc.
Fire insurance For old or obsolete buildings: insurers will want to know
what the intentions of the insured are regarding re-building
for minor damage, major damage and total loss. This may be
dealt with by a letter of intent.

Not all of these are extensive questionnaires. Indeed some insurers will deal with these
issues by means of correspondence or a specially devised and entirely separate proposal
form from their generic versions.

The Market Reform Contract (MRC) carries full details of the risk in a recognised
format and is often used in London Market placings. This method has its origins in the
‘slip’ traditionally used at Lloyd’s, but is common market practice in London generally.
There is an agreed format for Market Reform Contracts and a procedure agreed in the
market to support contract certainty.

A meeting with the client is often used in the case of commercial insurances. The use of
open questions will assist in ascertaining a broader overview of areas of a risk and
closed questions regarding information on specific aspects.

Writing to the proposer is usually used in the case of personal insurances, via both
formal letters on paper and electronic formats.

Material information can often be discovered by searching the internet using a

recognised search engine. The information found can then be verified during a
subsequent meeting or correspondence with the client or their broker. Similarly, access
to social media can also produce additional information relative to the risk, particularly
with regard to ‘lifestyle’ enquiries.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Material Circumstances in Risk Assessment

• A material circumstance is any information which would affect the judgment
of a prudent insurer as to whether or not to accept the risk and on what terms
and conditions.
• The Consumer Insurance (Disclosure and Representations) Act 2012 means
that an insurer can only decline a claim if a consumer’s misrepresentation was
deliberate or reckless.
• The Insurance Act 2015 in United Kingdom and the Insurance Act 2003
requires business insureds to make a fair presentation of the risk to the insurer.
• If the breach of the duty of fair presentation was deliberate or reckless, the
insurer can avoid the contract, refuse to pay claims and need not return the
premium. If it was neither deliberate nor reckless then a number of
proportionate remedies are available to the insurer, depending on what it
would have done had the fair presentation been made.

Peril & Hazard

• Peril is the event giving rise to the loss while hazard is the factor which
influences the severity and frequency of a peril occurring.
• Physical hazard relates to the physical characteristics of the risk. Moral hazard
relates to the human aspects that may influence the outcome of the risk.

Proposal Forms
• Proposal forms are a common method by which the underwriter receives
information on the risk to be insured. They are completed by the proposer.
• Both the Consumer Insurance (Disclosure and Representations) Act 2012 and
the Insurance Act 2015 mean that insurers must be sure to ask sufficient
questions and probe the information provided.

Other Ways of Obtaining Material Information

• Other methods besides proposal forms are used depending on the type of
insurance and complexity of the risk.
• Methods include the use of surveys, supplementary questionnaires, internet
searches and meetings with the proposer. The London Market uses the Market
Reform Contract.

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Self-Assessment

1. What is the definition of the term ‘material circumstance’?

2. What is the definition of ‘hazard’?
3. What is meant by the term ‘physical hazard’?
4. What is ‘moral hazard’?
5. Which of the items in the following list are physical hazards and which are moral
hazards?
a. An exaggerated claim.
b. Type of stock.
c. Age and condition of a motor cycle.
d. Good housekeeping in an industrial process.
6. What is meant by the phrase ‘good physical hazard’?
7. What is the purpose of a proposal form?
8. What questions are common to all proposal forms?
9. What are ‘risk specific’ questions on a proposal form?

You will find the answers at the back of the book.

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 Chapter 9

Underwriting Procedures
and Premium Payment
Introduction
Underwriting may simply be put as the technical process of determining whether or not
the risk proposed for insurance should be accepted and at what premium rate, terms
and conditions.

From an insurer’s perspective we can summarise the process of insuring risks as

follows:

• once a proposal form has been completed by a prospective insured (the proposer),
which the insurer will review the completed proposal form, will generally provide
all the information necessary to consider the risk;
• the insurer will quote a premium and state any terms that may apply;
• if the proposer agrees to the acceptance terms quoted, they will pay (or agree to
pay) the premium; and
• confirmation that cover is in force may be made verbally, but, as we shall see, it is
usually made by letter or by cover note, particularly for motor insurance.

In an age of increasing technology, many risks are considered, and terms agreed, by
means of data being input to one of the many electronic data interchange (EDI) systems
or digitally.

There will be other occasions when the insurer has sufficient information (perhaps a
survey completed by an intermediary) to provide a quotation without the formality of
the completion of a proposal form. In these circumstances, the insurer will make it clear
that any quotation is subject to the satisfactory completion of a proposal form, before
terms are finalised.

Once the proposer accepts the insurer’s offer by agreeing to pay the premium and abide
by the policy terms, the contract will be in force from the effective date that has been
agreed. All that remains is for the insurer to issue the permanent documents: the policy
and, in the case of motor insurance, the permanent certificate of insurance.

In this chapter, we will study the procedures relating to:

• terms of engagement;
• stages in the process;

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• quotations;
• proposal forms; and
• the issue of policies, cover notes and certificates of insurance.

We will also examine the principles concerning the ways in which insurance premiums
are calculated and the relevance of premium payment for valid cover. First, however,
we will set the scene with a brief look at the way regulation affects how risks are
insured and who may be involved in the process.

Key Terms

This chapter features explanations of the following ideas:

Certificates of Insurance Cooling-off (Cancellation) Rights

Demands and Needs FCA/NAICOM Required Information
Insurance Premium Tax (IPT) Key Features Document Premium Calculation
Premium Payment Premiums Policy Documentation
Protection Policies Quotations Suitability
Service-level Agreements (SLAs) Terms of Business Agreements (TOBAs)

A Effect of Regulation and Relationships

The process of acquiring information, providing a quotation in response to an insurance

enquiry and the subsequent negotiations leading to the final issue of policy
documentation come under the jurisdiction of the Financial Conduct Authority (FCA)
and its rules, notably those contained in the Insurance: Conduct of Business
Sourcebook (ICOBS). The FCA has responsibility for the conduct of business and
ICOBS forms part of the FCA Handbook.

In Nigeria, the process of acquiring , information, providing a quotation in response to

an insurance enquiry and subsequent negotiations leading, to the final issue of policy
documents come under NAICOM’S market conduct and business practice guidelines
for insurance institutions in Nigeria.

Alongside these rules is the requirement for contract certainty, which was defined by
FCA as:

the complete and final agreement of all terms between the insured and insurer by
the time they enter into the contract, with contract documentation provided
promptly thereafter.

Both the ICOBS rules and contract certainty have had an impact on the provision of
information, the process and on timing. Therefore, as we consider the process we will
also look at the regulatory aspects.

The processes differ according to the nature of the contact with the client and whether
an intermediary is involved. We will consider the more complex procedures: we will
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assume the involvement of an intermediary that is an authorised person. In general
terms, where there is no intermediary, similar rules apply to the insurer in relation to
the provision of advice. The exception would be those that relate to aspects of agency or
to the provision of independent advice.

Often insurance is placed through an intermediary that is an authorised person. This is

a straightforward arrangement with only three parties involved:

• the proposer (who will become the insured);

• the intermediary (who is the liaison); and
• the insurer.

However, in the insurance market place there are other categories of intermediary as
follows.

Appointed representatives Responsibility for the actions of ARs is accepted by

(ARs) authorised person (they may act for an intermediary
an insurer). They must identify their principal in a
documentation that they provide.
Introducer appointed These issue literature but do not become involved
representatives (IARs) in any aspect of the placing or negotiation process,
or in the performance of the insurance contract. The
phrase used by the regulators is that they are only
involved in ‘non-real time financial promotions’ –
basically issuing proposal forms or prospectuses.
Fewer rules apply to IARs, although the
responsibility for their actions is accepted, in the
same way as for an AR, by the principal (who may
be an insurer or intermediary).
Wholesale This term is not defined by the regulators but is
broker/ intermediary used to describe an authorised person used to
access a particular market (usually Lloyd’s or the
London market). Effectively a chain of supply is
created.
The FCA places the regulatory responsibility for
dealing with the customer with the client-facing
intermediary (authorised person); regulatory
responsibilities do not pass along this chain.

B Terms of Engagement

Intermediaries that are FCA authorised persons carry on their business under terms of
business agreements (TOBAs) in the United Kingdom. These are of two principal
types, those:

• individually entered into with insurers and, if the intermediary is a Lloyd’s broker,
with Lloyd’s syndicates; and
• entered into with clients.
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B1 TOBAs with insurers

Terms of business agreements entered into with insurers or Lloyd’s syndicates

determine the nature of the relationship, authority levels and financial aspects as well as
the risk transfer arrangements between the intermediary and the insurer. The granting
of ‘risk transfer’ in this context means the acceptance by the insurer/underwriter that
monies once collected by the intermediary are treated as paid to the insurer. It would be
usual for the Compliance Officer to maintain the permanent record of these documents.

B2 TOBAs with clients

The relationship between the intermediary and the client is also governed by a terms of
business agreement. This document will identify the services to be provided by the
intermediary, terms of credit, if any, and may incorporate a service-level agreement
(SLA), which is a kind of client charter explaining the standards to which the
intermediary will operate. It may include such things as response times for enquiries,
complaints or claim notifications. It is a convenient way of conveying all the required
information to clients, both in areas of FCA compliance and other client/intermediary
responsibilities. Although the FCA allows firms to adopt standardised forms for the
conveying of information, most intermediaries have developed their own.

All intermediaries document their compliance procedures. The procedures relating to

advice, quotations and sales will be based upon FCA rules. For intermediaries that have
developed their own TOBA, initial contact with a client will normally be accompanied
by provision of that document. A suitable letter will usually be sent enclosing this,
unless the advice is face-to-face. For personal customers (referred to as ‘consumers’ in
FCA rules) a different TOBA is used than that used for commercial customers, in order
to meet regulatory requirements. This reflects the greater number of FCA rules that
apply to consumer insurance contracts.

In their negotiations, if the status of a person is unclear, the insurer or intermediary

must assume that the person is a consumer, so that they benefit from the greater
protection provided by the wider ranging rules. However, if it is known that the person
is acting in the capacity of both consumer and commercial customer, they are only
entitled to the more limited range of rules for a ‘commercial client’. This situation could
arise in motor insurance for example, where a taxi driver may use a private car both for
pleasure and for commercial purposes.

C Stages in the Process and Regulation

There are distinct stages in the negotiation and placing of insurance business, each of
which has specified requirements for the documentation, action or information
provision that must form part of the mediation services provided. It is emphasised that
the majority of information taken from the FCA and NAICOM rules has been
condensed or summarised here, and is not necessarily stated in full. However, if the
precise wording is required this may be found in the FCA Handbook or at NAICOM

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website.

C1 The Provision of FCA (UK) and NAICOM (NIGERIA) Required Information

The FCA rules give details of certain information about the intermediary and its
services which must be provided prior to the conclusion of the contract, to all clients,
whether consumers or commercial customers.

In Nigeria, NAICOM guidelines give details of information to the submitted about an

intermediary and its services. SECTION 6.2.0 of the guidelines stated the Checklist for
Registration of Insurance Brokers

 Copy of CAC form C2.2, C2.3, C2.5

 Memo and Article of Association
 Evidence of Incorporation as a limited liability Company
 Application form 20
 Evidence of payment of Application fee
 Sworn declaration by the CEO as to location of principal place of business
 Sworn declaration by the CEO as to company’s financial interest in other Insurance
Institutions.
 Professional Indemnity cover
 CV and credentials of CEO
 Evidence of professional qualification or related course.

Much of this information can be included in an initial disclosure document. Such

documents may now appear under the heading of a ‘client agreement’, or a ‘terms of
business and status disclosure’ letter or similar, although you may still find references
on some company websites to initial disclosure documents.

The information that must be provided is as follows:

1. The name and address of the company.

The fact that the firm is authorized by NAICOM as a registered insurance
2.
intermediary (in Nigeria) or included in the Financial Services Register
FSR) and that this can be checked on the FCA website (in UK).

Ownership – whether:
3. • it owns more than 10% of an insurer; or
• an insurer owns more than 10% of it.
Who to write to if the customer has a complaint; the possibility of the right
4.
to refer the complaint to the Financial Ombudsman Service (FOS).
a. Does it give advice based on a fair analysis of the market?
b. Is it under an exclusive contractual obligation to one or more insurers
5. to place business with them?
c. If not under such an obligation, does it gives more limited advice
than a ‘fair analysis of the market’?

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To be able to make the claim that it provides advice on the basis of a fair analysis of the
market, an intermediary must consider a sufficiently large number of contracts of
insurance before making a recommendation. The assessment must be made based upon
‘professional criteria’ and reflect an adequate knowledge of insurance policies in the
relevant sector(s) of the market. Panels of insurers may be used for different classes,
provided there is a review system in place to ensure that the panel remains sufficiently
large and representative of the market as a whole.

C1A Means of Communication

Unless the client has requested the information orally, or immediate cover is necessary,
information must be provided on paper (or in a ‘durable medium’), clearly and
accurately and in the language of the state of the commitment. If communication is oral,
the ‘paper’ version must be sent immediately after the conclusion of the contract.
Telephone selling rules are governed by the Distance Marketing Directive.

C1B Distance Communication

Distance communications with consumers are governed by the Distance Marketing

Directive and the FCA has a separate set of rules for such sales. The rules are detailed.
However, they apply only where there is an ‘organised distance sales or service-
provision scheme’. Generally, communications from intermediaries would not be
subject to these rules for the sales of policies, even if such communication is by
telephone.

The rules do apply where sales are made exclusively under an organised scheme and
where this is the only permitted means of communication. For example, where the
contract is offered, negotiated and concluded over the internet, or via a telemarketing
firm where there is no face to face contact. They are, therefore, essentially applicable to
insurers who run such schemes.

Provided the client’s explicit consent has been given, the following restricted
information is the minimum that must be given:

• the identity of the person and their link with the firm;
• a description of the main characteristics of the financial service;
• the total price to be paid, including all taxes paid through the firm,
– when an exact price cannot be indicated, the basis for the calculation of the
price must be given to enable the consumer to verify it;
• notice of the possibility that other taxes or costs may exist;
• the existence or absence of a right to cancel, its duration, conditions for exercising
it, and any payment to be made for exercising it; and
• that other information is available on request and its nature.

As well as the information given orally, a significant amount of extra information must
be provided in a durable medium either before the conclusion of the contract, or if not,
immediately after its conclusion. This is information required by the Directive and

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includes, but is not restricted to, the following:

1. The name and the main business of the firm, and its address.
2. The name and address of the representative (if any) in the consumer’s EEA
state.
3. The identity, address and capacity of any professional involved, other than
the firm itself.
4. The information required for statutory status purposes, a statement that the
firm is on the FSR and its registration number.
5. The main characteristics of the service the firm will provide.
6. Notice of any financial market risks if appropriate.
7. Any time limitations for information, and how long the quotation applies.
8. The arrangements for payment and for performance.
9. Any extra cost for using a means of distance communication.
10. The minimum duration of the contract.
11. The law applicable pre-contractually and post-contractually.
12. The language to be used.
13. Complaints procedures including reference to the FOS.
14. Whether compensation may be available from the Financial Services
Compensation Scheme, if the firm is unable to meet its liabilities.

C2 Demands and Needs

The demands and needs of the client must be established by the intermediary before
providing any recommendation. For straightforward insurances, such as private motor
insurance, the completion of a proposal form may suffice as a means of achieving this.
However, for commercial property risks, for example, the process of establishing what
is required by the client is more complex. Most intermediaries have developed their
own ‘demands and needs’ analysis forms, often in the form of a check list, to facilitate
the process of establishing sufficient information to enable quotations to be obtained
and advice to be provided.

C2A Suitability

When making a recommendation regarding the sale or cancellation of a policy, an

intermediary must ensure the suitability of the advice provided for the client’s
demands and needs at the time. It would be permissible to recommend a policy that
does not meet all the client’s demands and needs provided that:

• there is no policy that will meet all those needs; and

• the customer is advised of those needs that are not met by the recommended
policy.

Generally speaking, the intermediary is not required to take into account the customer’s
existing insurance cover if the customer is unable to provide this information. However,
for pure protection policies, the FCA provides specific guidance stating, that the
intermediary must establish the customer’s demands and needs, not only by using
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information readily available, but also by obtaining further relevant information from
the customer, including details of existing insurance cover. This is in addition to the
usual requirements for other policies where suitability must take into account the level
of cover and cost, along with relevant exclusions, excesses, limitations and conditions.
The intermediary must inform the customer of any demands and needs that are not
met. (This would be expected for all types of contract, even though there is no specific
guidance on this from the FCA.)

For protection policies there is an additional requirement that the customer should only
buy a policy under which they are eligible to claim benefit. This was prompted by many
consumer complaints, particularly for Payment Protection Indemnity (PPI) contracts,
that their health or employment status at inception meant that they could never make a
valid claim under a policy they had been sold, usually in connection with continued
payments on an unsecured loan.

C2B Statement of Demands and Needs

An intermediary must, before the conclusion of a contract (including at renewal),

provide the client with a statement, in a durable medium (essentially an email, letter or
fax), setting out the clients’ demands and needs. Where a personal recommendation has
been made the intermediary must explain the reasons for the recommendation.

It is not necessary to provide information in a durable medium before the conclusion of

a contract, if the client requests the information orally or immediate cover is required. In
each case the intermediary must provide the information orally and follow it up in a
durable medium immediately after the conclusion of the contract. The same approach
would need to be adopted for telephone sales, which must be comprehensively
documented to demonstrate compliance, and followed up in a durable medium in the
same way.

The amount of information contained in the statement varies significantly from policy
to policy, though the intention should always be to be concise and clear. A complex
commercial policy may well require a greater level of explanation than a relatively
straightforward, small, personal insurance policy, where there is limited scope for
variation or choice. In each case, plain English should be used and an explanation given
of any technical terms that the client is otherwise unlikely to be able to understand.

Not all policies are sold with a personal recommendation from the intermediary. In
such cases, the statement of demands and needs can be treated as follows:

• the statement can be included within the product document stating who it is
appropriate for, e.g. ‘this product meets the demands and needs of those who wish
to ensure that the veterinary needs of their pet are met now and in the future’; or
• a record of their demands and needs as discussed can be given to the customer; or
• a key features document, describing the key features of the product, can be given
to the customer; or
• the statement can be included in the proposal form, e.g. ‘if you answer yes to
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 questions a), b) and c) your demands and needs are those of a pet owner who
wishes and needs to ensure that the veterinary needs of their pet are met now and
in the future’.

As is we saw earlier with TOBAs, the language and wording used must now comply
with the Insurance Act 2015, particularly as a demands and needs statement often
incorporates the firm’s TOBA.

C2C Commission Disclosure

The FCA and NAICOM does not currently require mandatory disclosure of commission
as part of the presentation of a quotation. However, if separate fees are to be charged by
the intermediary, either instead of commission or in addition to commission, these must
be stated. If a commercial customer asks specifically for information regarding
commission, it must be told in writing or other durable medium of the total
remuneration that the intermediary receives on that insurance contract.

FCA rules make it clear that this must include any financial benefit that the
intermediary receives from volume overriders (payments made by insurers to
encourage greater placing of business with them), profit-share arrangements (often
associated with delegated authority schemes) and the financial benefit to the
intermediary of premium financing they may have arranged.

This commission disclosure rule is in addition to the general law on the fiduciary
obligations of an agent in that it applies whether or not the intermediary is an agent of the
commercial customer.

In Nigeria, the Insurance Act 2003 Section 53 states that

(1) No insurer shall pay by way of commission to an insurance agent, insurance

broker or any other intermediary an amount----
a. Exceeding 12.5 per centum of the premium in respect of motor insurance
business.
b. 15 per centum in respect of workmen’s compensation; or
c. 20 per centum of the premium in respect of any other subdivision not being
one mentioned in paragraph (a) and (b) of this subsection of general business.
(2) No alteration in the rates of a commission mentioned in subsection (1) of this
section shall be made except with prior approval of the commission.
(3) The rate of commission payable to insurance agent shall not be more than 50 per
centum of the rate of commission payable to insurance brokers or as determined by
the commission, from time to time, on the recommendation of the adhoc
committee appointed under section 52 of this Act.
(4) A person who pays or who receives any commission otherwise than in compliance
with the provisions of this section commits an offence and liable on conviction to a
fine of N100,000 plus an additional fine being an amount equal to the excess
commission.

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To help intermediaries with best practice in this area, the industry through the British
Insurance Brokers Association (BIBA) in UK and Nigerian Council of Registered
Insurance Brokers (NCRIB) in Nigeria produced a document providing guidance on
conflicts of interest, transparency and disclosure in the commercial insurance market.
The guidance provides model wordings for the disclosure of commission.

C3 Insurance Distribution Directive

The Insurance Distribution Directive 2016/97/EC (IDD) came into force on 22 February
2016 and Member States, including the UK, had to transpose the Directive into their
own legislation by 1 July 2018 (this was delayed from the original transposition date of
23 February 2018). The requirements have applied to firms since 1 October 2018.

The IDD is a revision and replacement of the Insurance Mediation Directive

2002/92/EC (IMD). The IDD’s aim is to make it easier for firms to trade across borders,
strengthen policyholder protection and provide a level playing field. It sets out
consumer protection provisions in insurance and the scope of regulation is increased to
include all firms that sell, advise on, or conclude insurance contracts and those who
assist in administering and performing them, including those that shortlist as part of a
selection process (such as aggregators), or introduce insurance. However, just providing
general information about insurance products, insurers or brokers without collecting
such information has been excluded, as is providing data on potential policyholders to
insurers/brokers.

The key provisions of the Directive are:

• Professionalism. All firms engaged in any of the activities covered by the Directive
must possess appropriate knowledge and ability to complete their tasks and
perform their duties adequately, such as: the insurance market; applicable laws
governing insurance distribution; claims handling; complaints handling; assessing
customer needs and business ethics standards/conflict of interest management.
Staff must complete at least 15 hours of professional training or development
per year.
• Commission Disclosure. Pre-contractual disclosure of the intermediary and the
nature, not amount, of their remuneration (whether commission, fee or other type
of arrangement). This would be waived for contracts involving large risks or for
professional customers. The pre-contract disclosure regime will be extended to
insurance undertakings. Firms must state what type of firm they are (intermediary
or insurer) and whether they provide a personal recommendation. Firms that sell
insurance on a non-advised basis must ensure that the products they are selling
fulfil the customers’ most fundamental needs.
• Harmonisation. The IDD is a minimum harmonisation directive, allowing Member
States to set stricter requirements (‘gold plate’) if they deem this necessary. This
allows the UK to maintain its rules for retail investment advisers under the Retail
Distribution Review (RDR), for example.
• New Product Governance Requirements, which are largely in line with the FCA’s
product governance requirements.
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• A new category of insurance settler called Ancillary Insurance Intermediaries.
This includes connected travel insurance providers that don’t sell or introduce
insurance as their main business, but still do so and therefore are subject to
selling rules.
• New duties applicable to insurance companies that are selling products through
companies that are not authorised by the FCA.
• A requirement for all general insurance firms in the retail and small corporate
market to provide customers with Insurance Product Information Documents.
These are similar to the Key Features Documents, currently used by insurers.
• NAICOM’S market conduct and business practice guidelines for insurance
institutions in Nigeria.

C4 Protection Policies

Regulators usually have specific rules relating to protection contracts. These rules
impose strict requirements on those offering such contracts to ensure that the product is
suitable for the customer where a recommendation is being made, or to ensure that they
fully understand what is on offer and the fact that the choice is theirs to make where no
recommendation is being made by the intermediary.

Protection policies, as defined by the Regulators, fall into two categories:

Pure protection These are insurance contracts in which the benefits are
payable only on death or in respect of incapacity due to
injury, sickness or infirmity. They include certain life policies
(that do not have a savings element) and critical illness
policies.
Payment protection These are insurance contracts where the benefits are designed
to protect a policyholder’s ability to continue to make
payments they owe to third parties.

C5 Quotations

Individuals and firms will clearly want to know the rate of premium (or flat premium)
to be charged, and the terms that would apply, before they commit to the insurance
contract. When an insurer provides such an indication it is known as a quotation.

For example, Omobolaji has just purchased her first car. She passed her driving test
some time ago and has been driving a company-owned car for the past three years.
Before making a decision about the particular insurance that she will buy, she consults
the intermediary that deals with her company’s motor insurance to find out the best
cost and terms that they are able to obtain. She also approaches two insurers that only
deal directly with the public.
At the end of this process Mobolaji has three different quotations and must decide
which represents the best value to her, taking account of any added value that the
broker might provide by way of additional services.

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The contract is not concluded until Mobolaji confirms with the insurer or the
intermediary that she accepts one of the quotations unconditionally.

An insurer who makes a quotation does so on the basis of material information as

supplied by the proposer. These aspects have already been covered. At first glance it
may seem that in this scenario the preliminary stages have been ignored. However, for
each of the quotations provided, the insurer or broker will have been required to
provide the limited information we have already described for telephone
communications.

C5A EDI Systems

There are a number of electronic data interchange (EDI) systems in the market place.
Their major, but by no means only, function is to obtain quotations for prospective
policyholders. Many brokers and other independent intermediaries subscribe to such
systems. The objective from the intermediary’s viewpoint is to input data only once but
to then receive the benefit of a range of quotations from the insurance market.

Private motor insurance is the most common type of policy for which such systems are
used, though they are also used for household type policies. All the data is input once
and the EDI system will display the top say, five insurers, on the basis of the lowest
premiums quoted. Of course, there are many other aspects to be considered, and the
intermediary would be bound to draw a proposer’s attention to any major differences in
cover as well as price. On the basis of a decision by the proposer that a quotation is
acceptable, the documentation, in the form of either a cover note or certificate of
insurance, can be issued using the same EDI system. In fact, if the premium is paid in
full, or an instalment arrangement agreed, all documentation can be issued
straightaway.

It must be borne in mind that the systems, though they give access to substantial sectors
of the market, cannot be entirely foolproof. In the first place, an intermediary cannot
access the rates of direct insurers and secondly only those insurers who choose to be
part of the EDI system will be considered.

EDI systems will indicate to the intermediary whether the premium is guaranteed or
provisional in some way. It is only a guaranteed premium that would be quoted and
that would be capable of acceptance as stated.

C5B Legal Implications for Quotations

The legal significance of procedures relating to quotations may be summarised as

follows.

• The quotation remains open, or valid, usually for a set number of days, for
example 7, 15 or 30 days, if stated in the quotation.
• Unless the quotation states otherwise, during this time cover is not effective – the
insurer is not on risk, so the proposer is not covered by the insurance.
• The insurer is legally bound to honour the quotation in the event that the proposer
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 accepts the quotation within the specified timescale.
• If no period is set, the offer remains open for a ‘reasonable time’ as with all offers
under the usual rules for valid contracts. The insurer may withdraw the quotation
at any time prior to acceptance by the proposer, but is otherwise bound by the
terms of the offer as soon as the proposer indicates acceptance and agrees to pay
the premium.
• If there are material changes to the risk between the time of the quotation and its
acceptance by the proposer, the insurer is not bound to maintain the quotation.
• During the stipulated number of days, the proposer has the option to accept or
decline the quotation.
• If, at the end of the set period, the proposer has not taken up the quotation, the
quotation is no longer valid and the insurer is not bound to honour it (but may choose to
do so).

D Responsibilities for Production of Information and Timing

FCA rules are complex in this area because of three EU Directives that overlap or
require slightly different information. The following has been summarised to provide a
guide as to the scope of information, the circumstances in which it needs to be provided
and the timing. The variations in timing depend on whether the sale/advice is face-to-
face, by telephone or by other means. It may also depend on whether the
proposer/client is a commercial customer or a consumer.

Some information must be provided at the quotation stage. Insurers have a

responsibility to produce the content of certain documents in good time before the
conclusion of a contract. If they have not done so, they must produce the information
promptly in response to a request from the intermediary.

D1 Information Supplied by Insurers

The insurers generally provide information to consumers by means of a key features

document. This is typically a generic document and, although not compulsory for most
general insurance contracts, it is compulsory for all pure protection and payment
indemnity contracts. It must contain the following:

1. A statement that the policy summary does not contain the full terms or
conditions of the policy.
2. Name of the insurer.
3. Type of insurance and cover.
4. Significant features and benefits.
5. Significant and unusual exclusions or limitations and cross-references to the
related sections of the policy document.
6. The duration of the insurance contract.
7. A statement that the consumer may need to review and update cover
periodically to ensure it remains adequate, where this is relevant.
8. Price information (optional).

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 9. The existence and duration of the right to cancel.
10. Contact details of how a claim may be notified.
11. How to complain to the insurer; that complaints may be referred to the
Financial Ombudsman Service.
12. Possible entitlement to compensation from the FSCS should the insurer be
unable to meet its liabilities.
13. The key facts logo.

D1B NAICOM Guidelines on Conduct of Insurance Business

Section 1.3.10 requires that an insurance policy, product literature, policy summary or
marketing material shall be clearly worded in easily understandable language and shall
define any word likely to be unfamiliar to the policyholder or claimant or capable of
misinterpretation.

Section 1.3.11 requires that Insurance Institutions shall prepare a summary of the policy
document containing the terms and conditions of the policy which be used as a basis of
discussion with the prospective policyholder.

A copy of the summary of policy document shall be given to the policyholder. At a

minimum, such document shall also contain all exclusions or exceptions and implied
conditions. All the features of a product must be clearly and fairly reflected in any
policy summary and marketing material and communicated in a language which shall
be easily understandable by the policyholder or claimant.

Section 1.3.12 requires that an insurance policy document shall contain, among others,
the under listed information which shall form the basis of the insurance contract:

a. Details of the company (name of the company, principal place of business, relevant
contact details, etc)
b. Characteristics of the product and/or scope of cover,
c. The premium/price
d. Commencement and duration of the policy
e. Benefit (main and supplementary) n excess and deductibles
f. Terms, conditions, exclusions and/or limitations
g. Deferred payment periods.
h. Waiting periods.
i. Surrender value and charges (where applicable)
J. Cancellation
k. Applicable laws
l. Claims procedure
m. Complaints procedure
n. Various Complaints Bureau- The company, the association and the National
Insurance Commission’s complaints Bureau.
o. Any other information which are material to the contract.
Since the Insurance Act 2015 came into effect, some insurers have included within this
document details and additional clarification concerning the terms of the Act, such as
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how they would deal with any failure on the part of the proposer to provide a fair
presentation. For instance, the insurer might declare that it has chosen to ‘opt out’ of the
‘proportionate reduction of claim remedy’ available to insurers under the Act. In other
words, rather than reduce a claim payment as entitled to following non-disclosure or
misrepresentation (provided it was neither deliberate or reckless), it will, instead,
charge the additional premium it would have applied had it known the relevant
information, and pay the claim in full. This document is usually required to be provided
as part of the quotation process.

D2 Cooling-off (Cancellation) Rights

The intermediary must provide information about the existence or absence of a right to
cancel. Firms must offer to a consumer, upon inception or renewal of specified
contracts, what the FCA refers to as cancellation rights.

Cancellation refers to the initial period of cover during which the contract may be
voided at the option of the policyholder (and not the mid-term cancellation, which an
insurer may choose to offer its policyholders). In other words, it is a type of ‘cooling-off’
period allowed to consumers only, although except for the ‘cooling off’ period
associated with pure protection and payment indemnity contracts, the insurer is
entitled to make some charge for the period of cover, as we shall see.

The rights do not apply to the following contracts:

• A travel and baggage insurance policy or similar short-term insurance policy of

less than one month’s duration (the period of cover). The exemption will cover
travel insurance for a fortnight’s holiday, even if the insurance was taken out two
months before the holiday began. However, if the period of cover includes
cancellation of the holiday from the point at which the contract is taken out, the
policy will not benefit from the exemption.
• A general insurance contract, the performance of which has been fully completed
by both parties at the consumer’s express request before the consumer exercises
their right to cancel (e.g. on theft of the subject-matter of the contract).
• A pure protection contract of six months’ duration or less which is not a distance
contract.
• A pure protection contract effected by the trustees of an occupational pension
scheme, an employer or a partnership to secure benefits for the employees or the
partners in the partnership.
• A general insurance contract which is neither a distance contract nor a payment
protection contract, sold by an intermediary who is an unauthorised persons (other
than an appointed representative).
• A ‘connected contract’ (certain breakdown and baggage policies) unless a distance
contract.

Where a right to cancel exists the following rules apply.

• The duration of the cancellation period is 14 days for general insurance contracts
and 30 days for protection contracts.
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• The consumer may be required to pay in certain circumstances:
– for general insurance contracts insurers are entitled to charge a pro rata sum
for the period of cover granted (unless there is material unevenness of risk),
but must not charge anything that could be considered a penalty. It may
include justifiable commission or fees but not any element of profit; and
– for pure protection contracts no charge may be made, nor for payment
protection indemnity contracts, unless a claim has been made during the
‘cooling-off’ period.

If the notice of the right to cancel is part of another document, or is one of a number of
documents, the intermediary must ensure that the presence of the notice is drawn to the
consumer’s attention.

Exercising the Right to Cancel

A consumer who wishes to exercise the right to cancel must do so within the relevant
deadline. The deadline will be deemed to have been met if the notification, if on paper
or other durable medium, is despatched before the deadline expires.

D3 General Insurance Contracts with Commercial Customers

In this section we summarise the information to be provided to commercial customers.

The timing of providing this information is determined by the nature of the
communication with the client.

Before the Conclusion of an Insurance Contract

Before a contract is concluded the intermediary must provide a commercial client with:
• appropriate information in good time to enable the commercial client to make an
informed decision about the contract being proposed;
• the law applicable to the policy;
• arrangements for handling complaints; and
• the address of the head office, or where appropriate, the branch, of the insurer
providing cover.

The meaning of the term ‘appropriate information’, may vary according to the
commercial client’s knowledge, experience and ability. In deciding what information is
appropriate, the intermediary should take account of the main benefits, exclusions,
limitations and conditions of a policy.

In determining what is ‘in good time’ the intermediary needs to consider the
importance of the information in helping the customer make a decision as to the
suitability of the contract for them, and when that information would be most useful.

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On Conclusion of the Contract

The intermediary must provide a commercial client with a policy document promptly
after the conclusion of the general insurance contract. Contract certainty requirements
define ‘promptly’ as being within 30 days of commencement.

D3A Group Policies (Commercial Clients)

These policies provide for persons, other than the commercial client who concludes the
general insurance contract, to become policyholders. Many schemes fall into this
category. For such risks the intermediary must provide appropriate information to their
customer and advise them that they should pass it on to each policyholder.

The customer can choose to provide the information in any form, for example, on an
employer’s intranet, in a staff handbook or in a separate booklet.

E Proposal Forms

As earlier stated in Chapter 2, proposal forms are used for many personal insurances
and the majority of small and medium-sized commercial risks. However, for most large
and complex risks, proposal forms are often inappropriate because of the amount of
information required. In such cases information is provided by means of presentations
and surveys. It should be noted too, that most intermediaries who provide detailed or
complex risk details often do so on the basis of ‘errors and omissions excepted’ (E and
OE). Insurers will often provide an indication of terms on the basis of such a
submission, but may wish to have their own surveyor carry out a survey on their behalf
at a later date.

Once a proposal form has been completed by a prospective insured (the proposer), it is
submitted to the insurer. If the insurer has all the information necessary to consider the
risk, the insurer will quote a premium and state any special terms that apply. In this
case the insurer is making an offer to insure the risk on those terms. If the proposer
agrees to the premium and to the terms quoted then they will pay, or agree to pay, the
premium. Confirmation that cover is in force may be made verbally but is usually made
by letter or by cover note, particularly for motor insurance.

We have seen that a proposal form may not be necessary at the stage when an insurer
provides a quotation. It may not be necessary at all for those situations where
information has been gathered over the telephone. In these circumstances some insurers
will complete the process by issuing the proposer with a statement of facts. This is a
printed version of the information provided by the proposer. The proposer is asked to
check this and advise the insurer of any inaccuracies. However, when insurers do insist
upon the subsequent completion of a proposal form by the proposer, the quotation will
be made ‘subject to satisfactory completion of a proposal form’. Insurers are reserving
their rights to amend terms if the proposal form, when completed, provides new
material information.

There is a growing trend, particularly in private motor and household insurance for
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information to be obtained either by a ‘direct’ insurer or an intermediary entirely by
telephone with no generation of a paper copy, relying instead upon the retained voice
files as their ‘proposal’ information. Insurance is also frequently bought via the internet,
with the proposer reacting to questions posed on the computer screen.

Printed proposal forms contain a declaration and a warning or important note:

• The declaration, which the proposer must sign, states that the information
supplied by the proposer is true and correct to the best of the proposer’s
knowledge and belief.
• The warning or important note concerns the information that should be disclosed
and points out the dangers if material circumstances are not disclosed. It also states
that if the proposer is in any doubt as to whether facts are material, they should be
disclosed.

Currently, most insurers have amended the wordings of their key documents, including
proposal forms, to comply with the terms and new terminology of the Insurance Act
2015. Proposers are advised that they have a duty to make a fair presentation of the risk
before inception, renewal and alteration to the policy and that to comply with this duty
they must also have conducted reasonable searches for all relevant information held:

• within the business (including that held by their senior management and anyone
who is responsible for their insurance); and
• by any other person (such as their broker, intermediary or agent, or a person for
whom cover is provided by the insurance).

However, there can still be references to material facts in the context of the insurer’s
remedies should the proposer fail to disclose them.

F Insurance Premiums

Premium is the amount paid to an insurer in consideration of the insurer agreeing to

cover the risk and indemnify the insured when a valid claim occurs.

One of the tasks of the underwriter is to calculate a suitable premium. The premium
that an insured pays represents that insured’s contribution to the ‘common pool’. This
contribution must be fair and must reflect the degree of risk which that insured brings
to the pool. Different members of the pool present different levels of risk to the pool
itself. In broad terms these are measured in terms of frequency of loss and severity of
loss. When combined, the underwriter decides the appropriate level of loading or
discounting of the rate for a normal risk of its type.

In Nigeria, receipt of insurance premium vital to contract of insurance. Insurance Act

2003 Section 50 (1) where receipt of an insurance premium shall be a condition
precedent to a valid contract of insurance and there shall be no cover in respect of an
insurance risk, unless the premium paid in advance and (2) an insurance premium
collected by an insurance broker in respect of an insurance business transacted through

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the insurance broker shall be deemed to be premium paid to the insurer involved in the
transaction.

Following a ruling in the European Court of Justice, from 21 December 2012, insurers
cannot take account of the gender of the subject for insurance in deciding what
premium to charge or what benefits to provide. This applies to motor and life insurance
and to purchases of annuities. It also applies to claims against critical illness, income
protection or health insurance. It only applies to policies considered to be new contracts
from 21 December 2012: any existing policies that do not need any changes are not
affected.

Insurers, whilst making due allowances for the European Court ruling, find pricing
easiest when dealing with a large number of exposures to risk, whether houses,
factories, cars, ships etc. The operation of the law of large numbers enables insurers to
determine a more accurate premium chargeable to the insured than would be the case if
their experience were limited to a few risks. However, insurers (particularly Lloyd’s
underwriters) may specialise in one-off events where the calculation of the premium
cannot so easily be based on past experience.

Technology’s ability to gather large amounts of raw data and analyse it swiftly, means
that great detail is available on the risks proposed for insurance. One example is the use
of telematics to identify better drivers in real time. The result is that insurers can now
predict risk to a fine degree. The downside of this ability is that is raises the possibility
that some risks could becoming ’uninsurable’. This is a concern if insurance is to have a
social function.

F1 Premium Calculation

Premiums are usually arrived at by applying a premium rate to a premium base:

• the premium rate is intended to reflect the hazards associated with the particular
insured; and
• the premium base is the measure of the exposure.

As an example, an oil rig valued at millions of pounds would cost substantially more to
insure than a private house valued at thousands of pounds. The sum to be insured for
the oil rig would, quite clearly, be higher and the hazard too would be much greater: a
higher rate would be applied to a higher value.

When calculating the premium, both the insured (or, at this stage, the proposer) and the
insurer contribute something to the calculation. For property insurance, the proposer
decides on the sum insured (value of the risk), and the insurer sets the premium rate to
be charged on that risk. This is calculated as follows:

sum insured * rate = premium

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Premium Rate

The premium rate is a figure set by the insurer; the greater the risk to the insurer, the
higher the rate, and vice versa. It is applied to the premium base. The rate could be a
rate per cent or a rate per mille.

• A rate per cent is the price in pounds for each hundred naira of sum insured. For
example, a rate per cent of 1.5 (i.e. 1.5%) would mean that an insurer would charge
N1.50 premium for every N100 of risk insured.
• A rate per mille is the price in naira for each thousand naira.

Note: the rates used here are for example purposes only and are not intended to
represent current market rates.

Premium Base

While the sum insured is a suitable premium base for many property insurances, it
would not be appropriate for liability insurance. In the case of employers’ liability, the
wage roll of the insured is used, often broken down into different categories of work
undertaken. Product liability is often rated on turnover and professional indemnity is
rated on fees earned. In such cases, although it is the measure of exposure that is used to
determine the premium, this is not the figure used to establish the amount of cover
provided by the policy.

For example, the A to Z Manufacturing Company is a company that produces spare car
parts. Its turnover is N28,000,000.00 per year. Beewise Insurance Company offers product
liability insurance for a limit of indemnity of N2,000,000.00 at a rate of 0.5 per mille on
turnover. If A to Z wishes to increase the limit to N5,000,000.00 Beewise has quoted an
increased rate of 0.7 per mille.

You can see that the premium is geared to the measure of exposure but the limit of
indemnity, whilst relevant, is of less significance. The rate is not increased
proportionately for increases in a limit of indemnity because any claim below
N2,000,000.00 would be payable under either limit, and in practice only exceptionally
will this limit be exceeded: the premium rate reflects this fact.

F1A Adjustable Premium

In certain cases, the premium base is not a factual figure at the start of the period of
insurance. All that is possible is to provide an estimate of what the premium base might be.
This would be the case in, for example, employers’ liability insurance. The insured is
able to estimate the total wage bill for the coming year. The rate is applied to the
estimated figure and, at the end of the year, the insured submits a declaration showing
the actual figure. At this point, the premium is adjusted up or down, depending on
whether the actual wages figure is higher or lower than the estimated figure. This
would also apply to product liability risks where the premium is usually related to
turnover.

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Look back at our example of A to Z. Let us assume that the policy was effected on the
basis of an estimated annual turnover of N28m for a limit of indemnity of N2m. You
have already calculated the premium for this (called a ‘deposit premium’). Suppose that
the actual declared turnover at the end of the year is N22m. What amount of premium
will be refunded to the insured?

It should be noted that there is a growing trend for insurers to quote a ‘minimum and
deposit’ premium. This fixes the lower end of the premium range and effectively means
that any year-end adjustment will be either ‘Nil’ or an additional premium.

F1B Flat Premium

In a number of cases, it is common practice to charge a flat premium rather than apply a
rate to a premium base. This is the case in motor insurance, where the flat premium is
arrived at by applying a rating structure that takes into account all the various hazards
associated with the individual insured, other drivers, the district, the use and the
insured’s vehicle. In this way, mature drivers pay less than inexperienced drivers; high
performance cars attract higher premiums than family saloon cars; and cars kept in a
city are more expensive to insure than those kept in rural areas.

Other risks may be flat rated where there is no obvious exposure measure. Such risks
include the public liability risk for a manufacturing concern. We can easily see that
product liability cover is appropriately measured and adjusted on the basis of turnover.
However, there may be no work carried out away from the insured’s premises and very
limited access to the insured’s premises by third parties. It would therefore be
inappropriate to rate such risks on the basis of turnover because this does not vary in
direct proportion to the exposure that the risk presents.

G Policy Documentation

In this section, we will outline the legal significance of the procedures relating to the
issue of policies, cover notes and certificates of insurance.

G1 Policies

In order that both the insured and the insurer are clear as to the terms agreed between
them, a policy is issued. The policy contains all the details of the cover, period of cover,
exceptions, conditions, the premium and other relevant information. The policy is not
the contract of insurance in itself; rather, it is evidence of the contract.

The contract of insurance comes into effect once the insurer has accepted the insurance
proposal, terms have been agreed and the policyholder has paid or agreed to pay the
premium. Thus, the contract exists irrespective of the existence of an actual policy
document. The absence or loss of the policy does not invalidate the contract, but the
policy is useful as proof in the event of a dispute over the terms agreed. Contract
certainty requirements state that the actual policy must be issued no later than 30 days
after the commencement of cover.
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G2 Cover Notes

As we have just mentioned, the policy is evidence of the contract of insurance.

However, it is not always possible to issue an actual policy document as soon as the
contract terms have been agreed. The practicalities of producing the policy, checking
and issuing it may take time. It may not be appropriate to issue a policy straight away
for a number of reasons other than the practicalities involved. There may also be mid-
term changes to policies where the insurer requires some extra information and
withholds an endorsement until further information is forthcoming. The following are
examples of situations that may arise:

• An insurer has sufficient detail to accept a property risk but wishes a surveyor to
visit the premises and report on the risk and establish any risk improvements that
may be needed.
• An insurer is awaiting the completion of a proposal form and grants temporary
cover until it arrives.
• A new driver needs to be added to a motor policy and the insurer wants a
declaration form completed regarding age, experience, accident and conviction
record, but issues a cover note in the meantime.

In each case there is a need to provide evidence that cover is in force. In this case, a
cover note is prepared by the insurer (or on its behalf by an authorised intermediary)
and is issued to the insured. A cover note is a document issued as evidence that
insurance has been granted, pending the issue of a policy or endorsement. It may be the
completion of a printed form or merely a letter confirming cover. A cover note simply
states that insurance is in force and provides brief details of the cover given. The cover
note is temporary and is superseded once the policy (and certificate) is issued.

Whether in letter or printed form, cover notes will have the following characteristics:
• the commencement date (and time, in the case of motor insurance);
• a statement that the policy follows the normal terms and conditions of the insurer
for that particular class of insurance;
• risk specific information that identifies the property or liability that is covered;
• any special terms that apply; and
• the period that the cover note lasts.

The issue of a cover note has been of particular importance in the field of motor
insurance, where there is a legal requirement to have a minimum level of insurance
cover (Road Traffic Act 1988) and a certificate of insurance must be issued. It is usual
for insurers and intermediaries to issue cover notes electronically and this has become
the predominate mode of issue for personal lines business. Indeed, the advent of
telephone and internet sales and the use of electronic data interchange (EDI) has
reduced the need for cover notes generally.

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G3 Certificates of Insurance

Where insurance is compulsory by law, the law also requires that a certificate of
insurance is issued to prove that a policy is in force. Therefore, a certificate of insurance
is evidence that a contract of insurance exists, which complies with the appropriate
statutory requirements. The certificate is issued by the insurer in the name of the
insured.

Therefore, rather than a motorist having to carry their policy document with them every
time they drive, they need only have the certificate of insurance which confirms that
cover is in force in compliance with the relevant statutes. It is this document that needs
to be produced for inspection by the police rather than the full policy wording. Their
concern is to ensure that the driver is properly insured but only as required by law, not
any fuller cover that the policy may provide. Police also have real time access to the
Motor Insurance Database (MID) for details of insurance cover for any vehicle.

The information to be shown on a certificate is laid down by the statute which makes
the insurance compulsory. For motor insurance, the certificate must carry the following
information:

• registration number of vehicle;

• name of policyholder;
• date of commencement of cover;
• expiry date;
• person or classes of person entitled to drive;
• limitations as to use; and
• confirmation that cover complies with statutory requirements.

A certificate of motor insurance does not show the scope of the policy cover (third
party, comprehensive e.t.c.) since it is only evidence of the minimum cover required bylaw.

In the case of employers’ liability insurance, the certificate need only carry the following
information:

• name of policyholder;
• date of commencement of cover;
• expiry date;
• confirmation that cover complies with statutory requirements; and
• the minimum amount of cover.

H Premium Payment

Cover attaches as soon as the insurer accepts the proposal and the proposer has paid the
premium for the contract. If the premium is not paid at that moment, it is implied that
the proposer promises to pay. This promise to pay is sufficient in law to support a valid
contract.

All insurance policies mention premium payment. They usually state that the premium
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has been paid or will be paid: hence, the relevance of premium payment for valid cover.

H1 Methods of Collecting Premiums

Most general insurance policies are renewable annually. A premium for the year is
calculated and is due at inception of the policy period. Facilities are usually available for
payment by credit or in instalments.

Credit Facilities

This is not applicable in the Nigeria insurance market space as the Insurance Act Section
50 (1) specifically requires receipt of premium in advance before cover is granted on any
insurance policy.

Instalment Facilities

Most insurers offering personal general insurance provide facilities for payment of
premiums by instalments. If premiums are not being recovered in full at inception, then
interest usually earned on these premiums by the insurer will be reduced. Insurers
therefore charge a fee to reflect both this loss of interest and the additional
administration costs of collecting more than one payment. Some insurers offer
instalment facilities without any apparent extra charge, but their premium rates have to
take this into account. Instalments may usually be paid by direct debit, standing order
or by cash or cheque at the agreed intervals. Many insurers insist on direct debits.

Third Party Premium Financing

A number of specialist finance companies offer facilities to insurance intermediaries

whereby they automatically provide premium financing at guaranteed rates of interest
for the intermediary’s clients. There will be a minimum premium level for such
arrangements, which usually involve the payment of a deposit and subsequent
repayments over, say, ten months. The intermediary does not carry the credit risk and it
may be an additional source of earnings for the intermediary for setting up the
arrangement.

H2 Insurance Premium Tax

Insurance premium tax (IPT) applies to most general insurances where the insured risk
is located in the applicable jurisdiction. It is payable in respect of new insurance
contracts, renewals and mid-term changes to insurance policies. The tax is payable by
the insured, although the insurer is responsible for collection and accounting to relevant
tax authorities.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Effect of Regulation and Relationships
• Conduct of business is regulated by the Financial Conduct Authority (FCA)
and the rules imposed by this regulator have an impact on how information is
acquired, how negotiations are conducted and the final issuing of documents.
• The requirement for contract certainty also has an impact on the provision of
information, the process and on timing.
• Insurance is often placed through an intermediary who can be an authorised
person, an appointed representative or an introducer appointed
representative. They may be a wholesale broker.

Terms of Engagement
• Intermediaries that are FCA/NAICOM authorised persons carry on their
business under terms of business agreements (TOBAs).
• These are of two types: one applies to relationships with insurers and one
applies to relationships with the client.

Stages in the Process and Regulation

• The FCA/NAICOM rules state that certain information about the intermediary
and its services must be provided prior to the conclusion of the contract.
• For distance communications certain minimum information must be supplied,
with further, more detailed information supplied in a durable medium either
before the conclusion of the contract or immediately after if this is not
possible.
• The client’s demands and needs must be established before a recommendation
is made and a statement of them provided to the client before the conclusion
of the contract.
• Any recommendations that are made must be suitable for the client’s
demands and needs.
• Commission does not need to be disclosed unless a commercial customer asks
for the information. Any fees charged must be stated.
• Strict rules apply to those offering protection policies to ensure that the
customers understand the product(s) being offered and that, where a
recommendation is made, it is suitable.
• If a proposer has not taken up a quotation within the set period it is no longer
valid and the insurer is not obliged to honour it.

Responsibilities for Production of Information and Timing

• The information that must be supplied by insurers to customers is generally
provided by means of a key features document.
• Firms must offer cancellation rights to a consumer upon inception or renewal
for specified contracts.
• Intermediaries must provide a commercial customer with appropriate
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 information in good time to enable it to make a decision.

Proposal Forms
• Once the proposal form is completed it is submitted to the insurer who will
quote a premium and state any special terms that apply.
• There is a growing trend, particularly with private motor and household for
information to be obtained by telephone or via the internet with no generation
of a paper copy.

Insurance Premiums
• A premium is the amount paid to an insurer in consideration of the insurer
agreeing to cover the risk.
• Premiums are calculated by applying a premium rate to a premium base. The
rate is intended to reflect the hazards associated with a particular insured and
the premium base is the measure of exposure.
• Insurers can no longer take account of the subject of the proposer’s gender
when deciding on the premium to charge or the benefits to offer.
• An adjustable premium is used where at the start of the insurance it is only
possible to estimate what the premium base might be.
• Flat premiums are used in motor insurance and in situations where there is no
obvious exposure measure.

Policy Documentation
• In order that both the insured and the insurer are clear as to the terms agreed
a policy is issued containing details of the cover, the period of cover,
exceptions, conditions, the premium and other relevant information.
• Where insurance is compulsory by law, the law requires that a certificate is
issued to prove that the policy is in force.

Premium Payment
• Cover attaches as soon as the insurer accepts the proposal and the proposer
has paid the premium.
• Insurance premium tax applies to most general insurance depending on
where the insured risk is located.

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Self-Assessment

1. What is an appointed representative?

2. What are the benefits of EDI systems when providing quotations?
3. What information does the FCA insist is provided to a client about an intermediary
(firm) that is an authorised person?
4. What, in brief, is the legal significance of procedures relating to quotations?
5. What is the purpose of the declaration and warning/important note within a
proposal form?
6. What is the definition of the term ‘insurance premium’?
7. What is the basic formula by which insurance premium is calculated?
8. What is the legal significance of an insurance policy?
9. Under what circumstances are certificates of insurance issued?

You will find the answers at the back of the book.

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 Chapter 10

Policy Wordings and Renewals

Introduction
In this chapter we will examine the main components of a typical policy wording,
before considering the legal significance of the renewal procedure.

Key Terms

This chapter features explanations of the following ideas:

Conditions Conditions Precedent to Liability

Conditions precedent to the Contract Exceptions Excesses
Exclusions Franchises Operative Clauses
Policy Schedule Policy Wordings Recital Clause
Renewals Representations Warranties

A Policy Wordings

You will remember that a policy is issued so that both the insured and the insurer are
clear as to the terms and conditions of the contract entered into. The policy, thus serves
as evidence of the contract. However there shall be no valid contract without payment
of premium in advance (section 50 (1) of insurance Act 2003).

Policies are generally issued in a scheduled form, in that the policy wording is pre-
printed, often in a booklet, and a schedule (often just one page) is incorporated at the
end of the policy. The policy schedule contains all the variable information concerning
the insured and the risk insured and usually signifies which sections of the policy are
operative.

Every insurer has its own form of scheduled policy for the various classes of business it
offers. These vary considerably in both style and length. Style is usually determined by
company or corporate approaches to documentation. Some insurers produce policies in
A4 format, whilst others produce smaller, A5 booklet-form policies. The length of the
policy is determined more by the actual class of business than by a corporate attitude. A
simple personal accident policy may be very brief, but a household policy could be
reasonably lengthy.

For hands-on understanding, search the websites of authorized insurers for copies of
their policy documents for motor or home insurance or, if you have one, study your
own private motor or home insurance policy. When reading through and studying this
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chapter, compare the policy wording(s) to what is being said in these sections and carry
out the activities described below.

a. Summarise the format and structure of the policy wording.

b. List the general policy exceptions and exclusions within the policy.
c. List the general conditions within the policy.

As a general rule, the basic structure of all general insurance policies is the same,
incorporating the following items.

• heading;
• recital clause;
• signature;
• operative clauses;
• exceptions;
• conditions;
• policy schedule; and
• information and facilities.

Let us look at the contents of each element in turn.

A1 Heading

Each policy has a heading which includes the name of the insurance company and, in
some cases, the logo and address.

A2 Recital Clause

The recital clause, or preamble, sets the scene for what follows in the policy by referring
to the two parties, insured and insurer (but not by name), coming together to form the
contract by which the insurer, in return for the payment of premium, undertakes to
indemnify the policyholder (insured) in accordance with the cover detailed in the
policy.

The clause will often set out the constituent elements that together make up the
contract, i.e. the:

• policy conditions;
• schedule applicable to the insured; and
• proposal confirmation.
• However, section 54 (1) of insurance Act 2003 restricts the breach of duly of
disclosure of material fact to only information specifically requested by insurer
The insured is also reminded to check the accuracy of the contents of the proposal
confirmation, as failure to do provide the correct information may result in:

• the policy being invalidated;

• a claim being rejected; or
• a claim not being paid in full.
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This has the effect of making the proposal form part of the contract even though it is not
actually reproduced and printed within the policy. This emphasises the fact that the
insured must be extremely careful when completing the proposal form as it will become
part of the contract.

A3 Signature

Under the recital clause, or close to it, there is sometimes the pre-printed signature of an
official from the insurer. This, is no longer common practice, although Certificates of
Insurance will usually carry a pre-printed signature.

A4 Operative Clauses

The operative clauses describe the scope of the cover in detail. They are the heart of the
policy, specifying what is covered by the policy.

There may be just one clause outlining cover or, more commonly, a number of such
clauses (as in the case of motor and household policies), each dealing with a different
aspect of the insurance and often containing exceptions that are specific to each
individual operative clause.

Each operative clause within the policy begins with words such as ‘The Company
will<’ (in respect of an insurance company) or ‘We, Underwriting Members<’ (in
respect of collective consortium of underwriters), then stating exactly what the
insurer/underwriter is promising to do; i.e. it sets out the cover under the policy.

Insurers are increasingly committed to simplifying policy wordings and many have re-
styled their language; using the word ‘we’ instead of the insurer and ‘you’ in place of
the insured and endeavouring to simplify previously complex wordings. The style of
language then becomes ‘We will not pay for<’ or ‘You must tell us as soon as
possible<’ It is a trend that is likely to develop even further.

A5 Exceptions

Insurance policies of all kinds contain a number of general exclusions, or exceptions,

which apply to the entire contract and therefore to all sections of the policy, in
addition to those specifically stated in the operative clauses. The terms ‘exclusion’
and ‘exception’ are sometimes used in different contexts but are, for practical
purposes, interchangeable.
In general insurance policies there are always a number of general exclusions that
apply to all sections; for example, exclusions dealing with war risks and radioactive
contamination risks.

A6 Conditions

All policies contain certain conditions that apply throughout the policy period and

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these are essentially of two types. The first are implied conditions and the second,
express conditions.

Those that are implied are that the insured:

• must act as if uninsured and not use the insurance as an alternative to acting
prudently;
• may be required to advise the appropriate authorities, depending upon the
circumstances (e.g. police or fire service);
• must take reasonable action (e.g. attempt to extinguish a fire) but not if this
endangers them; and
• must not hinder the insurers in their investigation of a claim.

Implied conditions exist whether or not they appear in the policy. In practice, many are
stated in order to clarify matters for the insured. Express conditions are those stated in
the policy.

A7 Policy Schedule

The final component of the policy is the policy schedule. This is the place where the
policy is made personal and specific to the insured.

Within the schedule are shown the variable details of the policy, as follows:

• insured’s name;
• insured’s address;
• policy period;
• premium;
• details of the subject-matter;
• sum insured or limit of liability;
• territorial limits, if any;
• policy number;
• reference to special exclusions, conditions or aspects of cover; and
• operative sections of the policy.

In addition, the choice of law applicable to the policy is often found in the schedule,
though it may appear elsewhere in the policy, e.g. in the recital clause.

B Common Policy Exceptions

In this section, we will outline the meaning and significance of common policy
exceptions.

Most general insurance policies contain specific exclusions, or exceptions, which apply
to particular parts of the policy. Such exclusions are specific to that type of insurance
and will not necessarily apply to other forms of insurance. In addition, policies contain
exclusions which apply to the entire contract, known as general exclusions. The

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operation of these will, usually, enable the insurer to repudiate all liability under the
policy, irrespective of the section of the policy concerned.

A number of these general exclusions are common to all general insurance policies, and
are termed market exclusions. In chapters 1 to 6, covering insurance products, we
identified these exclusions. Let us now briefly outline these common policy exceptions.

B1 Market Exclusions

War Risks and Related Perils

This exclusion is standard in most general insurance policies. Damage caused by the
perils of war, civil war etc., is considered to be a fundamental risk, applying to the
community at large and therefore uninsurable. It is generally regarded as being the
responsibility of the state rather than the insurer. It is usual for the Government to
provide compensation for injury and damage occurring in the Nigeria as a result of
hostilities of any kind.

Marine and aviation policies, however, may be extended to include war risks.
Riot and Civil Commotion

This exclusion is standard in most general insurance property and motor policies
(unless cover is specified in the policy and then only to the extent specified). It is not
found in liability policies.

Riot and civil commotion have always been excluded from property and motor covers
because of the variable risks of riot at different times and in different places. In the case
of property cover in Nigeria, insurers will cover the peril at varying rates depending on
the area involved.

Radioactive Contamination and Explosive Nuclear Assemblies

This exclusion is standard in general insurance policies.

Very early in the development of nuclear power for industry, it was seen that the
potential losses were beyond the capacity of individual insurers. In response, a market-
wide radioactive contamination etc., exclusion clause appears in most general insurance
policies. Cover is instead provided by a system of ‘market pools’ in which insurers and
reinsurers accept a share of the risk suited to their underwriting capacity.

Terrorism

This exclusion is now standard in all property insurance policies (though some cover
may be included under the terms of a special provision).

Such policies exclude loss, destruction or damage:

• in some state of Nigeria, due to civil commotion or terrorism: compensation is
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 provided by the Government; and
• diphase to read: in other states of the federation certain cover may be provided by
insurers as described below:

Following a joint Government/industry initiative there are now arrangements for

insuring against acts of terrorism all the states of the federation. The standard policy
exclusion may therefore be amended to provide either full or partial cover for the
material damage risk. This is backed by a specialist reinsurer and the Government.

Pool Re is a mutual reinsurance company. Originally it was established to provide

limited cover for property damage and business interruption resulting from fire or
explosion caused by terrorist actions, but the scope of cover was reviewed. It is now
possible to obtain cover for ‘all risks’ perils linked to terrorism.

Insurers that participate in the scheme offer terrorism cover as part of their commercial
property policies when requested to do so by their policyholders. Each insurer must pay
the losses it sustains up to a threshold, which is determined individually for that
insurer. For losses above that threshold, the insurer is able to claim upon reserves
accumulated by Pool Re. Should claims exceed these reserves, Pool Re is able to draw
funds from the Government to enable it to meet its obligations in full, regardless of the
scale of losses that might be incurred. No call has been made on the Government during
the lifetime of Pool Re.

Pollution and/or Contamination

This exclusion is standard in all property and liability insurance policies. However, for
property insurances, cover is provided for pollution that causes an insured peril or
which itself is caused by an insured peril.

Property policies are not extended to include the liability of the property owner except
in the case of public building insurance which is compulsory insurance. Therefore,
pollution and/or contamination of any surrounding property is not covered by the
policy. Under the terms of public liability policies, insurers make it clear in their
exclusion that they intend to cover such risks only if they arise from a sudden
identifiable event, not a gradually operating cause or extended to cover compulsory
public building insurance.

Marine Policies

This exclusion is standard in all property insurance policies. The effect of this wording
is to exclude material damage cover for property that is also covered by a marine policy.
If the sum available under the marine policy is insufficient to cover the loss, the
property policy will respond but only for the excess amount.

A marine policy may contain a corresponding clause excluding liability for damage
covered by a fire policy. The insured must be able to recover under one of the policies,

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which therefore contribute in proportions agreed by the insurers concerned.

Contractual Liability

This exclusion is standard in all motor and liability policies. The exclusion states that the
insurer will not cover claims that are only payable as a result of an agreement that has
been entered into by the insured and which extends their responsibilities beyond the
position that would arise under common law.

Sonic Bangs

This exclusion is standard in all property insurance policies. Pressure waves from
aircraft or other aerial devices travelling at sonic or supersonic speeds are excluded.

C Conditions

All policies contain a list of conditions. They may appear in different parts of the
policies but cover very similar points.

C1 Common Conditions

The common policy conditions are identified in this section.

Duties of the Policyholder/Insured

This condition states that the insured must observe and fulfill all the terms of the policy.

Alteration

This condition is found in most property insurance policies. It extends the duty of fair
presentation to a continuing one by requiring the insured to notify the insurer of any
changes that increase the risk.

Action by the Insured in the Event of a Claim

This condition sets out the procedures to be followed in the event of a claim. The
condition varies from one class of insurance to another, but will include reference to the
time within which the claim is to be notified.

Fraud

In the event of any fraudulent, false or exaggerated claim being made, the:

• policy may be cancelled;

• claim may be rejected, along with any subsequent claim; and
• insurer may retain any premiums paid by the insured.

This condition is concerned only with claims. The use of fraud or fraudulent means to
induce the insurer to accept the risk in the first place is clearly a breach of the duty of
fair presentation, the consequences of which we considered in chapter 8.
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Reasonable Precautions

This condition formalises the implied condition by stating that the insured must take all
reasonable care and precautions to minimise the risk of loss or damage or of incurring
liability. In other words, the existence of insurance cover is not to be regarded as an
excuse for carelessness or inactivity. It reinforces to the insured the need to act as if
uninsured.

Contribution

Contribution is the common law right of an insurer to call upon other insurers similarly,
but not necessarily equally, liable to the same insured in order to share the claims cost.
It is only found in policies of indemnity. The contribution condition modifies this
principle by limiting insurers’ liability to their share of the loss when other policies also
exist. Thus, the insured is obliged to claim proportionately from each insurer.

Average

For property insurance, indemnity requires the insurer to pay the insured the full value
of the loss, but only on the basis that the insured has declared the full value of the
insured risk and is thus paying the appropriate premium. The ‘average’ condition has
the effect of reducing claim payments under property insurance policies in proportion
to the amount of under-insurance.

Subrogation

Subrogation also supports indemnity. It is the right of the insurer to take over the
insured’s rights, following payment of a claim, in order to recover the payment (or part
of it) from a third party wholly or partly responsible for the loss. The subrogation
condition modifies this common law position so that it allows an insurer to pursue the
right of subrogation before payment of any claim is made to the insured by the insurer,
even though the actual recovery of money must take place afterwards.

Arbitration

The arbitration clause is intended to deal with any disputes that arise as to the amount
to be paid in settlement of a claim under a policy. Not all general insurance policies
contain an arbitration condition; some insurers rely upon other methods to resolve these
and other disputes, such as the Financial Ombudsman Service.

Cancellation

This condition provides for the cancellation of the contract, during its term, usually by
the insurer. The condition will state that the insurer has to send, often seven or fourteen
days’ notice of cancellation by recorded delivery letter to the insured at their last known
address. However, insurers rarely use this right. For example, they would not usually
cancel a policy mid-term simply because of a bad claims experience. The period of

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notice of cancellation runs from the date of issue of the letter by the insurers.

The insured may have the right to cancel the policy. If so, this is stated in the condition
and the insured’s rights identified. Find the cancellation condition in the hands-on
understanding example above. You will see that both insurer and insured have the right
to cancel and, in either case, it is stated that the insured may receive a refund of part of
the premium paid. If the insurer exercises its right to cancel by giving the seven days’
notice required, it is universal practice to refund a pro rata amount to reflect the
unexpired time. However, if the insured cancels the policy:

• before it is due to start, the insurer will return any premium paid in full;
• within, say, 14 days of the policy starting, or within 14 days of the insured
receiving the policy documents (whichever is the later), the insurer will return any
premium paid, less an administration fee (usually detailed in the Schedule);
• after the said 14 days have passed, the insurer will return any premium paid, less
an administration fee and an amount for the period the policy has been in force.
This would give the insured much less than a proportionate refund.

This is standard practice for motor insurance policies.

It should also be noted that, prior to June 2015, when a motor policy was cancelled at
the insured’s request, the effective date of cancellation was that on which the insurer
received back the certificate of insurance from the policyholder. Nigerian law such as
FRSC Act was amended with regard to the recovery of certificates of insurance. This
means that the policyholder no longer needs to return the certificate or make a statutory
declaration or any statement acknowledging that the policy has ceased to have effect
(not doing so used to be an offence).
As it is no longer necessary for insurers to be sure that the certificates for cancelled
policies are surrendered if they are to avoid contractual liability:

• insurers have greater control and clarity over the period of contractual liability and
can more easily reduce the period of statutory, or Nigerian law such as FRSC Act
liability; and
• insurers’ potential statutory liability can be minimised by immediately updating
the Nigerian Insurance Industry Database

Insurance certificates must still be delivered to policyholders, but delivery is no longer

required for the policy to be effective.

Most insurance companies, as mentioned, charge an administration fee for cancelling a

policy. Whilst usually a nominal amount, some concerns have been raised where the
amount is seen as excessive.

C2 Use of Exceptions and Conditions

Let us conclude this section by summarising the use of exceptions and conditions.

• Although insurers could rely upon implied conditions, they often feel that it is
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 more helpful to express these in the policy to make the position clear for the
insured. This would apply to issues such as informing the police following a theft.
• Market exclusions often relate to those situations where the insurer does not wish
to become involved because of the catastrophic nature of any potential damage.
War risks and pollution fall into this category.
• Many, specific exclusions, relate to situations where the insurer expects some other
kind of insurance to be in place (for example the exclusion of motor vehicles from a
property insurance).
• Conditions that apply specifically to claims situations are only used by insurers to
determine the outcome of a particular claim. They do not affect the continuing
cover under the policy.
• Many conditions are included to emphasise the fact that the loss or damage must
be fortuitous, so far as the insured is concerned. Sometimes this takes the form of a
‘deliberate acts or omissions’ exclusion.

D Information and Facilities

It is becoming increasingly common for policies to provide information on a number of

topics, particularly where booklet policies have been developed. They may include
some or all of the following.

D1 KYC Information

To avoid the repeated use of lengthy lists, insurers define a single word or phrase to
embrace the wider wording wherever the term is emboldened. Have a look at the policy
used in the hands-on understanding, example above to see how this works.

D2 Customer Service Standards Statement

The customer service standards statement details what the insured may expect in
respect of the service provided, perhaps in terms of courtesy and response times.

D3 Complaints Procedures

The complaints procedures will include reference to internal procedures by

encouraging policyholders to write to a nominated person within the insurer’s
organisation in the first instance. If matters are still unresolved to the satisfaction of the
insured, where the insured is a consumer or small business, they may, subject to certain
conditions, refer the matter to the Insurance Ombudsman at Nigeria Insurers
Commission (NIA) or the NAICOM Complaint Bureau (NCB). If the insured still
remains unsatisfied after the mediation by NCB, the insured retains the right to take the
matter to court.

D4 Claims Information

Particularly in the area of motor insurance, it is common to have a section advising the
policyholder what to do in the event of a motor accident (this is distinct from the formal
policy conditions regarding claims). It will usually also include a claims helpline
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number.

D5 Security Details

Most companies now include a privacy statement summarising how the insurer will
handle the information gathered in connection with the insured and the subject matter
of the insurance. This is particularly the case where this may involve sensitive personal
information, as defined by the Nigeria Data Protection Regulation Act 2019 of
(NDPR), which came into effect in May 2018.

E Excesses and Franchises

In this section we will examine how excesses and franchises are used.

E1 Excesses

An excess is the first amount of each and every claim for which the insured is
responsible. It is not covered by the policy. Theoretically, the insured is really their own
insurer for the amount of the excess.

Excesses may be:

compulsory (imposed on the insured by the insurer); or

voluntary (accepted by the insured in return for a premium discount).

Thinking back to chapters 1 to 6, covering insurance products, you should recall that
excesses appear in many classes of general insurance. Excesses are very common in, for
example, private motor insurance and property insurances. The young/inexperienced
drivers excess is an example of a compulsory excess.

For many motor insurance policies, an insurer may insist upon the imposition of a
further compulsory excess, regardless of who is driving, usually determined by the car’s
rating group. An example of a voluntary excess in motor insurance is where motor
insurers offer a premium reduction if the insured accepts an excess (or, where there is
already a compulsory excess, an additional excess) of, say, N10,000.00, N20,000.00 or
N30,000.00 in respect of accidental damage to the insured’s vehicle.

A deductible is the name usually given to a very large excess.

E2 Franchises

A franchise is a fixed amount or period that acts as a threshold to determine whether

claims are payable. It does not operate in the same way as an excess (an amount
deducted from each claim). Instead, once the amount (or period) has been exceeded the
claim is payable in full.

For example, Abubakar has a policy with a franchise of N2,000.00. A claim occurs for
N2,000.00. Abubakar receives nothing from the insurer. However, if his claim was for
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N5,000.00, Abubakar would receive the full amount, since the franchise limit has been
exceeded.

Monetary franchises are not in common use, but time franchises are sometimes found in
engineering business interruption insurance. They are commonly seen in the sickness
cover provided under personal accident and sickness insurance policies. Insurers do not
wish to make payments for absences caused by sickness that are trivial, and often
impose, e.g. a seven day franchise to achieve this.

F Warranties, Conditions, Exclusions and Representations

In this section, we will distinguish between warranties, conditions, exclusions and

representations.

F1 Warranties

As we have already seen, insurers accept risks on the basis of information supplied by
the proposer. There may be important aspects of the risk that are only acceptable to the
insurer if they remain as stated. Alternatively, there may be a need for action to be taken
by the insured during the currency of the insurance. When the insurer believes that they
are of such importance, a stipulation is made in the policy. This is termed a warranty.
They are always expressed in the policy document. (The one exception to this rule is
that there is an implied warranty in marine insurance regarding the seaworthiness of a
vessel.) Warranties must be strictly and literally complied with.

Warranties are imposed for a number of reasons. The most important are to ensure that
some aspect of good housekeeping or good management is observed or to ensure that
certain features of higher hazard are not introduced without the insurer’s knowledge.

A warranty is essentially a promise made by the insured relating to facts or

performance concerning the risk. In other words, a warranty is an undertaking by the
insured that:

• something will or will not be done;

• a certain fact exists or does not exist.

A warranty may relate to past or present facts (i.e. be a promise that something was so
or is so) or it may be a continuing warranty, in which the insured promises that a state
of affairs will continue to exist or the insured will continue to do something.

F1A Breach of Warranty

Traditionally, a breach of any warranty in an insurance contract resulted in the

automatic discharge of the insurer’s liability. However, the Nigeria Insurance Act 2000
states that an insurer will not repudiate liability for a loss under a consumer contract for
a breach of warranty where the breach is unrelated to the loss. , now applies to all
policyholders. In addition, FIA – limitation of insurance’s right section 55 (1, o, b and
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(5)also made a significant change to the way warranties in insurance policies operate.

In addition, the Act provides that warranties should become ‘suspensive’ conditions. In
other words, the insurer will not be liable for losses occurring while the insured is in
breach of the warranty, but its liability will be restored once the breach is remedied. A
breach will be accepted as having been remedied where the risk to which the warranty
relates becomes essentially the same as that contemplated by the parties.

For example, an insured warrants that by 1 January it will have installed a new fire
detection system. The risk to which this warranty relates is plainly the risk of fire.
However, the insured (in breach of the warranty) does not actually install the new
detection system on 1 January, not doing so until 20 January.

Thus, by 20 January, the insured has remedied the breach because the risk to which the
warranty relates (i.e. the fire risk) has become essentially the same as originally
contemplated (the risk of loss by fire has, presumably, diminished as a result of the new
system).

If fire had broken out on 15 January, the insured would have been in breach of a
warranty related to the loss, so the insurer could refuse to pay the claim. However, if
fire broke out on 21 January, the breach in the warranty had been remedied so the
insurer cannot repudiate liability.

It may not always be possible for a breach of warranty to be remedied and the Act
recognises this. What this means is best explained by looking at an example.

XYZ Insurance issues a policy insuring fine wine in which the insured warrants that the
bottles will be stored in a cool cellar at all times.

Unfortunately, during shipping the bottles are stored in a hot warehouse for three
months. This causes unstoppable deterioration of the corks. After three months the wine
is moved to a cool cellar.

There are two reasons why the insurer may not be liable in these circumstances:

• it might be argued that the breach of warranty has not been remedied, since the
risk to which the warranty relates – namely the risk that the wine will be damaged
by the wrong climatic conditions – has not and cannot be rendered essentially the
same as was originally contemplated (because the corks are irredeemably
damaged); or
• it might be said that if after the wine has been moved to the cool cellar it is
damaged by oxidation, that damage was ‘attributable to something happening’
after the warranty was breached, but before it was remedied. That is because the
harm (the oxidation of the wine) is attributable to the wine being left in the hot
warehouse, causing the corks to dry out/be damaged and the wine to oxidise over
time.
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Where a warranty relates to a loss of particular kind, location or time, the insurer cannot
rely on breach of that warranty by the insured to discharge its liability if the insured can
show that the breach could not have increased the risk of the loss that actually occurred
in the circumstances that it occurred.

However, the Act also states that this provision does not apply if the term in question
defines the risk as a whole. It is thought that there may some confusion around the
application of this particular rule and therefore insurers should be very clear about
what they require and the consequences of not doing something, e.g. clearly state that if
there are no operational sprinklers then there is no fire cover.

Finally, under IA 2015 representations cannot now be converted into warranties by any
provisions of a non-consumer contract. This effectively removes the concept of basis of
contract clauses from non-consumer insurance. So, for example, a term which says that
the facts stated in the proposal form the basis of the contract is no longer of any effect.
These basis of contract clauses were removed from consumer contracts by the section 55
of insurance Act 2003.

In summary, under the FIA – limitation of insurance’s right section 55 (1) 92, O, b and (5):
• basis of contract clauses are prohibited, so any warranty in a policy must be
expressly agreed between the insurer and the insured;
• an insured’s breach of warranty merely suspends, and no longer necessarily
discharges, the insurer’s liability under the policy;
• an insurer may not rely on a breach of warranty where the warranty relates to a
risk that is irrelevant to the type of loss which actually occurred; and
• warranties are written into the policy (except some marine warranties).

F1B Express Warranties

An express warranty is specified in the policy: warranties are always express warranties
in general (non-marine) insurances. Examples of such warranties are as follows:

• Fire insurance warranties: that all oily rags are placed in metal receptacles and
removed, daily, from the building; that not more than a specified amount of paraffin
is kept on the insured’s premises at any one time.
• Theft insurance warranties: that premises are not left unoccupied at night; that certain
types of approved locks are fitted.

Non-compliance with an express warranty may (at their option) be excused by insurers
if they have prior notification and, if required, an additional premium is paid. They
must take care that they do not, by their conduct, imply that they have waived their
rights. If the insurer does act in such a way as to imply that it has waived its rights, it
will find that it is prevented from avoiding liability on these grounds at a later date.

F1C Implied Warranties

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An implied warranty is a warranty which does not appear in the policy but which is
understood by both parties to be automatically applicable to the contract of insurance.
As we have already noted, implied warranties are only found in marine insurance.
The only example of such a warranty is that the vessel insured is seaworthy.

F2 Conditions

Conditions in insurance contracts can be express or implied. A breach of such condition is

serious, although the effect of a breach varies according to the type of condition. There
are two distinct categories:

 Conditions precedent to the contract

 Conditions precedent to liability (or to recovery)

F2A Conditions Precedent to the Contract

These are conditions that must be fulfilled prior to the formation of the contract itself.
They may also be ongoing conditions. The implied conditions e.g. insurable interest, etc.
are conditions precedent to the contract. If such conditions are not complied with, there
is doubt as to the validity of the entire contract.

For example, if there is no insurable interest there can be no effective insurance contract.
This means that it is void. It is important to understand the difference between a
contract that is void and one that is voidable. In some situations, a breach of condition
will render the policy voidable at the option of the insurer. However, there are other
issues that go to the heart of the setting up of the contract. The particular matters that
will render a policy void are:

• no insurable interest;
• a fundamental mistake; and
• an illegal contract.

In each case the policy is treated as of no effect.

However, other conditions precedent to the contract do entitle the insurer to avoid the
policy. This would include things such as deliberate mis-statement. The insurer may
choose to overlook this or may, at its option, avoid the policy.

Continuing Conditions Precedent

In motor insurance it is usual to have a condition in the policy relating to the

roadworthiness of the vehicle. This is a continuing condition precedent to the contract.
Sometimes these conditions are categorised separately as conditions ‘subsequent’. The
key to these is that there is an ongoing requirement throughout the policy period to
comply. This means that the insurer may set aside the whole contract if there is a
breach, but only if there is a causal connection between a particular claim and the failure
to abide by the policy condition. The only options available to the insurer are to either
avoid the policy from the date of the breach or to waive its rights and leave the whole
contract in force.
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F2B Conditions Precedent to Liability

These are conditions that must be complied with if there is to be a valid claim.
Generally, these are the conditions often listed in a policy as the ‘claims conditions’.
If a condition precedent to liability (or to recovery) is not observed, insurers may
avoid liability for a particular loss, but they may not repudiate the contract as a
whole. If a subsequent loss occurs, the insurers must pay, provided that the insured
complies with the condition in this instance.

Whereas Section (1) – (5) of insurance Act 2003 is specifically related to the effect of
breaches of warranties as described in conditions precedent are directly affected by
Section 11 of the Act, which states the following:

Terms not relevant to the actual loss

(1) This section applies to a term (express or implied) of a contract of insurance,

other than a term defining the risk as a whole, if compliance with it would tend
to reduce the risk of one or more of the following—
(a) loss of a particular kind,
(b) loss at a particular location,
(c) loss at a particular time.

(2) If a loss occurs, and the term has not been complied with, the insurer may not
rely on the non-compliance to exclude, limit or discharge its liability under the
contract for the loss if the insured satisfies.

(3) The insured satisfies this subsection if it shows that the non-compliance with
the term could not have increased the risk of the loss which actually occurred in
the circumstances in which it occurred.

Note: the reference to a ‘term’ is widely accepted to mean that it applies to both
warranties and conditions precedent.

In effect, when a term is breached it must be related to the loss that occurred for the
insurer to rely upon it. Where an insurance contract includes a term that will have the
effect of reducing the risk of loss:

• of a particular type;
• in a particular location; or
• at a particular time;

then breach of that term does not allow the insurer to avoid liability if the breach has
not increased the risk of the loss that actually occurred.

However, the Act does include an exception for terms that define a risk as a whole,
rather than simply reduce it. In these circumstances, an insurer relying on a breach of
such a term can still deny liability. However, this assumes that it is clear when a term
defines the risk as a whole. It suggests that terms of the following type may be

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considered to define the risk as a whole. These are terms that:

• define a geographical area in which a loss must occur for liability to attach;
• define the age, identity, qualification or experience of the operator of a vehicle,
aircraft, vessel or chattel; or
• exclude loss that occurs while a vehicle, aircraft, vessel or chattel is being used for
a commercial purpose.

Ultimately it will be up to the courts to interpret the Act.

In non-consumer contracts, it is possible for insurers to contract out of the Insurance Act
so as to ensure that conditions precedent and other terms are given the same force and
effect as they would have had before the Act’s introduction (i.e. all claims can be
declined regardless of whether the loss related to the breach). However, insurers have
to ensure that those important clauses are redrafted in order to meet the transparency
requirements set out in the relevant section of the Act

You should note that Insurance Act 2003 rules state that, unless fraud is involved the
insurer should not repudiate liability to indemnify a consumer policyholder on the
grounds of a breach of a condition, where the condition was not connected with the
circumstances of the loss. Therefore, warranties and conditions are treated in an
identical manner in this respect.

F3 Exclusions

Policy exclusions are used to define the extent of policy cover. Exclusions do not give
the insurer any right to avoid the policy as a whole. They are aspects of the policy
wording that are checked by insurers each time a loss occurs in order to establish
whether there is liability under the policy.

For example, a policyholder may complete a claim form in respect of personal accident
insurance and the circumstances of the loss may indicate that the person was involved
in scuba-diving at the time of the accident. Insurers will check their policy wording to
establish whether the exclusion in relation to hazardous sports is worded in a way that
excludes that particular activity. If the exclusion does apply, the claim will not be paid.
However, there is no question of setting aside the contract.

F4 Representations

During the course of negotiating an insurance contract, statements are made by a

proposer that may persuade an insurer to enter into the contract, or to enter into it on
particular terms. These statements are called representations. We considered the types
of information required by insurers in chapter 8. Unlike warranties, conditions and
exclusions, representations are not part of the policy itself, but are made during the
negotiating period. If a proposer provides wrong information this is termed a
misrepresentation.

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F4A Representations and Consumers

NAICOM guidelines and Market Conduct Guideline (MCG) have a bearing on what
needs to be disclosed by private individuals when providing information to obtain
insurance. In particular, insurers cannot turn down claims from private individuals
where there has been innocent misrepresentation. Linked to this is the question of non-
disclosure where a reasonableness test is applied. CIDRA also provides a number of
remedies an insurer can employ where the misrepresentation involves material
information.

F4B Representations and Non-Consumers

Insurers also have a number of remedies under MCG in respect of misrepresentation in

relation to non-consumer policies. It introduces the concept of a fair presentation of the
risk and provides ways an insurer can respond should their policyholder be in breach of
this requirement.

5 Comparison of Warranties, Conditions, Exclusions and Representations

Warranties • Compliance is required. Basis of contract clauses however,

are prohibited thus any warranty in a policy has to be
agreed by all parties.
• Breach of warranty may only suspend and not discharge an
insurer’s liability under the policy (subject to some
exceptions).
• Breach of warranty may be taken as remedied where the risk
concerned becomes essentially the same as contemplated by
all parties.
• Where a warranty relates to loss of a particular kind,
location or time, the insurer cannot rely on breach by the
insured to discharge its liability if the insured can show that
the breach of that warranty could not have increased the risk
of the loss that actually occurred.
• Written into the policy (except some marine warranties).
Conditions • Some implied conditions are so fundamental that they affect
the whole validity of the policy and render it void (e.g. a
lack of insurable interest).
• Conditions precedent to the contract may be either
concerned with the formation of the contract or may be
ongoing. A breach of those concerned with the formation of
the contract entitles the insurer to avoid the policy as a
whole ab initio (from the beginning).
• Conditions precedent to the contract that are ongoing,
require a causal connection between a claim and the failure
to observe the condition. A breach entitles the insurer to

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 avoid the policy as a whole from the date of the breach.
• Conditions precedent to liability are principally claims
conditions, a breach of which may entitle the insurer to
avoid the particular claim but not the policy as a whole.
Exclusions • Used to define the boundaries of policy cover.
• Allow repudiation if claims circumstances indicate that the
exclusion applies.
• Require the insurer to prove that the exclusion applies.
• Always appear in the policy.
Representations • Must relate to a material circumstance.
• If incorrect, allow the insurer to apply certain remedies.
• Do not appear in the policy itself.

G Renewals

In this section we will examine the legal and regulatory significance of procedures
relating to renewals and the methods of collecting premiums.

G1 Renewal Procedure

Most general insurance policies are issued for periods of twelve months. Insurers are
keen to encourage renewal of policies for a number of reasons. Two of the main reasons
are:

• the costs associated with renewing a policy are much less than in acquiring new
business; and
• the more stable the database of existing clients, the more reliable is the statistical
information about the whole portfolio.

There is no obligation on either the insurer or the insured to renew. However, in most
cases, the insurer takes steps to secure the business for a further year.

The standard renewal procedure involves the insurer issuing a renewal notice, which is
sent to the insured well before the current contract expires. As we shall see, there are
regulatory requirements that relate to content and timing. The renewal notice brings to
the attention of the insured the fact that the period of insurance is nearly at an end. The
renewal notice shows any proposed changes in terms, the premium to renew the policy
and the previous year’s premium actually paid by the insured.

The MCG rules simply state that for commercial and group policies, the insurer or
the intermediary must take reasonable steps to ensure that the customer is given the
appropriate information and in good time before the renewal to enable them to make
an informed decision about continuing with a policy. Insurers will have to be
advised in advance of any changes or alteration in the risk for the coming year and
the duty of fair presentation will apply as it did at the inception of the policy. These
are the same rules as apply at the start of a brand new insurance contract. Insurers
and intermediaries must determine their own rules as they each define what it
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means to treat their customers fairly.

The level of information that needs to be provided will depend on factors such as the
knowledge and experience of the customer and the nature of the policy – its complexity,
terms and benefits.

The MCG has specific rules for general insurance policies for consumer customers. They
apply to individual retail consumers, including where a personal lines policy covers
both personal and business use.

The rules apply to:

• renewals with the same insurer or intermediary, and still apply to renewals
arranged by an intermediary if there is a change in insurer but policy features and
benefits stay the same; and
• policies with a duration of ten months or more.

For renewals between one and three years of the inception of the original policy, the
rules require firms to provide customers with:

• the renewal premium;

• the premium of the previous year as set out at the start of the policy; or
• a calculation of the annual premium as appropriate following the most recent mid-
term adjustment (MTA) excluding any fees or charges – the premium can be
shown as a monthly figure if the customer pays monthly, but the total premium
must be disclosed; and
• a statement that the customer should check that the level of cover offered is
appropriate for their needs and telling them that they are able to compare the
prices and levels of cover offered by alternative providers.

For renewals after four or more years, the rules require all the information just
described to be provided. In addition, at each renewal, the firm must state:

You have been with us for a number of years. You may be able to get the insurance
cover you want at a better price if you shop around.

For all policies, including commercial, the appropriate information on auto-renewal

must be given when the policy is taken out and the renewal notice and confirmation
must be issued in good time.

Dual Pricing

The MCG has taken a keen interest to ensure that insurers and brokers comply fully
with these regulations. By drawing consumers’ attention to what happens to their
premiums at renewal the MCG hopes that this might promote competition and
ultimately help to wean insurance brands off dual pricing, whereby new customers get
the best prices and loyal customers pay more.
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Industry bodies for brokers and insurers have agreed guidelines to halt the
controversial practice of dual pricing. The guidelines, agreed by the Nigeria Council of
Registered Insurance Brokers (NCRIB) and the Nigeria Insurers Association (NIA) are
specific to personal lines insurance such as home, motor and travel products, but not
pet or health insurance.

The MCG has taken a keen interest to ensure that insurers and brokers comply fully
with these regulations. What is considered to be ‘in good time’ will depend on how
important the information is to the customer’s decision making process and the point at
which the information may be most useful.

If the insured wishes to renew, the premium is sent to the insurer who, in turn, sends
out confirmation of renewal, together with any certificate which may be appropriate to
the class of insurance. This must be done ‘promptly’. Whatever the documentation
used, the contract certainty principles and guidance agreed by the market apply to
renewals as well as to new business. These require that the correct documentation must
be provided no later than seven working days (for consumers) or 30 calendar days (for
all other categories) beyond renewal.

G1A Motor Insurance Renewal Procedures

Renewal procedures in motor insurance differ from those in other classes of insurance
in view of the compulsory nature of the insurance and the need to issue a certificate of
insurance. MCG rules regarding notification apply to all motor insurance policies.

As a matter of practical convenience the renewal notice, receipt and certificate are
prepared in advance of the renewal date. No days of grace are permitted because if
payment is received after the renewal date and the annual certificate sent to the insured,
this would amount to backdating cover and would contravene the Insurance Act 2003.

G2 Renewal Premiums

Premium payment is a single payment sometimes short policy payment is madeA

single premium payment (i.e. at the renewal date each year) can be paid by cheque,
credit or debit card or by bank transfer via internet banking.

Standing order This is an instruction by the insured to the insured’s bank to

pay the amount of the premium to the insurer when due. The
amount cannot be altered except on the express instructions
of the insured.
Direct debit This is an instruction by the insured to the insured’s bank to
allow the insurer to debit whatever premium is due from the
insured’s account.

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When premium finance companies are used, the same considerations apply to renewals
as applied when the policy was first taken out.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Policy Wordings
• Policies are generally issued in a scheduled form: the policy wording is pre-
printed and a schedule, containing the variable information concerning the
actual risk insured, is incorporated at the end of the policy. For personal
policies, basic policy wordings are often available to view on line.
• General insurance policies usually contain a heading, a recital clause and a
signature. The operative clauses describe the scope of the cover and sections
detailing the exceptions and conditions are also included.

Common Policy Exceptions

• Exclusions are both specific and general. The specific exclusions relate to that
particular part of the policy, while the general exclusions apply to the policy as a
whole.
• Some general exclusions are common to all insurance and are termed ‘market
exclusions’.

Conditions
• All policies contain a list of conditions and some are common to many policy
types, e.g. conditions relating to the duties of the insured; conditions of average,
contribution and subrogation.

Information and Facilities

• Many policies also provide information on a number of topics, including
definitions of words/terms used, a statement of customer service standards and
the complaints procedure.

Excesses and Franchises

• An excess is the first amount of each and every claim for which the insured is
responsible. It may be compulsory or voluntary.
• A franchise is a fixed amount or period that acts as a threshold to determine
whether any claim is payable or not. Once the amount or period is exceeded, the
claim is paid in full.

Warranties, Conditions, Exclusions and Representations

• A warranty is a stipulation made in the policy that certain things are so, and
remain so, or that a certain thing will or will not be done.
• The MCG rules state that an insurer will not repudiate a claim made by a
consumer on the grounds of breach of warranty where the breach is unrelated to
the loss.
• Under the Insurance Act 2003, warranties are regarded as suspensive and only
relieve insurers of liability while the warranty is not complied with and where
the loss relates to the risk the warranty was designed to mitigate.

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• Conditions can be precedent to the contract or precedent to liability.
• If conditions precedent to the contract are not complied with, then validity of
the insurance contract is put in doubt.
• Conditions precedent to liability must be complied with if a claim is to be valid.
• Exclusions define the boundaries of the policy cover.
• Representations are the information provided during the negotiations which
form the basis of the insurance but which do not appear within the policy. The
giving of false information is called misrepresentation.

Renewals
• Most policies run for periods of twelve months and in most cases insurers will
look to secure the business for another year – although they have no obligation
to do so.
• A renewal notice is usually issued and MCG rules state that this must be done in
sufficient time and contain sufficient information to enable the customer to
make an informed decision.
• For consumers, the renewal notice must include the renewal premium, the
previous year’s premium and a statement that the consumer should ensure that
the level of cover is appropriate and can compare prices and cover with other
providers.
• Renewal premiums can be paid at once or in instalments.

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Self-Assessment

1. What are the main components of an insurance policy?

2. What is the purpose of the operative clause?
3. What are the general exceptions common to all property insurances?
4. Which policy conditions are common to most general insurances?
5. What is the difference between an excess, a deductible, and a franchise?
6. What are the two main categories of policy conditions?
7. What is the purpose of a renewal notice?

You will find the answers at the back of the book.

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 Chapter 11

Valid Claims and

Claims Settlement
Introduction
In the real sense, the claim is the tangible result of insurance. People take out insurance
because they worry about the possibility of misfortune. Ultimately, the ‘value’ of
insurance will be judged, by most individuals, by the way in which every claim is
handled. Therefore, prompt settlement of all genuine claims would make the insuring
public have trust in the insurance industry.

The actual procedure for handling claims varies according to matters such as the type of
cover, the amount of the claim and whether it is a personal or commercial insurance
claim. However, all claims departments and their staff must be efficient and make rapid
and accurate decisions about the extent to which the policy will respond, bearing in
mind the cover provided and the legal position. The procedures and timing of
responses form part of chapter 13, since these underpin customer service standards.

In this chapter, we will consider the subjects of valid claims and claims settlement.

Key Terms

This chapter features explanations of the following ideas:

Alternative Dispute Resolution (ADR) Average Claim Forms

Claims Conditions Claims Recovery Claims Settlement
Contribution Duties of the Insured Fraud
Invalid Claims Loss Adjusters NIA Agreements
NIA (Motor Technical Committee) Notification
Partially Met Claims Reserving Salvage
Subrogation Valid Claims

A Valid, Invalid and Partially Met Claims

In this section, we will examine the legal requirements for a claim to be regarded as
valid. We will also briefly outline why a claim may be invalid or only partially met. The
onus of proof rests on the insured. In other words, it is usually the insured’s
responsibility to prove that they have a valid claim. They do this by proving two things
as follows:

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That an insured peril arose The amount of the loss
The insured must prove that Where the policy is a policy of indemnity, the
they have suffered a loss insured must also prove that they have suffered a
directly caused by a peril that financial loss and identify the amount of the
is insured by the policy. In financial loss suffered. The insured cannot simply
most cases, this proof of loss is claim for a lost or damaged item without proving the
in the form of a completed value of the item. This proof might take the form of a
claim form. purchase receipt, a repair account or a valuation. The
point is that it is not for the insurer to prove the
value of the loss.

Although the onus of proof of a loss rests with the insured, the position changes
completely if an insurer wishes to decline to pay a claim because of the operation of an
exclusion in the policy terms. In this case, the onus is upon the insurer to prove that the
exclusion applies.

The insurer has its own responsibilities, by ensuring that:

• the cover was in force at the time of the loss (or when the claim was made, under
certain policies);
• the insured is that named in the policy or a person entitled to indemnity;
• the peril (or event) is covered by the policy;
• the insured has taken reasonable steps to minimise the loss;
• all conditions and warranties have been complied with;
• the duty of fair presentation has not been breached;
• no exceptions are appropriate; and
• the value of the loss is reasonable.

This list contains the legal requirements for a valid claim. In previous chapters we have
discussed the various remedies open to insurers when dealing with a claim where there
has been a breach of the duty of disclosure or of a warranty.

There are a number of situations where a claim is valid but is only partially met. An
insurer may provide less than a full indemnity either as a result of the insured’s choice
(as in the case of a first loss policy), because of an imposed policy term (such as a
compulsory excess), or due to poor insurance arrangements.

The following policy terms and conditions mean that a claim may be only partially met:

• The sum insured (in respect of property insurance) or a limit of liability (in
respect of liability insurance), limiting the maximum amount recoverable. If the
measurement of indemnity following a loss is greater than this sum or limit, the insured’s
recovery is limited to this sum or limit.
• Operation of the average clause, in the case of under-insurance for property
insurances. Where an insured under-values the risk insured, the insurer may apply
‘average’ to any claim put forward; only paying a proportion of the insured’s loss.
• The amount payable may be further limited by the application of voluntary or
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 compulsory excesses.

There are some situations where, although there may be no strict liability to pay a claim,
an insurer wishes to do so or at least wishes to make some contribution to a loss. It may
occur if undue hardship would result for the insured or to enhance an insurer’s
reputation for fairness. There may also be some wider connectional interest that will
influence the insurer’s decision. For example, there might be other profitable business
held for the same client (or intermediary). Such payments are not common. However,
because they are made with no admission of liability they are termed ex gratia
payments as they are made ‘out of favour’. If an insurer makes such a payment, it
acquires no subrogation rights as these can only flow from an indemnity payment.

Cover will not be in force, and so a claim will not be paid if the policy has been
cancelled. In addition, it will not be in force if the policy has lapsed due to the non-
payment of renewal premium.

B Duties of the Insured after a Loss

The duties of the insured following a loss can be divided into implied duties and
express duties.

B1 Implied Duties

Some duties are imposed at common law whether or not they are actually found in the
policy wording. These duties are that the insured:

• should act as though uninsured, and take all reasonable steps to minimise the loss;
• may also be required to advise the appropriate authorities in the event of loss or
damage; for example, advising the fire service in the event of a fire or advising the
police in the event of a theft;
• must take all steps to prevent a loss from spreading (for example, in the case of
fires); and
• must not hinder the insurer in the claims investigation process.

A claim will be invalid if these duties are not performed.

B2 Express Duties

Express duties are duties written into the contract, and are usually found as the claims
conditions in the policy. A breach of such conditions allows the insurer to repudiate the
particular claim.

There is always a condition that sets out the duties of the insured on the happening of
the event insured against. This condition is often entitled ‘claims procedure’ or ‘action
by the insured’. It is also known as the notification condition.
An example of the wording of such a condition in a theft policy is as follows:

On the happening of any loss or damage which may give rise to a claim under this
Policy the insured shall forthwith
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a. give written notice to the Company and shall within seven days or such further
time as the Company may allow supply a detailed claim in writing and such
further particulars as may reasonably be required

b. inform the police and take all practicable steps to recover Property which is lost.

The condition found in the standard fire policy is a little more detailed, as follows:

a. In the event of DAMAGE, the Insured shall:

– notify the Insurer immediately
– notify the Police Authority immediately it becomes evident that any
DAMAGE has been caused by Malicious Persons
– carry out and permit to be taken, any action which may be reasonably
practicable to prevent further DAMAGE
– deliver to the Insurer at the Insured’s expense
i. full information in writing of the property lost destroyed or damaged and
of the amount of DAMAGE
ii. details of any other insurances on any property hereby insured within 30
days after such DAMAGE or such further time as the Insurer may allow
iii. all such proofs and information relating to the claim as may reasonably be
required
iv. If demanded, a statutory declaration of the truth of the claim and of any
matters connected with it.
b. No claim under this policy shall be payable unless the terms of this condition have
been complied with.

Basically, the condition identifies the action required by the insured, namely:

• prompt notification to the insurer;

• involvement of the police, if appropriate;
• reasonable prevention of further damage; and
• proof and details of loss in writing within a certain timescale.

Notification

Notification conditions vary. Some require the insured to notify the insurer as soon as
possible after an event occurs that is likely to lead to a claim being made. This
notification may need to be in writing, although in many cases the insurer allows it to
be done by telephone or by calling at the local branch office. Sometimes, this initial
notification may need to be followed up by full particulars of the claim in writing
within a time period; for example, 7, 15 or 30 days. Practice varies here. For
straightforward private motor policy claims it may be the case that the insurer will
provide a telephone number for claim notification. Details may be given over the
telephone and an accident report form completed by the insurer on the insured’s behalf.
This is then sent to the insured for checking and signature.

However, in most instances, this further information is obtained by the completion of a

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claim form, issued by the insurer after the initial notification has been made. In respect
of motor or liability claims, there may be a requirement that all notifications of fatal
injury inquiries, coroners’ inquests or prosecutions are forwarded to the insurer
as soon as possible. This is to enable the insurer to arrange a suitable defence, if this is
deemed necessary.

C Documentary Evidence

In this section, we outline the documentary evidence needed in relation to claims. We

consider the claim form and examples of the supporting evidence needed for different
types of claim.

C1 Claim Form

It is necessary for the insured to advise the insurer as soon as possible of an event which
will possibly lead to a claim being made. On being advised by the insured of an
incident, the insurer may issue a claim form for completion.

The purpose of a claim form may be summarised as to:

• establish whether the insured is entitled to indemnity under the policy,

– the insurer must satisfy itself that the loss, actual or potential, is covered
under the terms of the policy; and that the information given on the form
agrees with that given on the proposal form;
• provide sufficient information to permit the insurer to begin processing any claim,
if appropriate;
• enable the insurer to take a view as to the severity, in terms of potential cost, of the
claim;
• enable the insurer to take a preliminary view on whether there is likely to be a
claim from a third party (in respect of motor and liability insurance); and
• enable the insurer to consider whether any potential recovery rights may exist.

Practice varies considerably regarding the completion of claim forms. Some can now be
completed online, with some companies providing a special mobile app to assist,
including the ability to forward photographs. Others have to be printed off first and
then manually completed. All insurers operating in this way allow for a printed
alternative for those insureds that are not online. Many motor and household insurers
elicit sufficient information over the telephone – often through the use of a free phone
helpline or claim line facility – and may then send out a partially or wholly completed
form for signature by the insured.

In motor insurance, the form is known as an accident report form rather than a claim
form. It is a policy condition in motor insurance that all accidents are reported to the
insurer, irrespective of whether or not the insured intends to make a claim or anticipates
a claim from elsewhere: hence, the term ‘accident report form’ rather than ‘claim form’.

C1A Contents of a Claim Form

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The claim form includes a number of questions and is necessarily a fairly lengthy
document. Naturally, the questions within the claim form vary according to the class of
insurance concerned, although the basic purpose remains constant.
As an illustration of the type of information required from a claim form, let us look at
property insurance. We will then consider the accident report form in respect of motor
insurance.

Property: Claim Form

The claim form should provide, apart from the basic questions relating to personal
details, the following information:

• Description of the property damaged, for example the stock, fixtures and fittings.
• Date, cause, circumstance and the monetary amount of the loss or damage.
• Situation and occupancy of the premises.
• Capacity in which the insured is claiming (whether, for example, as owner or
temporary custodian).
• Whether any other person is interested in the property lost or damaged.
• Whether there is any other insurance in force.

Motor: Accident Report Form

The accident report form seeks information under the following headings:

• Details of the insured.

• Date and time of the accident, the presence of car lights.
• Vehicle involved in the accident and its use.
• Particulars of the driver at the time of the accident if not the insured.
• Details of the accident, including a sketch plan of the scene of the accident showing
the position(s) of the vehicle(s) before and after the accident.
• Particulars of other parties involved and property damaged or injuries sustained.
• Particulars of any independent witnesses to the accident.

In respect of some classes of insurance, such as theft insurance, there may be questions
relating to informing the police and whether steps have been taken to prevent a
recurrence.

Many insurers now provide brochure or always ask question document specialised
claims apps, which the insured can download onto a mobile phone to help them make
the initial claim and which will keep them advised on the progress of the claim. For
example, such apps can help the insured:

• to make a claim using a helpful step-by-step guide provided within the app;
• by having all the insurance phone numbers required to hand;
• by allowing them to save the claim for later or send it straight to the insurer; and
• by allowing them to send any claim documents the insurer has requested, even if
the insured initially started the claim on the phone or online.

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Whilst providing assistance to the insured, these apps can also help the insurer by
providing promptly to it detailed information on the claim. For example, in the event of:

• use APP to show the insurer exactly • keep copies of receipts and
where the accident warranties safe for the insured’s
occurred; valuables in one place (if something
• upload photos of any damage to the gets damaged or lost, they can send
vehicle and where it the information straight to the insurer
happened; and using the app); and
• take down the name and address of • the insured can make use of their
anyone who saw it happen. phone’s camera to show damage to
their home and belongings.

C1B Checking the Claim Form

On receipt of the completed claim form, the insurer’s claims department needs to carry
out certain tasks, such as checking with the policy records/underwriting department to
ensure that the policy is in force and that the peril that has caused the loss or damage is
the one that is insured under the policy. The insurers must check the answers on the
claim form with those given on the proposal form in order to ensure that there has not
been a breach of the duty of fair presentation. Again, the claims staff will liaise with the
underwriter(s) or underwriting department and check the policy records.

Having carried out the above checks and satisfied themselves that the claim needs to be
handled, the claims staff must move to the next step: ensuring that the value of the loss
is reasonable. This is achieved by a number of means, including the experience of the
claims staff, looking at catalogues, price lists and reference books, and referring to
experts in the field of insurance involved.

Most small domestic claims can be dealt with quite rapidly if the claim form is correctly
filled in and everything is in order. However, for larger claims, a claims official might
visit the claimant (the insured who is making a claim) in order to inspect the damage.
For larger or more complicated claims, a loss adjuster is generally appointed to
investigate the accident.

C2 Supporting Evidence

In addition to the claim form, types of supporting evidence needed for different types
of claim include the following:

Theft claims It is sometimes possible to compare details of the property

stolen, as given on the claim form, with the list given by the
insured to the police.
Accident claims In factory accidents (e.g. involving defective machinery), it
may be desirable to obtain an engineer’s report, incorporating
scale plans and photographs. The accident book will also be
examined.
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 Personal injury and Medical evidence and/or a doctor’s certificate is essential.
sickness claims
Motor claims A vehicle registration document is needed in the event of a
total loss motor claim.

C3 Loss Adjusters

Straightforward small claims are commonly negotiated and settled by the insurer’s in-
house claims staff. In the case of larger or more complex claims, the investigation,
negotiation and settlement process is often placed in the hands of a professional loss
adjuster. Loss adjusters are independent and professionally qualified, although their
fees are paid by the insurers. They do not usually accept instructions to act on behalf of
the general public. If they were to do this, they would be acting as a loss assessor
(looking to the insured’s interest alone) and not a loss adjuster.

The loss adjuster is an expert in processing claims from start to finish. This involves
ensuring that the insurer’s interests are preserved, in checking that the cover was in
force and was adequate at the time of the loss. The loss adjuster provides preliminary
and ongoing estimates of the potential loss. Finally, the loss adjuster completes a claim
report, providing detailed comments on the incident leading to the claim, the property
lost or damaged and details of the claim itself, and recommends to insurers what
settlement (or alternative action) should apply. The insurer will decide what action to
take or what offer is appropriate, in the light of the report.

The insured may choose to employ an expert (other than an accountant) to assist in the
preparation of a claim. This person or firm will be a loss assessor and should not be
confused with a loss adjuster. The assessor’s fee is always paid by the insured.

D Operation of Policy Provisions and Conditions

In this section, we examine the operation of the following policy conditions affecting
claims:

• contribution;
• average;
• subrogation; and
• arbitration.

D1 Contribution

An insured may have more than one policy covering the same risk against the same
peril. For example, a travel policy and the contents section of a household policy might
have overlapping cover. Under the rules of indemnity, the insured is not allowed to
claim more than the true amount of the loss. What the insured cannot do is to claim the
full loss from one insurer and a similar amount from another insurer.

Contribution is the right of an insurer to call on other insurers similarly, but not
necessarily equally, liable to the same insured to share the loss of an indemnity
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payment. This right only applies to policies of indemnity.

The principle of contribution allows the insured to claim the full loss from one insurer
who then has the right to ask the other insurers who are also liable to share the claims
payment. At common law, the insured has the option of claiming the whole sum from
either insurer with insurers then having to share the loss between themselves.

This principle is always modified by the contribution condition (found in all non-
marine policies of indemnity). The contribution condition limits insurers’ liability to
their rateable proportion of the loss when other policies also exist. Thus, the insured is
obliged to claim proportionately from each insurer. If loss adjusters are handling the
claim, they will allocate the shares.

In order to establish whether there are other insurances in force, there is always a
question specifically relating to the existence of other policies on insurers’ claim forms.

A typical basic formula used to calculate a claim subject to contribution is as follows:

Note: there are other methods of calculating an insurer’s share of a loss; however, such
detail is outside the scope of this course.

D2 Average

In some forms of insurance, notably property, if the sum insured is not adequate to
cover the full value of the risk insured (i.e. the risk is under-insured), the insurer will
apply the average condition incorporated into such policies. By this, the insurer only
pays a proportion of the loss based on the relationship between the sum insured and the
full value of the risk insured, as follows:

The condition of average can only apply to property insurances that have a sum
insured. There is no way of applying average to a liability policy, because the insured
has simply chosen a limit of indemnity. This then may itself be a limitation in the event
of a loss that exceeds this sum, but there can be no deduction for losses that do not reach
the limit. The same applies to money insurance, which in a quite different context also
contains limits rather than sums insured. Business interruption policies, on the other
hand, have sums insured and are therefore subject to average.

D3 Subrogation

Under common law, the insured may have rights to claim against any party that caused
the loss or damage, in an effort to recover all or part of the loss or damage. The insured
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may also acquire rights under the terms of a statute or a contract that has been entered
into. However, the rights are acquired, the insurer can take them over, but, under
common law, not until the insured has been fully indemnified under the policy.

The subrogation condition modifies the common law position so that the insurer is
entitled to take all necessary steps for enforcing rights against any party in the name of
the insured before or after any payment is made by the insurer.

In other words, if there are any third parties involved, who were the cause of the loss
or damage, or from whom some payment towards the loss or damage can be
recovered, then the insurer can immediately pursue these third parties and does not
have to wait until the claim has been settled. For example, if an insured is involved
in a motor accident caused by the negligence of another driver, the insurer can write
at once, holding the other driver responsible for the damage to the insured vehicle
and requesting payment.

Although insurers are entitled to begin pursuing recovery rights before a claim
payment under the terms of the subrogation condition, they are not entitled to obtain
the amount of the recovery until they have actually paid the insured’s claim.
D4 Arbitration

The arbitration clause is intended to deal with any disputes which may arise as to the
amount to be paid in settlement of a claim under a policy. If there is a dispute as to
whether or not liability exists, this is not a matter to be dealt with under the arbitration
clause. Provided that liability is admitted under the policy then any dispute which
arises as to the amount to be paid is referred to an arbitrator to be appointed by the two
parties in accordance with current statutory provisions.

E Alternative Dispute Resolution (ADR)

We have just considered briefly the arbitration clause that is found in general insurance
policies. However, this must be set in the context of a general move towards alternative
dispute resolution. ‘Alternative’ in this context means an alternative to the process of
using the court system to settle disputes.

Under the Civil Procedure Rules (CPR) courts are under a duty to encourage the
parties to use an alternative dispute resolution procedure and to facilitate the use of
such a procedure, if the court considers that appropriate.

There are benefits to using ADR, as follows:

• speed of completion;
• it can be timed to suit the parties;
• it is less costly than proceeding through to a court trial; and
• settlements are confidential between the parties and there is no public record.

There are two principal forms of ADR, both of which are less formal than arbitration

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(where the decision of the arbitrator is usually binding on both parties) – these are
mediation and conciliation.

Mediation is a dispute resolution process in which the parties choose to participate and
any agreement reached to settle the dispute is made solely by the parties themselves.
The mediator is selected by the parties, but makes no decisions. Instead they act as a
facilitator, helping the parties to understand the dispute and in particular seeking to
ensure that each party understands fully the other’s position. The mediator provides
structured discussion and helps the parties reach a dispute settlement agreement. If
they cannot reach an agreement, they are free to pursue other legal remedies/options.
Conciliation is a less frequently used form of ADR. It is similar to mediation except that
the conciliator’s role is to lead the parties to a settlement. The parties have to decide in
advance whether they will be bound by the conciliator’s recommendations. If the
parties do agree to this, they will not usually have any recourse to the more formal court
system afterwards.

The courts have the authority to refer matters before them to ADR processes, if they feel
that this is appropriate.

F Market Agreements

F1 ABI Personal Effects Contribution Agreement

The stated purposes of the ABI personal effects contribution agreement are to:

• avoid adverse publicity and criticism of the insurance industry caused by insurers
referring policyholders to other insurers for payment of part or all of their claim;
• avoid costly and time-consuming handling and the payment of small contribution
amounts; and
• set out rules for contribution between participating insurers.

The agreement has very wide market support among insurers that transact household,
all risks, motor, travel and other defined personal insurances. It deals with claims for
the loss of personal effects covered by two or more policies and applies regardless of
any contribution, non-contribution or ‘property insured elsewhere’ provisions.

The rules are as follows.

Motor accidents/thefts No contribution

Claims for personal effects lost or damaged in a motor accident or stolen from a
vehicle (including attempted theft) will be settled by the insurer against whom the
claim is made, subject to their policy limit, if any, and without requesting
contribution from another insurer who covers the same loss.
Specified items Generally no contribution
The rule is that the insurer of the specified item will meet the claim unless the item
is specified under another policy. In this case they will still settle the claim, but may
recover a contribution from the other insurer.
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 All other circumstances Contribution is required
Settlement will be by the insurer against whom the claim is made and they may
recover a contribution from other liable insurer(s), provided that the amount
exceeds N200 (the amount to be reviewed every two years) and the other insurer is
not a motor insurer.
No-claim discount
Essentially, in non-motor policies that have a ‘no-claim discount’ provision this will
not be prejudiced if a payment is made to another insurer in reimbursement under
the terms of the agreement.

F2 Bilateral Agreements

Rather than operate a market-wide agreement, more and more insurers are entering
into bilateral agreements with others who operate in the same market. By doing this
they can engage with similar, like-minded insurers, which may share the same
philosophy or underwrite a similar book of risk.

An example of this would be the motor insurance subrogation portal to which some
insurers subscribe. Insurers who operate the agreement, on a bi-lateral basis, enter
details into the portal of claims against another insurer as they are reported. If liability is
agreed then, on uploading details of its outlay, this saves the time that would have been
spent on seeking agreement on liability, validation and agreement of outlay, and even
the cost of writing letters, as everything is processed through the online portal.

For example, two motor insurers sign a bilateral agreement with each other and connect
their IT infrastructure to the online subrogation portal. On a daily basis, each insurer’s
system automatically uploads basic details of new claims reported where the other
insurer is involved. These details include the vehicles, driver and circumstances of the
accident. Within 24 hours each insurer will respond electronically. They will either
confirm that the details match and that liability is agreed, or else remove the case for
manual review.

For cases remaining in the portal, once the non-fault insurer’s outlay is established, this
is uploaded to the portal, again electronically by the system, whereupon a settlement is
requested. It is paid by the at-fault insurer automatically and without delay.

The process is slick, involves little in the way of manual intervention, and so reduces the
chance of delay, error or backlog, meaning the insurers can improve efficiency.

G Hit and Run Law (HRL)

The Hit and Run Law (HRL) section 78 of insurance Act 2003 was set by agreement
between the Government and motor insurers. It operates a central fund to provide
compensation for injury or damage following a motor accident where it cannot be
obtained from another source. The HRL is concerned with liabilities only. It maintains
its funds by a levy on member companies.

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The MIB operates under two agreements, as follows.

 The uninsured drivers agreement

 The untraced drivers agreement

G1 Hit and Run Law (HRL)

Although a certain level of motor insurance is compulsory, an individual may fail to

insure, either deliberately or by oversight. Should this individual cause injury or
damage in an accident, insurance cover is not in place to provide compensation to the
third party concerned. The uninsured drivers’ agreement exists to deal with such a
situation. It will step in to settle, or to ensure settlement of, unsatisfied court judgments
where damages are awarded to third parties for personal injury (unlimited) and/or
property damage (up to N1,200,000).

HRL members agree to pay such damages where an unsatisfied judgment is against an
individual who had a policy in force with that member at the time of the accident but
which, owing to a breach of its terms, does not indemnify the motorist involved. The
insurer acting in such circumstances is known as the ‘domestic agreement insurer’.

The HRL itself deals with cases where there is no policy in force whatsoever. It will try
to recover from the driver concerned (although this is seldom practicable). No excess
applies either to third party property damage claims or to third party personal injury
claims.

However, the insured is required to provide the following basic details relating to the
uninsured driver and the events surrounding the accident:

• Vehicle registration number.

• Make and model of vehicle.
• Driver’s contact details.
• If possible, the names and addresses of any independent witnesses to assist in
confirming who was actually at fault.

There is also no guarantee that the annual premium will not increase at the next
renewal. If the policy is third party only or third party fire and theft, the insured will be
unable to claim on their own insurance and have to rely on the HRL procedure
described earlier.

Even if the other party is uninsured, if the accident was entirely the insured driver’s
fault, e.g. the insured driver hit another driver from behind, then the insured will be
responsible for repair costs to his/her vehicle and the uninsured vehicle. The insured’s
third party insurance should cover the cost of repairs to the other person’s vehicle.

G2 Untraced Drivers Agreement

The untraced drivers’ agreement covers ‘hit and run’ cases, where the motorist involved
in the accident cannot be traced. The inability to trace the motorist means that the
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injured party is unable to substantiate at law a claim for damages since the injured
person is unable to name a defendant. This agreement covers both death and personal
injury. The HRL undertakes to make a payment if, on the balance of probabilities, the
untraced motorist would be liable to pay damages to the accident victim (or the victim’s
legal personal representatives) in respect of death or injury.

The HRL also undertakes to make a payment for third party property damage, subject
to a cap of N1,200,000, where the liable vehicle is unidentified. This only applies where
the HRL has paid compensation for a significant personal injury to any victim of the
same accident. ‘Significant personal injury’ is defined as that:

• which results in death; or

• for which four or more days of consecutive in-patient treatment was given in
hospital, the treatment starting within 30 days of the accident.

However, such compensation is still subject to a minimum amount of excess. Clearly

there is no identifiable ‘insurer concerned’ in such cases. Therefore, the HRL deals with
such claims by appointing an HRL member on a rote basis to act in negotiations on its
behalf. The cost of such claims is met by way of the levy imposed on MIB members.

G3 New Agreements 2017

For accidents occurring after 1 March 2017, a different set of Agreements apply (for
accidents before this date the Agreements just described continue to apply).

G3A Untraced Drivers Agreement 2017

The 2017 untraced drivers’ agreement works in the same way as the previous
agreement, but you should note the following:

• There is no exclusion for vehicle damage claims where the damaged vehicle was
uninsured.
• There is an excess on property damage
• Property damage is recoverable provided it is accompanied by significant injury.
Significant injury is defined as:
– death or injury resulting in two nights or more inpatient treatment; or
– three sessions or more of hospital out-patient treatment.
• The claimant is required to report the accident to the police if the HRL reasonably
requests them to do so. The time limit for this is ’as soon as reasonably’ practicable.
The claimant has a right of appeal if they think the request to report was
unreasonable.
• Interest on general damages runs from the date of the accident.
• There is no exclusion for death, injury and damages caused by, or in the course of,
terrorism.
• Awards to children and protected parties are subject to approval by an arbitrator
in all cases.
• The HRL is not liable for a claim for which the claimant has received, or is entitled
to receive, indemnity from any person other than the Criminal Injuries
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 Compensation Authority. However, this does not apply where the claim is for
sums to meet the claimant’s liability to reimburse an employer, provided the employer is
not insured for that loss.
• There is a scale of fixed costs.
• The HRL cannot ask for a lower award to be made where there is an appeal against
the original award.
• There are provisions for the costs of arbitration.

G3B Uninsured Drivers Agreement 2017

The main differences to the previous agreement include the deletion from the scope of
events covered of:

• the exclusion of liability for damage to a vehicle which was also uninsured; and
• the terrorism exclusion.

H Claims Settlement

The final stage in the claims process is the actual monetary settlement. The claim has
been notified, all parties have carried out their respective duties and all that remains is
for the claim to be settled.

H1 Claims Settlement Methods

Insurers can settle claims that arise and are accepted under the contract in a number of
ways, as follows:

 Payment of money
 Paying for repairs
 Replacement
 Reinstatement
 Payment to third parties

The replacement and reinstatement options available apply only if stated in the policy.
If the options do not apply to the policy in question, the insured has a legal right to
financial compensation.

Payment of Money

A common way to settle a claim is by payment of money (i.e. cash payment, by means
of a cheque or bank transfer) direct to the insured. This is the easiest way to grant an
indemnity. For liability, business interruption and certain other types of insurance a
cash settlement is always made. In the case of liability insurance the payment is not
made to the insured but to the third party (or the employee, if it is an employer’s
liability claim).
Whenever a payment is made to a party other than the insured, the insurer will require
a form of discharge to be completed by the recipient of the money stating that the
payment is in full and final settlement of the claim. This avoids the possibility of the
claim being re-opened at a later date for a further payment if the recipient subsequently

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feels that circumstances have changed or that the original amount was inadequate.

Paying for Repairs

Insurers can pay for the cost of repairs. This can involve them in asking for a written
estimate of the repair and then paying the repair cost direct to the repairers. Depending
on the size of the estimate, the insurer might appoint a specialist to advise them on the
matter. Motor vehicle repairs are often dealt with in this way, by utilising authorised
repairers.

Replacement

Insurers can arrange to replace the damaged or lost goods. The most common example
of replacement is for glass insurance. Glaziers offer favourable discounts to insurers
because of the large amount of business that insurers give them.

Reinstatement

One further course of action open to insurers in the case of extensive damage or
complete destruction of, say, a building is to arrange to reinstate by taking control of the
repair/rebuilding themselves. However, reinstatement would mean accepting
responsibility to pay the full amount even if it exceeded the sum insured. Therefore,
insurers seldom take this course of action.

H2 Payment to Third Parties

In liability cases the payment is not made to the insured, but to the third party. This
applies even if the insured has died or has become insolvent. The latter situation was
addressed by the this was updated by the. Third Parties (Rights against Insurers) Act to
take account of changes in insolvency law since the 1930s. The main purpose of the
Third Parties (Rights against Insurers) Act is to simplify existing compensation
procedures when an insured becomes insolvent.

The Third Parties was itself amended by the extend the definition of ‘relevant persons’
(i.e. those who the insolvency process caught). It finally came into force following
Parliamentary approval of the Third Parties (Rights against Insurers) Regulations
2016.

H2A Third Parties (Rights against Insurers) Act 2010

The 2010 Act, which finally came into effect on 1 August 2016, works as follows.

Liability

Under the Act a third party does not need to first obtain judgment against the insolvent
insured before issuing a claim against the insurers. However, the liability of the insured
to the third party must be established before any rights against the insurers can be
enforced. This can be achieved by a declaration of the Court, issued within the same
proceedings, so only one set of proceedings will be required.
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Insurer Defences

While insurers may use the usual defences to a claim by a third party that would have
been available to the insured, the restricts reliance on policy conditions that the insured
is required to fulfill, such as notification and claims cooperation provisions. The
intention is that third parties are not penalised for any detrimental conduct of the
insured. The also renders ‘pay first’ clauses (where the insured is required to pay sums
due to the third party before claiming under the policy) ineffective. It also prevents the
use of limitation defences where proceedings are commenced against the insured
during the limitation period, but proceedings for a declaration against insurers fall
outside the limitation period.

Document Requests

The provides third parties with an enhanced right to request insurance information
from insurers, provided they can show a reasonable belief that liability is owed by an
insured. Where a third party reasonably believes that:

• a person is liable to it;

• that person has insurance; and
• the right to claim has transferred to the third party;

it is able to serve a notice on the insurer requesting certain information relating to the
insurance. This information includes whether the insurer informed the insured that it
does not consider that there is a liability for it to pay the claim under the policy.
Requests for information have to be answered within 28 days.

Dissolved/Struck-off Company

A dissolved insured company does not need to be restored to the register of companies
for its insurers to be pursued.

It is important to note that the Third Parties (Rights against Insurers) Act 1930 still
applies in certain situations. The rules determining which Act should apply in any case
are somewhat convoluted and are beyond the scope of this study text. However, in
broad terms the 1930 Act continues to apply if both the insured’s liability and entry into
a formal insolvency process (e.g. liquidation), occurred before 1 August 2016.
Otherwise, the 2010 Act will apply.

The 2010 Act also addresses the situation where both the insured and the insurer have
become insolvent. If eligible, the third party claimant can claim under the Financial
Services Compensation Scheme (FSCS).

H2B Enterprise Act 2016

In the UK, the Enterprise Act 2016 contains provisions amending the Insurance Act
2015. It requires (re)insurers to pay sums due following a claim within a reasonable
time. It gives policyholders the right to claim damages if a (re)insurer’s unreasonable
delay causes additional loss.
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H3 Salvage

The insurer can acquire recovery rights arising out of the subject-matter of the
insurance. When the insurer pays for the total loss of an item under a property or motor
insurance policy it is entitled to receive the benefit of the salvage. (If the insured were to
retain it they would receive in total more than an indemnity settlement.)

In motor insurance, if a claim is being settled on a total loss basis, the insurer usually
keeps the salvage and sells it through a specialist salvage company, to minimise claims
costs. Alternatively, the insured may be allowed to retain the salvage and the claim
payment reduced accordingly.

In property insurance, the same principles apply. For instance, an insured may claim for
a new carpet to replace one damaged by paint. It is possible that the damaged carpet
may have some residual value in that it could be cut down and used in a smaller room.
In this instance, the insurer may negotiate with the insured to pay an amount to keep
the salvage.

Most insurers have a condition in their policy wordings that following the settlement of
a claim, any salvage becomes the property of the insurer.

I Reserving Process

When a claim is first notified to an insurer, the insurer will endeavour to place a realistic
estimate on it. This is important in order to quantify, as closely as possible, the cost of
the claim that will eventually be paid out. In this way, when an insurer considers its
overall results there will be confidence in the figures produced and sufficient funds will
be available to meet expected claims costs. Insurers have to maintain adequate reserves
for this purpose.

Accuracy in reserving is important for a number of reasons, including the following:

• Insurers are required to submit financial statements each year to the National
Insurance Commission. These statements must show estimates of, among other
things, outstanding claims.
• Estimated claims costs, when added to the cost of claims already paid out give
underwriters some of the information they need to set adequate premium rates for
each class of business. Their future projections will produce inappropriate rates if
the estimated claims figures are inaccurate.
• If this important element of its liabilities is adequately estimated and kept up to
date, the profitability of an insurer can be clearly seen at any time.

Accurate claims reserving for an insurer involves the:

• examination of past data on claims, including claims amounts; and

• use of this past data and any trending needed to take account of changes in the
law, inflation and other external influences, to forecast projected costs.

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At a case level, claims handlers in the claims department need to examine each
individual claim and assess its value. This assessment needs to be reviewed and
updated regularly as the claim progresses and more information regarding the claim
becomes available. If the claim is paid in stages, the outstanding reserve can be reduced
in accordance with the payments made.

Areas to consider when deciding on a reserve include the following:

• Does the policy have a specific limit or sum insured which will limit the amount to
be paid out?
• Is an excess applicable?
• Do any other policies cover the item, i.e. might there be dual insurance?
• Has a valuation been submitted for the stolen item?

J Methods of Claims Recovery

There are a number of methods of claims recovery open to an insurer once a claim has
been paid. We will examine them in turn.

Contribution

Once an insurer has settled a claim in full under a policy of indemnity, it can recover
from other insurers that also cover the same loss. The usual method for an insurer to
undertake claims recovery from others under the contribution rules is to write to the
other insurers, setting out all the particulars of the claim. It usually includes copies of
the claim form and relevant paperwork such as invoices. Rules apply to certain types of
contribution situations.

Subrogation

In cases where a third party is believed to have caused the loss or damage, the insurer
generally contacts that third party immediately (usually by letter) setting out the reason
it believes the third party to be at fault. Since most insurers prefer to deal with other
insurers, the letter will generally advise the third party to forward it to their own
insurer straight away. The speed with which recovery monies are received depends on
how straightforward the case is, i.e. whether the third party insurer accepts liability on
behalf of its insured, or whether liability is in dispute. In some cases, it is necessary for
the insurers to enter into a lengthy exchange of correspondence and sometimes face-to-
face negotiations are required. In extreme cases, a case may be brought to court. Even if
the third party is not insured or chooses not to involve their insurers, the same process
is used.

Right of Recovery

Under common law, the insurer has certain rights following an incident which gives
rise to a claim. One of these rights is the recovery of stolen or lost property. A right of
recovery may arise in situations where the lost or stolen item is found after the insurer
has settled the insured’s claim.

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In practice, the insurer will prefer to have the claim money reimbursed to them and for
the insured to keep the recovered item. However, sometimes this is not practical,
particularly if the recovered item has been replaced with the proceeds of the original
claim payment. Here, the insurer will generally allow the insured ‘first refusal’ on
taking back the recovered item. (The FOS has offered the opinion that the insured
should always be given this option.) If the insured does not want to take it back, the
insurer can sell it as salvage and set any monies received against the claim costs.

K Fraudulent Claims

In this section, we deal with the problem of fraud in the insurance industry: looking at
the measures being taken to detect it, the procedures used to prevent it and the
consequences of fraudulent claims.

In 2016, Insurers in the United Kingdom, detected 125,000 dishonest insurance claims
valued at £1.3 billion. It is estimated that a similar amount of fraud goes undetected
each year. This is why insurers invest at least £200 million each year to identify fraud.

The ABI’s figures reveal that in 2015:

• Insurers detected the equivalent of 2,500 fraudulent claims a week, up 6% on 2003,

valued at £1.3 billion, down 3% on 2014.
• There was a significant rise in dishonest liability insurance claims detected, e.g.
‘slip and trip’ claims. Compared to 2014, their number has increased by 36%, to
26,900, and their value by 14% to £391 million. This reflects the industry’s focus on
this area, which has increasingly been targeted by fraudsters, partly as a result of
the Government’s clampdown on whiplash and the reduction in legal costs for
road traffic accident claims.
• Dishonest motor claims remain the most common frauds and of highest value.
Compared to 2014, 70,000 were detected, down slightly by 2%, with a value of £800
million, down 10%. This welcome fall reflected improved management of
fraudulent claims within the industry, as well as the work of the Insurance Fraud
Bureau (IFB) and the Insurance Fraud Enforcement Department (IFED).
• While the value of property frauds uncovered continued to fall – down 2% to £107
million 1n 2014 – the number of detected frauds, at 27,500, rose by 7%.
Opportunistic property fraud remains an ongoing threat.

These statistics demonstrate how very important fraud prevention and detection are to
all insurers. Fraudulent claims include bogus claims, misrepresentation of claims,
inflated claims and multiple claims.

Insurers report to the ABI cases where there has been a conviction or caution issued, or
where the evidence of fraud is compelling. The ABI has also developed a list of
scenarios in which it is believed fraud is likely to be involved and asks its members to
provide the numbers of cases which fall into those categories. While some of those cases
may have an innocent explanation, many more cases of successful fraud go undetected,
especially whiplash claims.
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The ABI’s fraud statistics are therefore intended to provide an indication of the volume
and value of fraud detected by the industry. These statistics do not include claims
which involve exaggerated personal injury, particularly for whiplash, where the claim
has been paid. Neither do they include applications or claims that are withdrawn in the
course of normal handling, for example where there has been no combination of
suspicion and subsequent challenge by the insurer.

In Nigeria, the Nigeria Insurance Association through its various Technical Committees
also meet regularly to brainstorm on how to reduce fraudulent claims being
successfully processed by member companies. For Motor Insurance, an electronic
platform has also been created for member companies, where the insurers are required
to update all the motor claims reported to them for effective claims reported
comparison with those of other companies.

K1 The Law and Fraudulent Claims

The Insurance Act 2003 clarified the existing law on what happens when an insured
makes a fraudulent claim. It confirmed that the insurer has no liability for a fraudulent
claim section (2) (3) (5) of insurance Act 2003 and is entitled to refuse all claims
occurring after a fraudulent act. It also states that the insurer should meet legitimate
claims occurring before then.

It should be noted that the sections regarding the remedies proposed for fraudulent claims
under the Act apply to both consumer and non-consumer insurance contracts alike.

Where an insured commits any fraud in relation to a claim, the insurer has no liability to
pay that claim (a codification of the long-established legal principle that any fraud taints
the entire claim). As a consequence, any payments already made in relation to the
fraudulent claim are recoverable by the insurer.

The insurer, on giving notice to the insured, may treat the contract as having been
terminated with effect from the time of the fraudulent act. Section 55 (2) (4) (5)
Termination does not affect the insurer’s liability under the contract for claims
occurring before the fraudulent act, but the insurer may refuse any liability in respect
of a claim that occurs after it. Additionally, if the contract is terminated, premiums are
non-refundable at the discretion of the insurer.

K2 Fraud Prevention

Three bodies that take a role in preventing insurance fraud are as follows:

The Insurance Fraud Bureau (IFB) is a not-for-profit organisation funded by the

insurance industry, specifically focused on detecting and preventing organised and
cross industry insurance fraud. It has a fraud cheatline free phone number and its
current focus is on personal lines: motor, home and personal injury claims. Insurers are
investigating the feasibility of extending this scope into other organised crime risks.

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The Insurance Fraud Investigators Group (IFIG): this is a members’, not-for-profit
organisation dedicated to the detection and prevention of insurance fraud. Its aim is to
tackle the growing problem of insurance fraud in the Nigeria and disrupt insurance
fraudsters. On 1 October 2008 IFIG became one of the first organisations in the Nigeria
to be acknowledged by the Government as a ‘Specified Anti-Fraud Organisation’ under
the Serious Crime Act 2007.

The Insurance Fraud Register (IFR): launched in 2012, this complements the work of
the Insurance Fraud Bureau in detecting fraud, and of the Insurance Fraud Enforcement
Department in prosecuting fraudsters. An individual who has been detected acting
fraudulently towards insurers, whether in the process of applying for or renewing
insurance cover, or when making a claim, will have their identity added to the IFR by
their insurer. Both policyholders and third parties will have their identities added to the
IFR, as will suppliers and other professional enablers, who can be shown to have acted
fraudulently towards an insurer. Any data loaded must be done so in accordance with a
clearly documented set of rules and compliance with these is mandatory for all users.
Over 50% of the general insurance market (by market share) is currently utilising the
IFR, and work is ongoing to bring on-board a sizeable proportion of the remaining
market.

All three organisations have substantial support across the market. IFB and IFR are
essentially insurers’ organisations. On the other hand, IFIG draws its membership from
insurers, investigators, loss adjusters, lawyers and law enforcement agencies.

K3 Fraud Detection

Measures undertaken to detect fraud within the insurance industry include the
following.

K3A Claims and Underwriting Exchange

The Claims and Underwriting Exchange (CUE) is a computerised register of

information on personal lines cases taken from insurance proposal, claims and renewal
forms. It is shared by insurers as part of their efforts to combat fraud. Subscribing
members submit their claims data on individual claimants to the database and check the
true claims history of those individuals.

K3B Art Loss Register

The Art Loss Register (ALR) was founded in 1991 through a collaboration between the
insurance industry and the art world in response to increasing art theft. Its operation
relies on subscriptions from insurers. Its objectives are:

• to increase the recovery rate of stolen art and antiques;

• to deter theft by making the resale of stolen articles more difficult.

The register is available to the insurance industry, art trade, law enforcement/customs
agencies, collectors and museums.
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K3C Motor Insurance

The Motor Insurance Anti-Fraud and Theft Register (MIAFTR2) was set up to help
combat fraud relating to motor vehicles and contains details of all total loss and theft
claims. This can then be accessed by insurers to check, for example, whether the loss or
theft of a vehicle is being claimed for more than once.

The Fourth Motor Insurance Directive requires all EU Member States to maintain a
national database containing details of every insured vehicle. These databases are
designed to make it easier to pursue cross-border claims, and also help with the
enforcement of compulsory motor insurance requirements. In the Nigeria, the MIB
operates the Motor Insurance Database (MID) on behalf of Nigeria insurers. MIB
shares the information on the database with the information held at the DVLA, to
identify uninsured vehicles under the Continuous Insurance Enforcement (CIE) scheme.
Enforcement agencies and the police also use the MID to tackle uninsured driving. They
have the power to remove uninsured vehicles from UK roads.

Each insurer must submit basic policy information about each insured to the MID
within seven days for private car risks and 14 days for commercial risks. The MID is
accessible in real time by police officers and is frequently checked to establish the insured
status of motorists.

K3D Claims Handler

The detection of fraud at an individual case level is also very important. In addition to
relevant enquiries through MIAFTR, CUE and the ALR, the claims handler plays a vital
part in detecting fraud. Methods of detection may vary from one class of business to
another, although there are many common indicators of fraud across different types of
claims. For example, the claims handler should beware of claims made soon after policy
inception or renewal and claims where the insured has no documentation for lost items.

In these circumstances, the claims handler should be alerted to the possibility of a

fraudulent claim.

Other possible indicators of fraudulent claims include the following:

• there is too much documentation (especially if the claim is for many small items);
• the insured ‘changes their story’ (regarding the circumstances of the claim);
• the loss was not reported to police or there is a reluctance to report it to the police;
• the claim is not consistent with the insured’s lifestyle; for example, the insured
loses jewellery with a high value although they are in a very low-paid occupation;
and
• there is poor claims history or similar claims have been made previously.

K4 Consequences of Fraud

If fraud is not detected and the fraudulent claim is paid, there are direct consequences
on the insurer, their insureds and on the fraudulent claimant.
K4A Consequences of Fraud on the Insurer
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We have already looked at the enormous cost of fraud to the insurance industry.
Individual insurers that do not take seriously the detection and prevention of fraud will
see the result of this in their bottom line, i.e. profit. Their claims costs will rise and this
will impact on premiums, making them less competitive in the market. They may even
gain a reputation as a ‘soft touch’ with regard to fraudulent claims; this may lead to
selection against these insurers.

K4B Consequences of Fraud on the Insureds

Genuine insureds will also suffer as a result of fraudulent claims being paid because the
increase in premiums will affect all policyholders, not just those who have made
fraudulent claims.

K4C Consequences for a Fraudulent Claimant

The consequence on the claimant of a fraudulent claim being paid is clear. If the
claimant has succeeded in receiving monies in respect of a fraudulent claim, there will
be a temptation to continue this practice in future.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Valid, Invalid and Partially Met Claims

• It is the insured’s responsibility to prove they have a valid claim by proving that
an insured peril arose and the amount of the loss.
• The insurer has its own responsibilities to ensure that cover applies, the one
making the claim is entitled to indemnity under the policy and to establish that all
conditions etc have been complied with.
• A valid claim may only be partially met if the sum insured/limit of liability is less
than the claim, an average clause operates or if an excess applies.

Duties of the Insured after a Loss

• Implied duties include acting as if uninsured, notifying appropriate authorities,
taking steps to prevent a loss from spreading and not hindering the insurer in
investigating the claim.
• Express duties are written into the contract and are usually found as the claims
conditions in the policy.
• They include prompt notification to the insurer, involvement of the police,
reasonable prevention of further damage and the provision of proof of loss and
details within a certain timescale.

Documentary Evidence
• On being advised by the insured of an incident, the insurer usually issues a claim
form for completion.
• The claim form includes a number of questions, the nature of which will depend
on the class of insurance, and is a fairly lengthy document.
• The insurer must check the completed claim form against the cover provided by
the policy and if satisfied they must then check that the value claimed is
reasonable.
• In addition to the claims form certain supporting evidence is required, e.g. a
doctor’s certificate for a sickness claim.

Operation of Policy Provisions and Conditions

• Contribution is the right of an insurer to call on other insurers similarly, but not
necessarily equally, liable to the same insured to share the loss of an indemnity
payment.
• The principle is always modified by the contribution condition which, in effect,
requires the insured to claim proportionately from each insurer.
• Application of the average condition means that, in cases of under insurance, the
insurer will only pay a proportion of the loss based on the relationship between
the sum insured and the full value of the risk insured.
• The subrogation condition modified the common law right of the insured to
recover against a liable third party, allowing the insurer to assume those rights.
• Provided that liability is admitted under the policy, the arbitration clause allows
any dispute over the amount to be referred to arbitration.

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Alternative Dispute Resolution
• Under the civil procedure rules, courts have a duty to encourage the parties to a
dispute to use alternative dispute resolution (ADR).
• With mediation a mediator facilitates discussion between the parties with the
aims of aiding understanding and reaching an agreement.
• Conciliation is similar to mediation except that the conciliator makes
recommendations as they lead the parties to a settlement.

Effect of Market Agreements

• Under the NIA Memorandum of Understanding – subrogated motor claims,
certain insurers have agreed not to ask for contribution from other liable insurers,
in certain circumstances, e.g. for personal effects damaged in a motor accident.

Motor Insurers’ Bureau

• The uninsured drivers’ agreement is designed to settle court judgments awarding
damage for third party personal injury (unlimited) and/or third party property
damage (up to N1,000,000.00) where there is no insurance policy in force.
• Under the untraced drivers’ agreement, the MIB undertakes to provide
compensation to an accident victim in respect of death or injury where the driver
is untraced, provided it can be established that the untraced motorist would be
liable to pay damages.
Claims Settlement
• A common way to settle a claim is by the payment of money to the insured or the
third party in liability claims.
• Insurers can pay for the cost of repairs, e.g. as in motor insurance.
• Insurers can arrange to replace the damaged or lost goods.
• In the case of extensive damage or complete destruction, insurers can arrange to
reinstate by taking control of the repair/rebuilding themselves.
• In liability cases, the payment is not paid to the insured, but to the third party.
• The Third Parties (Rights against Insurers) Act 2010 gives third parties rights
against an insolvent insured’s insurer when they have a claim against that
insured.
• When the insurer pays for the total loss of an item under a property or motor
policy, they acquire recovery rights arising out of the subject matter of the
insurance: they become entitled to receive the benefit of the salvage.
Reserving Process
• On receipt of a claim, the insurer will endeavour to place a realistic estimate on it
to ensure that sufficient funds are reserved to meet the expected claims cost.
• This is important for accounting purposes and premium setting.

Methods of Claims Recovery

• Contribution gives an insurer the right to approach other insurers similarly liable

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 for their share of the claim.
• Subrogation gives the insurer the right to pursue recovery from a third party (or,
more often, their insurers).
• Where an insurer has settled a claim and then the lost or stolen item is recovered,
the insurer has the right to the property, although they will often give the insured
first refusal on it in return for repayment of the claim settlement.

Fraudulent Claims
• Fraud prevention is dealt with by the Insurance Fraud Bureau (IFB), the Insurance
Fraud Investigators Group (IFIG) and the Insurance Fraud Register (IFR).
• The Claims and Underwriting Exchange (CUE) is a database containing
information on personal lines claims enabling subscribing insurers to check the
true claims history of individuals.
• The Art Loss Register (ALR) is a collaboration between insurers and the art
world designed to increase the recovery rate of stolen art and antiques and to
make their resale more difficult.
• The Motor Insurance Anti-Fraud and Theft Register (MIAFTR2) contains details
of all total loss and theft claims, helping insurers spot duplicate claims on the
same loss.
• The Motor Insurance Database (MID) contains details of all registered vehicles in
the UK and their insurance details.
• The claims handler also has a role to play in identifying fraud by bringing their
experience to bear in considering unusual aspects of a claim or in spotting
inconsistencies.
• Paying fraudulent claims impacts on the bottom line of the insurer, raises
premiums for all policyholders and tempts the fraudulent claimant to make a
fraudulent claim again in the future.

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Self-Assessment

1. What is meant by the ‘onus of proof’?

2. What does an insured have to prove when making a claim?
3. What facts must an insurer check when establishing whether a claim is valid?
4. What are the main implied duties imposed on an insured on the occurrence of an
incident which might give rise to a claim?
5. What is the purpose of a claim form?
6. What is the definition of contribution?
7. What is the formula by which average is calculated?
8. Under which two agreements does the HRL operate?
9. What are the five possible ways in which claims may be settled?
10. Why is it important for an insurer to have an accurate reserve on its outstanding
claims?
11. What are the three main facilities available for fraud detection in the insurance
industry?

You will find the answers at the back of the book.

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 Chapter 12

Confidential Information
and Data Protection
Introduction
Many computer systems hold confidential information which must be protected against
misuse. Information which a business holds in computer files is probably one of its most
valuable assets. Therefore, the safety and security of that information is of paramount
importance for the survival of the business.

In this chapter we first examine the characteristics of confidential information. Later we

will look at the need for security and confidentiality.

We can classify information in three categories:

• Public data is available to anyone requiring it; for example, within a library
complex.
• Corporate data can include relevant details of customers, suppliers, products,
payments made to employees and financial information on the company itself.
• Personal data relates to individuals (clients, prospective clients or employees).

Key Terms

This chapter features explanations of the following ideas:

Confidential Information Confidentiality Data Protection

Data Protection Principles Disclosure Document Disposal
Document Storage Personal Data Security
Sensitive Data

A Principles of Data Protection

So far, we have simply stated what confidential information consists of. However, there
are important legal requirements, in the form of principles contained in the General
Data Protection Regulation (GDPR). These concern certain information that is held
relating to individuals, but not corporations.

It is important to be aware of the law that applies to data protection, especially if you are
working with computer files (or certain other files that may be paper based) containing
information on clients, potential clients, proposers and/or insureds.

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A1 General Data Protection Regulation (GDPR)

Who does the GDPR apply to? The GDPR applies to ‘controllers’ and ‘processors’. The
definitions are broadly the same as under the now superseded Nigerian Data Protection
Regulation Act 2019 (NDPRA) – i.e. the controller says how and why personal data is
processed and the processor acts on the controller’s behalf.

The GDPR places specific legal obligations on processors; for example, firms are
required to maintain records of personal data and processing activities. A firm will have
significantly more legal liability if it is responsible for a breach. These obligations for
processors are a new requirement under the GDPR.

Controllers are not relieved of their obligations where a processor is involved – the
GDPR places further obligations on controllers to ensure their contracts with processors
comply with the GDPR.

What information does the GDPR apply to? The GDPR applies to personal data.
However, the GDPR’s definition is more detailed, reflecting changes in technology and
in the way in which information is collected. It makes it clear that information such as
an online identifier – e.g. an IP address – can be personal data.

The GDPR applies to both automated personal data and to manual filing systems where
personal data is accessible according to specific criteria. This is wider than the DPR 2019
definition and could include chronologically ordered sets of manual records containing
personal data. Personal data that has been anonymised – e.g. key-coded – can fall within
the scope of the GDPR depending on how difficult it is to attribute the pseudonym to a
particular individual.

Sensitive Personal Data: The GDPR refers to sensitive personal data as ‘special
categories of personal data’. These categories include:

• race;
• ethnic origin;
• politics;
• religion;
• trade union membership;
• genetics;
• biometrics (where used for ID purposes);
• health;
• sex life; or
• sexual orientation.

Principles: Under the GDPR, the data protection principles set out the main
responsibilities for organisations. They are similar to those in the DPR 2019 with added
detail. The most significant addition is an accountability principle: the GDPR requires
firms to show how they comply with the principles – for example by documenting the
decisions they take about a processing activity.
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Data Protection Principles

All personal data should be:

1. processed lawfully, fairly and in a transparent manner in relation to individuals;

2. collected for specified, explicit and legitimate purposes and not further processed
in a manner that is incompatible with those purposes;
3. adequate, relevant and limited to what is necessary in relation to the purposes for
which they are processed;
4. accurate and, where necessary, kept up-to-date;
5. kept in a form which permits identification of data subjects for no longer than is
necessary for the purposes for which the personal data is processed; and
6. processed in a manner that ensures appropriate security of the personal data,
including protection against unauthorised or unlawful processing and against
accidental loss, destruction or damage, using appropriate technical or
organisational measures.

Lawful processing: For processing to be lawful under the GDPR, firms need to identify
a lawful basis before they can process personal data and document it. This is significant
because this lawful basis has an effect on an individual’s rights: where a firm relies on
someone’s consent, the individual generally has stronger rights, for example to have
their data deleted.

Consent: Consent under the GDPR must be a freely given, specific, informed and
unambiguous indication of the individual’s wishes. There must be some form of
positive opt-in – consent cannot be inferred from silence, pre-ticked boxes or inactivity,
and firms need to make it simple for people to withdraw consent. Consent must also be
separate from other terms and conditions and be verifiable.

Firms can rely on other lawful bases apart from consent – for example, where
processing is necessary for the purposes of an organisation’s or a third party’s
legitimate interests. They are not required to automatically refresh all existing DPR
consents in preparation for the GDPR, but if a firm relies on individuals’ consent to
process their data, it must make sure it will meet the GDPR standard. If not, firms must
either alter the consent mechanisms and seek fresh GDPR-compliant consent or find an
alternative to consent.

Rights: The GDPR creates some new rights for individuals and strengthens some of
those that existed under the DPR. These are:

• the right to be informed.

• the right of access.
• the right to rectification.
• the right to erasure.
• the right to restrict processing.
• the right to data portability.
• the right to object.
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• rights in relation to automated decision making and profiling.

Accountability and Governance: Accountability and transparency are more significant

under the GDPR. Firms are expected to put into place comprehensive but proportionate
governance measures. Good practice tools such as privacy impact assessments and
privacy by design are now legally required in certain circumstances. Practically, this is
likely to mean more policies and procedures for organisations, although many will
already have good governance measures in place.

Breach Notification: The GDPR introduces a duty on all organisations to report certain
types of data breach to the relevant supervisory authority, and in some cases to the
individuals affected.

Transfers of Personal Data to Third Countries or International Organisations: The

GDPR imposes restrictions on the transfer of personal data outside the European Union,
to third countries or international organisations, in order to ensure that the level of
protection of individuals afforded by the GDPR is not undermined.

A2 Data Protection Act 2019

The Data Protection Act 2019 (DPR 2019) came into effect in May 2019, to coincide with
the implementation of the GDPR and the Law Enforcement Agency (LEA). It aims to
modernise data protection laws to ensure they are effective in the years to come.

Although the GDPR has direct effect and organisations have to comply with it, it does
allow limited opportunities to make provisions for how it applies in the country. In
Nigeria these have been included as part of the DPR 2019. It is therefore important the
GDPR and the DPR 2019 are read side by side.

The main elements of the DPR 2019 include the following:

General Data Processing

• Implement GDPR standards across all general data processing.

• Provide clarity on the definitions used in the GDPR in the Nigeria context.
• Ensure that sensitive health, social care and education data can continue to be
processed to ensure continued confidentiality in health and safeguarding situations can be
maintained.
• Provide appropriate restrictions to rights to access and delete data to allow certain
processing currently undertaken to continue where there is a strong public policy
justification, including for national security purposes.
• Set the age from which parental consent is not needed to process data online at age
13, supported by a new age-appropriate design code enforced by the Information
minister.

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Regulation and Enforcement

• Enact additional powers for the Information minister who will continue to regulate
and enforce data protection laws.
• Allow the minister to levy higher administrative fines on data controllers and
processors for the most serious data breaches; being up to N17 million (N20
million) or 4% of global turnover.
• Empower the minister to bring criminal proceedings for offences where a data
controller or processor alters records with intent to prevent disclosure following a
subject access request.

B Principles of Storage and Disposal of Documents

To enable information held on computer to be protected, insurance organisations must

adhere to the following basic principles when considering the storage and disposal of
documents:

• Restricted access.
• File saving and backup.
• Source documentation retention.
• Protection against theft.
• Copyright.
• Use of passwords.
• File disposal.

B1 Restricted Access

Access to confidential information must be restricted, allowing only authorised

personnel to access, amend or dispose of it. With physical paperwork, a locked filing
cabinet may be sufficient. With computers, it is necessary to have sophisticated access
controls for each user and additional restrictions on ‘view only data’ or ‘data that can be
operated on’. The need for greater sophistication in restricting access to sensitive data
has increased as a result of the tremendous growth in the use of mobile equipment.
Where the public or non-employees have access to the work area, individuals should
log off when they leave their work areas so that data may not be viewed or accessed by
those who are unauthorised.

B2 File Saving and Backup

In recent years, businesses have usually had a tried and tested system of regular file
saving and monitoring. Each member of staff should be aware of their own
responsibility for file saving. Backup copies of work should be made. In larger
companies, this may be a centralised function where a server is involved and data is
transferred to a variety of options online. Online backup has become essentially the
same as cloud backup. In the days before the term ‘cloud’ was used, online backup
simply meant backing up to a service provider’s site. Now, that site is almost always
some kind of cloud.

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Customers can pay a service provider to handle backups, with pricing based on
capacity, frequency and size of backups; bandwidth; and number of users. Companies
with lower backup volumes and smaller IT teams are prime use cases for online backup.
An enterprise using online backup services might own the off-site server. Since security
is a concern with online computer backup, service providers must assure organizations
that their data is safe and service provider’s processes comply with current legislation.
Most online backup products feature encryption and access control.

Any time an organisation backs up a large amount of data over a network – often in the
initial phase – it’s going to involve time and bandwidth.

Online backup services can be less expensive at first, but costs related to time and added
capacity can add up. Organisations need to ensure they’re backing up data that matters,
as unstructured data can drive up capacity, cost and restoration time.

Capacity planning is a key element; not having enough space with the off-site backup
can cause problems with business continuity and data recovery.

B3 Source Documentation Retention

In the event of severe fire or explosion damage, all data kept on the business premises
may be destroyed. For critical information requiring additional security, the original
source data should be stored in a separate secure building. An example of critical
information would be original handwritten witness statements.

B4 Protection against Theft

Software and information require protection against theft. They can be protected by
physical security, as well as by restriction of access.

It is vitally important to prevent unauthorised software being imported on to a

computer system, as there is a danger of importing computer viruses, which in their
worst forms could jeopardise all of the data held on the computer or network. Insurers
and intermediaries must ensure that their systems are fully protected against attack and
must constantly update anti-virus software.

Systems can also be attacked by unauthorised persons who, having gained access, steal
or corrupt data relating to individuals and corporations. Adequate protections must be
in place to prevent this.

B5 Copyright

Computer data originated by an organisation is entitled to legal protection in the form

of copyright. If data is copied when it is protected by copyright, then an infringement
has occurred which is an illegal act. The person doing or permitting the illegal copying
may then be liable to prosecution.

B6 Use of Passwords
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A serious hacker can easily determine an individual’s password, if that individual has
not been guided in the techniques of using passwords as a serious security device. The
usual failings are:

• use of simplistic references to close family or friends;

• use of dates of birth, family ages, telephone, house numbers or even regular lottery
numbers;
• use of favourite animal names;
• inadvertently allowing others to use your password;
• leaving the machine unattended without logging-out; and
• not changing passwords regularly.

Strict company rules and an ongoing security awareness programme within the
business can help overcome these failings. This will improve the security of information
held on computer.

B7 Secure Storage and File Disposal

It is important to store and dispose of files in a secure way. Storage may be at the
business premises, but for most companies some storage at least will be remote from the
normal business premises. Security and safety are paramount, since the whole purpose
of storage is to be able to retrieve the documents if necessary. Companies must
determine which files are to be retained and for what period. Sometimes this is
determined by regulation.

Many different possibilities exist for secure storage. These range from the renting of a
room or space in a specially constructed and monitored environment, control of which
is retained by the renting firm, through to a collection and re-delivery service provided
by a specialist company who themselves archive information or files. Rules need to be
developed for the length of time records are kept and automatic processes introduced
for the destruction and disposal of files, after the appropriate timescales.

Only authorised personnel should be allowed to dispose of files. A regular file

maintenance system should be operated within organisations, with particular
individuals having responsibilities for maintenance of specific areas of the computer
system and files. There is a balance to be struck here in relation to the timing of
disposal. Insurers and intermediaries alike must keep certain information for long
periods of time. Once a policy is in force, if it has a liability element, there is always the
possibility of a claim arising or query occurring long after the policy has expired. On the
other hand, information held in relation to a quotation that was never taken up by a
proposer need be kept for less time. Appropriate systems must be in place to ensure
that data are held for no longer than necessary.

For written or printed confidential information, a paper shredder system may be

operational, with only authorised personnel having access to the waste material for the
shredder. An alternative to this is a system whereby confidential waste is stored
separately and disposed of regularly by specialist confidential waste contractors. This
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more costly alternative is operated by banks and building societies.

C Security and Current Regulations

We have considered the nature of the rules introduced by the General Data Protection
Regulation (GDPR) and Data Protection Act 2019 (DPR 2019). We now consider the
need for security and confidentiality of information as well as its use, storage and
disclosure.

C1 Security and Confidentiality

We considered the characteristics of confidential information at the beginning of this

chapter. We now need to look at the implications for its protection.

Corporate data must be protected from:

• malicious alteration;
• deliberate destructive acts; and
• industrial espionage.

Personal data must be protected from:

• being used for blackmail; and

• unauthorised disclosure.

All businesses need to be aware of their legal and moral duty to safeguard their
staff as well as their own premises and materials. They need constantly to be
developing and improving existing security procedures to control this ever-
developing and increasing problem.

Computer security is becoming an ever more key issue with the rapid development of
Local Area Networks (LANs) and widespread use of wi-fi. Examples of computer
security threats include:

• viruses;
• hackers using modems;
• unauthorised access on the LAN; and
• software theft.

C2 Use of Data

Under the terms of the GDPR all data controllers must notify the office of the
Information Commissioner with details of the data held and the purposes for which it
is held. The Information minister maintains a register of this information.

The Information minister’s duty is to oversee the working of the law. If they believe that
any data controller is contravening any of the principles then they can serve an
enforcement notice. The data controller will commit an offence if they fail to comply
with it. Data processing without notification to the Office of the Information minister is
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an offence.

C3 Disclosure

The GDPR states that personal data shall not be transferred to a country or territory
outside the unless that country or territory ensures an adequate level of protection for
the rights and freedoms of data subjects in relation to the processing of personal data.
The data user has an obligation to ensure that they comply with the regulations.

The only exception to the general rule that data must not be disclosed occurs under the
terms of the Money Laundering Regulations. Under these regulations disclosure of the
data to the is permitted, where this is relevant to actual or suspected money laundering
activities.

C4 Computer Misuse Act 2003

This Act was passed to provide a deterrent against all forms of unauthorised computer
access. The Act introduced three new criminal offences:

• unauthorised access to a computer (computer hacking);

• unauthorised access to a computer with intent to commit serious crime; and
• unauthorised modification of computer material.

The Act also sets out the maximum penalties for such offences.

D Challenges Facing the Insurance Industry

As technology advances, the insurance industry is required to take ever more effective
measures to ensure that data is protected. Massive amounts of data are now being
gathered and stored by new systems which require adequate protection.

In this section we note some of the key developments which currently challenge the
industry and which it must address to ensure its compliance with the Acts and
Regulations reviewed in the earlier sections of this chapter.

The internet has long since displaced the telephone as the key growth platform for
personal general insurance distribution. Direct insurers, brokers and other distributors
have developed increasingly sophisticated websites for quote and purchase, through
either internet-only brands or multi-channel offerings. Simply counting on-line
transactions underplays the true significance of the online channel, as the final
transaction is just one part of the overall insurance buying process. Many more
consumers perform online research before buying, and many transactions that originate
on the web actually complete via other channels, such as call centres. This can either be
because the user has experienced difficulties, or they simply want to speak to someone
before committing to the purchase.

Handling data in personal insurance has always been a target for reducing costs. Given
the relatively low sums insured and large number clients, gathering the necessary
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underwriting information on each by traditional means was a significant cost factor.
The ubiquity of the internet and developments in technology has resulted in an
explosion of data, which insurers can use to improve risk transparency and increasingly
personalise underwriting and marketing.

D1 Aggregators

Many consumers carry out online research using aggregators before purchasing
insurance. An aggregator is a website portal or search utility which enables a client to
gain several quotes via an electronic e-quote form. The insurance aggregator concludes
agreements with a number of insurers to provide a comparative quote based on a pre-
determined list of specified needs, as disclosed by potential clients.

Aggregators have made use of deep expertise and investment in online systems to
optimise user experience, customer insight and search engine performance. Systems
have had to be adapted to meet the higher expectations of web users for multichannel
access, self service facilities and more interactive dynamic content. Notwithstanding the
improvements made to systems, there is still criticism that there remains too great a
focus on price.

D2 Internet of Things (IOT)

The internet of things involves communication and interaction between networked

devices that relay information across the network. These are connected devices that
include sensors that can, for instance, control temperature, sense smoke or detect escape
of water from leaky pipes. They can be used to activate alarms or allow for actions to be
taken remotely, such as cutting off the water supply, enabling insurers to reduce claims.
These devices are also a source of key, real-time data on customers, which can be used
to help insurers more accurately underwrite policies and offer personalised cover.

However, the collection and processing of this detailed data has given rise to challenges.
These include:

• who will be allowed to collect the data;

• how will it be stored;
• how will it be used; and
• who will have access to the data.

One area where this is growing is in the use of telematics in motor insurance.

D3 Telematics

Telematics is not a new invention and has been used for over a decade in commercial
vehicles, by the emergency services and Formula One teams. The technology is now
widely used in road cars. Telematics consists of a high frequency motion sensor which
captures how the car is driven. It provides the following information:

• the time of day or night the car is driven;

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• the speed at which it is driven on different sorts of road;
• how smoothly it is driven;
• whether breaks are taken on long journeys;
• how many motorway miles are driven;
• the total mileage; and
• the total number of journeys made.

Where an aggregator is collecting the information, the aggregator itself, the insurer and
other behind the scenes organisations, such as the software provider, will all have
access to the data.

D4 Social media

Social media can be defined as ‘a collection of online media tools and channels that
foster communication and conversation, not only delivering content but also allowing
interaction and participation in the development of the content being discussed’
(KPMG). Among the many definitions and descriptions, the common characteristics are
the ability to interactively exchange ideas, request information and provide real-time
feedback, which rivals the traditional means of reaching out to peers and associates as
well as customers and stakeholders.

Social media can also represent a potential reputational risk, where an action taken by
an organisation is considered to be unfair by a section of the public. The resulting
detrimental comments can spread rapidly nationally, or indeed internationally, via a
social media campaign against the organisation, which must act promptly and
effectively to try and mitigate.

For insurers, social media can provide a continuous, interactive relationship with the
customer. It offers multiple opportunities to listen to, and to engage with, individuals
and communities in a highly personalized dialogue – all of which has to be stored and
protected, bringing its share of additional risk.

D5 Mobile Technology

As the use of mobile technology has grown, so too has the security risk. Internal and
external fraud, as with older desk top computers, is a major concern, as the number of
devices a company must now monitor has increased exponentially. The size and
portability of mobile devices makes them much more susceptible to theft and loss. In
addition, as they tend to be upgraded more frequently, there are often issues around
data breaches after disposal, as they have not been wiped or disposed of correctly.

Security for mobile devices is usually not as adequate as that for desktops. Even where
it is available, the individual user may not set it at the correct level. This is especially
true where staff are permitted to use their own devices for company business. If this is
accepted practice, companies must ensure that they have an effective security policy,
with which all employees must comply, to cover how the devices are locked, who has
access to them and what data may be stored on them, for example.
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Insurers are making use of apps in various ways. ‘App’ is short for ‘application’ which,
while simply another name for a computer program, usually refers to programs that
run on mobile devices, such as smartphones. An example of the way in which insurers
use apps is for reporting and managing claims on household and motor policies. Claim
contact information is immediately made available to record the claim details, including
any photographs taken by the phone’s camera. The insurer can also send relevant
messages and advice, e.g. tips on protecting the home, etc.

D6 Data Storage

Preserving data is an important part of data management. Simple data storage

computer software ensures that administrative and financial data is protected from
data-corruption risks. Automated back-up is part of data life-cycle management
systems and generally occurs at sequential time intervals.

Given the growing volume of data from an increasing variety of sources, the industry
has had to seek greater sophistication in terms of storage in order to manage and protect
this data. It is beyond the scope of this study text to describe in detail the various types
of storage utilised within the industry, but they must protect against risks pertaining to
potential loss of data through breaches in security by cyber-attacks or accidental loss
due to power failures or as a result of human carelessness. There have been some high
profile cases where confidential information on discs have been left behind on
commuting trains by individuals who, perhaps should not have had them in their
possession in the first place.

D7 GDPR(General Data Protection Regulation)

We have described some the various ways in which data is gathered and stored within
the insurance industry to have raised issues in the past. These are all further impacted
to a greater or lesser extent by advent of the GDPR. The following is a summary of some
of the key areas which the GDPR will specifically affect insurers and others in the
industry.

Irrespective of the class of insurance, an underwriter will be required to collect and

review personal data of the applicants, ranging from demographics to more sensitive
data including health history, genetic history and physiological traits, i.e. ‘special
categories of data’ under the GDPR. Any misprocessing of such special categories will
attract the higher of the regulation’s two fine brackets: either a stated percentage or an
absolute amount. Also, collection of such data is only allowed based on individuals;
unless it is necessary for reasons such as protecting the vital interests of individuals or
for the public interest.

The more personal data that is obtained will help assist in the pricing of a risk.
However, to process such information on a large-scale, companies will have to carry out
formal data protection impact assessments (DPIA) which will require them to carefully
record the necessity and proportionality of processing, to assess risks posed to the rights
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and freedoms of data subjects, to document envisaged measures to address these risks,
and much more.

The issues arising from the collection of ever increasing amounts of personal data
will impact also other areas of the industry, such as direct marketing, fraud
prevention and claims processing, e.g. when insurers use direct marketing methods
they not only collect data directly from individuals but also purchase data from third
party providers. This information is used to target sets of individuals via multiple
channels – telemarketing, digital marketing brochures, etc. Under the GDPR such
marketing requires positive opt-in by the individuals to state their consent and
preferences on whether they want to be contacted. This consent must be freely given.
They must also be able to easily withdraw their consent and be forgotten. Data
subjects also now have the right to receive their personal data held by a controller or
have it transmitted to another controller.

Consequently, these new rights under GDPR have shifted the onus of demonstrating
compliance onto companies with heavy fines and loss of reputation for those who fail to
comply.

Thus, to be able to comply with all these and other changes companies will have to
review and make the appropriate changes to improve their IT infrastructure and revisit
data retention and disposal policies. However, for those companies who can quickly
come to terms with this new data-centric approach it will increase credibility with
customers and employees and increased brand value.

D8 Cyber Crime

Much of what has been discussed in this chapter relates to preserving the integrity of
personal information in line with data protection legislation. As a result, there has been
growth in the provision of personal cyber protection insurance. Some companies market
it for high net worth individuals (HNWIs) or commercial companies. The cyber
products are distributed through brokers as standalone cyber protection insurance or in
some cases as an add-on product to home cover, where the policy will cover everyone
in the household against loss due to:

• defamation;
• cyber bullying;
• loss of insured data; or
• online retail/banking fraud.

However, the main targets for crime are commercial companies and not necessarily
only the large corporations; many SMEs have also been exposed to cyber crime.

Businesses today are increasingly reliant on cyber technology to control and optimise
production, digitally store and access data, and transact and market their operations.
Businesses are also increasingly reliant on data from other businesses to conduct their
business operations – making the cyber supply chain an integral part of their business.
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The Department for Digital, Culture, Media & Sport’s annual Cyber Security Breaches
Survey 2017 found that the proportion of businesses with websites (85%) or social media
pages (59%) had risen by 8% and 9% respectively on the previous year and the use of
cloud services had increased by 10% (from 49% to 59%). The risk to data flow and
storage is no longer limited to recognised perils, such as accidental power outages.
Recent high-profile cyber attacks have shown us that cyber crime can affect all types
and sizes of organisation – in all sectors of the insurance industry – and often with
disastrous consequences. Cyber criminals are known to hack into systems to steal data
to sell onwards to other criminals. We have also seen an increase in the use of ransom
software (‘ransomware’) which restricts access to infected systems until a ransom is
paid.

Consequently, while insurers are seeking to ensure adequate protection of their own
data, there is a growing demand for some form of cyber insurance to be provided by the
insurance industry. The GDPR has certainly forced many organisations to readdress
their cyber security an evaluate the potential risks thus helping them decide if they need
insurance.

The Insurance Act 2015 is also making insurance brokers more aware of their
responsibilities and ensure that data risks are discussed with their clients, thus
increasing the need for specialist knowledge to be able to address these risks effectively.

Since customer exposures and buying patterns are constantly changing, the cyber
insurance market has to be committed to innovating and updating its own coverage
forms continuously, customising offerings by underwriting to a customer’s culture and
coverage needs. The risks, the markets and the products are all continuously changing.
Change is the one constant in cyber insurance.

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Key Points

The main ideas covered by this chapter can be summarised as follows:

Characteristics of Confidential Information

• Information can be classified as public data, corporate data and personal data.
Confidential data falls into the corporate or personalcategories.

Principles of Data Protection

• Legal requirements, in the form of the General Data Protection Regulation (GDPR),
concern the holding and processing ofinformation relating to individuals.
• All businesses handling such data have to abide by the Data Protection Principles,
which have to do with the information being accurate, processed fairly and kept
securely, amongst other things.
• Personal data means any data relating to identifiable living individuals and sensitive
data relates to their ethnicity, race, religion, politics, health and sexuality.
• The GDPR gives individuals the right to erasure and the right to move their data. It is
compulsory to report any data breach and the fines payable have been significantly
increased from those of the earlier legislation.

Principles of Storage and Disposal of Documents

• Documents/information should have restricted access, be backed up, protected from
theft, be subject to copyright and should be stored and disposed of securely.
Security and Current Regulations
• Corporate data must be protected from malicious alteration, deliberate destruction
and industrial espionage.
• Personal data must be protected from unauthorised disclosure or being used for
blackmail.
• Under the terms of the GDPR, all data controllers must notify the Office of the
Information minister details of data held and the purposes for which it is held.
• Restrictions apply to the transference of data to countries outside the EEA.
• The Computer Misuse Act 2003 provides a deterrent against all forms of
unauthorised computer access and created three new criminal offences.
• The Data Protection Act 2019 implements GDPR standards across all data
processing. However, it differs from the GDPR in that it covers all other general data,
law enforcement data and national security data.

Challenges Facing the Insurance Industry

• An aggregator is a website portal or search utility which enables a client to gain
several quotes via an electronic e-quote form.
• The Internet of Things (IOT) involves communication between networked devices.
These are a source of real-time data on customers.
• Telematics consists of a high frequency motion sensor which captures how and
when a car is driven.
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• For insurers, social media can provide an interactive relationship with the customer
with opportunities to engage with individuals and communities in personalised
dialogue.
• The increasing volume of data from a variety of sources means the industry has to
seek greater storage sophistication in order to manage and protect it.
• Mobile devices are susceptible to theft and loss and the security available is not as
adequate as that for desktops.
• While insurers are seeking to ensure adequate protection of their own data, there is a
growing demand for cyber insurance to be provided by the insurance industry.

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Self-Assessment

1. Into which three categories is information generally grouped?

2. What are four security procedures that can be used in the storage and disposal of
documents?
3. What kind of data is covered by the Nigerian Data Protection Regulation Act 2019
(NDPRA)?
4. From what risks should corporate data be protected?
5. Against whom does the Computer Misuse Act 2003 offer protection?
6. List four pieces of information provided by telematics when used in cars.

You will find the answers at the back of the book.

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 Chapter 13

Customer Service
Introduction
Earlier in this course book, we examined what is meant by ‘customer service’ and why
it is important to customers and organisations. We consider why organisations have
customer service policies, codes of conduct and customer service standards.

In the final section of this chapter, we consider the legal and regulatory obligations an
organisation has to its customers in relation to customer service.

Key Terms

This chapter features explanations of the following ideas:

Claims Handling Complaints Conflicts of Interest

Customer Service Activities Customer Service Standards
Fair Treatment of Customers Financial Ombudsman Service (FOS)
Who is the Customer?

A What is customer service?

Customer service refers to the broad activities that a company and its employees
undertake in order to satisfy its customers. The aim is that these customers, in response,
will continue to do business with the company and also speak positively about the
company to other potential customers.

Customer service is a combination of marketing, strategic planning, research and

systems. It is about getting to know the customer, learning what the customer wants
and taking reasonable steps to ensure that they get it. It is about creating systems and
providing training that allows employees to provide the best service possible.

A1 Who is the customer?

Typically, when we refer to the ‘customer’, we are referring to the person who buys a
product; in the case of insurance, the customer would ordinarily be the insured.
However, many other types of customer are associated with insurance companies.

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An insurance company’s customers may be divided into two categories.

External customers Internal customers

Any persons or businesses who are not The employees of an insurance
‘employees’ of the company and who are in a company who receive service
position either to buy or use the company’s from other employees of the
products or to advise others to buy or use its company. In a sense, the
products. The best known among these customers employees of a company are
are the people who actually buy and use insurance also its customers. They invest
products, namely commercial customers and their time and effort into the
consumers. In this sense, a consumer is a type of company in exchange for the
external customer. Consumers are an insurance opportunity to earn a living.
company’s most important customer. In addition How a company deals with its
to consumers and commercial customers, internal customers often
insurance companies have other external indicates how it deals with its
customers, such as brokers, agencies, third party external customers
administrators and investors

Organisations can only offer a truly professional service to external customers, if they
also offer a professional service to their internal customers. Everyone serves someone
and, in turn, is served by someone else in the organisation. We have used the term
‘customer’ for both categories. It is very common for them to be referred to as
‘stakeholders’, which probably reflects the wide range of interests more completely.

A2 Importance of Customer Service

We could say that insurance companies have been providing a service to their
customers ever since the first insurance policies were sold. Why then is customer service
such a dominant issue now?

Key areas are:

• consumer awareness;
• customer expectations; and
• competition.

We shall look briefly at each of these as they relate to non-life insurance products.

A2A Consumer Awareness

In the time since the first insurance policies were issued the consumer has acquired
many more legal rights Insurance regulation and consequent legislation have given
consumers (particularly private individuals) a number of rights, e.g. the particular
rights an individual has regarding the data held on them. There are rights that arise
from Insurance regulation, prompting not only legislation, but also the introduction of
codes of conduct. Consumers are becoming increasingly aware of their rights under
these various pieces of legislation.

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‘The customer is king’ is not simply a good marketing idea but a position towards which
legislation is moving. In this climate insurance, as a product, is particularly susceptible to
potential disputes. This is because of its intangible nature and the fact that the policy, as a
legal document, cannot be worded in too simplistic a way if it is to reflect what are often
complex situations.

A2B Expectations of Service

It is not surprising in this climate that customers have increased expectations about
service. Insurance consumers are better educated and more financially aware than ever
before. It is not uncommon to find that many customers expect value-added services.
This would include add-ons such as 24-hour helplines, complaint-handling mechanisms
for disputes and even uninsured loss recovery services, with many of those services
provided online.

A2C Competition

Not all of these developments have been prompted by consumers. Insurers and
intermediaries have recognised that better service standards are a legitimate means of
competing with one another.

Competition in commerce is intense. Insurance companies have to work hard to remain

profitable in the face of declining returns on competitive products. The extra element
that makes the difference, that brings back the customers and keeps them, is excellent
customer service. The same applies to intermediaries. Client retention and acquisition
are both vital aspects of running a successful business.

Therefore, every organisation in this competitive world needs to consider how to:

• develop the customer skills of its employees; and

• build employee confidence and professionalism.

A3 Customer Service Activities

In the insurance industry, customer service consists of a variety of activities aimed at

both external and internal customers. The most visible customer service activities are
usually policy administration functions. However, a wide variety of activities come
under the heading of ‘customer service’, such as:
• having agents provide service to customers in their homes;
• allowing customers to conduct their business with the company using a free phone
number;
• setting up a telephone network that allows customers to obtain information and
conduct business on a 24-hour basis;
• providing interactive websites and apps supplying facts about the company, its
activities, products and services;
• providing a fast turnaround on new business applications; and
• establishing complaint-handling mechanisms.

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By giving ‘added value’, each of these services provides an extra incentive for customers
to do business with the company that provides the service.

Companies may draw up codes of conduct or customer care charters, setting out the
levels of service and the standards that the customer can and should expect from the
organisation concerned. Failure to meet minimum standards of service is, therefore,
quantifiable.

A4 Benefits of Providing Quality Customer Service

Providing quality customer service can be a powerful business strategy. The

relationship between customer satisfaction and corporate profitability has been well
documented, with research showing that customer service can be a strategic weapon,
which reduces an organisation’s costs by helping it retain its customers. Quality control
and quality of service standards are, therefore, treated as part of the product and not
something distinct from it. An integrated approach takes account of each aspect.

Let us now consider the main benefits of providing quality customer service.

Customer Loyalty

Satisfied customers generally want to continue to do business with a company. This

does not relieve an insurer of the need to remain competitive. It does mean that such
customers are more likely to renew or increase their covers on the policies that they
currently have. They are also more likely to buy additional covers from the company.

It is vital for insurers to instill loyalty in their customers. There are two reasons for this:

• It costs on average four to five times as much to acquire a new customer than to
retain an existing one.
• Future underwriting results are made more predictable if the underlying portfolio
of risks remains fairly constant. It follows therefore that if an insurer is losing a
substantial proportion of its policyholders each year and replacing them with
others, there is increased volatility in the whole portfolio of business.

Attracting New Customers

No business, and this includes insurance companies and intermediaries, can be

successful unless new clients are acquired. There is always a natural decline of existing
clients: individuals may die, companies move area and perhaps require a more local
service, and some may go into liquidation. Without the impetus of new clients,
businesses will tend to dwindle over time. There are many ways of attracting new
customers through advertising of different sorts and promotional activities. It remains
the case, however, that if a company has a reputation for good customer service,
attracting new customers is relatively easy. A good reputation may stay with the
company for years and is an attribute on which potential customers base many of their
purchase decisions.

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Satisfied customers are also an effective form of ‘free advertising’, as these customers
tell their friends about the good service ‘their’ company has given them.

Attracting and Retaining High-Quality Employees

Potential and actual employees are frequently aware of a company’s reputation for
providing service. They are more likely to want to work for a company with a
reputation for excellent service.

Differentiating a Company from its Competitors

To the typical consumer, insurance companies and their products look much the same.
However, by offering quality customer service, a company can differentiate itself and its
products from its competitors and their products. Providing quality customer service
helps to give a company a competitive edge in the market place.

Improving the Company’s Profitability

We have already considered one aspect of profitability implicit in a consistent portfolio.

On the negative side, if a company fails to provide an adequate standard of customer
care or service it will certainly lose external customers and may find it difficult to retain
or recruit staff.

Increasing Productivity

As the quality of customer services improves, productivity also increases, since

customer complaints decline and errors are minimised.

Improving the Working Environment

When a company provides excellent customer service, its employees are usually happy
and more motivated. This leads to a reduction in mistakes and customer complaints.

A5 Benefits to the Customer

The pricing of products is often a determining factor in the acquisition of business. It is

easy to see this if we consider the area of private motor insurance. Many motor
policyholders will move their insurances from one insurer to another for a few pounds,
without much regard for whether they have received good service or not. This often
happens when the cover and service have not been tested in a claims situation.

There are, however, many individuals who do take account of service standards as well
as price: those who have had a claim settled or used a helpline service and have
therefore seen the promise in action. There are definite benefits for consumers in placing
their business with an efficient, effective, professional and profitable insurer. Customers
will benefit from:

• a fast and efficient service, free from errors and delay;

• speedy claims settlement;
• accurate and effective assistance and advice; and
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• value-added benefits, such as a 24-hour helpline.

It is worth noting that efficient companies are able to assess more accurately the
premium needed. Often this will be lower than others in the market, but this is not
always the case.

A6 Customer Service Standards

In order to provide quality customer service, an insurance company must go beyond

merely developing a customer service culture. It must establish a strategy that makes
customers a part of the company’s entire operation, co-ordinating this customer service
strategy with the company’s corporate strategy.

Companies use the objectives stated in their customer service strategy to develop their
performance standards or service level standards. A performance standard is a stated
level of performance against which actual performance can be measured. It may be
defined as the minimum level of service quality and quantity that the customer service
system must reach in order to meet customer service objectives.

Customer service standards must be:

• realistic;
• understandable; and
• measurable.

Internal standards are developed inside the company, based on the company’s own
customer service system. Companies use internal standards because they:

• are easy to gather;

• reflect actual practices or procedures followed in the companies that have
developed them; and
• allow them to compare current performance with past performance.

Industry standards allow a company to compare itself to other companies in the same
business.

Within the company itself two aspects relating to staffing are particularly important;
recruitment and training of staff.

A7 Training

In its regulation of those involved in the provision of mediation services, the NAICOM
has linked training with competence. Competence is defined by the NAICOM as having
the skills, knowledge and expertise to carry out a function, without the need for
supervision. The effectiveness of training, and its link to competence, is also considered
a key feature by the code of good corporate Governance (CGCG) of NAICOM when
considering higher level governance issues.

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Authorised firms have an obligation to maintain a register of those who are competent
and must be able to demonstrate the means by which competence has been measured.
Personalised training programmes should be created for each member of staff
recognising, on the one hand the requirements of the job, and on the other the mix of
skills and aptitudes already acquired by the individual. Ideally any detailed training
about the company’s products should be carried out by the experts in that field and
backed up by reference manuals.

A8 Appraisal

Regular appraisals should be undertaken. The frequency should be not less than annual
and they should relate to actual performance against agreed standards. This makes it
essential for any internal standards to be quantified, as far as possible, so that good
achievement can be acknowledged and rewarded and under-achievement corrected.
The correction should take the form of an improvement plan that may involve further
training.

B Customer Service Obligations

In this section we will examine the various codes of practice and market regulation
which govern the insurance industry and which make comment on good customer
service practice.

B1 The Fair Treatment of Customers

Both the market conduct and CGCG contain the eleven Principles for Businesses.
Principle 6 requires that ‚a firm must pay due regard to the interests of its customers
and treat them fairly‛.

Supervision by the National Insurance Commission (NAICOM) encourages firms ‘to

base their business model, culture and how they run the business on a foundation of fair
treatment of customers’. Since the issue is key as far as the NAICOM is concerned, it is
one of the primary areas of any monitoring of firms undertaken by the NAICOM. The
NAICOM’s is designed to assess a firm’s conduct risk and asks if the interests of
customers and market integrity are at the heart of how the firm is run.

Firms are required to have management information that is adequate to demonstrate

delivery of customer based outcomes. In other words, it is not sufficient to show that
systems are in place, but also the consistent effectiveness of systems.

To help firms fulfill their obligation to treat customers fairly, there is no prescriptive
procedure or checklist, although there is a guideline from NAICOM on it and it is
required that each firm must determine how each outcome applies and the means by
which it can demonstrate compliance with each of the outcomes.

• Outcome 1: Consumers can be confident they are dealing with firms where the fair
treatment of customers is central to the corporate culture.

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• Outcome 2: Products and services marketed and sold in the retail market are
designed to meet the needs of identified consumer groups and are targeted
accordingly.
• Outcome 3: Consumers are provided with clear information and are kept
appropriately informed before, during and after the point of sale.
• Outcome 4: Where consumers receive advice, the advice is suitable and takes
account of their circumstances.
• Outcome 5: Consumers are provided with products that perform as firms have led
them to expect, and the associated service is of an acceptable standard and as they
have been led to expect.
• Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by
firms to change product, switch provider, submit a claim or make a complaint.

It is in a firm’s best interest to adopt high service standards, not least from a business
acquisition and retention viewpoint. Consequently, for many firms the fair treatment of
customers will be embedded in their systems and appropriate management information
(MI) will follow on from that.

However, given that the fair treatment of customers is embedded in the way that the
NAICOM regulates the market and, as such, is regarded by the NAICOM as being very
much business as usual, it is of central importance to the way in which every firm does
business. Firms need to examine and monitor every process in the context of customer
service. The outcomes can be supported by a variety of activities, including:

• carrying out sufficiently detailed research in developing new products to ensure

that they are appropriate to the needs of target populations; and
• carrying out a sufficiently detailed analysis of a customer’s needs to be able to
establish the most appropriate product(s), putting the client’s interest first and
taking account of all the client’s circumstances when providing advice.

Both the ‘conflict of interests’ and ‘complaints’ procedures operated by the firm also
need to support the fair treatment of customers.

There are some detailed specific rules that apply to pure protection (certain life and
critical illness) policies and payment protection insurance and the specific requirements
must form part of a firm’s procedures if they sell products or give advice in this context.

The fair treatment of customers is also supported by Government legislation. We will

describe this in the following sections.

B2 Claims Handling

Although insurers and intermediaries may choose to adopt more stringent customer
service standards in their claims handling procedures, they are obliged to meet the
minimum requirements of the FCA. These are set out in the Insurance: Conduct of
Business Sourcebook (ICOBS) and are summarised in this section.

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The FCA rules for claims handling are primarily applicable to insurers. However, an
intermediary must meet the terms of these rules for any delegated authority they have
that has been agreed with insurers.

B2A Handling Claims Promptly and Fairly

There are detailed rules that insurers must follow in their handling of claims. They must
carry out claims handling promptly and fairly. In addition, the Consumer Rights Act
2015 may impose a requirement that claims made by a consumer are dealt with ‘within
a reasonable time’. Additional rules apply to pure protection policies. Insurers must
provide reasonable guidance to help a policyholder make a claim and not reject a claim
unreasonably.

Under ICOBS this last point is of particular relevance to consumers (but not commercial
clients), where an insurer’s rejection of a claim is considered unreasonable if it is for:

• non-disclosure, where the policyholder could not reasonably be expected to

disclose the material fact;
• non-negligent misrepresentation of a material fact; or
• breach of a warranty or condition unless the circumstances of the claim are
connected with the breach.

Remember too that the requirements of the Consumer Insurance (Disclosure and
Representations) Act 2012 (CIDRA) also apply.

The Insurance Act 2015 (IA 2015) applies similar rules to non-consumer customers with
regard to any breaches:

• in the duty of disclosure that were neither deliberate nor reckless;

• of a warranty, which now merely suspends rather than discharges the insurer’s
liability under the policy; and
• of a warranty where that warranty relates to a risk that is irrelevant to the type of
loss that actually occurred.

B2B Duties of Intermediaries

When acting for a client in relation to a claim, an intermediary must act with due care,
skill and diligence. Both the prudential and conduct of business regulation of
intermediaries is carried out by the FCA in UK and NAICOM in Nigeria. However, its
rules do not set out the full extent of the duties owed by an intermediary to any person
for whom the intermediary acts, nor do they displace the general law on the duties of
agents. The rules and guidance also apply to insurers handling claims on behalf of
another insurer’s policy.

B2C Avoid Conflicts of Interest

An authorised person (firm) must not, in connection with any claim, put itself in a
position where their own interests, or their duty to any person for whom they act,

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conflicts with their duty to any client, unless:

• a proper disclosure was made to the client of all information needed to put the
client in a position where they can give informed consent to the arrangement; and
• the authorised person has obtained the client’s prior informed consent.

The requirement to avoid conflicts of interests is included as one of the Principles for
Businesses. Principle 8 states:

A firm must manage conflicts of interest fairly, both between itself and its
customers and between a customer and another client.

An intermediary must decline to act for the person or client unless, in the particular
circumstances of the case, disclosure and informed consent are sufficient to enable them
to reconcile the conflict.

An intermediary should consider whether it is possible to manage the conflict by

disclosing the conflict to the client and obtaining their consent. Where the intermediary
acts for a client in arranging a policy, they are likely to be the agent for the client in
connection with the preparation and handling of any claim against the insurer.

On occasion, the insurer provides a delegated authority to an intermediary for claims

handling, so that the intermediary becomes the agent of an insurer in relation to claims
under that policy. The intermediary will need to consider whether they are at risk of putting
themselves in the position where they cannot act without some breach of duty, either to the
insurer or the client.

In these circumstances they must consider whether disclosure and consent are sufficient
to reconcile the conflicting obligations. The FCA rules give the example of a
circumstance in which disclosure and consent are unlikely to be sufficient (and when
an intermediary may well consider that they should not act for the insurer or the client
(or both)).

In this situation, the intermediary may know that a. their client will, to obtain a quick
payment, accept a low amount in settlement of a claim and b. the insurer may settle for
a higher amount. This could be particularly relevant where there is a profit share
arrangement with the insurer who is dealing with the claim.

If an intermediary does act for an insurer and not a client in relation to a claim on a
contract arranged for that client, they must inform the client of that fact in relation to
the claim.

If an intermediary receives notification of a claim that relates to a policy that they have
arranged, and the insurer has not given them authority to deal with that claim, the
intermediary must:

• forward the notification to the insurer promptly; or

• inform the client immediately that they cannot deal with the notification.
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B2D Responding to Notification of a Claim by a Consumer

The ICOBS rules have no specific requirements as to the timeframe for responding to
claims beyond stating that an insurer must handle claims promptly and fairly.
NAICOM requires that the timeframe must be within the timelines communicated by
the insurer to the consumer at any time and that such timelines must be ‚prompt‛.

The notification of a claim is a demand, made on the insurer, to pay or provide a benefit
that was insured under the policy. This can be done by, for example, submitting a claim
form or by giving the equivalent information orally, where the policy permits this. An
enquiry as to whether a particular loss is covered, and therefore whether a claim could
be made under the terms of the policy, for example, is not notification of a claim.

A good guide to what could be considered to be ‘prompt’ would be within five business
days of receiving the claim, although it may be less, because of the type of claim or the
terms of the policy (e.g. a roadside assistance policy).

The information that needs to be provided are:

• that the claim relates to a risk that is clearly outside the scope of the policy if that is
the case;
• the action that will be taken by the insurer, and when that action will be taken; and
• if the insurer is appointing any other party to contact the retail customer (unless
checking on the validity of a claim etc) – the name of the party, its function and the
work it will carry out in relation to the claim.

B2E Settling a Claim

Once a settlement has been agreed an insurer must settle a claim promptly. This is
reinforced by legislation.

The Enterprise Act 2016 came into force on 4 May 2017. Part 5 of the Act amends IA
2015 to provide that (re)insurers must pay sums due within a reasonable time.
Policyholders will have the opportunity to claim damages if a (re)insurer’s
unreasonable delay causes additional loss.

Key Features of the Enterprise Act 2016

Following the implementation of the Act it is now an implied term in all ‘insurance
contracts’ that claims must be paid ‘within a reasonable time’. ‘Insurance contracts’ in
this context includes reinsurance contracts.

A key issue here is what constitutes a reasonable time. This will be an objective
judgment, and the Act makes clear that it includes time to investigate and assess the
claim. What else is included will depend on all the circumstances, but relevant issues
are likely to include:

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• the type of insurance (e.g. some third party claims or business interruption losses
may well take longer to investigate than first party property losses);
• the size and complexity of the claim;
• compliance with regulatory rules and guidelines, including, for example,
compliance with sanctions regimes; and
• factors outside the insurer’s control, e.g. the failure of the insured or a third party
to provide information or difficulties in gaining access to loss sites, say for reasons
of safety. It is unlikely to include things like the loss adjuster’s workload, however,
because one would expect the insurer to be responsible for that in any event.

The remedies for breach of this implied term are the usual remedies for breach of
contract, including damages. In other words, the usual tests of causation will have to be
satisfied and the insured will have to prove, on the balance of probabilities, that any loss
for which it claims damages was caused by the insurer’s breach of the implied term. The
right to claim interest for late payment remains and any damages will be in addition to
that interest and in addition to the amount payable under the insurance in respect of the
original claim.
There is a limitation period within which an insured can bring a claim for damages for
late payment of one year from the date of the last payment by the insurer in respect of
the relevant loss.

This last change is reflected in an amendment to the Limitation Act 1980 and the
remaining terms took effect through the inclusion of a new s.13A in the Insurance Act
2015.

In certain circumstances, the parties to a non-consumer contract are able to contract out
of this implied term, subject to the transparency provisions in the Insurance Act 2015.

At least in the short term, the consequence of the introduction of these new rules is
likely to be that pressure to settle difficult claims or to make interim payments is
increased. This may well lead to higher reserves and more capital commitment. There
will also be serious implications for reinsurance contracts. However, these are outside
the scope of this study text.

It is important to note, that nothing in these changes should prevent insurers from
disputing claims in good faith. It should also be remembered that, if the insured wishes
to claim damages for late payment, it will have to be able to prove, on the balance of
probabilities, that it has been caused to suffer a loss as a result of the delay, as well as
the quantum of that loss.

There are specific claims handling rules that apply to motor insurers and compliance
with the terms of the Fourth EU Motor Insurance Directive. These are not summarised
here.

In circumstances where an intermediary act for the insurer under delegated

authority/binder arrangements, they must adhere to the same standards.
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B3 Complaint Handling

A complaint is defined as:

Any oral or written expression of dissatisfaction, whether justified or not, from, or on

behalf of, a person, about the provision of or failure to provide, a financial service.
This applies to eligible complainants.

For non-eligible complainants a firm must have in place and operate appropriate
procedures for registering and responding to the expression of dissatisfaction.

B3A Eligible Complainants

An eligible complainant is defined as a person that is:

• a consumer;
• a micro-enterprise which employs fewer than ten persons and has a turnover or
annual balance sheet that does not exceed N2,000,000.00;
• a charity with an annual income of less than N1,000,000.00; or
• a trust with a net asset value of less than N1,000,000.00.

All complaints from eligible complainants are subject to NAICOM Complaints Bureau
Unit (CBU) handling rules and complainants within these categories have a right of
access to the CBU.

Any offer of settlement or apology must identify the course of action open to an eligible
complainant if they are not satisfied with the offer. This must include details of the
CBU, even if such information was provided at point of sale.

B3B Record Keeping

All complaints files for general insurance must be retained for at least three years from
the date of the complaint. As an absolute minimum the files must include:

• the name of the person dealing with the complaint;

• the name of the complainant;
• the capacity (eligible/non-eligible);
• the substance of the complaint;
• all correspondence and file notes relating to the complaint; and
• any redress offered.

B3C Time Limitations

There are compulsory time limitations under rules of law for dealing with complaints
from eligible complainants.

Every complaint must be acknowledged, in writing promptly. The complainant must be

kept informed of the progress of their complaint. If a complaint cannot be satisfactorily

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resolved within eight weeks after receipt of the complaint the firm must provide a
written response.

This must do one or the other of the following:

1. Be a final response accepts the complaint and where appropriate

that: offers redress or remedial action; or
offers redress or remedial action without accepting
the complaint; or
rejects the complaint and gives reasons for doing
so; and
encloses a copy of the Financial Ombudsman
Services (FOS)’ explanatory leaflet; and
informs the complainant that if they remain
dissatisfied with the firm’s response, they may
refer their complaint to the FOS and must do so
within six months; or
2. Be a written explains why it is not in a position to make a final
response that: response and indicates when it expects to be able
to provide one; and
informs the complainant that they may now refer
the complaint to the FOS; and
encloses a copy of the FOS’s explanatory leaflet.

When producing a final response to a complaint, the letter must include specific
wording stating whether or not the firm will waive the six-month period during which
the complainant may take their complaint to the FOS. It must also provide the FOS
website address.

The FCA will monitor the effectiveness of a firm’s complaint handling. It expects that
within a period of eight weeks of receipt almost all complaints will have been
substantively addressed as just described. When assessing how well a firm has
responded to a complaint, the FCA will consider a number of factors, including the
quality of the response compared to the complaints resolution rules and the speed with
which the response was made. Thus it is important to monitor the progress of
complaints.

If a complainant has already indicated acceptance of the response then, provided the
firm has properly advised the complainant of their right to refer the matter to the FOS,
the firm is relieved of further compliance with the rules.

The FCA continues to monitor complaints procedures and will make changes to the
processes, e.g. time limits, as they see fit, following appropriate consultations with the
parties involved.

NAICOM also requires all the above to be complied with and in addition, expects a
232
comprehensive quarterly report on the customer complaints, resolution and status to be
filed every quarter.

B3D Financial Ombudsman Service (FOS)

In broad terms the FOS will consider a complaint:

• where the amount concerned is a maximum of £150,000;

• only if the insured has already made a formal complaint to their insurer and
received their response, or if the insurer has not responded within eight weeks of
the complaint being made to it;
• not more than six months after the date of the final response; and
• from smaller businesses with an annual turnover of up to €2 million (a limit set
under EU law) and fewer than ten employees.

(You should note that there are certain long-stop provisions in the FCA Rules that allow
for extensions to the six-month period).

The FCA has produced prescribed text which states that, should the complaint be time
barred (i.e. it relates to something that happened more than six years ago), then the FOS
may not consider the complaint.

B4 Data Protection Legislation

To briefly recap, under data protection legislation, individuals (data subjects) have
recourse to the law in the event of any unauthorised disclosure, loss or retention of
inaccurate information by organisations or businesses (data users). They also have a
right of access to personal data in respect of which they are the data subject.

In relation to customer service, the General Data Protection Regulation (GDPR) sets
out that data must be obtained fairly if it is to be processed fairly. The data subject has
various rights, all of which are intended to provide safeguards and protect them as an
individual. To recap, these are:

• the right to be informed;

• the right of access;
• the right to rectification;
• the right to erasure;
• the right to restrict processing;
• the right to data portability (i.e. request a copy of the personal data held on them,
which must be supplied in a format that allows future use);
• the right to object; and
• rights in relation to automated decision making and profiling.

233
Key Points

The main ideas covered by this chapter can be summarised as follows:

What is Customer Service?

• Customer service refers to the broad activities that a company and its employees
undertake in order to satisfy its customers so that they continue as customers and speak
positively about the company to potential customers.
• External customers are those who actually buy the insurance product and others such as
brokers, agencies, third party administrators and investors.
• Internal customers are the employees of the company who receive services from other
employees of the company.
• Consumers are increasingly being given more rights, are more aware of what those
rights are and have high expectations of the type of service they should receive.
• Companies provide added value services and often publish customer care charters in
order to establish good customer care and distinguish themselves from their competitors.
• Quality customer service both keeps existing customers and attracts new ones. The good
reputation of a company attracts quality employees and ultimately profitability is increased.
• Performance standards set out the minimum level of service quality required.
Employees should be regularly appraised against these standards with reward or training
offered as appropriate.
• Competence is defined by the FCA as having the knowledge and expertise to carry out a
function without supervision. The link between the effectiveness of training and
competence is also considered key by the PRA.

Obligations of Organisations Relating to Customer Service

• Regulators require firms to treat customers fairly and must embed this principle in their
corporate strategy and culture, led from the top.
• Firms must have management information that is adequate to demonstrate delivery of
customer based outcomes and examine every process in the light of customer service.
• Firms are required to meet the customer service standards for claims handling as set out
in Market Conduct guideline.
• Claims should be handled promptly and fairly with relevant guidance provided to the
customer. The firm should not unreasonably reject a claim.
• The Enterprise Act gives insureds the right to claim for damages against the insurer wherethey
can prove that a delay in settling a claim has caused them to experience a loss.
• Intermediaries acting for a client in relation to a claim must act with due care, skill and
diligence.
• Conflicts of interest must be avoided or the client’s knowledge and approval obtained.
This is particularly relevant to an intermediary who has received delegated authority from
an insurer to handle claims.

• All complaints from eligible complainants, as defined by the Regulators, are subject to
234
the rules of law. For complaints from non-eligible complainants, the firm must have
appropriate procedures in place for registering and responding to expressions of
dissatisfaction.
• Eligible complainants have access to the CBU and they should be made aware of this.
• In relation to customer service, the General Data Protection Regulation (GDPR) sets out
that data must be obtained fairly if it is to be used fairly.

235
Self-Assessment

1. What is the definition of customer service?

2. What are the three reasons why customer service is important?
3. Who are the ‘internal customers’ of a company?
4. What are the main benefits to a company of providing quality customer service?
5. What is the definition of an eligible complainant under the Rules of law?
6. What are the rights of an individual under the General Data Protection Regulation
(GDPR)?
You will find the answers at the back of the book.

236
 Self-
Assessment
Solutions

237
 Chapter 1
Self-Assessment Answers

1. The main classes are:

• private cars;
• motorcycles; and
• commercial vehicles.
2. The minimum requirement by law is to provide insurance in respect of legal
liability for third party bodily injury or death (unlimited) and third party property
damage (limited to £1.2 million), and for payment of emergency treatment fees.
3. The two exclusions are as follows:
• Damage to property (including the vehicle) owned, held in trust by or in the
custody or control of any person claiming indemnity under the cover.
• Liability covered by any other insurance policy.
4. The main difference is that comprehensive cover grants cover for accidental, and
even malicious, damage to the insured’s vehicle.
5. Your answer should include five from the following list:
• increased cover for personal belongings and clothing;
• young additional drivers;
• loss of use;
• additional personal accident benefits;
• elections;
• racing, competitions, rallies and trials;
• caravans and trailers;
• breakdown cover; and
• joint policies.
6. The main differences are as follows:
• The accidental damage section is the same, except that for motor cycles it
excludes theft of accessories/spare parts unless the motor cycle is stolen at the
same time.
• The liability section for motorcycles generally indemnifies the insured or their
personal representatives in the event of the insured’s death. Others who have
been permitted to use the motorcycle would also be indemnified.
• There are no personal accident benefits, medical expenses or personal effects
cover under the standard motorcycle policy.
7. The main groups are:

238
 • goods-carrying vehicles;
• passenger-carrying vehicles;
• agricultural and forestry vehicles; and
• vehicles of special construction.
8. ‘Driving other vehicles’ is omitted from commercial motor cover because the range
of vehicles is so extensive that insurers do not want to encourage the insured to
drive other vehicles.

239
 Chapter 2
Self-Assessment Answers

1. Personal accident contracts are benefit policies rather than contracts of indemnity
because they seek to provide a sum which is fixed in advanced for certain specified
events.
2. Policy benefits cover:
• death;
• total loss of sight in one or both eyes;
• total loss of one or both limbs;
• permanent total disablement;
• permanent partial disablement;
• temporary total disablement;
• temporary partial disablement; and
• medical expenses.
3. Death must occur within twelve months of the accident.
4. The geographical scope is as follows:
a. Worldwide.
b. UK, Europe, USA, Canada, Australia and New Zealand.
5. Your answer should include three from the following list:
• motorcycling;
• polo;
• racing on horseback or wheels;
• winter sports or mountaineering using ropes or guides; or
• aviation, other than air travel in a fully licensed passenger-carrying aircraft as a
passenger.
6. Inpatients’ cover provides for hospital charges, specialist fees and additional costs.

240
 Chapter 3
Self-Assessment Answers

1. ‘Buildings’ are the main structure of the private dwelling and include garages,
sheds, greenhouses and other outbuildings. Swimming pools and tennis courts are
also included.
2. Your answer should include three from:
• theft;
• riot, civil commotion etc.;
• burst pipes;
• escape of oil; and
• breakage of glass and sanitary fittings.
3. Your answer should include three from:
• temporary removal;
• clothing and personal effects of the insured’s domestic servants;
• accidental breakage of mirrors and glass on or fixed to furniture; and
• loss of rent.
4. The buildings section covers the liability of the insured as owner, while the contents
section covers liability as occupier of the premises.
5. Cover is in respect of deterioration of the freezer contents as a result of changes in
temperature or contamination.
6. Cover is in respect of death from accident, sickness or disease, economic slaughter,
and loss by theft or straying.
7. The basic sections are:
• personal accident benefits;
• medical and associated expenses;
• loss of deposits and other charges incurred as a result of cancellation or
curtailment of the holiday;
• baggage, personal effects and money;
• personal liability;
• delayed baggage;
• hospital cash benefits;
• travel interruption; and
• travel delay.
8. This extension covers the cost of essential items of clothing and toiletries as a result
of delay of baggage for a certain period after the time at which it should have
arrived.
9. Your answer should cover:
• fire and additional perils;
• business interruption;
• theft;
• money;
• glass;

241
• assault;
• goods in transit;
• employers’ liability;
• public liability; and
• products liability.

242
 Chapter 4
Self-Assessment Answers

1. The three perils covered are:

• fire;
• lighting; and
• restricted explosion.
2. The four broad headings are:
• perils of a chemical type;
• social perils;
• perils of nature; and
• miscellaneous perils.
3. ‘All risks’ exclusions may be grouped as follows:
• those exclusions which are absolute;
• those exclusions which relate to an aspect of cover which could be written into
the policy, with care;
• those exclusions which relate to an aspect of cover which could be written into
the policy; and
• those exclusions which relate to property or risks more appropriate to another
class of insurance.
4. Insurers have amended their theft wording under their commercial theft policies to
cover ‘theft involving entry to or exit from the premises by forcible and violent
means’.
5. Your answer should include either of the following:
• damage to shopfront contents as a result of broken glazing; or
• damage to washbasins and sanitary fittings in hairdressing salons.
6. Money insurance is on an ‘all risks’ basis, covering loss from any cause, whether it
is in transit or on premises, subject to agreed limits.
7. Two optional extensions are:
• credit cards; and
• personal accident assault risks (possibly including damage to clothing and
personal effects).

243
 Chapter 5
Self-Assessment Answers

1. Legal expenses insurance provides indemnity for costs arising out of the need to
seek legal advice or to pursue or defend a civil action.
2. The two main types of cover are group legal benefit policies and commercial legal
protection policies.
3. Optional extensions include:
• libel and slander protection;
• cover against the costs of involvement in public enquiries;
• cover against the cost of investigations by professional bodies; and
• cover against the cost of taxation proceedings.
4. Business interruption insurance covers the actual or potential loss of earnings
(‘gross profit’) and additional expenses incurred as a result of material loss.
5. The business interruption policy covers explosion of both domestic and non-
domestic boilers, whereas the material damage policy covers explosion of domestic
boilers only.

244
 Chapter 6
Self-Assessment Answers

1. The Employers’ Liability (Compulsory Insurance) Act 1969 and the Employers’
Liability (Compulsory Insurance) Regulations 1998. The minimum limit is £5
million.
2. Legal liability for damages (plus costs and expenses incurred) if any employee
sustains bodily injury, disease, illness or death arising out of and in the course of
employment by the insured.
3. An employers’ liability policy may be limited by:
• restricting the definition of ‘business’;
• excluding certain kinds of work; or
• excluding certain machines and/or processes.
4. £10 million.
5. ‘Injury’ means bodily injury to or illness, disease or death of any person. ‘Damage’
means loss of or physical damage to material property.
6. Tenants’ liability and defective premises are the two most common extensions.
7. Product liability insurance covers legal liability for bodily injury or property
damage caused by products or goods.
8. Directors’ and officers’ insurance is designed to cover the legal liability of
individuals within a company who may be personally liable for breaches of duty
and so incur financial liabilities.
9. Professional indemnity insurance covers the legal liability of members of the
professions for injury, damage or financial loss to clients/the public as a result of
breach of professional duty or negligent acts, errors or omissions.
10. An extended warranty policy will cover free repairs following electrical and
mechanical defects for a period of up to five years.

245
 Chapter 7
Self-Assessment Answers

1. The most common forms of non-insurance services are:

• helplines and advice;
• authorised repairers and suppliers;
• risk control/advice; and
• uninsured loss recovery services.
2. The types of advice and/or assistance include legal advice, emergency services and
glazing services.
3. The main benefits include:
• collection and delivery of the vehicle;
• no need to obtain repair estimates; and
• loan car provision.
4. Bottlenecks in the production processes.
5. A property surveyor’s report would include the following key elements:
• the surveyor’s view on management and housekeeping standards;
• their view as to the adequacy of the sum insured;
• the estimated maximum loss from an insured peril;
• risk requirements; and
• risk recommendations.
6. The main areas for advice are:
• type of safe;
• methods of transit;
• numbers of cars/people involved;
• varying routes; and
• use of specialist firms for transits.

246
 Chapter 8
Self-Assessment Answers

1. A material circumstance is any which would affect the judgment of a prudent

underwriter in considering whether or not to accept the risk and, if willing to accept
the risk, at what rate of premium and on what terms and conditions.
2. Hazard is the factor which might affect the frequency and severity of the peril.
3. Physical hazard concerns the measurable dimensions of the risk.
4. Moral hazard relates to the human aspects that may influence the outcome of the
risk.
5.
a. Moral hazard (poor).
b. Physical hazard.
c. Physical hazard.
d. Moral hazard (good).
6. A good physical hazard is an aspect of the risk which is likely to reduce the
likelihood of loss or its severity compared to an average risk.
7. The purpose of a proposal form is to gather together all material facts for deciding
on acceptance and terms for the risk.
8. The following questions are common to all proposal forms:
• name;
• address;
• occupation;
• age;
• subject-matter to be insured;
• past insurance history/past loss history;
• sum insured or limit of liability;
• period of insurance; and
• details of other insurances.
9. ‘Risk specific’ questions relate to the class of insurance for which cover is being
sought.

247
 Chapter 9
Self-Assessment Answers

1. A person or firm not directly authorised by the FCA, but able to act as an
intermediary. An authorised person (insurer or intermediary) takes responsibility
for their actions.
2. The benefits are:
• single input of information;
• speed of operation; and
• easy price comparison.
3. Name, address, statutory status (and that this can be checked either on the FCA
website or by telephone) and the scope of the service the intermediary is offering.
4. The quotation remains valid for a set number of days, during which time cover is
not effective (unless stated otherwise). The insurer is legally bound to honour the
quotation in the event that the proposer accepts the quotation within the set
timescale. However, the insurer is not bound to maintain the quotation if the
circumstances, upon which the quotation was based, change.
5. The declaration confirms that the information supplied by the proposer is true and
correct to the best of the proposer’s knowledge and belief. The warning/important
note concerns those facts which should be disclosed and points out the dangers of
non-disclosure of material facts.
6. An insurance premium is the amount paid to an insurer in consideration of the
insurer’s acceptance of the risk.
7. Sum insured ◊ rate = premium
8. An insurance policy is evidence of the contract of insurance, it is not the contract
itself. The policy contains all the details of cover, period of cover, exceptions,
conditions and the premium.
9. A certificate of insurance is issued to an insured to prove that an insurance policy is
in force, usually where that insurance is compulsory by law. For example, in the
case of motor insurance and employers’ liability insurance.

248
 Chapter 10
Self-Assessment Answers

1. A scheduled policy comprises:

• heading;
• recital clause (or preamble);
• signature;
• operative clause;
• exceptions;
• conditions; and
• policy schedule.
2. The operative clause describes the scope of the cover in detail.
3. Common general exceptions in respect of property insurance are:
• war and related perils;
• riot and civil commotion;
• radioactive contamination and explosive nuclear assemblies;
• terrorism;
• pollution and/or contamination;
• marine policies; and
• sonic bangs.
4. Common policy conditions are as follows:
• duties of the policyholder;
• alteration;
• action by the insured in the event of a claim;
• fraud;
• reasonable precautions;
• average (for property insurances);
• contribution;
• subrogation;
• arbitration; and
• cancellation.
5.
• An excess is the first amount of each and every claim that is borne by the insured.
• A deductible is the name usually given to a very large excess, and applies to
commercial rather than personal insurances.
• A franchise is a threshold used to determine whether claims are payable at all; if
the threshold is exceeded then the claim is payable in its entirety.
6. The two categories are:
• conditions precedent to the contract; and
• conditions precedent to liability.
7. A renewal notice brings to the insured’s attention the fact that the insurance
contract is about to expire. The premium to renew the policy is shown on the
renewal notice.

249
 Chapter 11
Self-Assessment Answers

1. Onus of proof is the expression used to describe the duty imposed on an individual
to produce evidence to prove that what has been stated or affirmed is true.
2. An insured has to prove:
• that an insured peril arose; and
• the financial amount of the loss.
3. An insurer must check that:
• the cover was in force at the time of the loss;
• the insured is that named in the policy;
• the peril is covered in the policy;
• the insured has taken reasonable steps to minimise the loss;
• all conditions and warranties have been complied with;
• the principle of utmost good faith was originally complied with;
• no exceptions are appropriate; and
• the value of the loss is reasonable.
4. An insured must:
• act as though uninsured and try to minimise the loss;
• advise the appropriate authorities, where necessary;
• prevent the loss from spreading; and
• not hinder the insurer in the event of the claims investigation.
5. The purpose of the claim form is to:
• establish whether the insured is entitled to indemnity under the policy;
• provide sufficient information to permit the insurer to process the claim, if
appropriate;
• enable the insurer to assess the potential claim amount;
• enable the insurer to consider whether a third party claim is likely; and
• enable the insurer to consider whether any rights of subrogation or contribution
are likely.
6. Contribution is the right of an insurer to call upon other insurers, who are similarly,
but not necessarily equally, liable to the same insured, to share the cost of an
indemnity payment.
7. The formula by which average is calculated is:

8. The MIB operates under:

• the uninsured drivers agreement; and
• the untraced drivers agreement.
9. Claims may be settled by:
• payment of money;
• paying for repairs;
• replacement;
• reinstatement; and

250
 • payment to a third party.
10. Claims reserves are important because:
• financial statements must be submitted to the appropriate regulator; and
• they impact on premium rates.
11. The three main facilities for fraud detection are the Claims and Underwriting
Exchange (CUE), the Art Loss Register (ALR) and the Motor Insurance Anti-Fraud
and Theft Register (MIAFTR2).

251
 Chapter 12
Self-Assessment Answers

1.
• Public data.
• Corporate data.
• Personal data.
2. Your answer should include four from:
• restricted access;
• file saving and backup;
• source documentation retention;
• protection against theft;
• copyright;
• use of passwords; or
• file disposal.
3. The GDPR is concerned with personal data held on automatic data processing
equipment or recorded in a ‘relevant filing system’ (i.e. manually).
4. Corporate data should be protected from:
• malicious alteration;
• deliberate destructive acts; and
• industrial espionage.
5. The Act offers protection against persons who gain unauthorised access to a
computer system.
6. Four from:
• the time of day or night the car is driven;
• the speed at which it is driven on different sorts of road;
• how smoothly it is driven;
• whether breaks are taken on long journeys;
• how many motorway miles are driven;
• total mileage; and
• total number of journeys made.

252
 Chapter 13
Self-Assessment Answers

1. Customer service refers to the broad range of activities that a company and its
employees undertake in order to satisfy customers.
2. The three main reasons are consumer awareness, expectations of service and
competition.
3. Internal customers are the employees of a company who receive service from other
employees of the company.
4. The main benefits of quality customer service are:
• customer loyalty;
• attracting new customers;
• attracting and retaining high-quality employees;
• differentiating a company from its competitors;
• improving the company’s profitability;
• increasing productivity; and
• improving the working environment.
5. An eligible complainant is defined as:
• a private individual;
• a micro-enterprise which employs fewer than ten persons and has a turnover that
does not exceed €2 million;
• a charity with an annual income of less than £1 million; or
• a trustee of a trust with a net asset value of less than £1 million.
6. Under the GDPR, an individual has:
• the right to be informed;
• the right of access;
• the right to rectification;
• the right to erasure (i.e. request that their personal data be deleted and not
disseminated further);
• the right to restrict processing;
• the right to data portability (i.e. request a copy of the personal data held on them,
which must be supplied in a format that allows future use);
• the right to object; and
• rights in relation to automated decision making and profiling.

253
 INDEX

A 59, 61, 62, 65, 69, 70, 89, 94, 103, 104, 125, 129,
accounting, 60,145,199 149, 152, 158, 160, 180, 202, 203, 208, 219, 246,
agreement’, 199 critical, 155, 207, 219,
amount, 1, 8, 9, 11, 30, 33, 42, 47, 49, 51, 56, 58, cumulative, 33, 184
63, 83, 89, 102, 106, 114, 116, 126, 128, 131, customer, 62, 44, 53, 64, 67, 68, 71, 125
151, 158, 166, 168, 170, 174, 186, 202, 204, 205,
206, 216, 217, 221, 223, 228, 232, 244, 246, 247, D
248, 250, 251 damage, 1, 2, 5, 7, 15, 16, 18, 19, 21, 22, 23, 24,
annuity, 31, 32 26, 43, 45, 47, 48, 49, 52, 53, 54, 55, 56, 57, 59,
61, 63, 64, 70, 72, 76, 78, 80, 81, 82, 83, 84, 86,
B 87, 94, 95, 97, 98, 102, 106, 109, 110, 111, 112,
building, 41, 43, 45, 47, 49, 51, 55, 69, 75, 78, 81, 114, 116, 117, 118, 121, 124, 125, 126, 127, 128,
83, 86, 89, 137, 138, 153, 174, 176, 186, 187, 132, 134, 136, 137, 138, 140, 145, 146, 148, 150,
244 151, 153, 154, 155, 158, 178, 187, 241, 243, 244,
business, 2, 4, 5, 6, 9, 10, 5, 16, 29, 33, 40, 57, 59, 246, 248, 249, 251,
62, 63, 67, 69, 70, 72, 73, 76, 89, 91, 93, 94, 95, data, 6, 10, 61, 156, 192, 206, 208, 219, 227
97, 101, 103, 104, 105, 106, 107, 108, 109, 110, deduction, 9, 33, 42, 43, 250
111, 112, 113, 114, 116, 117, 119, 120, 121, 123, disablement, 32, 33
124, 129, 131, 145, 153, 154, 157, 162, 166, 168, documentation, 61, 194, 195, 196, 199, 208, 234
172, 174, 180, 182, 185, 186, 190, 194, 198, 199,
201, 202, 205, 206, 207, 211, 217, 219, 227, 231, E
234, 243, 249, 251, emergency, 9, 18, 55, 59, 62, 67, 149, 150, 151,
160
C employee, 59, 70, 72, 92, 95, 97, 102, 103, 119,
Cancellation, 194, 211, 212, 247 120, 121, 122, 123, 145
capital, 9, 13, 31, 32, 33, 38, 78, 253 employment, 36, 102, 116, 119, 120, 121, 123,
cars, 7, 12, 15, 18, 154, 219, 223 138, 145, 150, 155, 203
cash, 49, 51, 55, 64, 65, 67, 94, 95, 152, 229 exceptions, 86, 119, 211, 225, 232, 236, 238, 239,
charity, 118, 140, 141, 142 241, 248
cheque, 55, 109, 229 expense, 9, 18, 21, 22, 29, 33, 34, 36, 38, 39, 47,
circumstances, 6, 9, 16, 36, 42, 47, 51, 55, 102, 51, 56, 59, 61, 62, 63, 67, 72, 73, 101, 103, 105,
120, 121, 132, 160, 163, 164, 165, 180, 192, 209, 106, 107, 109, 116, 117, 118, 119, 120, 121, 122,
213, 216, 217, 233, 240, 253 124, 125, 159, 160, 183
claim, 10, 5, 8, 9, 10, 11, 15, 30, 31, 33, 47, 51, 81, expenses, 29, 33, 36, 38, 59, 62, 101, 116, 121
84, 102, 105, 109, 110, 116, 119, 121, 122, 124, explosion, 7, 43, 56, 70, 76, 78, 79, 80, 84, 86, 94,
125, 126, 132, 134, 142, 145, 150, 151, 159, 166, 95, 98, 111, 112, 153, 243
169, 170, 172, 174, 184, 190, 191, 198, 201, 203,
210, 212, 214, 217, 221, 238, 240, 243, 246, 247, F
249, 250, 251 financial, 4, 30, 55, 61, 63, 67, 125, 128, 131, 134,
clauses, 86, 120, 122, 123, 166, 173, 174, 187, 236, 136, 140, 146, 166, 184, 194, 196, 198, 199, 200,
238, 239 201, 202, 205, 210, 231, 247
commercial, 1, 18, 19, 26, 41, 69, 73, 86, 101, 103, fire, 3, 6, 7, 9, 24, 26, 28, 40, 41, 56, 63, 69, 70, 73,
105, 116, 214, 216 76, 77, 78, 79, 80, 81, 82, 84, 86, 87, 89, 91, 94,
conditions, 6, 10, 36, 54, 55, 58, 65, 83, 84, 123, 95, 96, 98, 100, 105, 106, 109, 110, 112, 116,
129, 155, 163, 172, 190, 192, 202, 203, 210, 211, 122, 127, 137, 153, 154, 157, 174, 176, 185, 187,
214, 225, 227, 232, 234, 236, 240, 244, 248, 249, 240, 243, 244
251, 252 firms, 41, 66, 103, 154, 198, 206, 207
confidentiality, 7, 220, 235 fraudulent, 97, 174, 246
cost, 10, 6, 9, 12, 15, 33, 36, 42, 43, 47, 51, 53, 56,
254
 H 33, 40, 43, 45, 47, 51, 53, 54, 55, 56, 57, 59, 61,
handling, 338, 349, 361, 368 62, 63, 64, 67, 70, 72, 78, 81, 86, 87, 89, 91, 93,
hazard, 154, 155, 163, 174, 175, 176, 178, 179, 94, 95, 97, 98, 101, 104, 106, 107, 109, 110, 112,
180, 190, 191, 219, 252, 388 116, 118, 119, 120, 121, 124, 125, 126, 127, 128,
heading, 9, 43, 107, 140, 199, 236, 269, 352, 390 132, 134, 136, 137, 140, 145, 146, 149, 150, 151,
health, 7, 11, 29, 36, 103, 105, 136 153, 155, 158, 159, 160, 169, 170, 172, 174, 176,
178, 187, 190, 218, 225, 228, 243, 244, 246, 247,
I 249, 252
indemnity, 5, 19, 23, 30, 38, 39, 55, 56, 57, 64, 65,
73, 101, 105, 106, 109, 116, 118, 120, 123, 124, M
126, 128, 131, 132, 133, 134, 135, 136, 139, 140, management, 4, 9, 140, 142, 152, 153, 156, 158,
142, 145, 148, 184, 187, 210, 212, 214, 221, 223, 159, 168, 186, 206, 217, 252
246, 247 marketing, 10, 12, 211
individual, 47, 51, 327, 334 material, 2, 5, 9, 61, 80, 106, 110, 111, 112, 116,
Individuals, 7, 61, 166, 207 117, 125, 126, 127, 153, 154, 163, 165, 168, 169,
information, 3, 6, 9, 41, 61, 154, 157, 158, 160, 170, 174, 180, 181, 187, 190, 191, 208, 209, 211,
163, 166, 168, 169, 170, 172, 174, 178, 180, 182, 214, 217, 237, 243, 244
184, 186, 187, 189, 190, 192, 194, 196, 198, 199, money, 30, 40, 49, 55, 64, 69, 70, 88, 94, 95, 96,
200, 201, 202, 203, 204, 205, 206, 208, 209, 210, 97, 100, 106, 109, 153, 154, 162, 247
211, 212, 214, 216, 217, 225, 227, 228, 231, 232, moral, 155, 163, 174, 175, 178, 179, 180, 191
233, 234, 236, 237, 238, 249, 250, 252 motor, 9, 1, 2, 5, 7, 9, 13, 16, 17, 18, 19, 20, 21,
information’, 163, 214 23, 24, 25, 26, 27, 28, 30, 34, 53, 55, 57, 61, 88,
insurance, 2, 3, 4, 5, 6, 7, 9, 11, 1, 2, 3, 5, 7, 10, 13, 103, 104, 118, 119, 123, 126, 136, 140, 149, 151,
16, 17, 18, 19, 20, 26, 28, 29, 30, 36, 38, 39, 40, 153, 156, 158, 159, 160, 162, 180, 182, 183, 184,
41, 42, 43, 45, 49, 53, 57, 58, 59, 61, 62, 63, 69, 185, 191, 192, 199, 203, 205, 208, 216, 217, 219,
72, 73, 75, 76, 80, 83, 86, 87, 89, 91, 92, 94, 95, 223, 225, 227, 228, 232, 236, 238, 241, 244, 248,
96, 98, 101, 104, 105, 106, 107, 109, 110, 116, 249, 251
117, 118, 119, 120, 122, 123, 124, 126, 127, 128, motor insurance, 7, 11, 1, 2, 18, 26, 227
129, 132, 134, 136, 137, 138, 140, 142, 143, 144, motor vehicle, 1, 253
145, 146, 148, 149, 150, 151, 152, 153, 154, 156,
157, 158, 160, 162, 163, 166, 167, 168, 169, 170, N
172, 173, 174, 176, 177, 178, 180, 182, 183, 184, notification, 220, 237, 253
185, 186, 187, 190, 192, 194, 196, 198, 199, 200,
201, 203, 204, 205, 206, 207, 208, 209, 210, 211, O
212, 213, 214, 216, 217, 219, 221, 223, 224, 225, ombudsman, 166, 201, 210, 247, 249
227, 228, 230, 231, 232, 233, 234, 236, 237, 238, operative, 234, 236, 238, 239, 240
239, 240, 241, 242, 243, 244, 245, 246, 247, 248,
249, 250, 251, 252, 254, 255 P
package, 7, 11, 40, 41, 43, 63, 65, 69, 70, 73, 75,
L 76, 102
legal, 4, 20, 29, 34, 47, 53, 59, 67, 72, 101, 102, pay, 1, 7, 11, 15, 30, 38, 118, 119, 120, 121, 126,
103, 116, 118, 120, 150, 165, 209, 346, 385, 386 129, 138, 140, 149, 166, 172, 190, 192, 205, 209,
liability, 3, 7, 9, 11, 1, 2, 5, 15, 16, 18, 19, 20, 21, 212, 213, 216, 223, 225, 228, 238, 243, 246
23, 26, 28, 40, 41, 53, 55, 56, 57, 59, 62, 64, 69, pecuniary, 9, 101
70, 72, 73, 74, 75, 89, 94, 97, 98, 99, 105, 118, pension fund trustees, 118, 138
119, 120, 121, 122, 123, 124, 125, 126, 127, 128, perils, 40, 41, 49, 54, 70, 73, 76, 77, 78, 79, 80, 81,
129, 131, 132, 134, 136, 137, 138, 140, 142, 145, 86, 87, 89, 91, 95, 98, 100, 105, 110, 111, 112,
146, 148, 152, 153, 154, 155, 156, 176, 178, 182, 114, 115, 116, 117, 124, 145, 153, 241, 243
185, 186, 187, 199, 221, 223, 227, 228, 234, 240, permanent, 31, 32, 33, 62, 71, 192, 198
241, 243, 244, 246, 248, 252 physical, 34, 41, 67, 106, 110, 116, 125, 150, 153,
lightning, 7, 43, 56, 70, 76, 78, 83, 95, 98 154, 156, 163, 174, 175, 176, 178, 179, 185, 190,
loss, 3, 7, 9, 11, 16, 21, 23, 24, 26, 29, 30, 31, 32, 191
255
policy, 6, 9, 10, 2, 3, 5, 7, 9, 11, 13, 15, 16, 17, 18, 89, 91, 112, 122, 125, 126, 127, 129, 140, 142,
19, 21, 22, 23, 24, 25, 26, 28, 29, 30, 31, 36, 38, 150, 152, 153, 154, 155, 156, 157, 158, 160, 163,
39, 40, 41, 43, 47, 49, 51, 53, 54, 56, 57, 58, 59, 165, 167, 168, 169, 170, 172, 174, 176, 177, 178,
61, 62, 63, 64, 65, 67, 69, 72, 73, 75, 76, 77, 78, 180, 181, 182, 184, 185, 186, 187, 188, 189, 190,
80, 81, 82, 83, 84, 86, 87, 88, 89, 91, 92, 94, 95, 191, 192, 198, 209, 214, 216, 217, 218, 219, 221,
96, 97, 98, 99, 100, 102, 103, 104, 105, 106, 107, 223, 225, 227, 230, 232, 234, 241, 243, 245, 246,
108, 109, 110, 111, 112, 114, 116, 117, 118, 119, road, 2, 3, 5, 7, 11, 13, 16, 45, 104, 158
120, 121, 122, 123, 124, 125, 126, 127, 129, 131,
132, 133, 134, 136, 138, 142, 144, 145, 148, 149, S
151, 156, 157, 158, 159, 160, 164, 166, 172, 183, security, 6, 51, 57, 95, 120, 152, 154, 176, 186,
184, 185, 186, 192, 194, 203, 204, 208, 210, 211, services, 4, 5, 6, 9, 10, 55, 67, 109, 112, 114, 121,
212, 214, 216, 217, 221, 223, 225, 227, 228, 232, 128, 149, 150, 151, 158, 162, 198, 199, 208, 231,
233, 234, 236, 238, 239, 240, 241, 243, 244, 245, shortage, 55
246, 247, 248, 249, 250, 251, 252 signature, 236, 238
policyholder, 34, 109, 184, 207 subrogation, 247, 273, 290,
premium, 6, 9, 5, 7, 9, 11, 12, 13, 15, 18, 19, 21, sum, 11, 29, 30, 31, 32, 33, 38, 40, 43, 45, 47, 49,
22, 23, 24, 26, 27, 34, 40, 47, 51, 55, 62, 67, 68, 50, 51, 54, 55, 56, 62, 63, 64, 65, 67, 69, 70, 71,
69, 70, 73, 86, 89, 92, 94, 96, 97, 109, 112, 121, 89, 91, 92, 99, 107, 108, 109, 114, 153, 154, 214,
123, 144, 149, 152, 153, 158, 163, 166, 170, 172, 219, 221, 240, 244,
174, 180, 184, 186, 190, 192, 194, 205, 207, 208, systems, 11, 176, 192, 208, 209, 233
209, 211, 212, 216, 217, 219, 221, 223, 225, 228,
229, 230, 232, 233, 234, 236, 240, 246, 247, 251 T
product, 12, 74, 105, 118, 120, 123, 126, 127, 128, task, 174
129, 134, 148, 153, 187, 204, 207, 211, 221, 223, traffic, 1, 3, 15, 16, 26, 28, 227
231 transfer, 198, 267, 299, 329
professional, 4, 53, 95, 104, 118, 124, 126, 132, travel, 13, 30, 34, 36, 41, 55, 62, 63, 64, 65, 66, 73,
134, 136, 139, 145, 148, 157, 187, 199, 201, 202, 75, 80, 149, 150, 160, 207, 212
206, 221 turnover, 106, 107, 108, 109, 129, 186, 221, 223
profit, 16, 70, 107, 109, 116, 205, 214
property, 9, 1, 2, 5, 19, 22, 43, 45, 49, 51, 53, 54, U
56, 61, 64, 73, 76, 78, 80, 82, 83, 84, 86, 87, 89, underwriting, 4, 6, 36, 87, 92, 123, 183
91, 92, 94, 98, 101, 103, 105, 106, 114, 116, 121,
124, 125, 126, 127, 128, 132, 134, 136, 137, 138, V
140, 145, 151, 152, 153, 154, 155, 160, 162, 178, value’, 273, 354
179, 184, 186, 187, 203, 221, 225, 227, 241, 243, vehicle, 1, 2, 5, 6, 7, 9, 11, 13, 15, 16, 19, 20, 21,
244, 245, 246, 248, 251 23, 24, 25, 26, 56, 71, 103, 123, 136, 140, 151,
protection, 7, 11, 101, 103, 149, 157, 160, 194, 158, 176, 177, 178, 185, 223, 227, 251
203, 207, 250
provision, 16, 33, 36, 102, 110, 136, 138, 149, 151,
W
152, 159, 165, 169, 174, 176, 187, 196, 198, 199,
warranties, 118, 142, 174, 234, 251, 252
201, 231, 243
water, 45, 47, 53, 62, 67, 70, 78, 80, 83, 84, 86,
public, 1, 2, 5, 41, 65, 72, 73, 81, 103, 104, 105,
114, 153
114, 118, 120, 121, 123, 124, 125, 126, 127, 128,
wordings, 7, 11, 140, 145, 234
129, 134, 137, 138, 142, 145, 148, 153, 155, 157,
workmanship, 45, 54, 86, 87, 151
178, 187, 208, 223, 244
workplace, 179
R
raw materials, 107
risk, 9, 11, 16, 23, 29, 30, 34, 48, 51, 58, 69, 86, 87,

256
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