CII R05 Underwriting and Claims — Questions and Answers
Question 1: In the context of protection insurance, what does the principle of 'utmost good faith' (uberrima fides) require of the applicant?
- The applicant must disclose every detail of their medical history going back to birth
- The applicant must take reasonable care not to make a misrepresentation and must answer questions honestly and to the best of their knowledge (Correct answer)
- The insurer must accept every application regardless of risk
- The applicant must provide a medical examination for all policies
Correct answer: The applicant must take reasonable care not to make a misrepresentation and must answer questions honestly and to the best of their knowledge
Under the Consumer Insurance (Disclosure and Representations) Act 2012, the duty of utmost good faith was reformed. The applicant must now take reasonable care not to make a misrepresentation when answering the insurer's questions. The burden shifted from the applicant volunteering all material facts to the insurer asking the right questions.
Question 2: Under the Consumer Insurance (Disclosure and Representations) Act 2012, what remedy is available to an insurer if a consumer makes a careless misrepresentation?
- The insurer can automatically void the policy and retain all premiums
- The insurer can apply a proportionate remedy — what they would have done had the correct information been provided (Correct answer)
- The insurer has no remedy and must pay the claim in full
- The insurer can impose a criminal penalty on the policyholder
Correct answer: The insurer can apply a proportionate remedy — what they would have done had the correct information been provided
For a careless (non-deliberate or reckless) misrepresentation, the Act provides a proportionate remedy. The insurer applies the action they would have taken had the truth been known: if they would have charged a higher premium, the claim is reduced proportionately; if they would have excluded a condition, that exclusion applies; if they would have declined the risk entirely, the policy is voided but premiums are refunded.
Question 3: What is the purpose of medical underwriting in protection insurance?
- To provide the applicant with a free health check
- To assess the health risks of the applicant and determine appropriate terms, premium loadings, or exclusions (Correct answer)
- To diagnose medical conditions that the applicant is unaware of
- To ensure the applicant qualifies for state benefits
Correct answer: To assess the health risks of the applicant and determine appropriate terms, premium loadings, or exclusions
Medical underwriting assesses the applicant's health risks to determine whether the policy can be offered on standard terms, with an increased premium (loading), with specific exclusions, or declined altogether. The insurer uses health questionnaires, GP reports, medical examinations, and other evidence to evaluate the level of risk.
Question 4: A 'moratorium' approach to underwriting pre-existing conditions means:
- All pre-existing conditions are permanently excluded from cover
- Conditions for which the applicant has not sought treatment or advice during a specified period (e.g., 5 years) before the policy start date will be covered (Correct answer)
- The insurer will cover all conditions immediately from day one
- Pre-existing conditions are only covered after the policyholder reaches age 65
Correct answer: Conditions for which the applicant has not sought treatment or advice during a specified period (e.g., 5 years) before the policy start date will be covered
Under moratorium underwriting, pre-existing conditions are excluded unless the applicant has been free of symptoms, treatment, and medical advice for a specified period (commonly 2-5 years) before the policy start date. This approach avoids detailed medical disclosure at application stage, but exclusions only become apparent at claim time.
Question 5: What is 'evidence of insurability' and when might it be required?
- It is proof that the applicant has previously held insurance
- It is medical or financial evidence required by the insurer to confirm the applicant is an acceptable risk, typically when exercising guaranteed insurability options or for high sums assured (Correct answer)
- It is a certificate confirming the policyholder has no outstanding claims
- It is a reference from the applicant's employer confirming their occupation
Correct answer: It is medical or financial evidence required by the insurer to confirm the applicant is an acceptable risk, typically when exercising guaranteed insurability options or for high sums assured
Evidence of insurability includes medical reports, examinations, blood tests, or financial evidence that the insurer requires to assess the risk. It may be required for high sums assured, when exercising guaranteed insurability options on some policies, or when the applicant's health questionnaire reveals potential concerns. The extent of evidence required increases with the sum assured.
Question 6: An insurer discovers that a policyholder made a deliberate misrepresentation on their application. Under the Consumer Insurance Act 2012, the insurer can:
- Only apply a premium loading going forward
- Avoid the contract, refuse the claim, and retain all premiums paid (Correct answer)
- Reduce the claim by 50% as a penalty
- Take no action as the policy has already been issued
Correct answer: Avoid the contract, refuse the claim, and retain all premiums paid
For a deliberate or reckless misrepresentation, the Consumer Insurance Act 2012 gives the insurer the strongest remedy: they can treat the policy as if it never existed (avoid the contract), refuse any claim, and retain all premiums paid. This reflects the severity of intentional dishonesty in the insurance relationship.
CII R05 Underwriting and Claims
In the context of protection insurance, what does the principle of 'utmost good faith' (uberrima fides) require of the applicant?