Introduction to General Insurance Underwriting

Subject Content

Structure of a policy document

The term 'policy document' refers to a generic legal document that contains the terms and conditions of the insurance policy.

A policy document often consists of a pre-printed booklet containing:

  • generic policy wording
  • a tailored section addressing risk-specific information
  • details about the procedure policy holders should follow if they need to make a claim.

Click the following tabs to learn more about each of the sections contained in an appropriately constructed policy document.

1. Title 2. Welcome 3. Agreement 4. Basis of settlement 5. Definitions 6. Schedule 7. Exclusions 8. Conditions 9. Optional benefits 10. Endorsements
  • 1. Title

    The title indicates the policy type, as well as the insurer's name and contact details.

  • 2. Welcome

    The welcome refers to:

    • the proposal or information the customer provides
    • the importance of the customer's information to the insurer
    • the insurer's promise to provide the cover set out in the selected sections
    • the duties and responsibilities of the policy holder
    • if cover is subject to the provisions of the policy
    • the complaints procedure
    • important legislation
    • who can cancel the policy and when.
  • 3. Agreement

    The contractual agreement (formally known as operative or insuring clauses) refers to:

    • the insurer's obligations
    • the events to be insured
    • any limits set upon the insurer's liability.

    MAS policies contain three important sections that together form the agreement:

    1. Policy Introduction.
    2. Section One: Loss to your Property.
    3. Section Two: Legal Liability.
  • 4. Basis of settlement

    The basis of settlement clause sets out how the insurer intends to treat the settlement of a claim. The basis of settlement clause should be placed close to the insuring clause.

    MAS refer to this as what you will receive, which can be located at the end of Section One: Loss to your Property and Section Two: Legal Liability.

  • 5. Definitions

    To reduce the possibility of ambiguity in policy wording, insurers provide specific definitions for certain words or phrases they use.

    Note: Explanations of more specialised definitions, specific to a particular section of the policy, are likely to be omitted from the definitions section of the policy document and highlighted within the relevant section instead.

  • 6. Schedule

    Many policies are generic pre-printed forms or booklets. As such, most policy document sections use standard wordings that are not specific to the insured.

    Because of the generic nature of policy documentation, the schedule (or certificate of insurance) records information specific to the insured and their insurable interest/s.

    The policy schedule contains details about the policyholder and the object of insurance, usually including things such as the name and contact details of the policyholder.

    The schedule also contains the specifics of the risk/s to be insured.

  • 7. Exclusions

    Exclusions are policy clauses that aim to:

    • eliminate cover available under another class of insurance
    • eliminate cover for risks requiring special underwriting consideration (or risks considered unsuitable for insurance)
    • mitigate fraud or dishonesty.

    Specific policy exclusions are found throughout a policy. When referring to something being covered, we also relatively refer to what isn't covered. The Policy Introduction defines items the policy will/will not cover.

    Section One: Loss to Your Property and Section Two: Legal Liability highlight events covered/not covered.

    Section Three: General Exclusions notes generic exclusions common to all insurance policies and companies.

  • 8. Conditions

    Conditions are the rules under which the policy operates and the legal remedy for a breach of a condition depends on when the condition applies.

    • Conditions precedent to the validity of the contract—conditions that must exist at the formation of the contract. Such conditions are deemed essential to the validity of the contract. Breach (or non-fulfilment) of a condition precedent voids the policy from the beginning, regardless of whether the condition is express or implied (for example, good faith must be observed).
    • Conditions subsequent to the formation of the contract—conditions that are essential to the validity of the policy but which arise after contract formation. Breach of a condition subsequent avoids the policy from the date of the breach, which means the insurer is liable until the date of the breach.
    • Conditions precedent to liability—conditions that usually arise after an event which gives rise to a claim. Breach of a condition precedent to liability only entitles the insurer to decline liability for that particular claim and does not void the policy as a whole (for example, a duty of care).
    • Automatic additional benefits—a number of free-of-charge benefits included in the policy wording. These are termed automatic additional benefits and expand the insuring clause to provide cover in circumstances (or for items) otherwise be excluded. Usually, each benefit only provides limited cover.
  • 9. Optional benefits

    In return for a higher premium, insurers may provide additional cover by way of optional benefits.

  • 10. Endorsements

    Customers may occasionally request alterations to their policies. Occasions also arise when the risk acceptance is based upon a qualified or restricted form of cover (and the policy is endorsed to reflect this case). This qualified or restricted form of cover is due to either unusual or adverse features, or because of a poor claims experience.

    An endorsement is the formal record of a change to the insurer's standard contract terms or other details of the policy.

    Endorsements set down any changes, such as:

    • increasing the sum insured
    • deleting/including certain items
    • changing an insured's details
    • limiting/extending cover.

    Example

    The following is an example of an endorsement on a typical business risks policy.

    Endorsement dated …/…/… attaching to and forming part of policy BR ………….

    It is hereby noted that the contents policy is extended to include items for palliative care that are owned by the Inglewood District Health Trust whilst on loan to other parties. The maximum we will pay for any one item on loan is $3,000 and cover is limited to a maximum hire period of 6 months.

    It is also noted that at any one time up to $20,000 of items may be out on hire to various parties.

    Subject otherwise to the conditions and exclusions of the policy.