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Before looking at the range of car
insurance policies offered by Dial Direct it is important
to understand some of the principles of general insurance, as
well as be familiar with the industry’s terminology.
What
is Insurance?
Insurance enables those who suffer a loss, or accident, to be compensated for
the effects of their misfortune. The payments come from a fund of money contributed
to by all the holders of individual insurance policies. In other words, individual
risks are pooled and shared, with each policyholder making a contribution to
the common fund.
How does
Insurance Operate?
The contribution paid by a policyholder is known as the premium. The premiums
are paid to the insurers who in turn accumulate the money into a fund from
which claims are paid.
Insurers are professional risk takers. They know the probability of different
types of risk. Then they can calculate the premiums needed to create a fund
large enough to cover any likely loss payments. Clearly only a proportion of
the policyholders will require compensation from the fund at any one time.
For example, in car
insurance a young
person with a high-powered car, or a driver with a long history
of accidents, will pay a higher premium than a mature and experienced
driver with a modest saloon and a claim free record.
Insurance
Types
There are 2 kinds of insurance, life insurance and general insurance. When
you buy a life insurance policy you enter a long-term commitment where you
agree to pay a fixed premium for a set number of years.
General insurance
pays out IF something happens: a car has an accident, a house
is burgled, a holiday is cancelled, someone is careless and damages
another person’s
property. Most life insurance policies pay out WHEN an event happens,
when someone dies or when someone survives beyond a certain date.
What
is Insurable Interest?
Insurable interest is a fundamental insurance principle. It means
that the person wishing to take out the insurance must be legally
entitled to insure the article, or event, or life. The happening
of the event insured against must cause the policyholder financial
loss. For example; Mr Smith would not be able to insure Mr Brown’s
house because its destruction would not cause Mr Smith financial
loss.
General
Insurance Principles
Other general insurance principles apply to the loss. A loss is an event which
gives rise to a claim under a policy. Insurance can provide compensation only
for the actual value of the property. It cannot cover the loss of sentimental
value. A loss may involve financial aspects, the loss/damage or destruction
of property, be caused by death or injury or liability (se below).
There must be a large number of similar
risks so that the likelihood of a claim can be spread among other
policyholders. It must be possible to calculate the chance of the
loss so that a premium can be set which matches the risk. Loss
is the monetary value paid in order to compensate an individual
for the damage caused by an incident. The loss suffered by an individual
can result from damage to property, injury or death
Liability of a person is the legal responsibility to compensate
others for a loss. The person whose action or lack of action
is the cause of a loss being suffered is legally responsible
for the consequences of the incident.
Losses must
not be deliberate and not inevitable. Clearly you could not buy
fire insurance for a house that was already burning. Also, there
are some risks, which have financial implications so vast that
they can be dealt with only by the state. These risks (mainly
those arising from war or nuclear / radioactive material) are
not normally insurable. Insurance takes the risk away from peoples’ lives
and businesses. It brings peace of mind to the policyholder.
In return for paying the premiums the policyholder knows that
if the unexpected occurs and a loss is suffered, financial compensation
will be available from the fund of premiums.
An Insurance
Contract
A Contract is an agreement between two parties. The 2 parties to an insurance
contract are the insurance company (referred to as the First Party) and the
policyholder / client (referred to as the Second Party).
An insurance contract, called the Policy,
becomes valid once the two parties agree on:
- WHAT is to be insured, (the car and
the driver)
- WHAT it will cost, (the premium to be
paid), and
- WHAT the period of insurance will be,
that is, when does it commence, and what is the expiry date.
- (Monthly or Annual Policy)
Motor
Insurance
Most people know something about motor insurance. This is because any vehicle
driven on public roads must have a certain level of insurance. The Road Traffic
Act ensures that drivers must meet liabilities they incur should they injure
other people or cause damage in an accident. The other person, not the insurer
or the insured, is known as the Third Party. The third party may be a pedestrian,
a passenger in the car driven by the insured person, or the driver or passenger
in another vehicle.
The injured Third Party claims compensation
from the driver of the offending car and the driver relies on his
insurers to pay the claim.
Indemnity
Insurance
The insurance Dial Direct offer is known as indemnity insurance. This means
that we undertake to restore the insured to the financial position he/she was
in before the loss occurred. The car insurance policy comes into existence
where the client agrees to pay a premium in return for indemnity insurance.
The premium is determined by the RISK, which the client represents to the insurer,
RISK in turn is determined by:
- The likelihood that a loss will occur,
based on the characteristics of the drivers, the car and the
risk address.
- The probable cost involved if a
loss should happen.
Cover
The law says that drivers must have insurance against third party injury or
damage claims whilst being driven on a road, (a road means a highway and
any other road to which the public has access). The law also states that
the insurer must give to the insured a Certificate of Motor Insurance. Most
motor policies provide additional cover other than a simple certificate of
insurance. At Dial Direct there are 3 levels of motor insurance policy on
offer, each providing indemnity against certain specified perils.
A peril is an event, which can cause a loss, e.g. accidents, theft, fire, malicious
damage, storm. An Insurance Company clearly indicates the perils covered by
its policies and those perils, which are specifically excluded.
Third
Party
Third Party Cover, sometimes referred to as Third Party Liability Insurance,
is insurance cover that you have against liability to another person.
As well as covering the insured to drive
on public roads, this policy provides cover when the car is being
driven on private property. It covers against third party claims
and provides protection against other legal liabilities.
For example, passenger indemnity, covering
the possibility that a passenger in a car may cause an accident
perhaps by opening the door and knocking a cyclist over. It also
provides cover for certain legal costs and emergency treatment
expenses, for example, when an ambulance has been called to the
scene of an accident.
Third
Party Fire and Theft
In addition to the protection provided by third party insurance,
this type of policy covers loss or damage to the insured’s
own vehicle as a result of fire, theft or attempted theft.
It offers the client limited own damage cover, that is protection
for loss or damage suffered by a person to his own property
or person.
Comprehensive
Comprehensive policies offer the widest form of own damage cover available,
although it cannot protect against every conceivable risk. In addition
to the covers described above, comprehensive cover protects in other valuable
ways. The most important of these is accidental damage cover. This means
the policyholder can have their damaged vehicle repaired or replaced after
it has been accidentally damaged, for example, when the client reverses
the car into his garden wall accidentally.
The additional cover that is provided
includes personal accident insurance, a small amount of medical
expenses cover and cover for the loss of, or damage to, the personal
effects in the car.
Underwriting
UNDERWRITING is the process whereby information is collected in order to establish
the RISK. Once we know the risk the client represents the decision is made
as to whether we ACCEPT or DECLINE that risk. If we decline the risk the
process stops. If we accept the risk then we calculate the PREMIUM the client
must pay to cover the risk.
We ask the
questions on behalf of the panel members and the system checks
the answers against the “Underwriting
Criteria” to make the decisions mentioned above.
The assessment of risk (and hence the premium) for motor insurers
is based around 3 main factors:
- The Risk Address
- The Car
- The Driver/s
It is the inalienable right of an insurance
company to reject any risk, which it may find unacceptable.
There are 2 stages to the Dial Direct underwriting
process:
The
Quote Phase
During the Quote Phase the system will determine the premium and the acceptability
of the risk. After collecting the underwriting information the client is
provided with a quote. A quote is the offer from the insurer to the prospective
client of cover, for a premium. The client may decline the offer.
The
Underwriting Phase
During the Underwriting or Sale Phase, the system will determine the acceptability
of the risk but the premium does not usually change. Underwriting occurs
during the quote and sale of the policy, at any time an amendment is made,
and, at the settlement of any claim on the policy.
Non-Disclosure
The insurance industry relies entirely on the information provided by the client
to decide if the client presents an acceptable risk and to determine the
correct premium that should be charged. If a client provides false or incomplete
information about the risk, the actual risk may be different from the one
that was agreed upon. In such a case the policy would be affected and at
worst may leave the client uninsured. Information deliberately withheld in
response to a direct question is referred to as a non-disclosure.
Claims
In the event of a loss the client will have the option to claim. A claim is
the demand for compensation under the terms of an insurance policy, following
an incident in which a loss occurred. An insurance company may decide to
pay a claim, or, not to pay a claim.
If a client has a level of cover that provides cover for the risk causing the
loss, and has paid the premium, etc, the claim will be paid (or settled).
In the event of non-payment or a specifically
excluded risk, the insurance company denies responsibility for
indemnifying the client. This is usually referred to as a repudiation,
where the claim has been repudiated.
Any payment of a claim, except for liability
claims paid to a Third Party, will be subject to an excess. The
excess is the uninsured portion of a loss, or the contribution
the client is expected to pay towards the cost of settling the
claim.
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