Claims Practice M85 Flashcards

This flashcard set covers essential terminology, regulatory frameworks, legal principles, and claims handling procedures derived from the M85 Claims Practice study text (2023-24).

Contract Certainty

The complete and final agreement of all terms between the policyholder and the insurer by the time they enter into the contract, with contract documentation provided promptly thereafter.

Financial Policy Committee (FPC)

A body within the Bank of England with responsibility for macro-prudential supervision, identifying systemic risks, and enhancing the resilience of the UK financial system.

Prudential Regulation Authority (PRA)

A part of the Bank of England responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers, and major investment firms.

Financial Conduct Authority (FCA)

An independent regulator whose strategic objective is to ensure that relevant markets function well, with operational objectives of consumer protection, integrity, and competition.

ICOBS 8

The section within the Insurance: Conduct of Business Sourcebook dealing with the handling of claims, outlining that insurers must handle claims promptly and fairly.

Consumer (ICOBS Definition)

Any natural person who is acting for purposes outside his trade, business, or profession.

Qualifying Misrepresentation

A misrepresentation made by a consumer in breach of the duty to take reasonable care not to make a misrepresentation, where the insurer shows they would not have entered into the contract at all (or on different terms) without it.

Eligible Complainant (FOS)

A category of entity entitled to refer disputes to the Financial Ombudsman Service, including consumers, micro-enterprises, small businesses, charities, trustees, or guarantors.

Leakage

The financial impact on an insurer resulting from paying losses that are not covered, or are not wholly covered, due to inaccurate claims adjustment.

Claims-made Basis

A type of liability policy where the trigger for cover is the date upon which the claim is actually made against the insured, rather than when the incident occurred.

Occurrence or Losses Occurring Wording

Wordings used when a policy responds to physical damage or personal injury that happens during the policy period, regardless of when the claim is eventually notified.

Condition Precedent

A policy provision where strict compliance is required for the insurer to be liable; breach entitles the insurer to decline indemnity for the whole claim even if they suffer no prejudice.

Reservation of Rights

A notification by the insurer to the insured that while investigation of a claim is continuing, the insurer reserves the right to decline cover if a breach of policy terms or good faith is revealed.

Proximate Cause

The active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.

Independent Perils

A situation where a loss is caused by multiple perils, each of which would have caused some loss on its own without leading to the other.

Interdependent Perils

A combination of perils where neither would have caused damage on its own; if one is excluded and one is insured, the exclusion generally prevails.

Incurred But Not Reported (IBNR)

A provision or reserve calculated by actuaries for future claims that have occurred but have not yet been reported to the insurer by the end of an accounting period.

Step-laddering Reserves

The practice of creating an initially low reserve and periodically increasing it as a claim develops, resulting in a reserve that is never a reliable estimate of the eventual cost.

Subrogation

The right of an insurer who has indemnified an insured to take over any alternative right of indemnity the insured possesses against a third party.

Independent Liability Method

A method of calculating contribution where the ratio is determined by the formula: $\frac{\text{Independent Liability}}{\text{Total of Independent Liabilities}} \times \text{Loss}$.

Constructive Total Loss

A marine insurance concept where the subject matter is not destroyed, but the cost of recovery would exceed its value when recovered, or the insured is irretrievably deprived of possession.

Agreed Value Policy

A policy where the measure of indemnity is agreed in advance by the insurer and insured, typically used for items where market value is hard to establish, such as fine art.

Aggregate Deductible

An upper limit on the total amount an insured will pay towards their own losses in a year before the policy starts to pay the full claim amount.

Pro Rata Average

A property insurance calculation for underinsurance: $\frac{\text{Sum Insured at time of loss}}{\text{Value at Risk at time of loss}} \times \text{Amount of loss} = \text{Liability of Insurer}$.

Betterment

A situation where, after repair or replacement, the property is in a better condition or more valuable state than it was immediately prior to the loss.

General Damages

Compensation for losses that are impossible to measure mathematically, such as pain, suffering, and loss of amenity.

Special Damages

Compensation for precise financial losses occurring between the date of the accident and the date of settlement or trial, such as lost earnings or prescription costs.

Smith and Manchester Claim

An award for 'handicap in the labour market' given to a claimant who can still work but faces a real risk of future financial damage if they lose their current job.

Multiplicand

The figure used in future loss of earnings calculations that reflects the difference between the claimant's current annual net income and their pre-accident net income.

Multiplier

The 'years purchased' figure applied to a multiplicand to value future losses, taking into account retirement age and investment potential (often using Ogden tables).

Periodic Payment Orders (PPOs)

A method of settling catastrophic injury claims involving a lump sum plus annual payments to meet lifelong care costs, rather than a single once-and-for-all lump sum.

Compensation Recovery Unit (CRU)

A section of the DWP that recovers social security benefits and NHS treatment costs from compensation payments made to injured persons.

Civil Procedure Rules (CPR)

The procedural code in England and Wales with the overriding objective of enabling courts to deal with cases justly and at proportionate cost.

Part 36 Offer

A formal offer to settle under the CPR that can result in adverse costs orders for a party who rejects it but fails to achieve a better outcome at trial.

Mediation

A non-binding, confidential dispute resolution process where a neutral third party guides the parties toward a facilitated negotiation and settlement.