Insurance Underwriting Process Mohsen Gharahkhani September, 2021 کافه کتاب بیمه material fact Marine Insurance Act 1906

1. Insurance Underwriting
Process
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Presented by: Mohsen Gharahkhani
September, 2021

2. Chapter One:
Material Facts
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3. Table of Contents
A Principles of Utmost Good Faith
B What is a Material Fact?
C Duty of Disclosure
D Consequences of Non-disclosure
E Physical and Moral Hazard
F Obtaining Material Facts
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4. Introduction
In the early days of marine insurance, the details of a ship or cargo to be
insured would be described on a slip.
This slip would be taken to Lloyd's and the person who was to carry the
risk would read the details, then sign the slip under the details of the risk.
In this way, the person carrying the risk became known as the underwriter.
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5. Sample singed slip
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6. REINSURANCE JOURNAL 6

7. underwriting process
is far more complicated nowadays
but the term still applies.
the concept of the common pool: the contributions of many people to this
pool and , out of which the losses of the few are met.
In essence, the task of the underwriter is to manage this pool as effectively
and profitably as possible.
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8. the role of underwriting
assess the risk which people bring to the pool;
decide whether or not to accept the risk, or how much to accept;
determine the terms, conditions and scope of cover to be offered; and
calculate a suitable premium.
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9. Our course of study
• Looking at the structure and content of policy wordings,
• Premium payment,
• Renewal and cancellation procedures,
• The main aspects of rating,
• The developments in related products and services,
• The principles involved in managing the underwriting account.
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10. the role of underwriting
• the role of underwriting involves 'assessing the risk which people bring
to the pool‘
• material facts in that assessment,
• the duty of disclosure,
• physical and moral hazard=> the significance
• obtain material facts=> ways
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11. Principles of utmost good faith
Certain elements for a contract to be legally binding are:
Consideration
Acceptance
Offer
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12. Consideration
•
‫بیمه‬ ‫قانون‬
•
‫ماده‬
1
-
‫بیمه‬
‫در‬ ‫کند‬ ‫می‬ ‫تعهد‬ ‫طرف‬ ‫یک‬ ‫آن‬ ‫موجب‬ ‫به‬ ‫که‬ ‫است‬ ‫عقدی‬
‫وجه‬ ‫پرداخت‬ ‫ازاء‬
‫در‬ ‫دیگر‬ ‫طرف‬ ‫از‬ ‫وجوهی‬ ‫یا‬
‫بپردازد‬ ‫معینی‬ ‫وجه‬ ‫یا‬ ‫نموده‬ ‫جبران‬ ‫را‬ ‫او‬ ‫بر‬ ‫وارده‬ ‫خسارت‬ ‫حادثه‬ ‫بروز‬ ‫یا‬ ‫وقوع‬ ‫صورت‬
.
‫متعهد‬
‫را‬
‫بیمه‬
‫تعهد‬ ‫طرف‬ ‫گر‬
‫را‬
‫بیمه‬
‫که‬ ‫را‬ ‫وجهی‬ ‫گذار‬
‫بیمه‬
‫به‬ ‫گذار‬
‫پردازد‬ ‫می‬ ‫بیمهگر‬
‫حق‬
‫بیمه‬
‫که‬ ‫را‬ ‫آنچه‬ ‫و‬
‫بیمه‬
‫موضوع‬ ‫شود‬ ‫می‬
‫بیم‬
‫ه‬
‫نامند‬
.
•
‫ماده‬
12
-
‫نشد‬ ‫اظهار‬ ‫مطالب‬ ‫و‬ ‫بنماید‬ ‫کاذبه‬ ‫اظهارات‬ ‫عمدا‬ ‫یا‬ ‫کند‬ ‫خودداری‬ ‫مطالبی‬ ‫اظهار‬ ‫از‬ ‫عمدا‬ ‫گذار‬ ‫بیمه‬ ‫هرگاه‬
‫ه‬
‫بیمه‬ ‫عقد‬ ‫بکاهد‬ ‫گر‬ ‫بیمه‬ ‫نظر‬ ‫در‬ ‫آن‬ ‫اهمیت‬ ‫از‬ ‫یا‬ ‫داده‬ ‫تغییر‬ ‫را‬ ‫خطر‬ ‫موضوع‬ ‫که‬ ‫باشد‬ ‫طوری‬ ‫کاذبه‬ ‫اظهارات‬ ‫یا‬
‫باطل‬
‫باشد‬ ‫نداشته‬ ‫حادثه‬ ‫وقوع‬ ‫در‬ ‫تاثیری‬ ‫مذکوره‬ ‫مراتب‬ ‫اگر‬ ‫حتی‬ ‫بود‬ ‫خواهد‬
.
‫بی‬ ‫که‬ ‫وجوهی‬ ‫فقط‬ ‫نه‬ ‫صورت‬ ‫دراین‬
‫گذار‬ ‫مه‬
‫اس‬ ‫افتاده‬ ‫عقب‬ ‫تاریخ‬ ‫آن‬ ‫تا‬ ‫که‬ ‫را‬ ‫اقساطبیمه‬ ‫دارد‬ ‫حق‬ ‫گر‬ ‫بیمه‬ ‫بلکه‬ ‫نیست‬ ‫استرداد‬ ‫قابل‬ ‫است‬ ‫پرداخته‬
‫بیمه‬ ‫از‬ ‫نیز‬ ‫ت‬
‫کند‬ ‫مطالبه‬ ‫گذار‬
.
•
‫ماده‬
13
-
‫شود‬ ‫نمی‬ ‫باطل‬ ‫بیمه‬ ‫عقد‬ ‫نباشد‬ ‫عمد‬ ‫روی‬ ‫از‬ ‫واقع‬ ‫خالف‬ ‫اظهارات‬ ‫یا‬ ‫مطالبی‬ ‫اظهار‬ ‫از‬ ‫خودداری‬ ‫اگر‬
–
‫درای‬
‫ن‬
‫ح‬ ‫اضافه‬ ‫یا‬ ‫دارد‬ ‫حق‬ ‫گر‬ ‫بیمه‬ ‫شود‬ ‫معلوم‬ ‫حادثه‬ ‫وقوع‬ ‫از‬ ‫قبل‬ ‫واقع‬ ‫خالف‬ ‫اظهار‬ ‫یا‬ ‫نشده‬ ‫اظهار‬ ‫مطالب‬ ‫هرگاه‬ ‫صورت‬
‫ق‬
‫کند‬ ‫فسخ‬ ‫را‬ ‫بیمه‬ ‫قرارداد‬ ‫یا‬ ‫و‬ ‫کند‬ ‫ابقاء‬ ‫را‬ ‫قرارداد‬ ‫داشته‬ ‫دریافت‬ ‫او‬ ‫رضایت‬ ‫درصورت‬ ‫گذار‬ ‫بیمه‬ ‫از‬ ‫را‬ ‫بیمه‬
–
‫درصورت‬
‫فس‬ ‫اثر‬ ‫دهد‬ ‫گذاراطالع‬ ‫بیمه‬ ‫به‬ ‫قبضه‬ ‫دو‬ ‫سفارشی‬ ‫نامه‬ ‫یا‬ ‫نامه‬ ‫اظهار‬ ‫موجب‬ ‫به‬ ‫را‬ ‫مراتب‬ ‫باید‬ ‫گر‬ ‫بیمه‬ ‫فسخ‬
‫روز‬ ‫ده‬ ‫خ‬
‫فسخ‬ ‫تاریخ‬ ‫تا‬ ‫دریافتی‬ ‫حقبیمه‬ ‫اضافه‬ ‫باید‬ ‫گر‬ ‫بیمه‬ ‫و‬ ‫شود‬ ‫می‬ ‫شروع‬ ‫گذار‬ ‫بیمه‬ ‫به‬ ‫مراتب‬ ‫ابالغ‬ ‫از‬ ‫پس‬
‫گذار‬ ‫بیمه‬ ‫به‬ ‫را‬
‫دارد‬ ‫مسترد‬
.
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13. Principles of utmost good faith
Principle of Caveat Emptor : Let the Buyer Beware.
Misrepresentation Act 1967, the Consumer Credit Act 1974 and the Sale of
Goods Act 1979
London General Omnibus Co. Ltd v. Holloway (1912):
“The person seeking to insure may fairly be presented to know all the circumstances
which materially affect the risk, and, generally, is, as to some of them, the only
person who has the knowledge.”
Would it be fair to allow this position to
exist with insurance contracts?
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14. {London General Omnibus Co Ltd v
Holloway: 1912 https://swarb.co.uk/ }
• Lee was employed by the bus company in a position which involved
receiving money on their behalf. The bus company required him to
obtain a fidelity bond from a third party. The bond was given by
Holloway, a relative of Lee, without either the bus company or Lee
disclosing the fact that Lee had previously misappropriated money due
to the bus company. The bus company then sued Holloway to recover
further sums misappropriated by Lee. The court considered the nature of
a surety’s contract. It discussed the case of Hamilton v Watson: ‘Lord
Campbell, it is true, takes as his example of what might not be naturally
expected an unusual contract between creditor and debtor whose debt
the surety guarantees, but I take it this is only an example of the general
proposition that a creditor must reveal to the surety every fact which
under the circumstances the surety would expect not to exist, for the
omission to mention that such a fact does exist is an implied
representation that it does not.’
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15. Principles of utmost good faith
Utmost Good Faith (Latin terms: uberrimae fides) define as:
A positive duty voluntarily to disclose, accurately and fully all the facts
material to the risk being proposed, whether requested or not.
Proposer : the main supplier of the “Material Facts”.
An important summary of the principle of utmost good faith was given in
Rozanes v. Bowen (1928):
“As the underwriter knows nothing and the man who comes to him to ask him to
insure knows everything, it is the duty of the assured .. . to make a full disclosure
to the underwriter without being asked of all the material circumstances. This is
expressed by saying it is a contract of the utmost good faith.”
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16. Rozanes v Bowen: CA 1928
• The court considered a proposal form for a jeweler’s block policy as filled
in by the insured or his agent which incorrectly identified only one
previous loss although there were several previous losses. The form
stated that ‘It is understood that this proposal will serve as the basis of
the contract if a policy is issued’.
Held: Scrutton LJ said: ‘The second point [taken by the insured’s Counsel]
was that the answers were not in any way incorporated with the policy so
that the correct answering was a condition precedent. The answer to that
appears to be at the bottom of the form: ‘This proposal is to serve as the
basis of the contract’; and, if so, the truth of the statements in it is equally
the basis of the contract.’
References: (1928) 32 Ll L Rep 98
Judges: Scrutton, Sankey LJJ
Jurisdiction: England and Wales
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17. Banque Keyser Ullmann SA v Skandia
(UK) Insurance Co Ltd: HL 1991
• The principle does apply to both parties, and the 1986 case of Banque Keyser Ullmann
SA v. Skandia (UK) Insurance Company Ltd confirmed that the duty also applies to an
insurer.
• Banks had made loans against property which the borrower had said was valuable, and,
also insurance policies against any shortfall on the realisation of the property. The
borrower was a swindler and the property worthless. The insurers relied upon a fraud
exception in the policies to repudiate liability. The banks discovered that the agent of
their broker who had placed the insurance had, by an altogether separate fraud, issued
cover notes in respect of non-existent policies for part of the risk. This had come to the
knowledge of one of the insurers before a substantial part of the advances had been
made. The banks claimed that the insurers were under a duty of good faith to disclose
this information and that, if they had done so, the banks would have so distrusted the
brokers that they would have made no advance and therefore suffered no loss.
Held: Assuming that a duty to disclose the information existed, the breach of duty did
not cause the loss. The failure to inform the lenders of the broker’s fraud had induced
them to think that valid policies were in place. But even if this had been true, the loss
would still have happened. The insurers would still have been entitled to repudiate the
policies under the fraud exception.
Lord Templeman, Lord Jauncey of Tullichettle
[1991] 2 AC 249, [1990] 1 QB 665, [1990] 2 All ER 947, (1990) 6 ANZ Insurance Cases 60-
987, [1990] 3 WLR 364
England and Wales
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18. What is a material fact?
Something that has a bearing on the risk insured.
The Marine Insurance Act 1906 defines a material fact, and is worded as
follows:
“Every circumstance is material which would influence the judgement of a prudent
insurer in fixing the premium or determining whether he will take the risk.”
If a proposer is in any doubt about whether a fact is material or not, it
should be disclosed.
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19. REINSURANCE JOURNAL 19

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21. Facts that do not need to be disclosed
Facts of law
Facts of public knowledge
Spent' convictions under the Rehabilitation of Offenders Act 1974
Facts which lessen the risk
Facts where the insurer has waived its rights to the information
Facts that a survey should have revealed
Facts that the insured did not know
Facts covered by the policy terms
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22. The Rehabilitation of Offenders Act 1974
• The Rehabilitation of Offenders Act 1974 gives people with spent
convictions and cautions the right not to disclose them when applying for
most jobs, and buying insurance. Apart from those given prison
sentences of more than 4 years, most people with convictions will benefit
from it at some point in their lives.
• Applying for insurance
Once your convictions are spent, the Act gives you the right not to disclose
them when applying for insurance. For example, spent motoring
convictions do not need to be disclosed when applying for car insurance.
This applies no matter what question an insurance company asks. Most will
only ask for unspent convictions, although some might ask for ‘any
convictions in the last 5 years’. If it’s spent, you do not need to disclose it
under any circumstances when applying for insurance.
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23. Duty of Disclosure
• Disclosure of material facts is an essential part of insurance.
• The leading case establishing the duty of disclosure was the 1766 case of
Carter v. Boehm (1766) where Lord Mansfield said:
“Insurance is a contract upon speculation. The special facts, upon which the
contingent chance is to be computed, lie most commonly in the knowledge of the
insured only: the underwriter trusts to his representation, and proceeds upon the
confidence that he does not keep back any circumstance in his knowledge, to mislead
the underwriter into a belief that the circumstance does not exist, and to induce him
to estimate the risk as it did not exist.”
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24. Carter v Boehm: 1766
• Lord Mansfield CJ said: ‘The underwriter, here, knowing the governor to be
acquainted with the state of the place; knowing that he apprehended danger,
and must have some ground for his apprehension; being told nothing of
either; signed this policy, without asking a question. If the objection ‘that he
was not told’ is sufficient to vacate it, he took the premium knowing the
policy to be void; in order to gain, if the alternative turned out one way; and
to make no satisfaction, if it turned out the other: he drew the governor into a
false confidence . . If he thought that omission an objection at the time, he
ought not to have signed the policy with a secret reserve in his own mind to
make it void; if he dispensed with the information, and did not think this
silence an objection then; he cannot take it up now, after the event.’ and
‘There are many matters as to which the insured may be innocently silent. He
need not mention what the underwriter knows: what way soever he came to
the knowledge. The insured need not mention what the underwriter ought to
know: what he takes upon himself the knowledge of: or what he waives being
informed of…and either party may be innocently silent as to grounds open to
both to exercise their judgment upon.’
There may be circumstances in which an insurer, by asserting a right to avoid
for non-disclosure, would himself be guilty of want of good faith.
Lord Mansfield CJ
[1766] 3 Burr 1905, [1766] EngR 13, (1766) 3 Burr 1905, (1766) 97 ER 1162 (C)
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25. Duration of the duty of disclosure
Duration of the duty of disclosure:
The duty starts when negotiations begin and ends when the contract is
formed.
From the inception date until renewal negotiation, there is no
requirement to declare material facts unless these affect the policy
cover.
However, a fact affecting the risk need not be disclosed until renewal,
unless there is a specific policy condition that extends the duty into a
continuing one.
The duty of disclosure is then revived at renewal for short-term
business.
At
Inception
Mid-term
Adjustment
Renewal
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26. duty of disclosure
•
‫ماده‬
16
-
‫هرگاه‬
‫بیمه‬
‫آن‬ ‫مناسبت‬ ‫به‬ ‫که‬ ‫را‬ ‫خطری‬ ‫خود‬ ‫عمل‬ ‫نتیجه‬ ‫در‬ ‫گذار‬
‫بیمه‬
‫تشدی‬ ‫است‬ ‫شده‬ ‫منعقد‬
‫کند‬ ‫د‬
‫آن‬ ‫کیفیات‬ ‫از‬ ‫یکی‬ ‫یا‬
‫منعقد‬ ‫بیمه‬
‫موضوع‬ ‫وضعیت‬ ‫یا‬ ‫کیفیات‬ ‫از‬ ‫یکی‬ ‫یا‬ ‫کند‬ ‫تشدید‬ ‫است‬ ‫شده‬
‫بیمه‬
‫بطوری‬ ‫را‬
‫بودبیمه‬ ‫موجود‬ ‫قرارداد‬ ‫از‬ ‫قبل‬ ‫مزبور‬ ‫وضعیت‬ ‫اگر‬ ‫که‬ ‫دهد‬ ‫تغییر‬
‫شرای‬ ‫با‬ ‫قرارداد‬ ‫انعقاد‬ ‫برای‬ ‫حاضر‬ ‫گر‬
‫مذکوره‬ ‫ط‬
‫نمی‬ ‫قرارداد‬ ‫در‬
،‫گشت‬
‫باید‬
‫بیمه‬
‫کند‬ ‫مستحضر‬ ‫آن‬ ‫از‬ ‫بالفاصله‬ ‫را‬ ‫گر‬
–
‫تغییر‬ ‫یا‬ ‫خطر‬ ‫تشدید‬ ‫اگر‬
‫وضعیت‬
‫موضوع‬
‫بیمه‬
‫عمل‬ ‫نتیجه‬ ‫در‬
‫بیمه‬
‫در‬ ‫را‬ ‫مراتب‬ ‫باید‬ ‫مشارالیه‬ ‫نباشد‬ ‫گذار‬
‫روز‬ ‫ده‬ ‫ظرف‬
‫خ‬ ‫اطالع‬ ‫تاریخ‬ ‫از‬
‫رسما‬ ‫ود‬
‫به‬
‫بیمه‬
‫کند‬ ‫اعالم‬ ‫گر‬
.
‫فوق‬ ‫در‬ ‫مذکور‬ ‫مورد‬ ‫دو‬ ‫هر‬ ‫در‬
‫بیمه‬
‫حق‬ ‫اضافه‬ ‫دارد‬ ‫حق‬ ‫گر‬
‫بیمه‬
‫به‬ ‫نموده‬ ‫معین‬ ‫را‬
‫بیمه‬
‫ک‬ ‫پیشنهاد‬ ‫گذار‬
‫و‬ ‫ند‬
‫که‬ ‫صورتی‬ ‫در‬
‫بیمه‬
‫خط‬ ‫تشدید‬ ‫اگر‬ ‫و‬ ‫کند‬ ‫فسخ‬ ‫را‬ ‫قرارداد‬ ‫نشود‬ ‫آن‬ ‫پرداخت‬ ‫و‬ ‫قبولی‬ ‫برای‬ ‫حاضر‬ ‫گذار‬
‫در‬ ‫ر‬
‫خود‬ ‫عمل‬ ‫نتیجه‬
‫بیمه‬
‫درصورت‬ ‫و‬ ‫کند‬ ‫مطالبه‬ ‫او‬ ‫از‬ ‫عمومی‬ ‫محاکم‬ ‫مجرای‬ ‫از‬ ‫نیز‬ ‫را‬ ‫وارده‬ ‫باشدخسارات‬ ‫گذار‬
‫ی‬
‫که‬
‫بیمه‬
‫آن‬ ‫مثل‬ ‫باشد‬ ‫داده‬ ‫قراداد‬ ‫عقد‬ ‫بقاء‬ ‫به‬ ‫رضایت‬ ‫انحاء‬ ‫از‬ ‫نحوی‬ ‫به‬ ‫خطر‬ ‫تشدید‬ ‫اطالع‬ ‫از‬ ‫پس‬ ‫گر‬
‫اقساطی‬ ‫که‬
‫وجه‬ ‫از‬
‫بیمه‬
‫از‬ ‫مراتب‬ ‫از‬ ‫اطالع‬ ‫از‬ ‫پس‬ ‫را‬
‫بیمه‬
‫پرداخت‬ ‫او‬ ‫به‬ ‫حادثه‬ ‫وقوع‬ ‫از‬ ‫بعد‬ ‫خسارت‬ ‫یا‬ ‫کرده‬ ‫قبول‬ ‫گذار‬
‫باشد‬ ‫ه‬
‫کند‬ ‫استناد‬ ‫مذکوره‬ ‫مراتب‬ ‫به‬ ‫تواند‬ ‫نمی‬ ‫دیگر‬
–
‫حق‬ ‫اقساط‬ ‫وصول‬
‫بیمه‬
‫خط‬ ‫تشدید‬ ‫از‬ ‫اطالع‬ ‫از‬ ‫بعد‬
‫یا‬ ‫ر‬
‫رضایت‬ ‫بر‬ ‫دلیل‬ ‫آن‬ ‫نحو‬ ‫و‬ ‫حادثه‬ ‫وقوع‬ ‫از‬ ‫پس‬ ‫خسارت‬ ‫پرداخت‬
‫بیمه‬
‫باشد‬ ‫می‬ ‫قرارداد‬ ‫بقاء‬ ‫به‬ ‫گر‬
.
•
‫ماده‬
35
-
‫قراردادهای‬ ‫در‬ ‫توانند‬ ‫می‬ ‫طرفین‬
‫بیمه‬
‫دیگری‬ ‫شرط‬ ‫هر‬
،‫بنمایند‬
‫ماده‬ ‫در‬ ‫مذکوره‬ ‫موعد‬ ‫لیکن‬
16
‫را‬
‫کنند‬ ‫تمدید‬ ‫یکدیگر‬ ‫رضایت‬ ‫به‬ ‫را‬ ‫موعد‬ ‫است‬ ‫ممکن‬ ‫ولی‬ ‫دهند‬ ‫تقلیل‬ ‫توانند‬ ‫نمی‬
.
REINSURANCE JOURNAL 26

27. Policy wording requirements
Commercial
Property Insurance
Motor Insurance Public Liability
Insurance
27
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28. C2 Disclosure by an agent or
intermediary effecting insurance
• Where an insurance is effected for the proposer by an agent or
intermediary, the agent or intermediary must not only make a full
disclosure of all the facts communicated to them by the proposer, but also
any additional information which they are aware of.
• The proposer must use due diligence to communicate all information to
their agent until the insurance is placed.
• due diligence: reasonable steps taken by a person to avoid committing a
tort or offence.
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29. Consequences of Non-disclosure
A breach of the duty of disclosure may arise in two circumstances:
• Misrepresentation
• Non-disclosure
29
The general rule is that if the insured is in breach of the duty of
disclosure, the insurer may avoid the contract entirely by making it
void ab initio.
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30. Physical and Moral Hazard
A peril can be defined as that which gives rise to a loss.
A hazard can be defined as that which influences the operation of the
peril. Divided into:
• Physical Hazard: Relates to the physical nature of the risk and
includes any measurable dimension of the risk
• Moral Hazard: Arises from the attitude and conduct of people.
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31. Obtaining Material Facts
The Proposal Form is the most common way to obtain information.
There are, however, alternative ways of obtaining material facts available
to underwriters, (their use depending on the class of business):
31
Brokers Risk Surveys
Supplementary
Questionnaires
Meeting with
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