Insurance
Terminology
Insurer
Insurer
Proposal
Policy of Insurance
What is insurance?
Insurance is the process by which risk is
spread, usually among a large group of
people.
It is a contract by which one party (the
insured) agrees to pay an amount of money
(the premium) to another (the insurer) who
agrees to pay money to or on behalf of the
insured on the happening of an event, which
may be certain or contingent.
Types of Insurance
Fire & Perils
Life
Marine
Superannuation
Worker’s Compensation
Accident - property
Personal Accident
Disability
Liability
Motor Vehicle
CTP
Comprehensive
Third Party Property
Business insurance
Mandatory insurance includes:
workers’ compensation
motor vehicle third party insurance
Business insurance
Optional business insurance includes:
business interruption
business protection
cash in transit
computer failure / lightning strike
directors’ and officers’ liability
employers’ liability
fleet insurance
income protection
Business insurance
key person insurance
litigation risk
loss from burglary
loss of profits
motor vehicle insurance
personal injury
plate glass, glass, windows and showcases
public risk
succession
water leakage
Under and Non-insurance
One in six businesses have no
insurance
42% No 12% No
Bus Int. P.L.
Sources of insurance law
Under common law, the relationship between
the insurer and the insured is regulated by
the law of contract.
Any ambiguity in the language of the contract
is interpreted contra proferentem, against the
insurance company.
Sources of insurance law
Commonwealth insurance statutes include:
the General Insurance Reform Act 2001
the Insurance Contracts Act 1984 (ICA)
the Insurance (Agents and Brokers) Act
1984
the Insurance Act (1973)
the Life Insurance Act 1995
the Marine Insurance Act 1909
Gaps Regulatory Environment for the General Insurance Industry
Overlaps
Regulatory conflicts
Economic inefficiency Ministerial Portfolios
International
Commonwealth Department Regulation &
of The Treasury Financial Services
Advisory Committee
Competitive
Government Policy Pressures
Council of Financial
Regulators Accounting
ATO Standards
Financial Services Board
Trade Reform Act Tax rulings
Practices Insurance Insurance Act becoming law Urgent Issues
Act Contracts Act Group
Corporations Law
Privacy Discrimination
Legislation Legislation State & Territory
Marine (federal and
Statutory schemes
Insurance Act state)
Consumer & Prudential Prudential regulation,
Market Conduct Shareholder regulation & guarantee funds,
nominal defendant schemes,
protection Policyholder product regulation
Equal ACCC protection
Attorney Opportunity
ASIC APRA
General’s Dept Commission,
Privacy State
Commissioner Consumer
Actuaries and Professional Standards
Affairs
Code of Practice
Accounting Standards
Privacy Code
Regulatory levies
Catastrophe Reserves
Taxation Issues
Fire Services Levy / Stamp Duty / GST NSW Insurance Protection Tax
Insurance Contracts Act
Does not apply to
Health Insurance
Marine Insurance
Reinsurance
Workers compensation
Compulsory Third Party insurance
State or Territory Insurance organisations
Limited application to:
Life insurance
Disability insurance
Types of insurance
Contingency insurance is a contract between
the insured and the insurer where the insurer
agrees that, when an event happens, it will
pay an agreed sum of money, e.g. life
insurance.
Indemnity insurance is where the insurer
agrees to pay against the actual loss that the
insured suffered, and there is no certainty
that the event triggering payment will ever
occur, e.g. theft insurance, fire insurance.
Average
If an insured item is insured for less than
80% of the value, the insurance company
may offer to pay only a pro rata portion of
the insured amount.
Where an insured holds two or three policies
for the same risk, recover can only be made
once.
Average
Amount payable =
Value stated in policy x loss
80% of real value
Insurable interest
Traditionally, the insured had to have an
insurable interest in the subject matter of the
insurance.
The ICA has abolished the need for an
insurable interest (ss. 16, 18).
The insured must suffer a pecuniary or
economic loss, but they do not need to show
legal or equitable ownership of any property
lost or damaged (s. 17).
Value
Indemnity
The amount paid by the insurer to the
insured is not more than the loss
sustained; the insured should not profit by
the happening of the event insured
against.
Replacement
The cost of replacing the item with a new
item (i.e.) the insured gains value
Subrogation
After an insurer has paid to the insured the
monies indemnifying the loss suffered, the
insurer is then entitled to recover from any
third party at fault the damages for causing
the loss which otherwise could have been
sought by the insured.
Standard Cover
Provides for standard insurance cover for:
Car
home building
home contents
sickness and accident
consumer credit and
travel
Unless insurer has informed insured of any
departures from standard cover (s 35)
Notification by Insurer
Insurer cannot rely on unusual terms unless
prior to the contract the insurer gave the
insured written notice of the unusual term (s
37)
s22: Insurer to clearly inform insured in
writing of general nature & effect of duty of
disclosure (prescribed form may be used)
(s22)
Duty of Disclosure
Part IV provides a code for
Breach of the duty of disclosure
Misrepresentation
Fraud
by the insured (s33)
Duty of Disclosure
Insurance Contracts Act 1984 (Cth) s. 13
A contract of insurance is a contract based on the utmost
good faith and there is implied in such a contract a
provision requiring each party to it to act towards the other
party, in respect of any matter arising under or in relation
to it, with the utmost good faith.
Duty of Disclosure
Insurance Contracts Act 1984 (Cth) s. 21
1) Subject to this Act, an insured has a duty to disclose to the
insurer before the relevant contract of insurance is entered
into, every matter that is known to the insured, being a
matter that:
a. the insured knows to be a matter relevant to the
decision of the insurer whether to accept the risk and if
so on what terms, or
b. a reasonable person in the circumstances could be
expected to know to be a matter so relevant.
Duty of Disclosure
Insurance Contracts Act 1984 (Cth) s. 21
2) The duty of disclosure does not require the disclosure of a
matter:
a. that diminishes the risk;
b. that is of common knowledge;
c. that the insurer knows or in the ordinary course of his
business as insurer ought to know; or
d. as to which compliance with the duty of disclosure is
waived by the insurer.
Duty of Disclosure
Insurance Contracts Act 1984 (Cth) s. 21
3) Where a person:
a. failed to answer, or
b. gave an obviously incomplete or irrelevant answer to,
a question included in a proposal form about a matter, the
insurer shall be deemed to have waived compliance with
the duty of disclosure in relation to the matter.
Duty of Disclosure
Where a question in the insurance proposal is
ambiguous and a person answered in a
reasonable way, the question will be taken to
have that meaning (s. 23).
Where a statement by the insured is untrue
but made on the basis of a reasonably held
belief, the statement is not to be taken as a
misrepresentation (s. 26).
Ambiguous Questions (s23)
Where:
a) a statement is made in answer to a question
asked in relation to a proposed contract of
insurance; and
b) a reasonable person in the circumstances
would have understood the question to have
the meaning that the person answering the
question apparently understood it to have;
that meaning shall be deemed to be the
meaning of the question.
Reasonable Belief (s26)
1) Where a statement that was made by a
person in connection with a proposed
contract of insurance was in fact untrue but
was made on the basis of a belief that the
person held, being a belief that a reasonable
person in the circumstances would have held,
the statement shall not be taken to be a
misrepresentation.
Relevant to Risk (s26)
2) A statement that was made by a person in
connection with a proposed contract of
insurance shall not be taken to be a
misrepresentation unless the person who
made the statement knew, or a reasonable
person in the circumstances could be
expected to have known, that the statement
would have been relevant to the decision of
the insurer whether to accept the risk and, if
so, on what terms.
Failure to Answer (s27)
A person shall not be taken to have
made a misrepresentation by reason
only that the person failed to answer a
question included in a proposal form or
gave an obviously incomplete or
irrelevant answer to such a question.
Remedies (s 28)
1) Applies where a person under a contract of
general insurance:
a) failed to comply with the duty of disclosure; or
b) made a misrepresentation to the insurer
before the contract was entered into;
but does not apply where the insurer would have
entered into the contract, for the same premium
and on the same terms and conditions if there
was no breach or misrepresentation
Remedies (s28)
2) If the failure was fraudulent, the insurer may
avoid the contract.
3) If the insurer is not entitled to avoid the
contract or, being entitled to avoid the
contract has not done so, the liability of the
insurer in respect of a claim is reduced to the
amount that would place the insurer in a
position in which the insurer would have
been if the failure had not occurred or the
misrepresentation had not been made.
Relief (s 31)
If a contract has been avoided by the Insurer
for fraudulent
Breach of the duty of disclosure
Misrepresentation
A court may, if it would be harsh or unjust
not to do so
Disregard the avoidance
Allow the insured to recover the whole or part of
his claim
Relief (s 31)
A court shall only do so if the insurer has
Not been prejudiced by the fraud; or
The prejudice is minimal
A court shall have regard to:
The need to deter insurance fraud;
The culpability of the insured
Payment of Claim
Interest payable on claims for period during
which unreasonable for insurer to have
withheld payment (s57)