INSURANCE

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 !ell as be
familiar !ith the industry"s terminology#
What is Insurance?
Insurance enables those !ho suffer a loss or accident to be compensated for the
effects of their misfortune# $he payments come from a fund of money contributed to
by all the holders of indi%idual insurance policies# In other !ords indi%idual risks are
pooled and shared !ith each policyholder making a contribution to the common
fund#
How does Insurance Operate?
$he contribution paid by a policyholder is kno!n as the premium# $he premiums are
paid to the insurers !ho in turn accumulate the money into a fund from !hich claims
are paid#
Insurers are professional risk takers# $hey kno! the probability of different types of
risk# $hen they can calculate the premiums needed to create a fund large enough to
co%er any likely loss payments# Clearly only a proportion of the policyholders !ill
re&uire compensation from the fund at any one time#
'or e(ample in car insurance a young person !ith a high)po!ered car or a dri%er
!ith a long history of accidents !ill pay a higher premium than a mature and
e(perienced dri%er !ith a modest saloon and a claim free record#
Insurance Types
$here are * kinds of insurance life insurance and general insurance# +hen you buy a
life insurance policy you enter a long)term commitment !here you agree to pay a
fi(ed premium for a set number of years#
,eneral insurance pays out I' something happens- a car has an accident a house is
burgled a holiday is cancelled someone is careless and damages another person"s
property# .ost life insurance policies pay out +/EN an e%ent happens !hen
someone dies or !hen someone sur%i%es beyond a certain date#
What is Insurable Interest?
Insurable interest is a fundamental insurance principle# It means that the person
!ishing to take out the insurance must be legally entitled to insure the article or
e%ent or life# $he happening of the e%ent insured against must cause the
policyholder financial loss# 'or e(ample0 .r Smith !ould not be able to insure .r
Bro!n"s house because its destruction !ould not cause .r Smith financial loss#
General Insurance Principles
1ther general insurance principles apply to the loss# A loss is an e%ent !hich gi%es
rise to a claim under a policy# Insurance can pro%ide compensation only for the
actual %alue of the property# It cannot co%er the loss of sentimental %alue# A loss
may in%ol%e financial aspects the loss2damage or destruction of property be caused
by death or in3ury or liability 4se belo!5#
$here 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 !hich matches the risk# 6oss is the monetary
%alue paid in order to compensate an indi%idual for the damage caused by an
incident# $he loss suffered by an indi%idual can result from damage to property
in3ury or death
6iability of a person is the legal responsibility to compensate others for a loss# $he
person !hose action or lack of action is the cause of a loss being suffered is legally
responsible for the conse&uences of the incident#
6osses must not be deliberate and not ine%itable# Clearly you could not buy fire
insurance for a house that !as already burning# Also there are some risks !hich
ha%e financial implications so %ast that they can be dealt !ith only by the state#
$hese risks 4mainly those arising from !ar or nuclear 2 radioacti%e material5 are not
normally insurable# Insurance takes the risk a!ay from peoples" li%es and
businesses# It brings peace of mind to the policyholder# In return for paying the
premiums the policyholder kno!s that if the une(pected occurs and a loss is
suffered financial compensation !ill be a%ailable from the fund of premiums#
An Insurance Contract
A Contract is an agreement bet!een t!o parties# $he * parties to an insurance
contract are the insurance company 4referred to as the 'irst 7arty5 and the
policyholder 2 client 4referred to as the Second 7arty5#
An insurance contract called the 7olicy becomes %alid once the t!o parties agree
on-
+/A$ is to be insured 4the car and the dri%er5
+/A$ it !ill cost 4the premium to be paid5 and
+/A$ the period of insurance !ill be that is !hen does it commence and
!hat is the e(piry date#
4.onthly or Annual 7olicy5
Motor Insurance
.ost people kno! something about motor insurance# $his is because any %ehicle
dri%en on public roads must ha%e a certain le%el of insurance# $he Road $raffic Act
ensures that dri%ers must meet liabilities they incur should they in3ure other people
or cause damage in an accident# $he other person not the insurer or the insured is
kno!n as the $hird 7arty# $he third party may be a pedestrian a passenger in the
car dri%en by the insured person or the dri%er or passenger in another %ehicle#
$he in3ured $hird 7arty claims compensation from the dri%er of the offending car and
the dri%er relies on his insurers to pay the claim#
Indemnity Insurance
$he insurance Dial Direct offer is kno!n as indemnity insurance# $his means that !e
undertake to restore the insured to the financial position he2she !as in before the
loss occurred# $he car insurance policy comes into e(istence !here the client agrees
to pay a premium in return for indemnity insurance# $he premium is determined by
the RIS8 !hich the client represents to the insurer RIS8 in turn is determined by-
$he likelihood that a loss !ill occur based on the characteristics of the
dri%ers the car and the risk address#
$he probable cost in%ol%ed if a loss should happen#
Cover
$he la! says that dri%ers must ha%e insurance against third party in3ury or damage
claims !hilst being dri%en on a road 4a road means a high!ay and any other road to
!hich the public has access5# $he la! also states that the insurer must gi%e to the
insured a Certificate of .otor Insurance# .ost motor policies pro%ide additional co%er
other than a simple certificate of insurance# At Dial Direct there are 9 le%els of motor
insurance policy on offer each pro%iding indemnity against certain specified perils#
A peril is an e%ent !hich can cause a loss e#g# accidents theft fire malicious
damage storm# An Insurance Company clearly indicates the perils co%ered by its
policies and those perils !hich are specifically e(cluded#
$hird 7arty
$hird 7arty Co%er sometimes referred to as $hird 7arty 6iability Insurance is
insurance co%er that you ha%e against liability to another person#
As !ell as co%ering the insured to dri%e on public roads this policy pro%ides co%er
!hen the car is being dri%en on pri%ate property# It co%ers against third party claims
and pro%ides protection against other legal liabilities#
'or e(ample passenger indemnity co%ering the possibility that a passenger in a car
may cause an accident perhaps by opening the door and knocking a cyclist o%er# It
also pro%ides co%er for certain legal costs and emergency treatment e(penses for
e(ample !hen an ambulance has been called to the scene of an accident#
$hird 7arty 'ire and $heft
In addition to the protection pro%ided by third party insurance this type of policy
co%ers loss or damage to the insured"s o!n %ehicle as a result of fire theft or
attempted theft# It offers the client limited o!n damage co%er that is protection for
loss or damage suffered by a person to his o!n property or person#
Comprehensi%e
Comprehensi%e policies offer the !idest form of o!n damage co%er a%ailable
although it cannot protect against e%ery concei%able risk# In addition to the co%ers
described abo%e comprehensi%e co%er protects in other %aluable !ays# $he most
important of these is accidental damage co%er# $his means the policyholder can ha%e
their damaged %ehicle repaired or replaced after it has been accidentally damaged
for e(ample !hen the client re%erses the car into his garden !all accidentally#
$he additional co%er that is pro%ided includes personal accident insurance a small
amount of medical e(penses co%er and co%er for the loss of or damage to the
personal effects in the car#
nderwritin!
UNDER+RI$IN, is the process !hereby information is collected in order to establish
the RIS8# 1nce !e kno! the risk the client represents the decision is made as to
!hether !e ACCE7$ or DEC6INE that risk# If !e decline the risk the process stops# If
!e accept the risk then !e calculate the 7RE.IU. the client must pay to co%er the
risk#
+e ask the &uestions on behalf of the panel members and the system checks the
ans!ers against the :Under!riting Criteria; to make the decisions mentioned abo%e#
$he assessment of risk 4and hence the premium5 for motor insurers is based around
9 main factors-
) $he Risk Address
) $he Car
) $he Dri%er2s
It is the inalienable right of an insurance company to re3ect any risk !hich it may
find unacceptable#
$here are * stages to the Dial Direct under!riting process-
$he <uote 7hase
During the <uote 7hase the system !ill determine the premium and the acceptability
of the risk# After collecting the under!riting information the client is pro%ided !ith a
&uote# A &uote is the offer from the insurer to the prospecti%e client of co%er for a
premium# $he client may decline the offer#
$he Under!riting 7hase
During the Under!riting or Sale 7hase the system !ill determine the acceptability of
the risk but the premium does not usually change# Under!riting occurs during the
&uote and sale of the policy at any time an amendment is made and at the
settlement of any claim on the policy#
"on#$isclosure
$he insurance industry relies entirely on the information pro%ided 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 pro%ides false or incomplete information about the
risk the actual risk may be different from the one that !as agreed upon# In such a
case the policy !ould be affected and at !orst may lea%e the client uninsured#
Information deliberately !ithheld in response to a direct &uestion is referred to as a
non)disclosure#
Claims
In the e%ent of a loss the client !ill ha%e the option to claim# A claim is the demand
for compensation under the terms of an insurance policy follo!ing an incident in
!hich a loss occurred# An insurance company may decide to pay a claim or not to
pay a claim#
If a client has a le%el of co%er that pro%ides co%er for the risk causing the loss and
has paid the premium etc the claim !ill be paid 4or settled5#
In the e%ent of non)payment or a specifically e(cluded risk the insurance company
denies responsibility for indemnifying the client# $his is usually referred to as a
repudiation !here the claim has been repudiated#
Any payment of a claim e(cept for liability claims paid to a $hird 7arty !ill be
sub3ect to an e(cess# $he e(cess is the uninsured portion of a loss or the
contribution the client is e(pected to pay to!ards the cost of settling the claim#