CII R05 Underwriting and Claims

Question 1

In the context of protection insurance, what does the principle of 'utmost good faith' (uberrima fides) require of the applicant?

Accepted Answer

The applicant must take reasonable care not to make a misrepresentation and must answer questions honestly and to the best of their knowledge

Answer

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?

Accepted Answer

The insurer can apply a proportionate remedy — what they would have done had the correct information been provided

Answer

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?

Accepted Answer

To assess the health risks of the applicant and determine appropriate terms, premium loadings, or exclusions

Answer

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:

Accepted 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

Answer

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?

Accepted 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

Answer

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.

CII R05 Practice Test

CII R05 Practice Test

CII R05 Underwriting and Claims