Household

insurance
products
IF6

2021
STUDY
TEXT
 Household
insurance
products
IF6: 2021 Study text

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2 IF6/October 2020 Household insurance products

© The Chartered Insurance Institute 2020

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legal position. Specific advice should always be obtained before undertaking any investments.
Print edition ISBN: 978 1 80002 023 8
Electronic edition ISBN: 978 1 80002 024 5
This edition published in 2020

Author
Valerie Jackson BSc, FCII, Chartered Insurance Practitioner has worked in the industry for more than 30 years,
originally training on the Graduate Development programme with Royal Insurance. She then moved to work with
Marsh, latterly as a Director of the UK Broking Division in Manchester. She left Marsh in 1999 to establish her own
training company. Valerie is a CII Accredited Trainer, involved in a wide range of training and development activities.
These include tuition for the Certificate in Insurance, Diploma and Advanced Diploma in Insurance examinations,
accreditation of training and competence programmes on behalf of the CII and authoring a range of technical
training materials.

Updater
Alison Cooper FCII Dip PFS, PGCE, Chartered Insurance Practitioner has worked in the insurance sector for
more than 30 years, starting her career with Phoenix Assurance. Alison established her training consultancy, ACT
One Training Services Ltd, in 1998 and regularly speaks on behalf of insurance institutes on study skills, exam
technique, mixed assessment and coursework. Alison is a CII Face-to-Face trainer and a past chair of the CII
Learning and Development Forum. She is a Vice President of the Insurance Institute of London.

Reviewers for first edition

Anthony Clack BA FCII, Martyn Ingram FCII.

Acknowledgements
The CII thanks the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) for their kind
permission to draw on material that is available from the FCA website: www.fca.org.uk (FCA Handbook:
www.handbook.fca.org.uk/handbook) and the PRA Rulebook site: www.prarulebook.co.uk and to include extracts
where appropriate. Where extracts appear, they do so without amendment. The FCA and PRA hold the copyright for
all such material. Use of FCA or PRA material does not indicate any endorsement by the FCA or PRA of this
publication, or the material or views contained within it.
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possible in every instance and welcome any information that would enable us to do so.
Unless otherwise stated, the author has drawn material attributed to other sources from lectures, conferences, or
private communications.
Typesetting, page make-up and editorial services CII Learning Solutions.
Printed and collated in Great Britain.
This paper has been manufactured using raw materials harvested from certified sources or controlled wood
sources.
 3

Using this study text

Welcome to the IF6: Household insurance products study text which is designed to
support the IF6 syllabus, a copy of which is included in the next section.
Please note that in order to create a logical and effective study path, the contents of this
study text do not necessarily mirror the order of the syllabus, which forms the basis of the
assessment. To assist you in your learning we have followed the syllabus with a table that
indicates where each syllabus learning outcome is covered in the study text. These are also
listed on the first page of each chapter.
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in understanding the topics covered.
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points or areas that may need further texts, which provide valuable information
clarification or consideration. on or background to the topic. The
sections referred to are available for you
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Case studies: short scenarios that will Reinforce: encourages you to revisit a
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Consider this: stimulating thought Sources/quotations: cast further light

around points made in the text for which on the subject from industry sources.
there is no absolute right or wrong
answer.

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of points made in the text. back to: assumed knowledge that you might find
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 5

Examination syllabus

Household insurance
products
Objective
To provide knowledge and understanding of the practices and procedures of household insurances
and associated forms of cover and to develop in candidates an ability to apply product knowledge and
understanding on straightforward cases where unaccompanied but supervised advice is given.

Summary of learning outcomes Number of questions

in the examination*

1. Understand the scope of cover provided by household insurance products. 12

2. Know how to apply knowledge of the cover provided by household insurance 6

products to a given set of circumstances.

3. Understand the legal and regulatory considerations for household insurance 11

products.

4. Know how to apply knowledge of legal and regulatory considerations for household 6
insurance products to a given set of circumstances.

5. Understand risk assessment, rating and underwriting of household insurance 19

products.

6. Know how to apply knowledge of risk assessment, rating and underwriting of 9

household insurance products to a given set of circumstances.

7. Understand claims procedures within the context of household insurance products. 8

8. Know how to apply knowledge of claims procedures within the context of household 4
insurance products to a given set of circumstances.

* The test specification has an in-built element of flexibility. It is designed to be used as a guide for study and is not a statement of actual
number of questions that will appear in every exam. However, the number of questions testing each learning outcome will generally be within
the range plus or minus 2 of the number indicated.

Important notes
• Method of assessment: 50 multiple choice questions (MCQs) and 5 case studies, each comprising
5 MCQs. 2 hours are allowed for this examination.
• This syllabus will be examined from 1 January 2021 until 31 December 2021.
• Candidates will be examined on the basis of English law and practice unless otherwise stated.
• Candidates should refer to the CII website for the latest information on changes to law and practice
and when they will be examined:
1. Visit www.cii.co.uk/qualifications
2. Select the appropriate qualification
3. Select your unit from the list provided
4. Select qualification update on the right hand side of the page

Published October 2020

©2020 The Chartered Insurance Institute. All rights reserved. IF6
6 IF6/October 2020 Household insurance products

1. Understand the scope of cover provided 7. Understand claims procedures within the
by household insurance products. context of household insurance products.
1.1 Describe the core cover provided under different 7.1 Describe the principles for establishing the validity of
household insurance products, including policy a claim.
wordings, exclusions and extensions. 7.2 Describe the claims handling procedures specific to
1.2 Describe the optional extensions available under household insurance products.
household insurance policies and the scope of this 7.3 Explain fraud prevention and detection measures
cover. and their operation.
1.3 Explain the key issues relating to special risks. 7.4 Describe how regulatory and legislative rules apply
to the claims process.
2. Know how to apply knowledge of the
7.5 Explain complaints-handling procedures and dispute
cover provided by household insurance resolution.
products to a given set of circumstances.
2.1 Apply the cover provided by household insurance 8. Know how to apply knowledge of claims
products to a given set of circumstances. procedures within the context of
household insurance products to a given
3. Understand the legal and regulatory
set of circumstances.
considerations for household insurance
8.1 Apply claims handling procedures within the context
products. of household insurance products to a given set of
3.1 Explain in broad outline the scope and general effect circumstances.
of insurance regulations and legislation.
3.2 Describe the causes of legal liability for individuals.
3.3 Describe how torts can arise.
3.4 Describe the key features of The Limitation Act
1980.
3.5 Explain the principal issues of occupiers’ liability acts
and their differences.
3.6 Describe the main aspects of the Defective Premises
Act 1972 and its effect on the law.

4. Know how to apply knowledge of legal

and regulatory considerations for
household insurance products to a given
set of circumstances.
4.1 Apply legal and regulatory considerations for
household insurance products to a given set of
circumstances.

5. Understand risk assessment, rating and

underwriting of household insurance
products.
5.1 Explain the general principles of premium rating and
underwriting individual risks.
5.2 Describe the rating and underwriting considerations
of different household insurance products.
5.3 Describe the basis of cover and how sums insured
are calculated.
5.4 Describe the renewal process specific to household
insurance products.
5.5 Describe the key features of relevant legislation
which affects the underwriting of household
insurance products.

6. Know how to apply knowledge of risk

assessment, rating and underwriting of
household insurance products to a given
set of circumstances.
6.1 Apply risk assessment, rating and underwriting of
household insurance products to a given set of
circumstances.

Published October 2020 2 of 3

©2020 The Chartered Insurance Institute. All rights reserved.
 7

Reading list
The following list provides details of further
reading which may assist you with your
studies.
Note: The examination will test the
syllabus alone.
The reading list is provided for guidance
only and is not in itself the subject of the
examination.
The resources listed here will help you
keep up-to-date with developments and
provide a wider coverage of syllabus topics.

CII study texts

Household insurance products. London: CII.
Study text IF6.
Books and eBooks
Bird’s modern insurance law. 10th ed. John
Birds. Sweet and Maxwell, 2016.
Insurance claims. 4th ed. Alison Padfield.
Bloomsbury Professional, 2016.
Insurance theory and practice. Rob Thoyts.
Routledge, 2010.*
Periodicals
The Journal. London: CII. Six issues a year.
Post magazine. London: Incisive Financial
Publishing. Monthly. Contents searchable
online at www.postonline.co.uk.
Reference materials
Concise encyclopedia of insurance terms.
Laurence S. Silver, et al. New York:
Routledge, 2010. *
Dictionary of insurance. C Bennett. 2nd ed.
London: Pearson Education, 2004.

Examination guide
If you have a current study text enrolment,
the current examination guide is included
and is accessible via Revisionmate
(www.revisionmate.com). Details of how to
access Revisionmate are on the first page of
your study text. It is recommended that you
only study from the most recent version of
the examination guide.

Exam technique/study skills

There are many modestly priced guides
available in bookshops. You should choose
one which suits your requirements.

* Also available as an ebook through eLibrary via www.cii.co.uk/elibrary (CII/PFS members only).

Published October 2020 3 of 3

©2020 The Chartered Insurance Institute. All rights reserved.
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 9

IF6 syllabus
quick-reference guide
Syllabus learning outcome Study text chapter
and section
1. Understand the scope of cover provided by household insurance products.
1.1 Describe the core cover provided under different household 2A, 2B, 2C, 2D, 3A, 4A, 4B,
insurance products, including policy wordings, exclusions and 4C, 4D
extensions.
1.2 Describe the optional extensions available under household 3B
insurance policies and the scope of this cover.
1.3 Explain the key issues relating to special risks. 5A, 5B, 5C, 5D, 5E
2. Know how to apply knowledge of the cover provided by household insurance products
to a given set of circumstances.
2.1 Apply the cover provided by household insurance products to a 2A, 2B, 2C, 2D, 3A, 3B, 4A,
given set of circumstances. 4B, 4C, 4D, 5A, 5B, 5C, 5D,
5E
3. Understand the legal and regulatory considerations for household insurance products.
3.1 Explain in broad outline the scope and general effect of 6G
insurance regulations and legislation.
3.2 Describe the causes of legal liability for individuals. 6A
3.3 Describe how torts can arise. 6B, 6C, 6D
3.4 Describe the key features of The Limitation Act 1980. 6F
3.5 Explain the principal issues of occupiers’ liability acts and their 6E
differences.
3.6 Describe the main aspects of the Defective Premises Act 1972 6E
and its effect on the law.
4. Know how to apply knowledge of legal and regulatory considerations for household
insurance products to a given set of circumstances.
4.1 Apply legal and regulatory considerations for household 6A, 6B, 6C, 6D, 6E, 6F, 6G
insurance products to a given set of circumstances.
5. Understand risk assessment, rating and underwriting of household insurance products.
5.1 Explain the general principles of premium rating and underwriting 7A, 7B
individual risks.
5.2 Describe the rating and underwriting considerations of different 7A, 7D, 7E
household insurance products.
5.3 Describe the basis of cover and how sums insured are 7B
calculated.
5.4 Describe the renewal process specific to household insurance 7C
products.
5.5 Describe the key features of relevant legislation which affects the 7A
underwriting of household insurance products.
6. Know how to apply knowledge of risk assessment, rating and underwriting of household
insurance products to a given set of circumstances.
6.1 Apply risk assessment, rating and underwriting of household 3A, 3B, 7A, 7B, 7C, 7D, 7E
insurance products to a given set of circumstances.
7. Understand claims procedures within the context of household insurance products.
7.1 Describe the principles for establishing the validity of a claim. 8A, 8B
7.2 Describe the claims handling procedures specific to household 8B
insurance products.
10 IF6/October 2020 Household insurance products

Syllabus learning outcome Study text chapter

and section
7.3 Explain fraud prevention and detection measures and their 8D
operation.
7.4 Describe how regulatory and legislative rules apply to the claims 8B, 8C
process.
7.5 Explain complaints-handling procedures and dispute resolution. 8B, 8E
8. Know how to apply knowledge of claims procedures within the context of household
insurance products to a given set of circumstances.
8.1 Apply claims handling procedures within the context of 8A, 8B, 8C, 8D, 8E
household insurance products to a given set of circumstances.
 11

Introduction
In this study text we will provide an overview of the products, practices and procedures of
household insurance and associated personal lines insurances in the UK. We will begin by
looking at how household insurances have developed and been shaped by the changing
nature of the marketplace, to give the context for what follows. We will look at the
considerable changes that have resulted from the growing influence of technology and social
media, combined with socio-cultural changes in society and the embedding of statutory
regulation.
We will then focus on the different household insurance products and how they work.
Household insurance is an important purchase for many individuals, as it is designed to
protect the most important asset that they own – their home, together with its contents and
other personal possessions. We will examine in detail the cover that is available for buildings
and contents, remembering that the marketplace is diverse and that policy wordings can vary
from one insurer to another. In particular, we will look at what property is covered, the types
of losses that are protected against and common extensions and exclusions.
Household insurance is not only designed to protect the structure of the home and its
contents. There are a number of wider losses to which individuals are exposed, where
property is taken outside the home; for example, the accidental loss of jewellery while out
shopping. There are also some belongings for which wider cover is required than that
provided by buildings and contents cover, such as spoilage of frozen foods due to a freezer
breaking down. A number of solutions have been developed by household insurers to meet
these needs. We will consider the most common extensions to cover, such as personal
possessions, frozen foods and pedal cycles, as well as the assistance services and helplines
that are available to support policyholders.
Apart from household insurance there are several other associated personal lines products
which are available to individuals. These are usually offered as a separate policy.
Caravanning is an increasingly popular pastime. Caravans can be expensive purchases, as
they are increasingly fitted out with items to make them real home from homes. There is also
the risk of injury to third parties and damage to their property arising out of the caravan’s
use. We will consider the cover provided by caravan insurance before going on to look at
travel insurance. Individuals going on holiday face a number of risks, including theft of
baggage and personal belongings, loss of deposits if the holiday is cancelled and the need
for medical treatment, particularly abroad. An ever-wider range of covers can be purchased
to meet these needs. We will then look at the importance of pet and equine (horse)
insurance. One of the key drivers to purchase pet insurances is the rising cost of veterinary
fees, which can run into thousands of pounds for more complex treatments and operations.
Other forms of cover are also available, such as the death of an animal due to illness or its
loss through theft.
All household policies are subject to exclusions and limitations, which mean that they are not
adequate for a number of more specialist needs. This includes the increasing number of
people who work from home, individuals owning holiday homes, high-net-worth customers,
landlords who own and let out blocks of flats and those who own and let individual houses.
We will look at the policies that have been developed by household insurers that are tailored
to the risks to which these individuals are exposed.
Household policies include cover for the legal liabilities that may be incurred by those who
own and/or occupy a house. It is important to understand how such liabilities can arise, as
policies will only respond to claims where an individual is under a legal obligation to pay
compensation to another party – but not where the insured feels under some sort of moral
duty. We will explore the meaning of the term legal liability, giving an overview of the key
legal considerations and how they apply to household insurance. In addition, we will consider
how the regulatory requirements of the Financial Conduct Authority affect the provision of
household insurance. Ensuring the fair treatment of customers has been a particular focus of
the regulator in recent years. All insurers and intermediaries, including those transacting
household insurance, must put the interests of its customers at the heart of how they do
business and make sure they treat them fairly. In addition, there are specific and detailed
rules which apply generally to the sale and administration of household insurance. These are
contained in the Insurance: Conduct of Business Sourcebook (ICOBS). We will look at their
requirements and how they affect the transaction of household insurance.
12 IF6/October 2020 Household insurance products

When an individual applies to take out a household policy, insurers will need to gather
information to enable them to decide whether or not they want to accept the risk and what
premium and terms will apply. Usually this is done through the completion of a proposal form
or more often a statement of fact. For some risks it may be necessary to ask for additional
information or carry out a survey. We will look at what information is required and how this is
used to calculate an appropriate premium. For the majority of household risks, this process
will be done using automated computerised systems. There will, however, be a small number
of proposers where the risk is unusual or particularly high and individual underwriting is
required. Household policies are usually issued for a period of twelve months. While there is
no legal obligation on either the insured or the insurers to renew at the end of this period, in
the majority of cases insurers will be keen to retain the business. We will examine the
administrative processes involved in the renewal process and the regulatory requirements
that must be complied with.
When a customer takes out an insurance policy it is an ‘intangible’ product that is purchased,
because the value of the product will not be known until a claim arises. It is only then that the
insured will be able to test whether the insurer can provide the service promised. It is very
important, therefore, that insurers have in place effective procedures to ensure that claims
are met fairly and promptly. In the final part of this study text we will look at claims
procedures, including the responsibilities of both insurers and the insured when a claim is
made and how claims are investigated and settled. When considering any liability claim for
personal injury, insurers must take account of the Civil Procedure Rules, which were
introduced to speed up the legal process and make it more affordable and accessible.
Fraudulent claims are a significant and growing problem for insurers. We will finish by
looking at the actions being taken by the insurance industry to detect and reduce fraudulent
activity.
 13

Contents
1: Overview of household insurances
A Range of products available 1/3
B Changing nature of the marketplace 1/4
C Features of the current marketplace 1/5

2: Policy cover
A Household insurance – buildings 2/2
B Household insurance – contents 2/7
C Personal legal liability – buildings and contents 2/11
D Exclusions 2/12

3: Policy extensions
A Personal possessions 3/2
B Other optional extensions 3/5

4: Other personal insurances

A Caravans 4/2
B Travel 4/4
C Pets and horses 4/11
D Mobile phone insurance (MPI) 4/13

5: Special risks
A Homeworking 5/2
B Holiday homes 5/4
C Blocks of flats 5/6
D Shared and rented homes 5/6
E High net worth households 5/8

6: Legal and regulatory considerations

A Sources of legal liability 6/2
B Divisions of civil liability 6/5
C Negligence 6/7
D Strict liability 6/8
E Specific forms of liability 6/11
F Limitation of actions 6/13
G Regulatory requirements 6/14
14 IF6/October 2020 Household insurance products

7: Risk assessment and underwriting

A Risk assessment 7/2
B Calculation of sums insured 7/10
C Renewals 7/12
D Other personal insurances 7/13
E Special risks 7/14

8: Claims procedures
A Role of the insured 8/2
B Role of the insurer 8/5
C Civil Procedure Rules 8/12
D Fraud 8/13
E Dealing with disputes 8/15

Self-test answers i
Cases ix
Legislation xi
Index xiii
 Chapter 1
Overview of household
1
insurances
Contents Syllabus learning
outcomes
Introduction
A Range of products available
B Changing nature of the marketplace
C Features of the current marketplace
Key points

Learning objectives
After studying this chapter, you should be able to:
• explain the need for household insurance;
• describe the main ways in which household insurances can be provided;
• explain how the marketplace for household insurance has changed; and
• identify the key features of the current marketplace for household insurance.
Chapter 1 1/2 IF6/October 2020 Household insurance products

Introduction
Many people buy insurance in their private capacity. The most valuable physical asset an
individual will own is probably their home. Therefore, household insurance should be high on
the list of insurance expenditure for most individuals. However, unlike motor insurance,
household insurance is not compulsory. Those who have a mortgage on their property may
be required by their mortgage provider to show that they have insurance cover in force. Even
those who don’t own their own home, but live in rented accommodation, will own furniture
and other personal belongings that could be damaged or destroyed. To cover such risks a
range of household policies has been developed. Many insurers have now rebranded these
as home rather than household insurance policies, but in this course we will be referring to
them as household insurances.

Consider this…
What risks might a householder be exposed to and need insurance to cover?
These could include:
• leaving oil heating in a pan and setting the kitchen on fire, while answering the
telephone;
• children accidentally breaking a window with a football, while playing in the garden;
• knocking over a valuable ornament while cleaning the house;
• a camera being stolen while on a day out;
• a power cut, leading to a freezer not working and the contents spoiling; or
• a cycle being stolen from a locked garage after an overnight break-in.
Insurance is available for all these risks and many others to which householders are
exposed.

Some incidents may give rise to quite modest losses, as in the case of the window broken by
the football. The householder may be able to withstand such losses financially. However,
some incidents may give rise to sizeable losses, as in the case of the kitchen catching fire.
The cost of making good such damage is likely to be beyond the means of many individuals.
As with all types of insurance the primary function of household insurance is risk transfer.
The individual is able to have peace of mind by knowing that an unknown loss has been
transferred to an insurer, in exchange for a known premium.
The desire for such peace of mind has created a need to insure not only the structure of the
house itself and its contents, but also a wide variety of other personal possessions, some of
which may be taken away from the home. While individually small, the cumulative premiums
earned on these risks mean that household insurances represent a significant sector of the
insurance market. The trends for both property prices and individual wealth to increase over
the long term have added to this, although the current economic climate has had a negative
short-term impact on these factors.
When thinking about the need for household insurance, it’s a good idea to identify possible
worse case scenarios where a homeowner could be at risk of losing their entire home as a
result of a peril, such as a house fire.

Example 1.1
Annabelle was working from home when the smoke detector was activated. At first, she
wondered if someone was making toast, but she realised that she was home alone. When
checking the downstairs, she noticed smoke coming from under the utility room door. On
inspection, she found the utility room was filled with smoke, hot and cold water was being
sprayed around the room and flames were starting to come out of the washing machine.
Fortunately, Annabelle was able to put the flames out and stop the supply of water.
Imagine if Annabelle hadn’t been at home when the fire had started. Would her home
insurer have admitted liability and paid the claim for the washing machine and damage to
the house? Is it reasonable to leave an electrical appliance on, when not at home? This is
worth thinking about as washing machines are the number one cause of fires in homes.
Chapter 1 Overview of household insurances 1/3

Chapter 1
The chapter that follows will examine in detail the range of products available to address
these needs, the cover provided, how such risks are rated and the associated claims
procedures.

Key terms
This chapter features explanations of the following terms and concepts:

Aggregators Bancassurance Brandassurance Direct insurance

Electronic data Eligibility statement Intermediaries
interchange

A Range of products available

Household policies are package policies. as they encompass following four classes of
insurance in one product:
• Property: covers material loss or damage to the building or contents.
• Pecuniary: covers intangibles such as legal expenses.
• Liability: includes owners' and occupiers' liability.
• Personal: personal accident and sickness.
Household policies are designed to meet the needs of the majority of the insuring public, not
those of an individual insured. Insurers combine within a single document a range of different
covers, such as damage to the insured’s own property by fire, storm and escape of water
(burst pipes), together with legal liability for injury to others or damage to their property.
There are a variety of different household policies available and it is important to remember
that there is no standard policy wording for household.

Activity
Research different household policy documents and compare and contrast their wordings.

The main types of policies include the following:

• Buildings only policies, that cover the structure of a building together with its fixtures
and fittings. These are available to the owner of a house whether the individual lives there
or lets it to someone else.
• Contents only policies (sometimes called tenants policies), that just cover the contents
of the house and include cover for fixtures and fittings where the occupant is the tenant
and not the owner of the property.
• Buildings and contents insurance together within one policy.
• A combined policy, that broadens the cover provided by a buildings only or contents
only policy by including a range of optional extensions to the basic cover, such as
personal possessions, sports equipment and freezer contents. The cover offered by
different insurers varies, with some extensions being included automatically and others
only being available as an optional extension on the payment of an additional premium.
The insured may take out any of these products based on their individual requirements. The
householder may wish to insure the buildings with one insurer and the contents with another.
Alternatively, they may decide to arrange all their insurances with one insurer, having one
single combined policy.

Question 1.1
Why would the insured choose to insure their buildings and contents in one policy,
rather than two separate policies?

There are some risks where a more specialist product is appropriate to provide adequately
for the additional cover required, such as homeworkers and holiday homes. There are other
Chapter 1 1/4 IF6/October 2020 Household insurance products

risks where more careful underwriting is necessary, such as homes of non-standard

construction (i.e. thatched or timber framed properties).
The market for household insurances is very competitive. Insurers will attempt to differentiate
their product from that of their competitors by variations in premiums, cover provided and the
terms and conditions applied. Consequently, it is not possible to refer to standard policy
wordings, but the scope of cover described in the following chapters is that normally
encountered in the market. You should be aware that there are many variations in what
individual insurers offer. You are encouraged to compare policy wordings yourself – some of
which can be downloaded from insurance company websites. It is possible that your own
company’s policy wording for household insurance may vary in some respects from that
described in this study text.

B Changing nature of the marketplace

The personal lines marketplace, including that for household insurance, has undergone
enormous change in recent years. This has encompassed both:
• the products available to the buyer; and
• the ways in which they can purchase them.
Rapid changes in consumer demands, greater consumer awareness of financial services
products, technological improvements, together with a diversification of distribution channels
have resulted in both insurers and intermediaries needing to change their working practices.
Changes in the economic climate have brought further challenges.
In the past, household insurance products were purchased either from:
• an insurance company’s agent (sometimes referred to as a home service representative).
These agents would visit homeowners on a weekly basis to collect premiums. This was
prior to modern banking and direct debit; or
• through an intermediary. Personal lines intermediaries have traditionally operated from
high street outlets that are conveniently located for the individual to call in and discuss
their requirements face-to-face. The intermediary will then find the policy that best suits
the individual’s requirements. However, the choices available to offer, will depend on the
intermediary's status, are they independent as a broker or are they tied to one insurer?
While the intermediary is still an important distribution method, there have been significant
changes to the way in which the personal lines marketplace operates.

B1 Direct insurance
Since the mid-1980s, following the establishment of Direct Line in 1984, there has been a
dramatic growth in the number of insurers actively encouraging people to buy insurance
direct. This was facilitated by technological changes and led to the creation of call centres
where quotations are offered over the telephone and cover is arranged immediately. Existing
insurers then followed Direct Line's business model and set up direct writing subsidiaries.
Some Lloyd's syndicates have also established direct operations through the use of service
companies. All of these accept business direct from the public with no intermediary
involvement. More recently the market has seen significant growth in the provision of
household products and services via the internet and mobile phone technology.

B2 Intermediaries
Intermediaries have, in turn, responded to these changes by using information technology to
their advantage. In particular, there has been a growth in the use of network links to insurers
and of trading using electronic data interchange (EDI). This facility allows intermediaries to
produce proposal forms or statements of fact, cover notes and policies within their own office
using a computer and printer, enabling them to meet the service offered by direct insurance
companies. Information is passed electronically down the telephone line to the insurer. This
has ultimately led to intermediaries establishing call centres of their own. Some
intermediaries have also developed schemes with specific insurers, where the authority to
underwrite the vast majority of risks is delegated to the intermediary, within the terms of the
specific scheme agreement. The intermediary, in many respects, takes on the role of the
insurer although the insurer will always retain ultimate underwriting authority.
Chapter 1 Overview of household insurances 1/5

Chapter 1
Like insurers, many intermediaries have developed websites enabling them to transact
business over the internet.

Question 1.2
What are the advantages and disadvantages of direct insurance?

B3 Price comparison websites

The common use of the internet led to the development of price comparison websites
(PCWs) or 'aggregators'. Through the completion of one set of questions (sometimes
referred to as an eligibility statement), PCWs provide the proposer with quotations from a
number of different insurance providers.

Example 1.2
Hamish needs to arrange buildings and contents cover for his first home. There is a firm of
insurance brokers on the high street near his home where he could arrange cover face to
face. The brokers were very helpful and knowledgeable when Hamish arranged his car
insurance earlier in the year.
Alternatively, Hamish notices an advertisement in the Sunday paper for Insurance Direct
plc. The advert includes a freephone number to call for quotations. As he works in the city,
Hamish wonders whether this will be more convenient, although he could also call his
local broker who will be able to obtain quotations from a number of insurers.
While online, Hamish discovers that both Insurance Direct and his local broker have
websites allowing him to obtain a quotation and place cover over the internet. His friend
Callum tells him about a new price comparison website which he has tried, which provides
access to a number of different insurance providers by entering one set of personal
information. Hamish is attracted by arranging cover over the internet, as he can do this at
a time to suit him.
All of the above illustrate the wide variety ways of arranging household insurance which
are now available in the marketplace.

The rise in the use of PCWs by customers has been dramatic. According to a 2016 YouGov
survey, the brand profile of aggregators is at an all time high. The survey identified that the
vast majority of the UK public have heard of the leading PCWs, such as Moneysupermarket
(88%), GoCompare (87%) and Comparethemarket (86%), whereas brand awareness of the
long-standing, traditional insurance providers is significantly lower. Only 24% of people have
heard of RSA and only 37% have heard of AIG, for example. Over 40% of online household
sales are currently transacted through PCWs.
However, many providers have deliberately retained a mixture of distribution channels
recognising that different customers like to transact business in different ways.

C Features of the current marketplace

In studying household insurances, it is important to be aware of the features of the current
marketplace because these influence:
• the nature of products available; and
• the processes and procedures used to deliver these products.

C1 New distribution channels

Over the years, the financial services industry has expanded significantly with many
institutions diversifying their activities in an attempt to expand their customer base. As a
result, a number of banks and building societies have become established in the
marketplace, either as intermediaries or through setting up their own insurance companies.
This involvement of banks and building societies in the traditional insurance market is known
as bancassurance.
Chapter 1 1/6 IF6/October 2020 Household insurance products

Where they act as intermediaries, these companies are either acting as:
• single-tied agents offering only the products of a single insurer; or
• multi-tied agents offering products from different insurers, but using only one insurer for
each particular product type they offer.

Example 1.3
Gill visits her local bank branch. While at the counter, the cashier asks Gill whether she
has household insurance and when the renewal is due. Gill confirms that she has
household insurance and that it is due for renewal in September. The cashier makes a
note on the system and arranges for a quotation to be produced from the insurer that the
bank is currently tied to. As a tied agent, the cashier is not authorised to give advice and is
only able to refer to one insurer’s product.

In contrast, brokers (acting as independent intermediaries) can offer to quote and arrange
cover from any insurer. Brokers are able to access the whole of the insurance market in
order to research the best products for their clients.

Figure 1.1: Distribution channels for household insurance

Distribution channels

Direct Indirect

Direct Company Independent Multi-tied Single-tied

marketing sales staff intermediaries agents agents

C2 Peer-to-peer insurance (P2P)

The most recent trend in personal lines insurance is peer-to-peer insurance (P2P), which is
sometimes called social insurance. A small number of start-up companies have been
established where insurance buyers (such as groups of friends, members of sports clubs or
tenants in a building) are connected through the internet and social networking, allowing
them to share a large deductible or to pool their risks. Each member pays a premium that is
then pooled to pay future claims. Members benefit from savings on costs and administration,
as well as there being a direct incentive for individuals to protect their property and reduce
claims, resulting in lower contributions.

C3 Socio-cultural changes in society

Socio-cultural changes in society have influenced the marketplace in three main ways:
• They have created a need for a broader range of products. For example, the introduction
of homeworker policies to meet the specific needs of the increasing number of people
who work from home. Similarly, there has been a growth in demand for holiday home
insurance, reflecting the growing ownership of second homes. Mobile phone insurance
has become an established product line, reflecting our increased reliance on this
technology.
• They have also brought about the expectation of 24-hour access to insurance products
and services (as for many other financial services and retail products). Many insurers and
intermediaries have responded by extending their opening hours, or by making their
products and services available over the internet.
• There has been an ever-increasing engagement amongst consumers with using
technology to purchase products and services. This was first evident in the growth in the
number of transactions made over the internet. The insurance industry is also, however,
in the early stages of engaging with new technologies such as smartphone apps,
Facebook and Twitter. A number of organisations have experimented with their use and
potential benefits. This has mainly been as a customer service, communication,
relationship building and marketing tool, although some also offer the facility to purchase
Chapter 1 Overview of household insurances 1/7

Chapter 1
and service policies. Clearly this an area which the industry cannot afford to ignore in the
future.

C4 Takaful
Takaful is a type of insurance that has its roots in the Islamic financial services industry. The
model has been developed over a period of time and is based on the rulings of Islamic law
concerning financial and commercial transactions. It works on the principle that in any
transaction risk and profit (and loss bearing) should be shared between the participants.
Under Islamic law, traditional insurance policies are seen by Muslims to be contrary to some
of the fundamental principles of Islam, so Takaful insurance has been developed to meet
their needs. While Takaful insurance has been in existence for over 20 years, it was only in
2005 that a major high street bank started to offer Islamic insurance policies for buildings
and contents. This is a trend that has continued since with an ever-increasing number of
providers entering the marketplace.

C5 Development of focused products

Increasingly insurers and intermediaries are focusing their product development and
marketing on particular sectors of the market. This can take a number of forms:
• The development of products to meet the needs of particular sectors of society.
A typical example would be products developed for retired people.
• The continued development of affinity group schemes that provide policies for
individuals who are members of particular professions, societies or organisations. This
could, for example, include policies that are only available to members of the police force.
A more recent example is a facility established to provide coverage tailored to the needs
of Airbnb landlords, as traditional household policies exclude loss or damage caused by
paying guests or tenants.
• The branding of insurance policies involves insurers forming links with other
organisations such as charities or retailers to promote a particular product. It is the other
organisation’s name, and not the insurer’s name that will feature prominently in promoting
the product and on policy documentation.
Many retail companies, such as supermarkets and mail order companies, have also
identified similar opportunities to expand their customer base and have become a significant
part of the household marketplace. They each have the advantage of bringing well-regarded
brand names with an extensive distribution network, to enable them to develop their
customer base for insurance products. This is known as brandassurance.

Example 1.4
While shopping in a branch of a popular supermarket, Celia notices a travel insurance
leaflet which she picks up to read at home. Celia is looking for a winter sports policy,
having just booked a skiing trip. Celia likes this supermarket as a brand. In this example,
the supermarket is acting as an intermediary, by branding an insurer’s product with
its name.

C6 Regulation
The current UK regulatory structure includes the following bodies:
• Monetary Policy Committee (MPC).
• Prudential Regulation Committee (PRC).
• Financial Policy Committee (FPC).
• Prudential Regulation Authority (PRA).
• Financial Conduct Authority (FCA).
Figure 1.2 illustrates the current UK regulatory structure.
Chapter 1 1/8 IF6/October 2020 Household insurance products

Figure 1.2: Regulatory structure

Bank of England
Financial Conduct
Authority (FCA)
Monetary Policy Prudential Financial Policy Enhancing confidence in the
Committee (MPC) Regulation Committee (FPC) UK financial system by
Setting interest rates. Committee (PRC) Identifying action to facilitating efficiency and choice
Taking control of the remove or reduce in services, securing an
PRA’s most important systemic risk. appropriate degree of
financial stability and consumer protection and
supervision policy protecting and enhancing the
decisions. integrity of the UK financial
system.

Prudential Regulation Authority (PRA)

Enhancing financial stability by promoting the safety and soundness of
PRA-authorised persons, including minimising the impact of their
failure.

Prudential regulation Conduct regulation Prudential and

conduct regulation

Prudentially significant firms: Investment firms and

banks, building societies, credit unions, insurers and some investment exchanges, other financial
firms. services providers including
independent financial advisers
(IFAs), investment exchanges,
insurance brokers and fund
managers.

The scope and effect of regulation on the sales and administration of personal insurances
will be considered in more detail in chapter 6.

C7 Non-insurance services
To maintain their competitive position, insurers have introduced a number of additional, non-
insurance customer benefits into their policies. Examples in relation to household insurance
include helplines for:
• legal advice; and
• emergency repairs.

C8 Increase in fraudulent claims

Fraudulent claims represent an increasing problem for insurers. ABI statistics show that the
total number of fraudulent claims and applications detected in 2018, at 469,000 rose by 3%
on 2017, with their value up 6%. Every day, 1.300 insurance scams are uncovered. There
were 20,000 property frauds detected, down slightly on the previous year. However, the
value of these frauds, at £115 million, rose by 11%.
Fraudulent claims can take many forms:
• Inventing a loss that didn’t take place, such as accidentally losing jewellery.
• Exaggerating the size of a loss by inventing more possessions and claiming that items
have been stolen when they were not.
• Deliberately causing a loss by throwing paint over an old carpet, in order to gain a
replacement.
In response to this trend insurers have revised their claims procedures, including the setting
up of specialist anti-fraud teams. There are also a number of initiatives to improve liaison,
both within the insurance industry and between insurers and other agencies such as the
police. These initiatives are covered in more detail in Fraud on page 8/13.
Chapter 1 Overview of household insurances 1/9

Chapter 1
Key points

The main ideas covered by this chapter can be summarised as follows:

Need for household insurance

• Household insurance should be high on the list of insurance expenditure, despite it

being non-compulsory. For most people, the most valuable physical asset they will own
is probably their home. Even those who do not own their own home, will own furniture
and other personal belongings that could be damaged or destroyed.
• The primary function of household insurance is risk transfer, giving the individual peace
of mind. This has created a need to insure not only the structure of the home itself and
its contents, but also a wide variety of other personal possessions.

Main types of household insurance

• Household policies are package policies, which are designed to meet the needs of the
majority of the insuring public, not those of an individual insured. There are a variety of
different household products available including buildings only policies, contents only
policies, buildings and contents insurance together within one policy and combined
policies include a range of optional extensions.
• There are some risks where a more specialist product is appropriate to provide
adequately for the additional cover required, or where more careful underwriting is
necessary.

Changing nature of the marketplace

• The products available to the buyer and the ways in which they can purchase them
have changed significantly in recent years. This is reflected in the growth of direct
insurers, electronic trading using electronic data interchange (EDI), the development of
call centres and the huge growth in trading over the internet including through
aggregator websites.
• Socio-cultural changes in society have created a need for a broader range of products,
brought about the expectation of 24-hour access to insurance products and services,
and led to greater engagement in purchasing products and services using new
technologies.

Features of the current marketplace

• New distribution channels have become established including banks and building
societies (bancassurance) and retailers (brandassurance). A more recent development
has been the establishment of peer-to-peer companies.
• Increasingly insurers and intermediaries are focusing their product development and
marketing on particular sectors of the market, including through affinity group schemes
and branding of insurance policies.
• Firms selling and administering household insurances must have systems and
procedures in place to ensure they comply with the FCA’s ICOBS rules.

Non-insurance services

• Insurers have introduced additional, non-insurance customer benefits into their policies
such as legal advice and emergency repairs.
• Fraudulent claims represent an increasing problem for insurers, which has caused
them to change and update their claims procedures.
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 2

Chapter 2
Policy cover
Contents Syllabus learning
outcomes
Introduction
A Household insurance – buildings 1.1, 2.1
B Household insurance – contents 1.1, 2.1
C Personal legal liability – buildings and contents 1.1, 2.1
D Exclusions 1.1, 2.1
Key points
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the core cover provided under different household insurance policies, including
policy wordings, exclusions and extensions;
• describe personal legal liability cover; and
• apply the cover provided by household insurance products to a given set of
circumstances.
 2/2 IF6/October 2020 Household insurance products

Introduction
In chapter 1 we considered the range of products available. This chapter will look in more
Chapter 2

detail at the two most common sections of a household policy – buildings and contents. In
chapter 3 we will consider the additional sections of cover that are available, such as ‘all
risks’/personal possessions; money and credit cards; and frozen food.
For each of these sections we will examine:
• the property covered;
• the core cover provided by typical policy wordings; and
• common policy extensions and exclusions.
It is important to note again that the wordings, extensions and limits used vary from one
insurer to another as there is no standard policy wording for household insurance. What
follows is a summary of the most commonly found features of policy cover.

Key terms
This chapter features explanations of the following terms and concepts:

Buildings insurance Contents insurance Ground heave Landslip

Legal liability Non automatic Single article limit Subsidence
extension
Valuables limit

A Household insurance – buildings

We will now assess the cover provided by a typical household buildings policy or that
provided under the buildings section of a combined policy.

A1 Property covered
The buildings section of the policy is designed to cover the structure of the home in its
broadest context. Any property that you would leave behind when moving, such as
permanent fixtures and fittings, is usually considered to be part of the building.
The term buildings is specifically defined in the policy wording, and would typically include
the main structure of the insured’s home, including:
• swimming pools, ornamental ponds and fountains, tennis courts, garden walls, patios,
terraces, fences, gates, paths and drives;
• oil and gas tanks, septic tanks and cesspits;
• garages and outbuildings; and
• fixtures, fittings and decorative finishes.
This definition will form part of the definitions section at the front of the policy booklet,
where the meaning of key words and phrases is given.

Question 2.1
Do fitted carpets form part of the buildings?

A2 Cover provided
The cover provided can be divided into three sections:
• insured perils covered;
• additional items of cover that are automatically included; and
• optional extensions.
A2A Insured perils
The insured perils covered are in the following table. The perils are grouped together as
though in a typical policy wording. The table also notes the exclusions that apply to each
Chapter 2 Policy cover 2/3

individual peril. These are in addition to the general policy exclusions that are considered
later in this chapter.

Chapter 2
Perils Exclusions

Fire, lightning, explosion and earthquake. Any gradually operating cause.

Riot and civil commotion, strikes, labour or political In respect of malicious damage or vandalism:
disturbances, malicious damage or vandalism.
• Loss or damage when the property is unoccupied or
unfurnished for more than a specified period of time
(typically 30 or 60 days).
• Losses caused by the insured or household
members, employees and paying guests/tenants.

Storm and flood. Damage to gates, hedges or fences.

Damage caused by frost.
Some insurers also exclude damage caused by
subsidence, ground heave or landslip to make it clear
that this is a separate peril.

Falling trees or branches. Damage to gates, fences or hedges.

Water or oil escaping from any fixed water or domestic Damage when the property is unoccupied or
heating installation, washing machines and other unfurnished for more than a specified period of time
domestic equipment. (typically 60 days).
Damage resulting from rusting, corrosion or general
wear and tear.

Theft or attempted theft. Damage when the property is unoccupied or

unfurnished for more than a specified period of time
(typically 60 days).
Theft and damage while any part of the home is let or
sublet unless it involves forcible and violent entry or exit
from the home.

Collision (impact) by: Loss or damage caused by insects, vermin or pets.

• aircraft or other aerial devices and anything dropped

from them; or
• vehicles or animals.

Subsidence, ground heave or landslip. The first £1,000 of every claim.

Damage to fixed oil tanks, septic tanks, swimming
pools, tennis courts, gates, fences, terraces, patios,
footpaths and drives, unless the dwelling house is
damaged at the same time.
Loss or damage caused by:
• normal shrinkage or settlement;
• faulty workmanship, design or materials;
• demolition, structural alteration or repair;
• coastal or riverbank erosion; or
• movement of solid floor slabs unless the
foundations are damaged at the same time.

Falling television or radio receiving aerials (including

satellite dishes), their fittings and masts.

The following points should be noted to aid your understanding of the perils listed above:
Fire. Smoke damage following a fire is usually covered. However, any damage arising from
a gradually operating cause is not covered, such as the staining of walls from exposure to
a coal fire over a number of years.
Storm or flood. Damage to gates, hedges or fences is excluded, as damage to this type of
property is more likely to be due to wear and tear or lack of maintenance. If buildings are
properly designed, they will not suffer damage as a result of ‘normal’ weather conditions.
Storm and tempest is therefore considered by insurers to be abnormal atmospheric
conditions. Most insurers have access to weather records to enable them to determine if
such conditions have arisen. According to the ABI:
 2/4 IF6/October 2020 Household insurance products

A storm is a period of violent weather which defined as:

• Wind speeds with gusts of at least 48 knots (55mph)* or;
Chapter 2

• Torrential rainfall at a rate of at least 25mm per hour or;

• Snow to a depth of at least one foot (30 cm) in 24 hours or;
• Hail of such intensity that it causes damage to hard surfaces or breaks glass
*Equivalent to Storm Force 10 on the Beaufort Scale.
Source: www.abi.org.uk/products-and-issues/topics-and-issues/flooding/storms/.

Falling trees. The cost of removing fallen trees is only covered if the buildings were also
damaged when the tree fell.
Malicious persons or vandals, theft or attempted theft and escape of oil or water.
Some insurers refer to a period of 30 days rather than 60 days in the unoccupancy
exclusion.
Escape of oil or water. Cover is for damage caused by the escape of oil or water, and not
for the repair of the installation or appliance that the water or oil escapes from. This is
because providing cover for repairs would amount to a maintenance contract for normal
wear and tear. Such damage is really the responsibility of the householder, along with all
other normal repairs and maintenance.

Example 2.1
Mr. and Mrs Pidcock were away on holiday for two weeks when their central heating boiler
exploded. The explosion resulted in escape of water and concussion damage. A boiler is
considered part of the building. A boiler exploding would suggest a lack of maintenance,
as a boiler is a pressure vessel and needs an annual inspection for insurance cover to be
given. Household insurance does not include an engineering inspection service.
The damage caused by the escape of water would be covered by the Pecks’ insurance
policy, but the cost of replacing with a new boiler would not. Therefore, the Peck’s would
need to pay for a replacement.

Escape of water can be caused by several issues, from burst pipes due to freezing
temperatures, to a leaking dishwasher or an overflowing blocked toilet.
Escape of water damage is one of the most common types of domestic property damage
claims, with insurers paying out £1.8 million for it every day. ABI data shows that during a
spell of freezing weather, a claim to repair a burst pipe costs an average of £8,800, but can
often be more expensive.
Falling television or radio receiving aerials. Cover is for damage to the building caused
by the aerial or satellite dish. Damage to the aerial or satellite dish itself will be covered
under the contents section of the policy.
Theft. Unlike commercial property theft cover, there is no restriction or qualification of the
term theft. In particular there is no requirement for forcible entry or exit (unless the property
is let, sublet or it is in connection with a money claim), so cover is as defined in the Theft Act
1968. The legal definition of theft refers to ‘dishonestly appropriating property belonging to
another with the intention of permanently depriving that other of it’.
This means that if you were to invite someone into your home and they stole your property
(apart from money), this would be covered under the household policy, as a homeowner/
occupier.
Chapter 2 Policy cover 2/5

Subsidence, ground heave or landslip

Each of these terms has a different meaning:
Subsidence This is the downward movement of the land on which the buildings stand. This may be due

Chapter 2
to a number of causes, including underground workings (e.g. coal mines) or the removal of
moisture from clay soil (e.g. by prolonged dry weather or tree roots).

Ground heave This occurs where the ground rises after the moisture content of the soil increases, for
example, when trees have been cut down and the soil absorbs more moisture as a result.

Landslip This is the falling away of land, for example after prolonged heavy rain on a sloping site.
This peril has legally been defined in Oddy v. Phoenix Assurance Company (1966) as ‘a
small landslide. It is a rapid downward movement under the influence of gravity of a mass of
rock or earth on a slope’. There is a specific exclusion of coastal or riverbank erosion under
the landslip peril, as landslip and coastal erosion are distinct separate perils.

The subsidence peril has the potential to produce complex and costly claims for insurers,
which is why a higher excess of £1,000 applies to this peril. This potential for complex and
costly claims is also reflected in the greater number of exclusions applying specifically to this
peril. These exclusions seek to avoid claims:
• that are really due to ongoing settlement and movement rather than true subsidence; and
• that should be the responsibility of a contractor or architect involved in the original
construction of the property; or subsequent construction or alteration work being carried
out on, or near to the property.

Question 2.2
Why does the unoccupied property exclusion apply to a number of perils?

A2B Additional items of cover

In addition to damage caused by the perils discussed in the previous section, we need to
consider additional items of cover that are a standard part of buildings insurances. These are
outlined below, together with the principal exclusions to cover
Damage to services
Cover is for accidental damage to drains, pipes or underground cables and inspection covers
for which the insured is responsible, and that provide services to and from the building. It
would, for example, cover accidental damage to water, oil, sewage and drainpipes; or
underground telephone, television and electricity cables up to the boundary of the property.
There is no cover for maintenance or normal blockages. Insurers, however, are sympathetic
to the problems that drains can cause. Some will pay up to a fixed sum (typically £1,000) to
break into and repair a pipe to clear a blockage, if normal methods of releasing the blockage
have been unsuccessful.
Fixed glass and sanitary fittings
This covers accidental damage to:
• fixed glass in windows, doors, roofs, solar panel units and ceramic hobs forming part of
the building;
• fixed wash basins, lavatory pans and cisterns, baths, splash-backs, shower trays and
screens, bidets and other sanitary fittings.
There is no cover for damage when the property is unoccupied or unfurnished for more than
a specified period of time (typically 30 or 60 days).
Legal fees, architects’ and surveyors’ fees, debris removal costs and local authority
requirements (reinstatement ancillary clauses)
Cover is for:
• reasonable and necessary legal fees incurred in the reinstatement of the buildings
following loss or damage. The fees must not be more than that recommended by the
relevant professional institute;
• necessary costs incurred to clear the site and make the site and the buildings safe
following loss or damage to the buildings; and
• the additional cost of complying with statutory building regulations or municipal or local
bye-laws.
 2/6 IF6/October 2020 Household insurance products

Example 2.2
Graham accidentally knocked over a lit candle. A fire started which spread to most of the
house causing extensive damage before the fire brigade arrived to put it out. The
Chapter 2

remaining structure of the house was declared unsafe, and had to be demolished. Before
a new house could be built, Graham had to arrange for the site to be cleared of all the
rubble and debris left by the fire and demolition work. He then employed an architect and
a surveyor to prepare the plans and costings to build his new home. The cost of debris
removal, professional fees and local authority requirements need to be factored into the
cover when calculating the sum insured.
Any costs involved in preparing the insured’s claim are not covered.

Loss of rent/alternative accommodation

Cover is for:
• ground rent payable by the insured for a maximum of two years. Some householders own
the buildings of their property but not the land upon which they stand and are known as
leaseholders. In these circumstances they may have to pay rent to the owner of the
freehold, called ground rent;
• loss of rent for any part of the premises not occupied by the insured, which has become
uninhabitable;
• the reasonable cost of alternative but similar accommodation while the premises are
uninhabitable as a result of an insured peril. The intention is to indemnify the insured, and
not for them to benefit by having insurance.
Some insurers limit cover to a stated percentage of the buildings sum insured, typically
between 10% and 20%. Others apply a fixed limit, which varies between £25,000 and
£100,000.
Repairs to plumbing after freezing
Cover is for the cost of repairing any plumbing in the home after damage caused by freezing.
There is no cover for:
• damage when the property is unoccupied or unfurnished for more than a specified period
of time (typically 30 or 60 days);
• plumbing that is outside or in an outbuilding; and
• damage resulting from rusting, corrosion, or general wear and tear.
Emergency access
Cover is provided for damage caused to the building or garden landscaping when necessary
access is gained to the home to deal with an emergency.
Typically a limit of £1,000 or the contents sum insured limit will apply.
Sale of the home (contracting purchaser’s clause)
If contracts have been exchanged for the sale of the home the purchaser is liable for the
property from the date of exchange. Ideally cover needs to start on the exchange date.
However, if this hasn’t happened, the purchaser can benefit from the vendor’s insurance
policy up to the date of completion. This does not apply if the purchaser has already
arranged insurance under another policy.
Loss or theft of keys
Cover is provided for the cost of replacing locks on the outside doors of the home if the keys
to the home have been lost or stolen. Cover may be subject to a monetary limit of up
to £1,000.
Some insurers further extend cover to include:
• keys to safes or alarms;
• accidental damage to locks.
Tracing leaks
If there is an escape of water causing damage to the home, cover is provided for the cost of
tracing the source of the leak and repairing any damage to the buildings caused as a result.
Typically, a limit of £5,000 will apply (per any one incident).
Chapter 2 Policy cover 2/7

A2C Optional extensions

The cover outlined above provides some limited cover for accidental damage but by paying
an additional premium, it is possible as the homeowner/occupier to have full accidental

Chapter 2
damage cover for home buildings insurance. This would cover, for example, the insured
putting their foot through the bedroom ceiling when storing items in the loft or drilling through
a pipe.
Although providing considerably broader cover, the accidental damage extension (which is
referred to as a non-automatic extension) is subject to a wide range of exclusions.
These include:
• damage while the dwelling is lent or sublet, whole or in part;
• damage caused by wear and tear, settlement or shrinkage, atmospheric or climatic
conditions, or any gradually operating cause;
• damage caused by the demolition of or structural alteration or structural repair to your
home;
• damage caused by chewing, scratching, tearing or fouling by domestic pets;
• damage caused by wet or dry rot, fungus, vermin or insects;
• damage caused by faulty materials or design, or poor workmanship;
• damage from a cause listed in, or specifically excluded from, another section of the
policy; and
• the excess shown in the schedule (usually £50–£200).

Question 2.3
Why do more extensive exclusions apply to accidental damage cover?

B Household insurance – contents

B1 Property covered
Cover is provided for loss of or damage to contents in the home. According to the ABI, the
average weekly cost of home contents insurance is now £2.40 per week, less than the
average weekly spend on takeaway meals. One in four UK households have no contents
insurance protection. Northern Ireland households are the most likely to have contents
insurance and Londoners the least.
Although there is no standard definition of the word contents, the following is typical of that
used in the market to describe the property to which contents cover applies:
Household goods and personal possessions belonging to the insured or members
of their household, or for which the insured or a member of their household is
legally responsible.
The term household is also defined in the policy and would usually include the insured’s
spouse or domestic partner, domestic staff and any relatives permanently living at the
property. Cover would therefore include, for example, personal possessions of any resident
domestic staff.
As for buildings cover, the meaning of these terms is usually given in the definitions section
at the beginning of the policy wording.
Where the insured is the occupier but not the owner of the house, cover would also include
the tenant’s liability for their landlord's fixtures and fittings. This could provide cover for up to
£5,000.
In general terms, the contents section covers any property that you would take with you
when moving house. While this appears to be a wide-ranging definition, there are certain
items of property that are specifically excluded from contents cover.
 2/8 IF6/October 2020 Household insurance products

Typical exclusions are:

• property more specifically insured;
• securities, certificates and documents;
Chapter 2

• motor vehicles, motorcycles, caravans, trailers, watercraft, hovercraft or aircraft, and their
accessories while in use;
• pets and horses;
• any part of the structure of the dwelling, ceiling, wallpaper etc.; and
• property held or used primarily for business purposes.
The intention is to exclude any property that is better insured under a different type of policy
or section of cover.
While ‘property held or used primarily for business purposes’ is excluded, as noted above,
most insurers qualify this exclusion by stating that cover is included for a limited amount of
business equipment. Typically a limit of between £5,000 and £7,500 applies. Some insurers
also include cover for business stock up to £2,500. This recognises the growing trend for
people to run their own businesses from home. Any equipment belonging to the insured’s
employer remains excluded. Insurers will generally only be prepared to cover a small clerical
business which is run from the home. For other types of home businesses, insurers have
developed two additional products: home business policies and standalone policies. These
are discussed in Homeworking on page 5/2.
Insurers usually place limits on single articles of value and on the total amount of valuable
items. Valuable items are defined in the policy and would normally include articles of gold,
silver or other precious metals; watches; jewellery; furs; paintings and other works of art;
stamp or coin collections and musical instruments. Typical policy limits would be as follows:

Single article limit The limit for any one valuable item varies between £1,500 or 5% of the sum insured.
Insurers are often prepared to include items of greater value providing they are
specified and evidence of the value produced.

Valuables limit The total value of valuable items is not to exceed one third of the contents sum insured,
unless specifically agreed. Some insurers apply a percentage limit instead; usually 30%
and some a fixed limit of say £10,000.

Money Money is usually included up to a limit of £300–£750. Money has a wider policy
definition than just cash and cheques. The policy definition includes cheques, postal
and money orders, postage stamps, premium bonds, travellers’ cheques, travel tickets,
luncheon vouchers, gift tokens and pre-loaded cash and phone cards, in addition to
cash and bank notes.

B2 Cover provided
Like buildings insurance, the cover provided can be divided into three sections:
• Insured perils covered.
• Additional items of cover that are automatically included.
• Optional extensions.
B2A Insured perils
The perils covered under the contents section are basically the same as those covered by
the buildings section, subject to minor variations in the wording and omission of exclusions
that are only relevant to buildings cover.
The principal variations are to the peril of theft or attempted theft, where the following
additional exclusions apply:
• Loss of money or credit cards unless someone has broken into or out of the home by
using force and violence.
• Loss by deception other than deception used solely to enter into the home.
• Loss or damage while the home or any part of it is let or sublet unless someone has
broken into or out of the home by using force and violence.
Chapter 2 Policy cover 2/9

Example 2.3
Sara hears a knock at the door. When she goes to answer it an official looking man
explains that he is here to read her electricity meter. Sara invites him inside and shows

Chapter 2
him where to find the meter under the stairs.
Before leaving he asks if it would be possible to use the bathroom. After he has gone Sara
discovers that her purse containing £200 in cash and a diamond ring worth £400 are
missing from her bedroom.
She rings her electricity company and discovers that the man who called to read her meter
was bogus.
Sara submits a claim under her household policy for the theft of the money and her ring.
While no force or violence has been used to get into or out of the home the claim would be
covered, as deception has been used solely to gain entry to the home.

In addition, cover for theft of contents from garages or outbuildings may be restricted
to £3,000.
B2B Additional items of cover
As with buildings insurances, we need to consider additional items of cover that are a
standard part of the contents cover. These are outlined below, together with the principal
exclusions to cover.
Temporary removal
Cover is extended to insure the contents while temporarily removed to:
Cover is extended to insure the contents against all the perils normally covered by the policy
while temporarily removed to:
• any bank, safe deposit or occupied private dwelling or any building where the insured or
any member of their family is temporarily living or is employed or conducts business;
• elsewhere in the British Isles.
Cover is usually restricted to the British Isles. Some insurers automatically extend cover to
apply anywhere in Europe and elsewhere in the world for a period of up to 60 days.
Theft is covered only if it involves forcible and violent entry to, or exit from, a building.
There is no cover for loss or damage caused by storm or flood to property not in a building.
Cover is usually limited to a fixed amount (e.g. £5,000), or a percentage of the contents sum
insured.
Contents in the garden
Cover applies to the contents if loss or damage happens in the open within the boundaries of
the land belonging to the home. Cover is limited to a specified amount of between £500
and £2,000.
This amount would include cover for loss of or damage to garden ornaments, garden
furniture and hot tubs.
Household removal
Cover is extended to include accidental damage to the contents while they are being moved
to a new home or from an old home, or while in temporary storage for up to seven days.
Professional removal contractors must remove the contents.
Cover applies within the British Isles.
The following exclusions apply:
• loss of or damage to china, glass, pottery or other fragile items unless packed by
professional packers; and
• loss or damage caused by denting, chipping or scratching.
Glass and mirrors
Cover is extended to include accidental breakage of mirrors, moveable ceramic hobs, plate
glass tops to furniture and fixed glass in furniture.
 2/10 IF6/October 2020 Household insurance products

There is no cover for damage when the property is unoccupied or unfurnished for more than
a specified period of time (typically 60 days).
Accidental damage to entertainment equipment
Chapter 2

Cover is extended to include accidental damage to televisions, audio, video and home
computer equipment and their receivers.
The principal exclusions that apply are:
• wear, tear and maintenance;
• electrical or mechanical breakdown;
• damage caused by cleaning, repair or dismantling the item;
• damage to records, cassettes, CDs or DVDs;
• loss or corruption of computer software or data caused by computer viruses or where no
adequate back-up copies have been kept;
• damage caused by a domestic animal; and
• radio transmitters, mobile phones and hearing aids.
It should be noted that some insurers will cover mobile phone as part of accidental cover.
Cost of alternative accommodation
Cover includes the reasonable costs of alternative accommodation if the house is made
uninhabitable by an insured peril.
Cover is limited to:
• the period of time necessary to make the home fit to live in; and
• either a stated percentage of the contents sum insured (typically 20–25%) or a fixed
amount (typically between £10,000 and £30,000).
Loss of heating fuel or metered water
Cover includes accidental loss of metered water or heating fuel, such as domestic heating oil
or liquefied petroleum gas (LPG).
A sum insured of up to £2,000 usually applies.
An increasing number of homes, particularly new homes, have water meters fitted that
record the amount of water used. If water is lost through a burst, the insured will still have to
pay for this water as part of their water charges. Similarly, any heating fuel that accidentally
escapes from a storage tank will have been paid for and will have to be replaced. Both these
losses are covered by this extension.
Loss of keys
Cover includes the cost of replacing external door locks, including keys, following the loss or
theft of keys to your home. Cover also includes the cost of replacement locks and keys for
alarm systems and safes.
Cover is usually restricted to a fixed amount of between £500 and £1,000.
Temporary increases in sums insured
This extension provides for an increase in the sum insured to cover wedding, civil
partnership, birth and birthday gifts, or gifts and food bought for Christmas or other religious
festivals. The increase may be a fixed amount of £3,000–£5,000 for example, or a
percentage of the contents sum insured.
Title deeds
Cover is extended to include the cost of preparing new title deeds to the home if they are lost
or damaged by an insured peril.
Cover is usually limited to £500.
Outlined above are the principal automatic extensions to cover. However, the range of
extensions available from different insurers is varied. In studying a variety of policy wordings,
you may come across other extensions that are available, such as student belongings,
visitors’ personal belongings, fatal injury benefit, plants in the garden and downloaded
information.
Chapter 2 Policy cover 2/11

B2C Optional extensions

In examining the cover provided for contents, we have identified that some cover for
accidental damage is automatically provided. As with home buildings cover, it is possible to

Chapter 2
have full accidental damage cover added to the contents section by paying an additional
premium for the non-automatic extension. This extension is only available to the homeowner/
occupier.
The exclusions that usually apply to this extension include:
• damage to money, contact lenses, stamps, food in freezers and pedal cycles;
• damage caused by wear and tear, settlement or shrinkage, atmospheric or climatic
conditions, or any gradually operating cause;
• damage caused by domestic pets;
• damage caused by cleaning, washing, repairing or restoring any item, or electrical and
mechanical breakdown;
• damage when the house is let or lent, or unoccupied for more than a specified period of
time (typically 60 days); and
• damage that is excluded anywhere else in the contents section.

C Personal legal liability – buildings and

contents
All buildings and contents household policies include specific liability cover as part of the
basic cover. Generally the buildings section extends to cover liabilities arising out of owning
the home, while the contents section relates to liability arising out of occupying the home.
More specifically, the cover provided can be summarised as follows.

C1 Buildings section
This covers:
• the legal liability of the insured incurred as owner of the dwelling to members of the public
(but excluding members of the insured’s family permanently residing with them); and
• liability incurred under the Defective Premises Act 1972 (England and Wales) for faults
in houses formerly owned or occupied by the insured.

Consider this…
Can you think of examples of liability losses that would be covered under the buildings
section?

C2 Contents section
This covers the following:
• Legal liability incurred by the insured as occupier of the premises.
• Personal liability as a private individual.
• Liability as the employer of domestic servants (excluding employees of any business or
profession).
• Liability as a tenant for loss or damage to your home by a peril insured under the
buildings section. An inner limit of between £5,000 and £11,500 or a percentage of the
contents sum insured usually applies.
• Unrecovered damages (also referred to as reverse damages). This provides cover in
respect of the outstanding amount of any judgment made against a third party for bodily
injury or damage sustained by the insured. Cover applies only to those incidences that
would have been covered under the insured’s own policy if the action had been brought
against the insured. The judgment must not be subject to appeal, and typically, a period
of three months must have elapsed since the judgment.
 2/12 IF6/October 2020 Household insurance products

Example 2.4
As a homeowner, you have been involved in a boundary dispute with your neighbour and
have won the legal action. If your neighbour has not paid you the amount of damages
Chapter 2

awarded after three months have elapsed since the judgement, the insurer would pay you
the amount due. This is known as reverse damages.
However, it is important to recognise that not all insurers are now prepared to consider
boundary disputes under their legal expenses cover.

Consider this…
Can you think of examples of losses that would be covered under the contents section?

The following additional features of cover should be noted:

• Cover is for legal liability only, if anyone is accidentally injured or falls ill, or property is
accidentally lost or damaged. This usually means there has to be some negligence or
fault on the part of the insured.
• A limit of indemnity, normally £2 million, applies to any one claim. If the claim involves an
employee being injured or falling ill, the limit of indemnity is increased to £10 million. The
limit applies to damages and the claimant’s costs. The insured’s costs, if incurred, are
included if agreed in advance.
• Indemnity is provided to the insured and all family members permanently residing in the
property;
• Cover applies to anywhere in the UK, and to the rest of the world for temporary visits.
• Injury or damage must occur during the period of insurance.
In chapter 6 we will examine in more detail the causes of legal liability to individuals, and
how these relate to the cover provided under a household policy.

Consider this…
William has returned from a three-week winter holiday to find that:
• his fence has been blown down by high winds;
• the radiator in the lounge has been leaking and has ruined the carpet; and
• the escape of water has dripped onto the smart television. The television no longer
works.
Reflecting on what we have read in this chapter, now look at each part of William's claim
and consider the following:
• What would the insurer identify as the proximate cause?
• Which part of the household policy, will they refer to, building or contents?
• Would the claims be paid by the insurer?

D Exclusions
In studying the cover provided under the buildings and contents sections of a household
policy, we have identified the specific exclusions that apply to individual perils and
extensions to cover.
In addition to these specific exclusions, the policy will contain general exclusions that apply
to the policy as a whole. We will now consider these.
Chapter 2 Policy cover 2/13

Typical exclusions include the following:

War risks This risk is considered to be a fundamental risk, and is generally regarded as being

Chapter 2
the responsibility of the State rather than the insurer.

Radioactive Such losses have the potential to exceed the capacity of individual insurers and
contamination and cover is instead provided by a system of market pools. Insurers and underwriters
explosive nuclear each accept a share of the risk suited to their individual underwriting capacity, but by
assemblies pooling these resources sufficient cover can be provided.

Sonic bangs This excludes damage caused by pressure waves created by aircraft travelling at
supersonic speeds.
In June 2019, jets were scrambled to escort a Jet2 plane back to Stansted, due to a
disruptive passenger on board. The jets broke the sound barrier, creating pressure
waves which resulted in four claims against the Ministry of Defence.

Pollution or This excludes any loss, damage or liability directly or indirectly caused by pollution or
contamination contamination, unless arising from a sudden and unforeseen accident. Losses arising
gradually over a period of time would therefore be excluded. Losses caused by
leakage of oil from any fixed heating installation are not subject to this restriction
however.

Terrorism Traditionally losses resulting from terrorism were not specifically excluded under a
household policy. However, following the 11 September 2001 attacks in the USA,
insurers started to restrict terrorism by introducing a specific exclusion. The wording
varies between insurers but would typically exclude ‘any loss, damage, liability, cost
or expense of any kind directly or indirectly caused by, resulting from or in connection
with any act of terrorism’.
For the purpose of this exclusion terrorism means:
the use, or threat of use, of biological, chemical and/or nuclear force or contamination
by any person(s), whether acting alone or on behalf of, or in connection with any
organisation(s) or government(s), committed for political, religious, ideological or
similar purposes, including the intention to influence any government(s) or put any
section of the public in fear.

Computer equipment This excludes:

• loss or damage due to computer viruses; and
• any losses due to the failure of computer or other electronic equipment to
recognise correctly any date as its true calendar date. This exclusion was
introduced originally to prevent claims being made for computer equipment failing
to recognise the change in date on entering the new millennium.

Confiscation Any loss or damage caused by property being confiscated, seized or destroyed by
any government, public or local authority, is excluded. Such claims would not be
covered, either because they may involve criminal wrong, or because they would
otherwise be dealt with by the authority concerned.

Deliberate acts This excludes any loss or damage that the insured or a member of the household
causes deliberately. Some insurers do not include this as a general exclusion, but
instead have a general condition requiring the insured to take all reasonable steps to:
• prevent loss, damage or accident; and
• maintain the property in sound condition and good repair.

Existing damage Any loss or damage which arose before the cover started is excluded.
This is particularly relevant to damage which takes place over a period of time, such
as subsidence.

Many of these general exclusions are also known as general market exclusions that apply to
most property policies.
In addition to these exclusions most policies are subject to a compulsory excess applicable
to all claims. The amount will vary between insurers, but is typically between £50 and £100.
The insured may choose to increase the amount of this excess on a voluntary basis in return
for a premium discount.
 2/14 IF6/October 2020 Household insurance products

Key points

The main ideas covered by this chapter can be summarised as follows:

Chapter 2

Household insurance – buildings

• The buildings section of the policy is designed to cover the structure of the home in its
broadest context, including, for example, outbuildings, paths and drives. The term
buildings is specifically defined in the policy wording.
• The buildings section of the policy automatically covers a range of perils, as well as a
number of additional items of cover. Each of these is subject to specific limitations and
exclusions.
• While the buildings section of the policy automatically includes a limited amount of
cover for accidental damage, it is possible to pay an additional premium to include full
accidental damage cover. A number of extra exclusions will apply.

Household insurance – contents

• The contents section of the policy covers any property that you would take with you
when you move which is not permanently attached to the building. There are a number
of items which are specifically excluded. The term contents is specifically defined in the
policy wording.
• Insurers place policy limits on the amounts payable for single items, valuables and
money under the contents section of the policy.
• The contents section of the policy automatically covers a range of perils, as well as a
number of additional items of cover. Each of these is subject to specific limitations and
exclusions. There are some further additional items of cover which are only offered by
certain insurers.
• While the contents section of the policy automatically includes some cover for
accidental damage, it is possible to pay an additional premium to include full accidental
damage cover. A number of specific exclusions will apply.

Insured's personal legal liability

• The buildings and contents sections of household policies automatically include

specific liability cover. The buildings section includes liability as the owner and under
the Defective Premises Act. The contents section includes occupiers’ and personal
liability, employers’ liability, tenants’ liability and unrecovered damages.

Exclusions

• In addition to the exclusions that apply to individual perils and extensions to cover
under the buildings and contents sections of cover, the policy will contain general
exclusions that apply to the policy as a whole.
Chapter 2 Policy cover 2/15

Question answers
2.1 No. While fitted carpets are often included in the sale of a house, they are still

Chapter 2
regarded as contents for insurance purposes (unless the carpets are glued in place,
then they are considered as part of the buildings cover). However, items such as
fitted kitchens or bedrooms would form part of the buildings cover.

2.2 This exclusion applies to the perils of malicious damage or vandalism, escape of oil
or water, theft/attempted theft and breakage of sanitary fittings. It recognises that
unoccupied properties are highly vulnerable to this type of damage. Some insurers
may remove the exclusion provided that specific precautions, as noted in the policy,
are taken to prevent loss. This could, for example, include inspecting the property at
regular intervals, turning off the water, gas and oil supply and draining water and
heating systems.

2.3 The intention is to ensure that the loss or damage was accidental and not as a
result of a gradually operating clause. Insurers will also want to check that the loss
is not more specifically covered elsewhere in the policy.
 2/16 IF6/October 2020 Household insurance products

Self-test questions
1. Which of the following perils are excluded from building cover if the property is
Chapter 2

unoccupied for more than 60 days?

a. Riot, escape of water and theft. □
b. Riot, fire and attempted theft. □
c. Subsidence, ground heave and landslip. □
d. Impact, lightning and storm. □
2. What is the typical excess applicable to subsidence cover under a household
buildings insurance policy?
a. £250. □
b. £500. □
c. £1,000. □
d. £750. □
3. In addition to cash and bank notes, the definition of money under a typical household
contents policy usually includes:
a. Lottery tickets. □
b. Credit cards. □
c. Debit cards. □
d. Travel tickets. □
4. The definition of contents under a household insurance policy does not include
property belonging to a:
a. Live-in housekeeper. □
b. Partner who shares the home. □
c. Child of the insured visiting for the weekend. □
d. Grandparent living with the family. □
5. Legal liability cover included in the buildings section of a household policy includes
liability incurred under the:
a. Animals Act 1971. □
b. Countryside Rights of Ways Act 2000. □
c. Dangerous Dogs Act 1991. □
d. Defective Premises Act 1972. □
 Chapter 2 Policy cover 2/17

6. What is a common household buildings insurance policy exclusion for smoke staining
which is not connected with direct fire damage?
a. Damage which occurs gradually. □

Chapter 2
b. Damage caused by smoke from an adjoining property on fire. □
c. Damage caused while the property is let. □
d. Damage caused while the property is unoccupied. □
You will find the answers at the back of the book
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 Policy extensions
3

Chapter 3
Contents Syllabus learning
outcomes
Introduction
A Personal possessions 1.1, 2.1, 6.1
B Other optional extensions 1.2, 2.1, 6.1
Key points
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the core cover provided by a personal possessions extension, including policy
wordings and exclusions;
• describe the optional extensions available and the scope of cover; and
• apply the cover provided by household policy extensions to a given set of circumstances.
 3/2 IF6/October 2020 Household insurance products

Introduction
In chapter 2 we examined the cover provided under the two most common sections of a
household policy: buildings and contents. While the cover provided is wide-ranging, there are
a number of areas for which cover is not provided. In particular:
• there is only limited cover for property taken away from the home. It is usual for most
householders to regularly take their possessions outside the home;
• there are certain items for which more specific cover is required than that offered by the
perils specified under the buildings and contents section.
Chapter 3

Examples of the wider losses that a householder is exposed to include:

• a ring accidentally lost while on a day out;
• the theft of a credit card while visiting the gym, which is then used by the thief to
purchase goods;
• the need for legal representation to resolve a dispute with the insured’s employer over a
contract of employment;
• the theft of a mountain bike from a locked garage;
• help in finding a plumber to repair a burst pipe;
• the theft of sports equipment from a changing room;
• loss of frozen foods due to the freezer breaking down.
In response, insurers have developed a range of optional extensions that include:
• personal possessions (previously known as ‘all risks’ cover);
• money and credit cards;
• legal expenses;
• pedal cycles;
• assistance services/emergency helplines;
• sports equipment; and
• frozen foods.
These are the most common extensions to a household policy, but this is not an
exhaustive list.
We will now consider the cover provided by these optional extensions.

Key terms
This chapter features explanations of the following terms and concepts:

Personal Specified items Unspecified items

possessions

A Personal possessions
This extension to contents provides cover for accidental loss of or damage to personal
possessions regularly taken outside the home. This would include such items as jewellery,
clothing, cameras and mobile phones. While the term ‘accidental loss or damage’ appears to
provide very wide cover, there are a number of exceptions, as we will see.
Other terms are used by some insurers for this section of cover, including:
• contents cover away from the home; or
• personal belongings.
For the purposes of this course book, we will use the term ‘personal possessions’ to include
all of these.
While generally provided as an optional extension to the contents policy, some insurers will
provide separate ‘personal possessions’ policies for those who do not need contents cover,
such as those living in furnished accommodation.
Chapter 3 Policy extensions 3/3

A1 Property insured
As with buildings and contents, the property insured is defined in the policy booklet. Personal
belongings of the insured or any member of the family permanently living with the insured
are covered. The definition of personal belongings includes:

Personal effects Valuables

Clothing and articles of a strictly personal nature that Jewellery, articles containing gold, silver or other
are normally worn or carried. precious metals, digital cameras, mobile phones,
binoculars, watches, furs, paintings, other works of art

Chapter 3
and collections of stamps, coins and medals.

Some insurers include sports equipment and pedal cycles within the definition of personal
effects. They may also include and define money within the property insured. Others insure
these items under a separate section of the policy.
Mobile phones are included in contents and personal possessions cover. Limits apply and
generally cover excludes damage caused by liquid, for example if the phone is dropped
down the toilet. Only the physical damage/loss of the phone is covered with contract costs
excluded.
Some insurers will pay costs involved in retrieving personal data from your home computer
or from other personal electronic devices that have suffered physical damage, within the
agreed sum insured.

Question 3.1
Why do some insurers provide cover for sports equipment, pedal cycles and money
as separate sections of a household policy?

A2 Cover provided
There are usually separate sums insured for:

Specified items Unspecified items

Any item that is individually worth more than the single Any items that are individually worth less than the single
article limit (for example £1,500) must be separately article limit are insured under one overall sum insured.
listed on the schedule of insurance.
This sum insured is selected by the insured and should
Typically, the items to be specified would be those worth represent the maximum amount likely to be at risk while
£1,500 or more, or with a value greater than 5% of the away from the home on any one occasion.
total contents sum insured. It is usual for insurers to ask
for a valuation or receipt to be provided for such items.
It may be difficult to agree on a value once an item has
been lost or destroyed. The existence of a valuation will
avoid any disputes.
Typically, the types of items that would be specified are
jewellery and furs, but there may be other high risk
items for which cover is required, such as photographic
equipment and watches.

Example 3.1
Rasheda wants to add personal possessions cover onto her household policy. She has
£3,600 worth of personal possessions which she regularly takes away from home,
including a gold necklace worth £1,600. Her policy contains a single article limit of £1,500.
What should Rasheda do? She should extend her household contents policy to include
personal possessions cover, with a sum insured of £2,000 on unspecified items. Her gold
necklace should be declared as a specified item which will be separately noted on the
policy schedule. Insurers would normally ask for a professional valuation for the necklace
at the time that cover is taken out.

These sums insured are index-linked which means they are automatically adjusted for
inflation on a monthly basis, in line with the Consumer Durables section of the Retail Prices
 3/4 IF6/October 2020 Household insurance products

Index. This helps to prevent items becoming under-insured. However, the value of specified
items in particular can fluctuate independently of inflation. It is important to ensure that these
items are re-valued on a regular basis.
Instead of asking the insured to specify a sum insured some insurers may offer units of
cover; for example, £2,000, £3,000, £4,000 and £5,000, but subject to a single article limit
above which items must be specified.
Cover is usually subject to the following geographical limits:
• Accidental loss or damage happening anywhere in the British Isles.
Chapter 3

• Anywhere in the world for up to 60 days in total, in any one period of cover.
Some insurers offer unlimited worldwide cover. There may be a limit in respect of property
taken abroad; typically £7,500.

A3 Exclusions
Policy exclusions vary between insurers, but the most common exclusions are loss or
damage caused by:
• wear and tear, gradually operating causes or depreciation;
• insects or vermin;
• corrosion, rot, mildew, fungus and atmospheric/climatic conditions;
• any process involving cleaning, washing, altering, repairing or restoring;
• scratching, denting, electrical or mechanical breakdown, faulty workmanship or materials;
• confiscation or detention by customs or other officials;
• the exclusions which apply to the standard contents section of the policy; and
• theft from an unattended vehicle, from a locked and concealed boot or compartment.
Limit applies in total to each incident of theft from an unattended vehicle involving
property covered under Personal possessions, except for pedal cycles. Some insurers
apply a limit in respect of theft from a vehicle (typically £1,500).
In addition, there are exclusions to the types of property insured:
• Deeds, bonds, bills of exchange, securities, documents and manuscripts.
• Business, professional or trade goods and equipment.
• Motor vehicles and watercraft.
• Pets or horses.
• Unless specified in the schedule, musical instruments, china, glass, earthenware and
other items of a brittle nature.
• Contact lenses or hearing aids.
• Camping equipment.
• Property more specifically insured under any other section of this policy or by any other
policy.
Where pedal cycles, sports equipment and money are insured under a separate section of
the policy, these items will also appear under the list of exclusions.
The intention is to avoid claims for:
• property where separate insurance is available; for example, motor vehicles, watercraft
and mobile phones;
• property where insurers may need to apply individual terms, such as contact lenses; and
• losses that insurers are not prepared to cover, such as documents and manuscripts, and
gradually operating causes.
Cover is usually subject to a compulsory excess, typically £100.
Chapter 3 Policy extensions 3/5

B Other optional extensions

The cover provided by other optional extensions to a household policy is summarised in the
following table.

Consider this…
Consider whether cover is provided in these potential scenarios:
• Unauthorised use of your credit card by your partner;

Chapter 3
• Having left you bike unattended outside of a shop, your bike accessories are stolen but
not the bike;
• When playing a game of golf, your clubs are stolen.
• Your neighbour is suing you for nuisance, as they claim your tree is restricting
their light.

Extension and cover period Exclusions

Money and Cover is for accidental loss of money and/or Any loss that is not reported to the police. For
credit cards loss due to fraudulent use of credit cards. some insurers this must be within 24 hours.
Cover is subject to a limit of between £300 Loss due to mistakes or loss of value.
and £750 for money, and between £250 and
Any loss that is not reported to the bank or
£1,000 for credit cards.
credit card company within 24 hours of
Money is defined in the policy wording as: discovery. Loss where the insured has not
kept to the terms and conditions of the credit
• cash and bank notes, cheques, postal
card.
orders, bankers’ drafts, postage stamps,
savings stamps, premium bonds, Loss where the insured’s actions have
luncheon vouchers, gift tokens, travel contributed to the fraudulent use of the credit
tickets and pre-loaded cash and card.
telephone cards.
Unauthorised use of a credit card by a
Credit cards are defined in the policy member of the family.
wording to include:
Money held or used for business purposes.
• credit cards, debit cards, cheque cards,
A policy excess of £100.
cash cards and charge cards.

Pedal cycles Cover is for accidental loss of or damage to A policy excess of £100.
pedal cycles, including accessories.
Loss of or damage to parts or accessories
Cover is subject to a limit per cycle of unless the cycle is damaged or stolen at the
between £500 and £5,000. same time.
Use for racing, pace-making or trials.
Loss caused by deception unless deception
has been used to get into the home.
Loss or damage due to electrical or
mechanical breakdown, wear and tear and
any gradually operating causes, cleaning,
repairing or restoring.
Theft while unattended, unless in a locked
building or otherwise secured.
Any pedal cycle with a motor.
 3/6 IF6/October 2020 Household insurance products

Extension and cover period Exclusions

Sports equipment Cover is for accidental loss of or damage to Damage to sports equipment while in use.
sports equipment and specialist sports
clothing. Vehicles, watercraft (including windsurfers
and surfboards) and aircraft (including hang-
gliders).
Non-specialist sports clothing.
Property more specifically insured by another
section of the policy or by any other policy of
insurance.
Chapter 3

Property held or used for any profession,

business or employment.
Camping equipment.
Equipment for certain hazardous pursuits,
such as skiing, parachuting, sub-aqua and
mountaineering.

Frozen foods Cover is for loss of or damage to goods Loss of food held for business purposes.
stored in a freezer caused by:
Loss or damage due to the supply company
• a change in temperature; deliberately restricting the supply of electricity
• contamination by freezing agents; and or gas to the insured’s home.
• the reasonable cost of hiring temporary Loss due to a deliberate act of the insured.
alternative freezer space if the freezer
Damage after the freezer has reached a
breaks down.
certain age (typically 10 or 15 years).
Cover is subject to a fixed policy limit of
between £500 and £1,000, although some
insurers provide unlimited cover.

Legal expenses Cover includes: There are usually a large number of

exclusions that are specific to this section.
• recovery costs for legal action taken to
Listed below are some of the typical
enforce the rights of the insured against
exclusions.
third parties;
• the legal costs involved in the defence Policy excess or alternatively, claims below a
of civil claims not covered by other minimum claim amount.
forms of insurance; and Claims occurring outside the UK, the Channel
• prosecution defence costs for certain Islands and the Isle of Man.
types of criminal charges.
Costs and expenses more specifically
The types of circumstances and disputes insured under another insurance policy.
which are covered are specified in the
Claims reported to insurers more than 180
policy. They include matters such as
days after their occurrence.
employment, civil, contractual and
inheritance disputes, as well as Appeals, unless the insurer considers that
representation in the event of tax inquiries there is a reasonable chance of success.
and motoring prosecutions.
Costs and expenses not agreed by the
Cover is subject to a limit of indemnity of insurer.
between £30,000 and £100,000.
Fines following the unsuccessful defence of a
criminal charge.
Claims arising out of:
• a contract entered into by the insured in
connection with any profession, business
or trade, other than breaches of a
contract of employment;
• a deliberate or criminal act or omission;
• a property or employment dispute that
arises less than 90 days after cover
started (or 180 days for some insurers);
• planning, construction or structural
alteration of a building;
• libel or slander;
• divorce or matrimonial matters; and
• disputes between landlord and tenant.
Chapter 3 Policy extensions 3/7

Extension and cover period Exclusions

Home emergency Cover is provided to cover the cost of call Boilers over a stated age; typically ten years.
out, labour and parts in the event of a home
Under floor, solar or warm air heating
emergency involving plumbing, drainage,
systems.
heating, electrics or security.
Domestic appliances – burst or leaking
A home emergency is defined in the policy
flexible hoses or leaking appliances and other
and includes any sudden and unforeseen
mechanical equipment.
situation which, if not dealt with immediately
upon discovery, would make the home Losses whilst the home is unoccupied for
unsafe or insecure or would create an more than a stated number of days; typically

Chapter 3
unreasonable risk to health and safety of the 60 days.
insured.
Losses within the first 14 days after inception.
A limit of between £200 and £1,000 usually
The cost of work carried out by anyone other
applies.
than the insurer’s nominated repairer.
Loss or damage deliberately caused by the
insured or anything they do not do.

Assistance Assistance is usually provided in the form of The cost of repairs.

services/ a 24-hour helpline.
emergency
helplines The types of assistance provided include:
• legal advice on any private legal
problems;
• assistance in the event of an emergency
in contacting a reliable contractor to
carry out property repairs (whether
relating to a claim or not); and
• glazing service to replace broken glass
in doors or windows.

The following points should be noted to aid your understanding of the extensions listed in the
previous table.
Persons insured. All the extensions listed cover the insured and any member of the family
permanently living with the insured.
Geographical limits. Under the money and credit cards, pedal cycles and sports equipment
sections, cover applies:
• anywhere in the UK, the Channel Islands and the Isle of Man; and
• anywhere in the world for up to 60 days in total in any one period of cover.
Some insurers extend the money section to apply anywhere in the world.
Legal expenses. In chapter 2 we looked at the cover provided for the legal liabilities of the
insured, under the buildings and contents section of a household policy. The cover provided
includes the associated legal costs in defending a claim made by a third party.
However, an individual may incur other legal costs either in pursuing an action against other
parties, or in defending actions outside the scope of the buildings and contents sections of
the policy.

Consider this…
Can you think of circumstances where the insured would need legal representation that is
not already covered by the buildings and contents sections of the policy?
 3/8 IF6/October 2020 Household insurance products

Key points

The main ideas covered by this chapter can be summarised as follows:

Personal possessions

• The optional extensions to a household policy provide cover for a number of areas for
which there is no cover under a building or contents policy, relating to property taken
outside the home or where more specific cover is needed.
• A personal possessions extension provides cover for accidental loss of or damage to
Chapter 3

personal possessions taken outside the home.

• Personal possessions are items which are worn, used or carried around in everyday
life. More specific definitions are given in the policy wording.
• Sums insured apply separately to specified and unspecified items. These are index-
linked.
• Personal possessions cover applies in the British Isles and for a stated period
elsewhere in the world. It is subject to a number of policy exclusions.

Other common extensions

• Household insurers offer a number of other optional extensions including:

– money and credit cards;
– pedal cycles;
– sports equipment;
– frozen foods;
– legal expenses;
– home emergencies; and
– assistance services/emergency helplines.
• Each contains specific definitions, limitations and exclusions.
Chapter 3 Policy extensions 3/9

Question answers
3.1 These risks often have individual underwriting criteria that may need to be reflected
in the policy wording and in the terms applied. For example, the growth in the
ownership of more expensive mountain bikes has led to an increase in the number
and size of theft claims. As a result, insurers now exclude theft unless the bike is
kept in a locked building or otherwise secured when unattended.

Chapter 3
 3/10 IF6/October 2020 Household insurance products

Self-test questions
1. What would the personal possessions extension to a household policy cover?
a. Loss of title deeds. □
b. Confiscation of a camera by customs officials. □
c. Theft of a leather jacket left on the back seat of an unlocked car. □
□
Chapter 3

d. Loss of a handbag snatched by a thief at a railway station.

2. The sum insured for unspecified items under the personal possessions extension
should represent the:
a. Maximum value of all items that will be taken outside the home at any one time. □
b. Highest value of any single item which is regularly taken outside the home. □
c. Maximum value of all items worth less than the single article limit, that will be □
taken outside the home at any one time.
d. Total value of all items worth less than the single article limit which are regularly □
taken outside the home.

3. Under a frozen food extension, cover will operate in the event of damage to freezer
contents caused by the:
a. Contamination by freezing agents. □
b. Deliberate restriction of power by the insured. □
c. Deliberate restriction of power by the supplying authority. □
d. Gradual failure of the freezing mechanism. □
4. The home emergency extension to a household policy excludes losses within how
many days of inception?
a. 21 days. □
b. 14 days. □
c. 30 days. □
d. 40 days. □
5. Natalie has a household insurance policy which includes cover for sports equipment
up to £500, with a £100 policy excess. While out playing a round of golf, Natalie
breaks her new golf iron, which she has just purchased for £180. What, if anything,
will Natalie's insurer pay in respect of her claim?
a. Nothing. □
b. £80. □
c. £100. □
d. £180. □
 Chapter 3 Policy extensions 3/11

6. The legal expenses extension of a household insurance policy provides cover for
costs arising from:
a. Legal action as a result of an alteration to the construction of the building. □
b. Legal action taken to enforce the rights of the insured against a third party. □
c. A legal appeal hearing only. □
d. The defence of the prosecution only. □

Chapter 3
You will find the answers at the back of the book
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 Other personal insurances
4
Contents Syllabus learning
outcomes
Introduction
A Caravans 1.1, 2.1

Chapter 4
B Travel 1.1, 2.1
C Pets and horses 1.1, 2.1
D Mobile phone insurance (MPI) 1.1, 2.1
Key points
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the core cover provided under different household insurance products, including
policy wordings, exclusions and extensions; and
• apply the cover provided to a given set of circumstances.
 4/2 IF6/October 2020 Household insurance products

Introduction
In chapter 3 we looked at the types of cover that are most commonly available as optional
extensions to a household policy. This chapter will examine some other personal insurance
products, which can be obtained as an extension to a household policy, but are sold more
often as a separate policy. In particular we will consider the typical cover, extensions and
exclusions applicable to:
• caravan insurances;
• travel insurances;
• pet and equine (horse) insurances; and
• mobile phone insurances (MPI).
There are other products available in the marketplace, such as boats and small craft,
creditor, mortgage indemnity and extended warranty insurances, but these do not fall within
the syllabus for this course.
Chapter 4

Key terms
This chapter features explanations of the following terms and concepts:

Cancellation or Caravan insurance Equine insurance Pet insurance

curtailment
Travel insurance Mobile phone
insurance (MPI)

A Caravans
Caravan insurance is available from a number of specialist insurers, often under a special
scheme arrangement such as that provided by the Caravan Club of Great Britain.
Alternatively, there are some insurers who offer this cover as an extension to their household
policy.
The types of caravan covered vary between insurers. Some will only cover touring caravans,
while others will insure caravans situated on a fixed site. Caravans used as a permanent
residence are not covered by a standard caravan policy, and would need to be insured under
a specialist mobile home policy.
Cover automatically applies while the caravan is on loan to the insured’s family and friends,
but does not include letting for hire or reward.
Cover applies while:
• within the British Isles; and
• temporarily on the continent of Europe (including sea crossings) for a period not
exceeding that stated in the policy. This is usually between 60 and 240 days.
Most insurers provide cover in three sections:
• Loss of or damage to the caravan and equipment.
• Loss of or damage to the contents.
• Legal liability.
We will now look at each section of cover in more detail.
Chapter 4 Other personal insurances 4/3

A1 Caravan and equipment

Cover is provided for accidental loss of or damage to the insured property, subject to any
policy exclusions.
The policy wording will contain a definition of the caravan. A typical definition would refer to
the caravan, trailer tent or folding caravan shown in the schedule. It includes not only the
caravan itself, but also its fixtures and fittings, awnings, furniture and caravan equipment,
such as gas bottles and security devices.
Cover also automatically includes the following extensions:
• dismantling or removal of debris following an accident;
• protection and removal to a specialist repairer;
• delivery after repair to the insured’s home or the caravan’s usual site;
• travel costs to return home; and
• loss of site fees and the reasonable costs of hotel accommodation or hiring an alternative

Chapter 4
caravan while the insured caravan is uninhabitable.
Cover is usually on an indemnity basis. For total losses this means that settlement will be
based on the market value of the caravan. Some insurers provide cover on a new
replacement basis where the caravan is less than a specified age (typically between one and
fifteen years old).

A2 Contents
Again cover is provided for accidental loss of or damage to the insured property, subject to
any policy exclusions, and extends to include property while it is in the caravan, awning or
the towing vehicle. The property insured includes general contents of the caravan. Some
insurers also include clothing and luggage within this definition. However, not all policies
include this cover as these items may also be covered by the insured’s household or travel
policy, where higher limits may apply.
Cover is subject to a single article limit of 25% of the overall contents sum insured.
Some insurers provide personal accident cover if the insured or anyone staying with them is
killed or disabled as a result of an accident. Cover is usually provided for a capital sum of
£50,000.

A3 Legal liability
This section covers legal liability for third party bodily injury, or damage to third party property
caused by or in connection with the caravan. A typical limit of indemnity would be £2 million.
Liability is excluded for:
• damage to property belonging to or in the custody or control of the insured; and
• injury or damage occurring while towing the caravan.
Liability for injury to employees is also excluded.

Question 4.1
Why is the towing risk excluded?

A4 Exclusions
The standard material damage exclusions of wear and tear, mechanical or electrical failure
etc. are applicable, in addition to the standard market exclusions of war risks, radioactive
and nuclear risks etc.
 4/4 IF6/October 2020 Household insurance products

The following is a summary of the principal specific exclusions that apply to a caravan policy:
• The policy excess.
• Property more specifically insured.
• Storm damage to a trailer, tent or awning.
• Theft while unattended unless immobilised or protected against theft. Insurers may
specify the type of security device that must be used – typically a hitch lock and/or
wheel clamp.
• Theft of contents unless involving forcible and violent entry or exit.
• Theft or loss arising from deception, fraud or use of stolen, forged or invalid cheques,
bank notes etc.
• Loss or damage while the caravan is on a permanent site away from the home for more
than 30 consecutive days.
• Loss or damage where the caravan is overturned due to storm or flood unless it is
securely anchored to the ground.
Chapter 4

• Damage to tyres unless caused by an accident to the caravan or vandalism. Therefore

road punctures and bursts are not covered.

Consider this…
Mr and Mrs Venner are on holiday in the UK, in a touring caravan which they own. The
caravan is detached from the towing car and the Venners are sleeping in the caravan. It is
parked overnight in a lay-by on a steep incline next to the main road.
During the night the braking mechanism on the caravan fails – as a result of its not being
secured correctly by Mr Venner. The caravan rolls down the incline into the path of an
oncoming car, causing injury and damage. Both Mr and Mrs Venner suffer serious injuries,
which mean that neither can return quickly to their jobs. They lose all of their personal
possessions which are in the caravan, including a recently purchased digital camera
(valued at £800), two mountain bicycles and clothing (estimated to be worth a combined
£1,500 when new). They have a caravan policy sum insured of £20,000 with the usual
extensions and a household policy covering buildings £500,000 and contents £40,000 on
a new for old basis.
How would you deal the claim for this scenario?

B Travel
Individuals travelling within the UK or overseas face various risks. Some of these risks
commence before the journey starts. For other risks, cover only commences once the
journey begins.

Example 4.1
In January Josie books a family holiday to Greece for the first two weeks of September.
She pays a deposit of £150 with the balance due six weeks before departure.
While she and her family are not due to travel until September, there are some risks to
which they are exposed to as soon as the holiday has been booked. For example, having
paid the deposit for the cost of travel, there is the risk of losing this deposit if they are
unable to travel due to illness, or death of a family member. Therefore cover should be
purchased at the time of booking the holiday. Similar considerations apply once the full
cost of the holiday has been paid six weeks in advance of travelling.
However, there are other risks which only arise once Josie’s holiday has commenced,
such as the need for medical treatment, or the possibility of baggage and personal effects
being stolen or damaged.
Chapter 4 Other personal insurances 4/5

There are two main types of travel insurance policies which are available:

Single trip Annual

Cover must be arranged each time a trip is undertaken. Cover is automatically provided for all trips undertaken
Cover is usually for a maximum of up to four months. within a twelve month period. A limit per trip of between
31 and 90 days usually applies. Some insurers also
apply a limit per year of between 120 and 183 days.
This basis of cover has become increasingly popular
with the trend for individuals to go abroad not just once
in the year, but maybe two or three times.

The demand for travel insurance and the scope of cover provided has increased in response
to the worldwide expansion of air travel and the growth in popularity of holidays abroad.
Cover used to be almost exclusively arranged by travel operators under schemes held with
specific insurers. There is now a whole range of suppliers including traditional intermediaries,
banks, retailers, motoring organisations, clubs and associations, as well as insurers selling

Chapter 4
direct to the public. Competition has led to a wide range of innovations to cover.

COVID-19 update
The UK Government made a commitment to assist with the repatriation of people stuck
abroad because of COVID-19 related travel restrictions. In addition, members of the
Association of British Insurers (ABI) are also committed to also supporting their customers
who are in such a position.
Most travel insurance policies already automatically extend so that people can continue to
be covered against the risk of emergency medical treatment when they are stuck abroad
due to travel restrictions.
Sometimes these extensions have a limit of up to 30 days, however, given the exceptional
circumstances leading ABI members are looking to extend this protection to cover the risk
of emergency medical treatment for up to a minimum of 60 days, provided customers are
making every effort to return home.

On the Web
ABI COVID-19 travel insurance Q&A: https://www.abi.org.uk/products-and-issues/topics-
and-issues/coronavirus-hub/travel-insurance/

The majority of travel insurance policies provide five basic sections of cover:
• Personal accident benefits.
• Medical and associated expenses.
• Loss of deposits and other charges due to cancellation or curtailment of the holiday.
• Baggage, personal effects and money.
• Personal liability.
Policies will also include some or all of the following extensions:
• Hospital cash benefit.
• Delayed baggage.
• Travel interruption.
• Travel delay.
• Hijack or mugging.
• Loss of passport.
• Legal expenses.
• Business travel.
• Winter sports.
• Catastrophe or disaster cover.
• Airspace closure cover.
 4/6 IF6/October 2020 Household insurance products

B1 Basic cover
The cover typically provided under the five basic sections of a travel policy can be
summarised as follows.
B1A Personal accident benefits
Cover is for capital sums for death, loss of limbs or sight or permanent disability caused by
an accident while on holiday. Children can be included but the death benefit is reduced.
Some insurers will also include weekly benefits for temporary total disablement or temporary
partial disablement.
Certain hazardous activities may be excluded from the cover in its standard form. This
would include, for example, skiing, mountain climbing and potholing.

Example 4.2
Many holidaymakers with travel insurance seem unaware of the impact of exclusions,
Chapter 4

such as hazardous pursuits or sports.

A teenager was left with horrific injuries and third degree burns from scorching sand after
a quad bike accident. The travel insurer refused the claim, classing the activity as an
extreme sport. The medical costs came to £14,000. Eventually, the insurer agreed to an
ex gratia payment of £7,000, as a gesture of goodwill.

Question 4.2
Why do insurers exclude activities such as skiing and mountain climbing?

Cover also generally excludes travel undertaken to compete in a sporting event.

B1B Medical and associated expenses
This section includes expenses reasonably incurred in respect of:
• emergency medical treatment including surgical fees, hospital charges and emergency
dental fees;
• additional hotel and travelling expenses of the patient, a friend or family member
remaining with or accompanying the insured if so advised by a doctor or medical adviser;
• the additional cost of bringing home the insured person, including the use of an air
ambulance where necessary. Insurers often use one of a number of firms which
specialise in repatriation of people who are injured or ill. In the event of death abroad, the
cost of bringing the body or ashes to the UK or burial abroad is included;
• the additional expenses of those in the traveller’s party who are delayed as a result of the
injury or illness.
The majority of policies now include an emergency medical service. This is usually operated
by a specialist company acting on behalf of the insurers, such as Columbus Direct. They
provide advice on a 24-hour multilingual helpline. They will also organise the necessary
medical treatment and make arrangements to bring the insured person back to this country if
required.
B1C Cancellation or curtailment
Cancellation cover provides for the reimbursement of deposits and payments made for
transport and accommodation booked for, but not used by, the insured person. This must be
due to the necessary and unavoidable cancellation of the holiday prior to the date of
departure as a result of causes beyond the insured person’s control.
Chapter 4 Other personal insurances 4/7

The possible causes may be specified in the policy or may be limited by the stated
exclusions. Typically, cover includes cancellation due to:
• death, illness or accident of the insured person, a family member, any person they intend
to travel with or a close business associate;
• the insured person being called for jury service or as a witness or subject to quarantine;
• unemployment through redundancy, provided that the insured person was not aware of
this at the time of taking out the insurance;
• theft or fire at home or work;
• unforeseen accumulation of work; and
• unforeseen posting overseas.
In all cases the cancellation must be a direct and necessary consequence and not simply
due to a disinclination to travel or financial difficulties. There is no cover, therefore, if the
insured changes their mind about going on holiday or is unable to find the monies to pay the
balance due.

Chapter 4
Curtailment involves cutting short a holiday part way through. Insurers can define this as
early return home to the UK. Like cancellation, the curtailment of the holiday must be
necessary and unavoidable as outlined above. Cover provides for the reimbursement of the
costs of travel and accommodation in proportion to the amount that the insured person has
not been able to use.
B1D Baggage, personal effects and money
This section provides cover for loss of or damage to:
• personal baggage (including clothing and personal effects, taken with the insured person
or purchased during the trip or sent in advance); and
• money*.
* Like the money extension to a household policy, cover includes not only cash, bank and
currency notes, but also cheques, postal and money orders, travellers' cheques, travel
tickets and petrol or credit vouchers. Some insurers also provide cover for credit cards and
passports.
Some personal effects are considered to be particularly high risk and are specifically
excluded, such as contact lenses and medical and dental fittings.
The items included under the baggage section may of course be included under the personal
possessions section of a household policy. In recognition, some insurers are prepared to
remove the baggage section from their travel policy, giving a premium discount of up to 30%.
Sums insured are generally adequate for the average holidaymaker on a sun and sand
holiday for seven to fourteen days. They may not be sufficient for someone embarking on a
‘round-the-world’ cruise. However, tailor-made policies are available for those who have
more specialist needs.
B1E Personal liability
This section covers the insured’s legal liability for injury to third parties or damage to third
party property while on holiday. It would include, for example, the insured crossing the road
without looking and walking into the path of an oncoming cyclist. If the cycle is damaged and
the cyclist sustains a broken leg, the cyclist may well sue the insured person for
compensation. Those who have claimed under this section of a policy in the past, confirm
how valuable it is to have an insurer’s expertise and guidance in defending such claims,
especially when the insured is not in their home country.
 4/8 IF6/October 2020 Household insurance products

B2 Limits and excesses

Each of the basic sections of cover will be subject to policy limits and excesses. These are
summarised in the following table:

Limits and excesses

Section of cover Typical limits Excesses

Personal accident Capital benefits of £25,000–£50,000. Death Nil.

benefit for people under 16 years limited to
£1,000–£2,000.

Medical and associated expenses £2 million–£10 million but limited to: £50.

• £1,000 in the UK;

• £250 for additional expenses of those
delayed.
Chapter 4

Cancellation or curtailment £2,500–£6,000. £50.

Baggage, personal effects and Baggage and personal effects: overall limit of £50.
money £1,000–£2,500 per person, but subject to a
single article limit of £300 and there may be a
limit on valuables of £200–£500.
Money: overall limit of £100–£500 but subject to
a limit of £300 for cash.

Personal liability £1 million–£5 million. £100.

B3 Extensions to the basic cover

In addition to the five basic sections of policy cover, some or all of the following extensions
may be available depending upon what an insurer has decided to include in its particular
package of cover.
Hospital cash benefit provides for a daily benefit of £20 while the insured person is
confined to hospital, subject to an overall limit of £400. This benefit recognises that the
insured person may have additional expenses, such as purchasing toiletries or making
phone calls, that they would not otherwise incur.
Delayed baggage provides monies to make essential purchases of clothing and toiletries as
a result of baggage delay for at least twelve hours. The sum insured is usually £100 per day,
with an overall limit of, say, £300.
Missed departure covers the failure of public transport to deliver the insured person to the
departure point, on either the outward or the return journey in time to travel. Some insurers
may extend cover to include delays caused by the insured’s car breaking down or being
involved in an accident and missed connections outside the UK. The additional cost of
accommodation and travel is covered up to £1,500.
Travel delay covers the delay of the aircraft, ship or train on which the insured is booked to
travel for at least twelve hours, due to:
• strike or industrial action;
• adverse weather conditions; or
• mechanical breakdown or structural defect.
The benefit payable is usually £30 for the first twelve hours’ delay and £30 for each full
twelve hours thereafter, up to a maximum of £300 per insured person.
Alternatively, the insured has the option of cancelling the trip after twelve hours delay. Cover
is provided for the charges made by the tour operator or carrier as a result of the
cancellation, up to a maximum of £5,000.
Hijack and mugging. This section operates where the insured is delayed in reaching their
destination as a result of the transport they are travelling on being hijacked. It also provides
cover if the insured receives in patient treatment following mugging.
Typical benefits are up to £100 per day, subject to a maximum of £1,000.
Chapter 4 Other personal insurances 4/9

Loss of passport cover is provided for the additional travelling and accommodation costs to
obtain a replacement passport following loss or theft. Loss or theft must be reported to the
police within 24 hours. To obtain a replacement it is necessary to travel to the nearest British
embassy, a journey that may not be possible to undertake in a day. Cover also includes the
cost of a temporary replacement passport.
The sum insured is usually between £250 and £750.
Legal expenses. This section covers the legal costs in pursuing claims for death or bodily
injury to the insured person, caused by the fault of a third party while on holiday.
Sums insured vary between £25,000 and £50,000.
Cover may also include a legal helpline offering advice and guidance on any private legal
problem arising in the course of a journey.
Business travel. Cover is extended to include travelling on business for clerical and
administrative tasks only. Liability arising from business trips is not covered.

Chapter 4
Winter sports cover only applies if selected by the insured and covers the winter sport
activities listed in the policy booklet, including for example skiing and snowboarding. Cover
will usually be provided for things such as loss of or damage to winter sports equipment,
delays to the insured’s arrival or departure from the resort caused by an avalanche, piste
closures and accidental injury or illness during the trip, with inner limits applying to each
element of cover.
Catastrophe or disaster cover. This section provides cover if the insured cannot stay in
their pre-booked and pre-paid accommodation because of a ‘disaster’. The term disaster is
defined in the policy wording and typically includes fire, lightning, explosion, earthquake, tidal
wave, storm, avalanche, hurricane, flood, or medical epidemic or pandemic. Cover includes
the necessary extra travel and accommodation expenses to allow the insured to continue
with their trip or to return to the UK if they cannot continue with their trip. The sum insured is
typically £1,000 and an excess of up to £50 per person applies.
Airspace closure cover pays a benefit (typically £100) for each full 24-hour period for which
the insured is unable to return home and payment of the costs and expenses for making
alternative arrangements to travel home due to the airspace or airport being closed. A limit of
£1,000 applies. Cancellation cover is also included if the insured has to cancel a holiday due
to the airspace or airport being closed. A limit of £5,000 applies.

B4 Geographical limits
The most common limits used by insurers (to which different premium rates apply) are:
• the UK;
• Europe, countries bordering the Mediterranean, Madeira and the Canary Islands;
• worldwide, excluding North America, the West Indies, the Bahamas and Bermuda; and
• worldwide.
Clearly the risk, particularly that associated with medical expenses cover, increases as you
go down the list.

B5 Exclusions
The main exclusions which specifically apply to travel policies are as follows:
• Taking part in hazardous activities. While these are excluded, they can usually be
specifically insured, either by an appropriate additional premium, or by arranging a
separate policy with a specialist insurer. Hazardous activities are usually defined in the
policy wording, and would include activities such as ice hockey, climbing (using ropes),
potholing and caving, racing, skiing, water skiing or scuba diving.
• Participation in manual work.
• Travel against medical advice or failure to get treatment.
• Travel to a country or area which the Foreign and Commonwealth Office or World Health
Organization has advised the public not to travel to.
• Pregnancy or childbirth (some policies do give cover for pregnancy up to seven months).
• Deliberately putting yourself at risk, or self-inflicted injury, solvent abuse, alcohol and the
use of drugs.
 4/10 IF6/October 2020 Household insurance products

• Loss of:
– luggage caused by confiscation; for example, by customs officials;
– baggage, personal effects and money when left unattended or where the loss is not
reported to the police within 24 hours;
– contact lenses, medical and dental fittings;
– camping equipment.
• Terrorism. This is an absolute exclusion on many policies. Where cover is provided, this is
typically limited to emergency medical costs related to an attack only. However, insurers
can take quite different approaches and individual policy wordings can be open to
interpretation.
In the past it was also quite common to exclude pre-existing medical conditions, not only of
the insured, but also their travelling companion or any person upon whom the travel plans
would depend on, such as a close relative or close business associate. However, this gave
rise to a number of concerns over the interpretation of this exclusion by insurers in the event
Chapter 4

of a claim. It was also felt to be unfair that cover could be affected by a past illness which
had no bearing on a claim or where cancellation was due to the illness of a relative or
colleague whose previous medical history could not be known by the insured. Consequently,
many insurers have altered their policy wordings so as not to specifically exclude pre-
existing medical conditions. Instead, insurers require the applicant to confirm they meet the
requirements of a health declaration.
Typically, this states that each insured person:

is not waiting for an operation, hospital consultation to other

hospital treatment or investigation, and is not travelling to
receive treatment;

has not received treatment within the last twelve months for
a specified list of illnesses;

has not required treatment for being HIV positive;

has not been seen by a specialist in the last three months;

has not been given a terminal prognosis;

is not aware of any reason why the trip is

likely to be cancelled or cut short;

at the time of requesting insurance, to the best of their knowledge and belief. Where an
applicant is unable to meet these requirements some insurers will automatically decline
cover. Other insurers will ask the applicant to ring a confidential medical helpline, where an
underwriter will take further details of the medical condition, and will advise whether:
• the risk is to be declined; or
• the risk is acceptable, but with special terms applied, such as an increased excess, an
additional premium, or the exclusion of certain conditions.
Where the risk is declined it may be possible to refer the applicant to a specialist ‘scheme’
designed to cater for such risks, where a more in-depth screening will take place to see if
terms can be offered.

On the Web
Access the ABI’s guidance on making a claim here: www.abi.org.uk/products-and-issues/
choosing-the-right-insurance/travel-guide/making-a-claim-and-getting-help/
Chapter 4 Other personal insurances 4/11

A recent concern for home insurers is regarding people posting that they are away on
holiday on social media. Consumers need to be mindful of what they post and who their
posts are shared with.

On the Web
The AA has published advice regarding social media posts, which you can access here:
www.theaa.com/home-insurance/advice/social-media-and-home-insurance.

Consider this…
The Watson family have won a holiday in South America. Flights and self-catering
accommodation are included but they need to take out their own travel insurance. They
are concerned about the following risks, which they have read about in the press:
• Contracting a tropical disease while they are on holiday in a country, where medical
facilities might be poo.

Chapter 4
• Losing their baggage at a foreign airport.
• Delay of the aircraft on the outward journey.
• One of the family breaking a leg or an arm while on holiday.
Looking at the cover outlined in Basic cover on page 4/6, what do you think? Can you
identify the travel insurance sections which would be appropriate?

C Pets and horses

It's estimated that the UK pet population in 2019 exceeded 20 million. Many of their owners
risk hefty bills by not having insurance.
There are a variety of policies available that offer cover separately for:
• horses and ponies for leisure use; or
• domestic cats and dogs. Some insurers will also cover other animals such as rabbits.
Vet fees are already expensive, and rising year by year – with the average claim of £822 in
2020 (bearing in mind an X-ray can exceed £200, and chemotherapy can reach £5,000).
A number of insurers, price comparison websites, banks and major high street brands offer
specific pet insurance policies, such as Allianz’s Petplan policy or Equine and Livestock for
horse insurance. In addition many intermediaries operate specific schemes. The typical
cover provided by such policies is considered below. However, most insurers offer a range of
policies from budget policies providing basic cover, to comprehensive packages, which
automatically include all sections of cover with higher policy limits.
Where cover is required for:
• a dog that falls under the category of dangerous dog under the Dangerous Dogs Act
1991 (amended by the Dangerous Dogs Act 2014);
• an older animal (typically over twelve years of age); or
• a bloodstock horse or mares in foal;
a more specialist policy will be required. The detailed cover provided by such policies is
outside the scope of this course.

C1 Cats and dogs

Cover is usually provided for the following:
 4/12 IF6/October 2020 Household insurance products

Veterinary fees incurred Four main types of cover are available:

through illness or accidental
injury • Lifetime policies, known as a renewing benefit, cover the animal for life,
provided they are renewed every twelve months. These policies are useful
if a pet has a long-term or recurring illness, as insurers cannot refuse to
renew them because of this.
• Maximum benefit policies provide cover for the cost of treatment for each
illness and injury the animal suffers, up to a maximum amount. Each illness
and injury is covered until the maximum amount has been spent, as long as
the insurance policy remains in force – there is no time limit on reaching
this amount. Once the policy limit is reached, the animal will no longer be
covered for the treatment of that illness or injury.
• Twelve month policies (time limited cover) provide cover for the cost of
treating a particular illness or injury for twelve months from the start of that
illness or injury (as long as the insurance policy remains in force). After the
set period has ended or once the policy limit is reached, the animal is no
longer covered for the treatment of that illness or injury.
• Accident only policies only provide cover for the treatment of accidents.
They do not cover illnesses or, at most, only provide for the emergency
Chapter 4

treatment of illnesses.
Lifetime cover is the most expensive, while accident only cover is the cheapest.
Cover can be provided on a per illness or injury basis, or up to a specified limit
per annum. Policy limits vary between £1,500 and £7,000 per illness or injury
and from £4,000 to unlimited per annum. An excess of at least £60 applies to
most policies, which will vary depending on the type and age of the insured
animal.
Typical exclusions include vaccinations, preventive treatment, pregnancy,
spaying or castration unless for medical reasons, medical conditions diagnosed
prior to inception and any claims arising within the first 14 days of cover. An
increasingly common feature is the inclusion of cover for complementary
therapies; typically up to £1,000 per year.

Accidental death Insurers reimburse the animal’s purchase price in the event of death due to
accidental injury. A limit of between £600 and £1,000 is applicable.

Death from illness Insurers reimburse the animal’s purchase price in the event of death through
illness before a specified age. A limit of between £600 and £1,000 is
applicable.

Loss by theft or straying Insurers reimburse the animal’s purchase price if it is stolen or lost by straying
and not recovered within 45 days. A limit of between £600 and £1,000 is
applicable. Insurers also cover advertising costs up to £2,000, including a
reasonable reward, to assist in the recovery of the animal.

Hospitalisation of the owner This covers the cost of kennel and cattery fees while the owner is hospitalised
for more than four days. A policy limit of £600 to £1,000 applies.

Third party liability This provides cover where the insured animal kills or injures a third party or
damages their property, and the insured or a member of their family is held
legally liable. A limit of between £1 million and £3 million applies.

Holiday cancellation This covers lost deposits and other non-recoverable payments, where a holiday
is cancelled or cut short due to the insured animal going missing or becoming ill
and requiring immediate life-saving surgery. Cover is provided up to £5,000.

Accidental damage Cover for damage caused by pets in the home.

Overseas travel cover This extends cover to include trips abroad to countries included in the
Government’s Pet Travel Scheme. Cover is included for quarantine costs, loss
of pet passport and emergency expenses whilst abroad. A policy limit of up to
£1,500 applies.

Helplines Many insurers offer helplines that provide assistance with obtaining emergency
treatment, legal advice and bereavement counselling following the death of a
pet.

C2 Horses and ponies (equine insurance)

There are more than 900,000 horses and ponies in the UK, and an estimated £3,000 to
£10,000 is spent on each horse, depending on its stabling (source:
www.moneysavingexpert.com/insurance/cut-pet-insurance-costs/).
Chapter 4 Other personal insurances 4/13

Cover includes the following:

Death from accident, sickness This provides cover where the horse is killed, dies or is put down on humane
or disease grounds. Cover excludes:
• Slaughter without the consent of the insurer, except on humane grounds.
• Death as a result of surgery that is not necessary to save the insured
animal’s life.
• The amount payable is the market value of the animal, up to the policy
sum insured (selected by the insured).

Permanent incapacity This covers slaughter as a result of permanent disablement through

accidental injury or illness preventing the animal from fulfilling the functions
for which it is kept. The amount payable is the market value of the animal, up
to the policy sum insured. If the animal is kept in retirement rather than
slaughtered, a percentage of the market value is paid, typically 60%.

Loss by theft or straying Provides cover up to the market value of the insured horse (subject to the
policy sum insured) if the insured horse is not found within a specified period,

Chapter 4
typically 28 days.

Veterinary fees This section typically pays between £1,500 and £5,000 for veterinary fees
following accident or illness. An excess of £75 or more usually applies. Fees
relating to mares in foal or to cosmetic and preventive treatments are
excluded.
Cover is usually provided on a twelve month basis for the cost of treating a
particular illness or injury for twelve months from the start of that illness or
injury (as long as the insurance policy remains in force). After the set period
has ended or once the policy limit is reached, the horse will no longer be
covered for the treatment of that illness or injury.

Saddles, bridles or other riding This covers loss or damage by any accidental cause up to £1,500, subject to
tack a single item limit of £500. An excess of £75 or more will apply. Loss or
damage while kept at any commercial riding establishment is excluded.

Third party liability This covers the insured’s legal liability for third party personal injury or
damage to the property of third parties, arising out of ownership of the
insured horse. A limit of between £1 million and £5 million applies.

Personal accident This covers accidental bodily injury to the rider (including persons riding with
the permission of the rider) while riding the insured horse. Typical benefits
are £12,500 for death, loss of limbs or eyes and permanent disablement.
Benefits are halved for riders under 16 years of age.

Horsebox or trailer This section covers accidental damage to the horsebox or trailer up to
£5,000. An excess of £200 applies. There is usually a requirement that the
horsebox or trailer must be immobilised when not in use.

Stables cover This section provides cover if the stable where the horse is kept is totally
destroyed or damaged beyond use, provided it is owned by the insured. A
limit of £1,000 typically applies.

Dental treatment Following a riding accident up to £1,000.

Hire of a replacement horse In connection with a claim for theft or straying up to £1,000, subject to a limit
per week of £25.

Loss of entry fees Due to the death of the horse or hospitalisation of the rider up to £500.

D Mobile phone insurance (MPI)

The availability of this type of insurance is a more recent development in the personal lines
marketplace. Demand for this valuable product has grown as more and more people own a
mobile phone, with many smartphones now costing more than a laptop. Consumers are
often locked into 24-month mobile phone contracts, which means that without mobile phone
insurance (MPI) and in the event of the original phone being lost or damaged, they would still
be liable to pay for the phone until the end of the contract term. Research suggests that over
a quarter of adults (27%) and almost half of teenagers (47%) now own a smartphone (Ofcom
Market Report).
Not all owners need to buy separate cover; they may already be covered by their household
policy. The personal possession extension to a contents policy will usually be needed to
ensure adequate cover for mobile phones both inside and outside the home for loss, theft
and accidental damage.
 4/14 IF6/October 2020 Household insurance products

Even if the owner has household cover, it may still be appropriate to arrange separate mobile
phone insurance as:
• the household policy may be subject to an excess of £100–£500;
• making a claim for loss of or damage to a mobile phone could lead to the loss of the no
claims discount under a household policy;
• there is no cover under a household policy for fraudulent calls and downloads if the
phone is stolen; and
• not all household insurers will pay to replace lost music and apps.
Alternatively, mobile phone insurance may be included as part of a packaged bank account,
particularly where a monthly or annual fee is charged.
There are plenty of providers for those who decide to purchase separate MPI. All mobile
phone networks have their own insurance policies. Cover is also available through high
street retailers (brandassurance) as well as through specialist insurers, intermediaries and
price comparison websites.
Chapter 4

D1 Scope of cover
Policies can cover individual or multiple phones (multi device cover) where you can insure
your whole family’s phones under one policy. Cover is provided for repair or replacement
following theft, loss or accidental damage.
Most policies have an automatic extension to cover the cost of fraudulent calls and
downloads if the phone is stolen and cover can be up to £2000. However, not all insurers
provide this cover.
Specialist MPI policies cover:
• the cost of replacing your handset;
• unauthorised calls;
• apps, games, music and other content;
• accidental damage; and
• phone accessories.
Cover applies anywhere in the UK and for up to 90 days worldwide.

Example 4.3
Richard realised his bag and phone had been stolen when he was in a pub. The phone
was only a few months old. Richard phoned his household insurer to find out what he
should do. Richard found out that his personal possessions cover protected the phone.
Within 24 hours Richard had a replacement handset and received a cheque for the stolen
bag and its contents. Richard admitted to not paying much attention to the cover under his
household insurance, so he had also taken out separate mobile phone insurance. He now
wonders whether he needed to renew his mobile insurance policy again.
If Richard was in a two year contract with his mobile phone provider, he would still need to
pay the monthly charge for the stolen handset for the remainder of the contract. So is this
cost covered under household personal possessions or is a separate mobile phone policy
needed? This demonstrates the importance of checking the actual cover provided.

Most contents insurance only covers phones if they're lost in a home burglary or house fire,
but some includes accidental damage cover, which lets you claim for phones damaged at
home.
'Personal possessions cover' protects the insured against loss, theft or accidental damage
when expensive items are taken outside the home. The insured will usually pay about £25 to
£50 a year on top of their annual premium for it.
However, there is usually a higher excess, which can range from £100 to as high as £500
per claim. This sometimes renders the cover worthless if the insured needs to claim – as the
excess is greater than the claim amount. In addition, any claim usually leads to the insurer
reducing any no-claims discount from the price at renewal. In effect, it could mean higher
home insurance prices for up to five years following the claim – on top of the excess the
insured had to pay.
Chapter 4 Other personal insurances 4/15

On the Web
www.moneysavingexpert.com/insurance/cheap-mobile-phone-insurance/#ntk

D2 Sum insured
Policies usually contain a limit per claim per phone. This can vary between £750 and £2,500.

D3 Exclusions
Typical policy exclusions include:
• the cost of unauthorised calls and downloads unless the phone is reported as missing to
the network provider within 24 hours (12 hours for some insurers);
• claims within the first 14 or 21 days of cover commencing;
• theft of phones while unattended in a public place;
• claims where the International Mobile Equipment Identity (IMEI) number has been

Chapter 4
tampered with;
• damage caused by a computer virus;
• loss of data, contacts and photographs; and
• failure to take reasonable care.
Some insurers also exclude:
• theft, unless accompanied by force or threat of violence; and
• water damage.
An excess applies, which can vary from £75 to £150 depending on the handset model.
Policyholders are restricted to three claims in any 12-month period.
 4/16 IF6/October 2020 Household insurance products

Key points

The main ideas covered by this chapter can be summarised as follows:

Caravans

• Caravans can be insured by specialist insurers, although some insurers offer cover as
an extension to a household policy.
• The types of caravan that can be covered varies between insurers. Some may insure
touring caravans; others may insure caravans on a fixed site. Caravans used as
permanent residences will not be covered by a standard caravan policy.
• Caravan cover usually includes the caravan its contents and legal liability. Clothing and
personal effects are usually included, although they may be covered under a personal
possessions extension to a household policy or by a travel insurance policy.

Travel
Chapter 4

• Travel insurance policies provide cover for those travelling on holiday within the UK or
overseas. They can be issued on a single trip (usually a maximum period of four
months applies) or annual basis.
• The majority of policies provide five basic sections of cover. A number of other
extensions may be available depending upon what an insurer has decided to include in
its particular package of cover.
• There are four common geographical limits used by insurers in relation to travel
insurance to which different premium rates apply.

Pets and horses

• Pet and equine (horse) insurance is offered by direct insurers, price comparison
websites, banks, major high street brands and through specialist schemes. They offer
a range of policies from budget policies to comprehensive packages. Specialist
insurance policies are recommended where, for example, a dog is classed as a
dangerous dog or cover is required for an older animal.
• Pet and equine policies provide cover for accidental death and/or veterinary fees and a
range of other covers.

Mobile phone insurance

• Policies can cover individual or multiple phones and are available from banks,
specialist insurers, intermediaries, price comparison websites and all mobile phone
network providers.
• Cover is for repair/replacement following theft, loss or accidental damage within the UK
and 90 days worldwide.
Chapter 4 Other personal insurances 4/17

Question answers
4.1 These third party liabilities are covered by the towing vehicle’s motor policy.

4.2 The insurer does not wish to provide cover automatically because such activities
present an increased risk. The policy exclusion enables the insurer to consider
whether it is able to extend the policy based on the facts of a particular risk, and to
underwrite it accordingly. For example, a higher premium may be charged or
additional conditions and limits applied.

Chapter 4
 4/18 IF6/October 2020 Household insurance products

Self-test questions
1. What is the main advantage of insuring clothing under a household policy rather than
a caravan policy?
a. The cover under a caravan policy is more restricted as it only applies within the □
UK.
b. Unlike caravan policies, household policies do not exclude theft losses. □
c. Caravan policies are subject to a more substantial excess than household policies. □
d. Lower limits usually apply to a caravan policy than a household policy. □
2. Under which section of a travel insurance policy would a fixed benefit be paid in the
event of a claim?
□
Chapter 4

a. Medical expenses.

b. Personal accident. □
c. Personal liability. □
d. Personal possessions. □
3. Which type of pet insurance policy would be most suited to the needs of a dog with a
recurring illness?
a. 12-month policy. □
b. Accident only policy. □
c. Lifetime policy. □
d. Maximum benefit policy. □
4. Under the personal accident section of an equine policy, the benefits for riders under
16 years of age are reduced by:
a. 20%. □
b. 30%. □
c. 50%. □
d. 70%. □
5. Which of the following do mobile phone insurance policies not typically cover?
a. Theft. □
b. Accidental damage. □
c. Unauthorised calls. □
d. Loss. □
You will find the answers at the back of the book
 Special risks
5
Contents Syllabus learning
outcomes
Introduction
A Homeworking 1.3, 2.1
B Holiday homes 1.3, 2.1
C Blocks of flats 1.3, 2.1
D Shared and rented homes 1.3, 2.1
E High net worth households 1.3, 2.1

Chapter 5
Key points
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• explain the key issues relating to special risks; and
• apply the cover provided by household insurance products to a given set of
circumstances.
 5/2 IF6/October 2020 Household insurance products

Introduction
When we looked at the development of household insurance in chapter 1, we identified that
there are some risks where a specialist policy is required to take account of the additional
cover required. These risks may also need specialist underwriting. They include:
• the increasing number of people who work from home;
• those owning second homes (holiday homes);
• landlords who own and let out blocks of flats; and
• those who own and let individual houses.
In this chapter we will examine the products that have been developed to meet these needs.
The objective is to identify the key issues with regard to these types of policies, rather than
studying the policy cover in detail.

Key terms
This chapter features explanations of the following terms and concepts:

High net worth Holiday homes Home-business Homeworking

households policies
Landlords’ policies Stand-alone Tenants’ policies
Chapter 5

business policies

A Homeworking
Individuals who work from home risk invalidating their home insurance policy if they do not
tell their insurers that they are operating a business from the premises. Providing the
business does not involve bringing clients to the property, this is unlikely to cause any
problems with the majority of insurers.

Be aware
The ABI (Association of British Insurers) is reassuring people that its home insurance
members are offering enhanced help and support to all their customers who may be
affected by the impact of (COVID-19).
This means that for office-based workers who are working from home as a result of the
pandemic, their home insurance cover will not be affected.
They do not need to contact their insurer to update their documents or extend their
cover.

In chapter 2 we noted that while ‘property held or used primarily for business purposes’ is
excluded from the cover provided by a household policy, most insurers qualify this exclusion
by stating that cover is included for a limited amount of business equipment. Insurers have
recognised the growing trend for people to run their own businesses from home and this
cover provided may be adequate for some people, especially those involved in clerical and
professional work.
However, cover will still need reviewing because there are risks specifically associated with
the business that will not be covered by a household policy. For example, in chapter 2 we
also identified that there is no cover for liability to ‘employees of any business or profession’.
Questions that the insured should specifically consider include:
• Do I have business equipment such as a computer, answerphone, fax, printer, scanner
and photocopier, that are not covered by a typical household policy?
• Do I have portable business items such as tablets, mobile phones and laptops that are
taken out of the home on a regular basis?
• Do I need public liability insurance? This is required particularly where there are visitors to
the premises, or there is the possibility of causing injury or damage while carrying out
business activities.
Chapter 5 Special risks 5/3

• Do I keep any stock at home that will need cover while in the home and in transit? Can
these products cause injury or damage, and therefore create a need for products liability
insurance?
• Do I provide advice or a service for which I need professional indemnity cover?
• Do I keep money on the premises relating to the business?
• How would the income of my business be affected if my home was damaged or
destroyed?

Example 5.1
Eleanor has decided to set up her own business selling home-made cakes and biscuits.
She bakes the goods at home and sells these through local farmers’ markets and
country fairs.
She has a computer, photocopier and a stock of stationery, which she uses to keep her
business records and to prepare her promotional materials. Her existing household policy
covers business equipment, subject to a limit of £5,000 and business stock up to £2,500.
Provided the sums insured are adequate, these items would be covered.
However, there are a number of other risks to which Eleanor is exposed for which
additional cover will be required, including:
• products liability cover in case her cakes and biscuits cause a customer to become ill;
• money cover for her takings at the farmers’ markets and country fairs;

Chapter 5
• ‘all risks’ cover for her cakes and biscuits, baking equipment and trade stands,
including cover away from the home;
• public liability cover in case any visitors to her stall are injured.

To meet most of these needs insurers have developed two main types of product:
• home-business policies; and
• stand-alone business policies.
These policies are considered below. For certain businesses, particularly those involving
more than clerical and professional work, a specific commercial combined policy, or even
separate commercial policies for property damage, business interruption, liability, goods in
transit etc. may be more appropriate. By arranging cover in this way, it is possible to tailor
cover to the insured’s individual needs, rather than the usual cover offered by the package
policies, which we will now examine.

A1 Home-business policies
This type of policy combines within one document, the cover provided under a traditional
household policy and cover for the business risks associated with working from home. It is
especially suitable for those involved in clerical or professional work. Typically, it would
extend the household cover to include the following business risks:
• Business equipment and stock, subject to a limit of between £5,000 and £7,500. Cover
for stock is usually limited to £1,000. Higher limits may be available for an additional
premium. An excess of £50–£100 usually applies.
• Portable business equipment outside the home, up to £1,500. Cover applies worldwide.
• Business money. A limit of £1,000 applies while the money is kept in a safe or is being
taken to and from the bank. For business money in the home not kept in a locked safe,
cover is limited to £500.
• Public liability for up to £2 million.
• Employers’ liability up to £10 million.
• Increased cost of working (the additional costs of keeping the business running following
damage to the house) up to £10,000.
Some insurers automatically provide all of these covers. Other insurers will include portable
business equipment outside the home, employers’ liability and increased cost of working as
an optional extra. Some do not offer these extensions to cover at all under this type of policy
and view them as a business risk to be separately insured.
 5/4 IF6/October 2020 Household insurance products

A2 Stand-alone business policies

These policies provide cover for the business risks associated with working from home under
a policy that is completely separate from the household policy.
The cover provided would typically include all those sections listed above for home-business
policies. In addition, there is the option to include some or all of the following:
• Higher levels of cover.
• Legal expenses.
• Products liability.
• Professional indemnity.
• Books debts.
• Full Business Interruption cover.
• Goods in transit.
• Personal accident.

B Holiday homes
It has become increasingly popular for people to have a weekend or holiday home in addition
to their main residence. Since 2000, second home ownership has increased by 30%. Such
risks present an increased risk to insurers because these homes are often unoccupied for
Chapter 5

long periods of time, and are therefore more vulnerable to damage by theft, arson and
malicious damage. The possibility of burst pipes through freezing also increases where
properties are unheated during the winter months and may go unnoticed for some time
causing extensive damage, due to escape of water. In view of these features, holiday home
insurance is not attractive to all insurers, and cover is often provided through specialist
schemes operated by intermediaries.
Separate policy wordings are available depending upon whether the holiday home is based
in the UK or overseas.

B1 Holiday homes in the UK

While the cover provided under a typical household policy will typically apply, this cover must
be tailored to reflect the increased risks identified above. In chapter 2 we identified that
certain perils (malicious damage/vandalism, escape of water or oil, theft or attempted theft,
and breakage of sanitary fittings) are excluded from the cover provided where the premises
are unoccupied for more than 30 or 60 days. These exclusions do not appear in a holiday
home policy, provided that the insured meets minimum requirements for security and
services when the property is unoccupied. Typical requirements would include:
• a requirement to fit British Standard locks to external doors and windows and possibly an
intruder alarm for use when the property is unoccupied;
• weekly inspections of the property – see the following ABI guidance;

Do I need to continue to make regular visits to my unoccupied home?

Changes to government advice means you may be able to travel to your second or
unoccupied home to undertake necessary checks. Restrictions will differ between
England, Scotland, Wales and Northern Ireland and you should check you are adhering to
the law and guidance of the relevant administration.
If you are unable to visit your unoccupied home, due to government advice, insurers have
waived the requirement for individuals to check on a property regularly, as long as the
property is suitably secure.
If you are stuck abroad and are unable to return home, despite making every effort to do
so, insurers will look to be flexible with the timescales set out in your policy. However,
individuals should contact their insurer to obtain advice on this issue.
For other FAQs on how the COVID-19 pandemic may affect home insurance, see the
following link:
www.abi.org.uk/products-and-issues/topics-and-issues/coronavirus-hub/home-insurance/
Chapter 5 Special risks 5/5

• the exclusion of theft of valuable items and money if the property is unoccupied for
periods in excess of 48 hours;
• turning off the water supply during the winter months and draining water and heating
systems or alternatively leaving the central heating on a low setting to prevent freezing;
and
• turning off gas and (if no intruder alarm is fitted) electricity supplies at the mains.
These requirements can be very onerous for the insured, particularly where they live a long
distance away from the holiday home. Some intermediaries have been able to negotiate
schemes where only the first requirement applies.
Where the property is not only a second home for the insured but is also let commercially,
cover can be extended to include:
• employers’ liability cover in respect of, for example, caretakers and cleaners; and
• loss of rental income following damage to the property.

Consider this…
Rob has a holiday home in the UK; a seaview apartment with a balcony. One night during
a storm, one of the glass panels in the balcony doors shatters. Rob wasn't there, the first
he heard of the incident was when the managing agent phoned him. The glass needed to
be replaced, so the panel was boarded up temporarily, while the replacement was made.
On arrival at the apartment, Rob found the front door of the flat had been forced open and

Chapter 5
discovered that a burglary had taken place. When checking to see what had been stolen,
he found that his designer watch was missing.
Will both claims be met? As a claims handler, what points would you need to consider?

B2 Holiday homes overseas

The market for insuring holiday homes overseas is more restricted. Insurance is often
arranged with an insurer locally in the country where the property is located. This has the
advantage of meeting local insurance requirements, although cover may not be as wide as
that provided in the UK.

Be aware
UK insurers will cover a holiday home in most popular European countries, including
France, Spain, Portugal and Italy, provided the insured is a permanent resident of the UK.
Some insurers can cover properties in up to 40 countries outside the UK.
Countries more likely to suffer natural disasters, for example earthquakes or extreme
weather, may not be covered. Some insurers will cover them with restrictions in place.
Source: www.money.co.uk/home-insurance/how-to-insure-your-holiday-home-abroad.htm

Policy wordings are written in English and there is no need to deal with insurance matters
from a distance.
Cover under these UK based policies largely follows that outlined for UK based properties.
The following extensions to cover are also provided:
• Emergency travel cover should the insured need to visit the property following a
substantial claim.
• 24-hour English speaking emergency helpline and claims service.
• Cover required by local legislation, such as in Spain.
 5/6 IF6/October 2020 Household insurance products

C Blocks of flats
When arranging the insurance for blocks of flats it is usually the landlord's or freeholder's
responsibility to insure the buildings, possibly passing on these costs as part of the rent or
maintenance charge. The owner or tenant of the individual flats will be responsible for
insuring their own contents. These responsibilities will be written into the terms of the lease
and may vary.
Under the Commonhold and Leasehold Reform Act 2002, leaseholders of blocks of flats,
with a lease that was originally granted for more than 21 years, have the right to take over
the management of their building, including arranging insurance. The Right to Manage
(RTM) commenced on 30 September 2003. It allows qualifying leaseholders to establish a
company to take over the management of their blocks from the landlord. Although the uptake
of RTM was initially slow, the number of leaseholders who have chosen to exercise their
rights has grown over the years.
Many insurers have special policies for blocks of flats. These policies could cover one block
or several blocks.

Question 5.1
Why do insurers prefer to insure blocks of flats rather than individual flats?
Chapter 5

The main cover provided is for the buildings of the block or blocks insured. Generally, the
policy wording follows the household wording for buildings.
There are, however, some special features:
• Where there is damage to the buildings, which makes the flats uninhabitable, loss of
rental income is covered. This may be extended to include the reasonable cost of
temporary alternative accommodation for residents whose flats have become
uninhabitable.
• The insurable interest of other parties such as freeholders, head lessors, owners and
lessees of flats is automatically included.
• As under a standard household policy, there is a subsidence excess – typically £1,000.
Some insurers apply an excess of £500 to £1,000 multiplied by the number of flats.
• Loss or damage caused by terrorism is excluded. If required it must be bought back as an
optional extra.
• Restrictions to cover may apply to individual flats that are unfurnished.
The following extensions can be included:
• Cover for the contents of communal areas. This could include for example, the
caretaker’s office.
• Loss of rent following an insured event.
• Glass and locks replacement
• Property owners’ liability cover up to £5 million applies, but may be increased for an
additional premium.
• Employers’ liability cover for a limit of £10 million. This would cover, for example, legal
liability for injuries to caretakers, cleaners, window cleaners, etc.
• Engineering cover for lifts and communal boilers.

D Shared and rented homes

In this section we will look at the key issues regarding the insurance of individual shared and
rented homes, rather than blocks of flats.
In Homeworking on page 5/2 we identified that working from home is a material fact (or
circumstance) which must be disclosed to insurers, and that having made this disclosure a
typical household policy is unlikely to provide adequate cover. The same considerations
apply to shared and rented homes.
If an individual is letting a house in whole or in part this must be disclosed to insurers, or the
policy may become void for non-disclosure. In chapter 2, we examined typical household
Chapter 5 Special risks 5/7

buildings and contents policy cover. Among the exclusions noted, there are some which are
particularly relevant to shared and rented homes:
• Riot and malicious damage cover to buildings excludes losses caused by paying guests
and tenants.
• Certain perils (malicious damage/vandalism, escape of water or oil, theft or attempted
theft, and breakage of sanitary fittings) are excluded from the cover provided where the
premises are unoccupied for more than 30 or 60 days.
• Loss of or damage to contents caused by theft is not covered while the home or any part
of it is let or sublet unless someone has broken into or out of the home by using force and
violence or deception.
To address these issues and meet the wider needs of landlords, there are a number of
policies available that are specifically designed for let properties. There may be additional
policy conditions with which the insured must comply, such as:
• notify insurers if the building or part of it becomes unoccupied for longer than 30 or
60 days;
• notify insurers when the premises become occupied again and to pay any additional
premium; and
• inspect the property at specified intervals where it becomes unoccupied.
Some tenant groups are more difficult to insure than others. Insurers will want to know
whether the property is let to unemployed people, students, those in receipt of housing

Chapter 5
benefits or asylum seekers.
Separate policies are available for:
• landlords covering the buildings and the contents of common areas; and
• tenants’ contents.
It is normal practice for the landlord to insure the building and their own contents, leaving
tenants to take out insurance to cover their own contents and personal possessions.

D1 Landlords’ policies
Apart from insuring the buildings and landlord’s contents, it is possible to include cover for:
• property owner’s liability;
• loss of rental income and the cost of re-housing the tenant if the property becomes
uninhabitable due to insured damage; and
• the cost of evicting a bad tenant.

Example 5.2
Lauren Johnson and her family rent a house. Bill, the landlord, lets the house under a one
year tenancy agreement. Bill states that he is not liable for injury to tenants or for damage
to their property or possessions.
Several weeks ago, Lauren told Bill that the hall carpet leading from the entrance hall to
the first floor had recently become loose and ruffled. It needed to be refitted as it was in a
dangerous state. When leaving for work, Lauren slipped on the loose carpet. She broke
her leg and was unable to work for six weeks.
As the defect has clearly already been reported, Lauren can sue the landlord for her
injuries. Bill is liable for breach of a statutory obligation.

The Defective Premises Act 1972 states that the landlord is liable to all tenants and their
visitors who might reasonably be expected to be affected by defects in the state of the
premises. The Act makes the landlord fully liable to the tenant.
 5/8 IF6/October 2020 Household insurance products

D2 Tenants’ policies
Apart from providing ‘all risks’ cover for the tenant’s contents, cover may also include many
of the extensions which can be added to a household policy, such as:
• damage to landlord’s fixtures and fittings;
• occupier’s and personal liability;
• rental payments and alternative accommodation;
• frozen food;
• money and credit cards; and
• personal possessions away from the home.

E High net worth households

According to the World Wealth Report 2019, global high net worth individual wealth declined
in 2018 after seven consecutive years of growth.

On the Web
worldwealthreport.com/wp-content/uploads/sites/7/2019/07/World-Wealth-
Report-2019-1.pdf
Chapter 5

The provision of insurance products and services to high net worth customers is, therefore,
an attractive and expanding market for both insurers and intermediaries and others such as
banks and retailers, which have identified an opportunity to build a broader relationship with
their high net worth customers.
We first need to consider what we mean by the term high net worth household. Some or
all of the following characteristics can be applied to a typical high net worth customer.

Have a high level

of disposable income
and/or investments
Live in high
value properties in
Take regular holidays the country, often
abroad listed buildings or
of unusual
construction

Characteristics of a
high net worth
customer Own collections
Wear expensive of art, antiques
items of jewellery and wine

Own stylish
Drive prestige cars apartments
in the city

A number of specialist products have been developed to meet their needs for a
comprehensive household policy, providing high levels of cover for buildings, contents, fine
art and personal possessions.
Chapter 5 Special risks 5/9

Example 5.3
Sam lives in a grade II listed 17th century timber-frame farmhouse, which he originally
insured for £1.5m. Sam’s insurer offer an appraisal service, free of charge. The insurer’s
appraiser determined the rebuild cost to be £1.7m, which meant that Sam had been
under-insured by £200,000 under their previous policy. As the building was listed, Sam
would have had to cover the difference in the event of needing to rebuild, due to not
having an adequate sum insured. The revised building sum insured meant that Sam had
the right level of cover and a more suitable policy.

Typical extensions to a household policy, which would be included in a high net worth policy,
include:
• enhanced policy limits;
• automatic cover for accidental damage on buildings;
• worldwide ‘all risks’ cover for contents and personal possessions;
• cover for second homes and overseas property;
• cover for outdoor items such as statues and ornaments, valuable plants and garden
maintenance equipment;
• cover for guests’ personal effects up to £5,000;
• annual multi-trip travel insurance;

Chapter 5
• cover for student possessions while at university, college or school;
• cover for high value items such as art, antiques and valuables.
Such policies are often subject to only minimal alarm and jewellery conditions and there is no
reduction in claims payment if the insured is unintentionally under-insured. No two risks are
ever the same. Each will require individual assessment and underwriting and cover can be
tailored to meet the needs of an individual policyholder.
As the market has become more competitive, further extensions have become available
including protection against identity fraud, cover for a security upgrade following an
aggravated burglary and cover to restore damage to land following unlawful trespass.
Some insurers take a portfolio approach covering homes in the UK and abroad, cars, aircraft
and yachts.
However, focusing on cover alone will not fully meet the needs of the high net worth
customer. A more personal service is required. High net worth is, by its nature, more focused
on superior service over price. Clients expect a dedicated account handler who understands
their risk and is able to answer their questions. Excellent support when making a claim is
also essential. This may include attending meetings and reviews with customers and being
on site in the event of a loss occurring. They must provide a friendly efficient service, which
incorporates the highest levels of expertise. Although more expensive to deliver, the
provision of this level of service is still cost-effective, given the higher levels of premium paid.
Due to the specialist needs of high net worth customers, this is a niche market in which a
small number of insurers and intermediaries have developed specialist products and
services to meet these needs. In recent years pricing has become more competitive due to a
number of new providers entering the market, but the requirement for a high level of service
remains the dominant feature of this customer group.
Recognising the business potential of this market and the growing affluence of many
households, some insurers have also introduced policies for mid net worth customers.
They cater for the needs of customers whose needs fall between the traditional household
policy and high net worth policies.

Question 5.2
What is meant by the term ‘high net worth household’?
 5/10 IF6/October 2020 Household insurance products

Key points

The main ideas covered by this chapter can be summarised as follows:

Special risks

• There are some risks where a specialist policy is required to take account of the
additional cover required, including homeworkers, holiday homes, blocks of flats,
shared and rented homes and high net worth households.

Homeworking

• While household policies include cover for a limited amount of business equipment, the
cover provided will not be adequate for many businesses. To meet these needs
insurers have developed two main types of product; home-business policies and stand-
alone business policies.
• Home-business policies combine within one document, the cover provided under a
traditional household policy and cover for the business risks associated with working
from home. They are especially suitable for those involved in clerical or professional
work.
• Stand-alone business policies provide cover for the business risks associated with
working from home under a policy that is completely separate from the household
Chapter 5

policy and offer the option to add additional covers.

Holiday homes

• Holiday homes present an increased risk to insurers because these homes are often
unoccupied for long periods of time. Cover is often provided through specialist
schemes operated by intermediaries. Separate policy wordings are available
depending upon whether the holiday home is based in the UK or overseas.

Blocks of flats

• Many insurers have special policies for blocks of flats. Policy wordings usually follow
the household wording for buildings but with some special features to reflect the
particular risks associated with blocks of flats.

Shared and rented homes

• There are a number of policies available that are specifically designed for let
properties. They offer wider cover than that given under a household policy, and this is
reflected in additional policy conditions with which the insured must comply. Separate
policies are available for landlords (covering the buildings and the contents of common
areas) and tenants’ contents.

High net worth households

• The number of high value homes – and millionaires – in the UK continues to rise
overall. A number of specialist products have been developed to meet their needs for a
comprehensive household policy, providing high levels of cover for buildings, contents,
fine arts and personal possessions.
• For high net worth customers, focusing on cover alone will not fully meet their needs; a
more personal service is required.
• Some insurers have also introduced policies for mid net worth customers.
Chapter 5 Special risks 5/11

Question answers
5.1 It is often difficult to establish the individual rebuilding cost of a single flat. Also the
lessee of a flat may have a responsibility under the terms of the lease for parts of
the building which they do not occupy.

5.2 A high net worth household will have some or all of the following characteristics:
• A high level of disposable income and/or investments.
• Live in high value properties in the country; often listed buildings or of unusual
construction.
• Own collections of art, antiques and wine.
• Own stylish apartments in the city.
• Drive prestige cars.
• Wear expensive items of jewellery.
• Take regular holidays abroad.

Chapter 5
 5/12 IF6/October 2020 Household insurance products

Self-test questions
1. Where increased cost of working cover is included in a home business policy, this will
usually provide cover for up to:
a. £5,000. □
b. £10,000. □
c. £20,000. □
d. £50,000. □
2. An insurer has waived its normal requirement that electricity must be turned off in a
policyholder's holiday home when it is unoccupied. This is most likely to be
because:
a. Damage by fire is excluded. □
b. The property is in an unlit location. □
c. The property must be heated all winter. □
Chapter 5

d. The property must be heated all year. □

3. Which peril is excluded from the standard cover under a block of flats policy, but can
be added as an optional extra?
a. Storm. □
b. Explosion. □
c. Subsidence. □
d. Terrorism. □
4. A landlord is most likely to find it more difficult to get insurance for his properties
where his tenants are:
a. Students. □
b. Families with young children. □
c. Professionals. □
d. Newly-weds □
5. Insurers wish to obtain a correct sum insured for a high net worth property. What
method would they most likely use?
a. Check other similar properties on their policies. □
b. Request a loss assessor to calculate the sum insured. □
c. Request a surveyor to visit the property. □
d. View current house prices for this area. □
 Chapter 5 Special risks 5/13

6. Complete the following statement.

Under a household insurance policy, cover for business use is most likely to be
provided when the work:
a. Does not involve any employees. □
b. Is of a clerical nature. □
c. Is of a manual nature. □
d. Is operated from an outbuilding. □
7. When a homeowner rents out their house, who is normally responsible for obtaining
buildings insurance?
a. The homeowner. □
b. The letting agency. □
c. The mortgage provider. □
d. The tenant. □

Chapter 5
8. What additional restriction would normally be applied to a contents insurance policy
where the insured is a single occupant in shared accommodation?
a. An alarm warranty. □
b. A confiscation clause. □
c. A forcible and violent entry or exit clause. □
d. An occupancy warranty. □
You will find the answers at the back of the book
 Legal and regulatory
6
considerations
Contents Syllabus learning
outcomes
Introduction
A Sources of legal liability 3.2, 4.1
B Divisions of civil liability 3.3, 4.1
C Negligence 3.3, 4.1
D Strict liability 3.3, 4.1
E Specific forms of liability 3.5, 3.6, 4.1
F Limitation of actions 3.4, 4.1
G Regulatory requirements 3.1, 4.1
Key points

Chapter 6
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the causes of legal liability for individuals;
• describe how torts can arise;
• describe the key of the Limitation Act 1980;
• explain the principal issues of occupiers’ liability acts and their differences;
• describe the main aspects of the Defective Premises Act 1972 and its effect on the law;
• explain in broad outline the scope and general effect of insurance regulations and
legislation; and
• apply legal and regulatory considerations for household insurance products to a given set
of circumstances.
 6/2 IF6/October 2020 Household insurance products

Introduction
There are many different circumstances in which the individual householder may incur legal
liabilities, many of which have been identified in previous chapters. They include liabilities
arising from:
• ownership of a house;
• occupation of a house;
• personal liability;
• employment of domestic staff;
• ownership of or responsibility for pets; and
• the pursuit of sports and leisure activities.
In chapter 2 we looked at the liability cover provided by insurers under the buildings and
contents sections of a household policy. Chapters 4 and 5 outlined the liability cover
provided by other personal insurance products, such as caravan, travel, and equine and pet
policies, together with specialist risks such as home-working, holiday homes, flats, let
properties and high net worth households. In every case the cover identified was for the
insured’s legal liability to other parties. This reflects that the policy will only respond to
claims where the insured is under a legal obligation to pay compensation to another party
who has been injured or whose property has been damaged as a result of the insured’s
actions. Cover will not apply in any other situation, such as where the insured feels under
some sort of moral obligation. To fully understand the cover provided it is necessary to
explore in more detail the meaning of the term legal liability. In this chapter therefore, we will
consider the causes of legal liability for individuals. This is a complex subject upon which
there is much case law. Our studies will seek to give an overview of the key legal
considerations and how they apply to household insurance. It is not possible to study them in
great depth within the context of this course.
Chapter 6

In addition, we will consider how the regulatory requirements affect the administration of
household insurance.

Key terms
This chapter features explanations of the following terms and concepts:

Case law Civil law Criminal law Duty of care

Fair treatment of Insurance: Conduct Law of contract Law of tort
customers of Business
requirements
Negligence Occupiers’ Liability Strict liability Vicarious liability
Acts

A Sources of legal liability

When we speak about the law, we are referring to the body of general rules that governs and
controls the behaviour of people in the country or state in which we live. It exists to ensure
that life in general is orderly and civilised. Unlike some rules such as moral rules, legal rules
are always supported by mechanisms to enforce them so if we break the rules, we will face
some penalty or adverse consequence. We may, for example, be punished for doing wrong
or be made to pay compensation to a person whom we have harmed.
The law and legal systems vary from one state to another. The body of rules which applies in
England is known as English law, which applies to England and Wales, and generally to
Northern Ireland. The Scottish legal system has different origins from those of English law,
and while both systems have much in common, there are significant variations. In more
recent times, European Community law has become an increasingly significant source of law
for the UK and all other member states, for example, resulting in the passing of the Human
Rights Act 1998.
Under English law, an individual in their private capacity can incur legal liability which is a
breach of either criminal law or a breach of civil law. For completeness, it should be
Chapter 6 Legal and regulatory considerations 6/3

mentioned that criminal law forms part of the wider legal framework of public law (see figure
6.1), which also includes constitutional and administrative law. These latter subjects are
outside the scope of this study text and will not receive further consideration.

Figure 6.1: Classification of law

English law

Public law Civil (or private) law

Constitutional Administrative Law of Law of

law law contract torts

Criminal law Other branches including:

law of trusts, law of property, family
law and the law of succession

The legal rules which are relevant to insurance are in the main drawn from civil law, and
specifically the law of contract and the law of torts. These are two important branches of civil
law. It is the law of torts which is particularly relevant to the liability cover provided under
household and other personal contracts examined as part of this course. However, before
looking at the law of torts in detail, we will first consider the differences between criminal and
civil law.

Chapter 6
A1 Criminal and civil law
There are a number of differences between the two.
Criminal law is concerned with the control of behaviour that harms or threatens the peace
and stability of the community. When there is a breach of criminal law, proceedings are taken
by the State to deter crime and punish criminals. It is not generally possible to insure against
the consequences of being found guilty of a criminal wrong. This could result in a fine for
example. If it were possible to insure against being fined, this would take away any element
of punishment and remove the deterrent effect. It would clearly be considered unacceptable
by society as a whole.
An example of a criminal wrong is theft under the Theft Act 1968.
Civil law is concerned with the relationships between individuals. When there is a breach of
civil law, proceedings are taken by the affected party to:
• obtain compensation for injury or damage caused to them or their property. For example,
if an owner fails to maintain the house properly, and a visitor is injured by guttering falling
from the property, the injured person could sue the owner for compensation;
• seek an injunction to prevent or stop the breach of civil law. For example, an individual
who has neighbours who play unreasonably loud music may seek an injunction to
prevent them from continuing with this behaviour; or
• recover property. This could apply, for example, where stolen property has been sold to
someone else who, although bought in good faith, is not entitled to keep it because it was
never legally the property of the person who sold it to them.
Liability insurance primarily deals with the first of these situations. Where legal liability is
established, it creates a right to take legal action regardless of the existence of any
insurance. The cover provided by an insurance policy simply provides the monies to pay
compensation to other parties, the cost of which would otherwise have to be borne by the
offending party.
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Example 6.1
While there are distinct differences between civil and criminal law, sometimes they can
overlap. For example, the owner of a dangerous dog may be prosecuted for taking the
dog into a public place without a muzzle (a criminal wrong under the Dangerous Dogs
Act 1991). However, the owner may also be considered to have been negligent (a civil
wrong) and be sued by any individual who is injured as a result. This is significant for
insurers. Where the insured is prosecuted for a criminal wrong, it may be more difficult to
defend the civil case and insurers are more likely to have to pay compensation to the
affected party.

A2 Sources of English law

Whatever the type of law – be it civil or criminal – there must be a mechanism whereby the
law can continue to develop and reflect the changes in the way we live. So, for example, the
huge growth in the use of information technology has been reflected in a number of pieces of
legislation, including the Data Protection Act 2018, the Computer Misuse Act 1990 and
various regulations passed to implement the requirements of the EU Electronic Commerce
Directive.
There are two main sources of law:
• legislation (statute law); and
• case law (judicial precedent).
These may create new law or update the existing law, in turn creating new legal liabilities.
Legislation is law that has been created in a formal way by Parliament and set down in
writing. The principal form that parliamentary legislation takes is Acts of Parliament or
statutes. For this reason, it is sometimes called statute law. Although legislation is supreme
over case law, where there is conflict it still only forms a relatively small, but growing part of
Chapter 6

the total body of law.

Case law. This has been and remains the major source of English civil law. It is based on
the system of binding precedent – where the facts are the same the decisions of past courts
must be followed by present courts. It is subject to the court hierarchy, the general rule being
that the decisions of senior courts bind junior courts. A simplified outline of the court
hierarchy is shown in figure 6.2.

Figure 6.2: Court hierarchy

Supreme Court

Court of Court of
Appeal Appeal

High Crown
Court Court

County Magistrates
Courts Courts

For many years, the House of Lords was the highest appeal court in the UK. The final appeal
hearings and judgments of the House of Lords took place on 30 July 2009. From 1 October
2009, the United Kingdom Supreme Court assumed jurisdiction on points of law for all civil
cases in the UK and all criminal cases in England, Wales and Northern Ireland. Decisions of
the Supreme Court are binding on all lower courts. It may however depart from its own
previous decisions, which thus enables the law to continue to develop and evolve over time.
The Court of Appeal is in the main bound by its own previous decisions and always binds the
High Court and the Crown Court. The High Court and Crown Court are bound by the
decisions of the higher courts but not by their own decisions. Any conflicting decisions will be
referred. The County Courts are bound by the decisions of all the higher courts. Magistrates
Chapter 6 Legal and regulatory considerations 6/5

Courts are bound by the decisions of higher courts except where this involves a Crown Court
hearing an appeal from a Magistrates Court. Cases heard and decisions made in the County
Courts and Magistrates Courts are not binding on any court.
Court decisions are recorded in various published law reports, which can be referred to in
future cases. We will refer to case law on a number of occasions during this chapter.
Reference is made to claimants and defendants – the claimant is the person who brings the
action against the defendant.

B Divisions of civil liability

We identified in Sources of legal liability on page 6/2 that civil law can be divided into a
number of distinct divisions – the two most important divisions with regard to insurance are
the law of contract and the law of torts.

B1 Law of contract
You may recall from your studies in IF1 that a contract is defined as:

An agreement enforceable by law between two or more persons to do, or abstain from
doing, some act or acts, their intention being to create legal relations and not exchange
mutual promises.
English Law, Smith and Keenan

Example 6.2
Helen’s friend Sarah offers to help her move house. In this situation there would rarely be
any intention to create legal relations, which would give grounds for taking legal action if
anything was damaged in the move. Therefore, the law of contract would not apply.

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However, if Helen employed a professional removal firm the opposite would be true, and
any disputes would be resolved in accordance with the law of contract.

Entry into a contract is voluntary by all parties, but in entering into a contract the parties
agree to be bound by the terms of the contract. This may involve agreeing to accept liabilities
which they would not have had in the absence of the contract. For example, under the terms
of a lease (a legally binding contract), a landlord may make the tenant responsible for all
damage to the property, where in the absence of the contract the tenant would only be
responsible if negligent.
Many liability policies, including the liability cover under a household policy exclude ‘liability
arising from an agreement unless that liability would have existed in the absence of the
agreement’. This referred to as a contractual liability, which is a general market exclusions.

Question 6.1
Why does a household policy exclude liability arising from an agreement?

B2 Law of torts
When entering into a contract, the parties involved agree to the duties the contract imposes
upon them, whereas a tort is a breach of a fixed duty that the law imposes on everybody. A
tort is a civil wrong and a person who commits a tort is known as a 'tortfeasor'.
If we own or occupy a house we have a duty to ensure that we do not cause injury to others
as a result. When we go about our daily life, we have a duty to behave in a reasonable
manner to others and not, for example, to step out into the road without looking. If we break
one of these duties and cause harm to another person or their property, it is likely that they
will be able to sue us and claim damages (compensation). Usually the damages are
unliquidated. This means that the amount of damages is not fixed in advance but decided by
a court, according to the seriousness of the harm (unless an out of court settlement is
agreed).
The law of torts is made up of a number of subdivisions illustrated in figure 6.3.
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Figure 6.3: Classification of torts

Nuisance

Defamation Strict
liability

Law of torts

Statutory
Trespass duty

Negligence

The general purpose of the law of torts is to protect people’s rights by allowing them to sue if
their interests are invaded, threatened or harmed. However, different torts protect different
interests.

Consider this…
The Sweeney family recently moved into a newly renovated house, which they rent from
the landlord, Mr Wilkins. The Sweeneys invite a large number of guests to a party at the
Chapter 6

house. During the evening, one of the guests trips and falls against an upstairs window
frame, which (unknown to the Sweeneys) had not been properly fitted. The guest falls
through the window and is severely injured.
During the confusion one of the other guests is bitten by Mr Sweeney's dog, which is
usually kept in a locked room. The dog has been known to bite visitors at the premises on
previous occasions.
What are the potential liabilities which might arise from these incidents? Will there be any
cover under Mr Sweeney's household contents insurance?

Negligence This gives the right to take legal action if an individual does not behave in a
reasonable manner to others and causes injury to another person, or damage to their
property. This would include causing injury to visitors to your house by not
maintaining the building properly. Negligence relates to a breach of a duty of care
which is owed to another party.
In the eyes of the law, we are all neighbours so owe each other a duty of care – see
Duty of care: the neighbour principle on page 6/7.

Nuisance This concerns interference with a person's rights of enjoyment of their property or
land. Examples of nuisance include interference by encroachment of tree roots,
physical damage caused by overflows from blocked drains, emission of smells and
noise.
Private nuisance – must be an unlawful act and a continuing disturbance.

Trespass This concerns 'direct interference with the person, goods or land of another' .

Strict liability The case of Rylands v. Fletcher (1868) created a strict liability where there is a
'non-natural use of land', and something escapes from the land and causes damage.
Strict liability means there is no need to prove fault or negligence, just cause and
effect. This is discussed in more detail in Strict liability on page 6/8. There have
been many other cases since Rylands v. Fletcher that have extended this principle.

Statutory liability This involves bringing a civil action based on a breach of a statutory duty, where the
Act does not provide its own remedy or means of enforcement, such as a criminal
penalty. An example would be the Highways Act 1980, where the highway authority
owes the highway's users a statutory duty to maintain it.
Chapter 6 Legal and regulatory considerations 6/7

Defamation This is a false statement made about a person which causes injury to that person's
reputation. For example, falsely stating that a person has taken a bribe.The tort of
defamation takes two forms: libel and slander.

Negligence is the tort that most often gives rise to insurance claims. We will now look at how
negligence can arise.

C Negligence
A useful definition of negligence is given in the judgment in Blyth v. Birmingham
Waterworks (1856):

the omission to do something which a reasonable man, guided upon those considerations
which ordinarily regulate the conduct of human affairs, would do, or doing something
which a prudent and reasonable man would not do.
Blyth v. Birmingham Waterworks (1856)

Negligence is a failure to take reasonable care in circumstances where the law demands that
care should be taken and gives rise to a claim for damages by the person who suffers harm
as a result.
For a legal action in negligence to succeed the claimant must prove that:
• a duty of care was owed by the defendant to the claimant;
• there was a breach of that duty by the defendant; and
• the claimant suffered damage as a result.

C1 Duty of care: the neighbour principle

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The case of Donoghue v. Stevenson (1932) is often cited as the source of the tort of
negligence in its modern form. It established what is known as the neighbour principle. The
case concerned Mary Donoghue (the claimant), who visited a café with a friend who bought
her a bottle of ginger beer. She drank some of the ginger beer, but when she poured out
more, a decomposed snail emerged from the bottle. Although she was only mildly ill as a
result, she was persuaded to sue. She could not sue the café owner for breach of contract
because someone else had bought the ginger beer. Nor could she sue the café owner in
negligence because the drink was in an opaque bottle and the proprietor could not have
known that the snail was there. She therefore sued the manufacturer in negligence and
succeeded. This was the first case in which a manufacturer was held to owe a duty of care to
the consumer of its products. Even more important was the general principle which the case
established – the neighbour principle. The judge in this case stated that, ‘you must take
reasonable care to avoid acts or omissions that you can reasonably foresee would be likely
to injure your neighbour’. In the eyes of the law, everyone qualifies as neighbours, so
everyone must show and exercise a duty of care to each other.
A duty of care is owed to another person if it is reasonably foreseeable that they would be
affected by one’s acts or omissions. While the specific case of Donoghue v. Stevenson was
about the duty of care owed by a manufacturer to a consumer, the general neighbour
principle has been developed through subsequent court cases to be of wider application.
In recent years the courts have become more conservative in developing the law of
negligence. In addition to ‘foreseeability’, they emphasise the need for sufficient ‘proximity’
(closeness) between the claimant and those against whom a claim is made. The courts take
the view that a duty of care should be imposed only where it is reasonable to do so.
Negligence is the basis for establishing legal liability in many situations, including the liability
cover provided under a household policy.
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Consider this…
Bobby was walking through the park on a summer’s day. While walking by the boating
lake, he noticed someone in the water struggling and shouting for help. Bobby couldn’t
swim, but entered the water to try to save their life. Sadly, the swimmer drowned. If Bobby
had failed to do anything to help or rescue them and they had survived, he could be held
liable for negligence, under breach of the duty of care and the neighbour principle.
Did Bobby need to risk his life? No, he just needed to do something, such as call for help
or phone emergency services

C2 Breach of duty
A breach of duty occurs when the defendant fails to do what a 'reasonable man' would have
done in the circumstances or does what a 'reasonable man' would not have done. The
'reasonable man' is the average person. Some people do not see danger right in front of
them, while others consider every move they make as being fraught with danger. The law
takes the middle course.
What is reasonable will depend upon the circumstances and will take account of how
hazardous the activities were, and the ease with which the risk could have been reduced or
eliminated. In the case of the most hazardous activities (such as using toxic chemicals) the
utmost care will be expected even if the costs are high. Where the risk of injury or damage is
trivial or remote (such as cleaning the car), the courts will not expect any elaborate or
expensive precautions to be taken.

C3 Damage
In legal terms, the word damage does not just mean damage to property but includes death
and bodily injury. It also includes economic or financial loss where this flows directly from
physical damage to the claimant or their property.
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In order to succeed in an action in tort, the claimant must show that their injury or damage
has been proximately caused by the activities of the defendant. The onus is on the claimant
to prove this causal link.

D Strict liability
Strict liability is another type of tort that is particularly relevant to household insurance. The
normal rule in the law of tort is that, where there has been some deliberate or negligent act
which involves fault on the part of someone, the negligent party bears responsibility for the
injury or damage that is caused by such fault.
Strict liability is a situation where legal liability can arise even though there is no fault or
negligence. A key point to note is that for strict liability to apply there must be a non-natural
usage of land.
Strict liability applies in a number of situations, some of which are relevant to household
insurance, including:
• liability for the escape of fire; and
• liability for animals.

D1 Liability for the escape of fire

The case of Rylands v. Fletcher (1868) established the criteria for strict liability. The key
principle in this rule is that a person who for their own purposes brings on their land and
collects and keeps there anything likely to cause damage if it escapes, must keep it at their
peril. If it escapes, they are answerable for all the damage which is a natural consequence of
its escape, whether or not there has been any fault on their part.
The case concerned mill owners (the defendants) who employed independent contractors to
build a reservoir on their land to provide water for the mill. Beneath the site were some
disused mine shafts and passages which, unknown to the defendants, were connected to
the claimant’s mine. The contractors omitted to block the old shafts and when the reservoir
was filled, one of the shafts gave way. Water burst through the old workings and flooded the
claimant’s mine. While it was found that the defendant had not been negligent in that he had
Chapter 6 Legal and regulatory considerations 6/9

employed apparently competent contractors, he was nonetheless liable based on strict

liability.
For the strict liability rule to operate:
• The occupier of land must bring a dangerous thing onto their land and allow it to
accumulate there. For example, running water flowing naturally through land is not an
accumulation, whereas a reservoir is. Animals that are likely to cause damage are also
included.
• The accumulation must be artificial rather than natural for the rule to apply. Storage of
water and gas in bulk, the use of a blowlamp to thaw pipes in a loft and the storage of
flammable material in a barn have all been held to be non-natural.
• The dangerous thing must have escaped beyond the boundaries of the defendant’s land.
Rylands v. Fletcher does not apply where damage is caused on the defendant’s land.
People do not often bring and store fire on their land and allow it to escape. However, they
do bring flammable material onto their land which can catch fire and escape, spreading the
fire. Accordingly, the rule relating to liability for escape of fire is a modification of Rylands v.
Fletcher. The case of Sturge v. Hackett (1962) illustrates the point. The defendant was an
occupier of a flat, he lit a paraffin-soaked rag and applied it to a sparrow’s nest built between
the cornice and some wire netting. The fire spread to the roof and the whole house burnt
down. The court held that the defendant was liable for the damage caused by the escape of
fire from the defendant’s premises (his flat) under strict liability, and also in negligence..
The case of Sturge v. Hackett (1962) illustrates the point. The defendant was an occupier of
a flat, he lit a paraffin-soaked rag and applied it to a sparrow's nest built between the cornice
and some wire netting. The fire spread to the roof and the whole house burnt down. The
court held that the defendant was liable for the damage caused by the escape of fire from
the defendant's premises (his flat) under strict liability, and also in negligence.
A more recent court case (Stannard (t/a Wyvern Tyres) v. Gore (2012)) has restricted the

Chapter 6
circumstances in which strict liability for the escape of fire will apply. As a result of the
judgment in this case, it would seem that it is only in cases where fire was originally brought
onto the land by a defendant and subsequently escapes that strict liability will apply.

Example 6.3
Charlotte had been clearing up garden debris and decided to build and start a bonfire.
Having started the bonfire in the late afternoon, the fire got out of control and damaged
the fences of six gardens, a neighbour’s summerhouse, and four sheds.
When starting a it is important to think about how easily fire can spread out of control,
especially in warm and dry weather conditions. If you do have a bonfire, you must stay
with it at all times. Unattended bonfires can cause devastating damage to not only your
property but also to your neighbours properties and belongings. This could result in the
homeowner being held strictly liable.

D2 Liability for animals

D2A Animals Act 1971
Much of the law relating to legal liability for animals is now contained in the Animals Act
1971. This Act replaced certain areas of the common law on animals and created and
consolidated existing rules on strict liability. The purpose of this Act was to codify civil liability
for damage done by animals in England and Wales. The rules contained in the Act cover five
main areas:

Liability for dangerous The Act defines a dangerous species as:

species
• species not commonly domesticated in the British Isles; and
• species whose fully grown animals normally have such characteristics that
they are likely, unless severely restrained, to cause severe damage (for
example, a tiger), or that the damage the animal may cause is likely to be
severe (for example, an elephant). The person responsible for any animal
that falls within this definition is strictly liable for any injury or damage caused.
 6/10 IF6/October 2020 Household insurance products

Liability for animals that do In this case the rules are concerned not with the characteristics of a species as a
not fall within the definition whole, but of the specific animal. The person responsible for animals that do not
of dangerous species belong to a dangerous species (according to the definition) is strictly liable if the
particular animal has a propensity to cause injury or damage, and the person
responsible is aware of this.

Worrying of livestock There is strict liability for damage caused by a dog in killing or injuring livestock,
which is not on the land where the dog resides.

Liability for straying Where livestock strays on to land in the ownership or occupation of another, the
livestock owner of the livestock is strictly liable for damage caused to the land or property
of the other person. The liability is for damage to property only. The owner is also
responsible for any expenses reasonably incurred in keeping the livestock until it
can be returned to the person to whom it belongs.

Liability for animals straying In this case liability is not strict and negligence must be proved. Where animals
onto the highway are negligently allowed to stray onto the highway, the owner is responsible for any
injury or damage caused. If the animals were to obstruct the highway, this could
be construed as 'public nuisance'.

The Act allows certain defences to these strict liabilities.

Consider this…
Would it be reasonable for a homeowner to keep a leopard as a pet in London? What
would the potential liability be if the leopard should escape?
It would not be ethical to bring such a dangerous animal into their home, so would result in
strict liability should the leopard escape.

D2B Common law liability

In this section we are focusing on strict liability in relation to household insurance. However,
it is worth noting that there are many cases where the Animals Act 1971 will not apply
Chapter 6

because there may not have been a breach of the specific provisions of the Act. In these
cases, while the person responsible for the animal may not be strictly liable, that person may
still be legally liable for any injury or damage caused under the rules of negligence, nuisance
or trespass. For example, in the case of Pitcher v. Martin (1937) the defendant took a dog
out into the street on a very long lead. The lead was only loosely held and the dog broke out
of the defendant’s control to chase a cat, entangling the lead in the legs of an elderly lady
who suffered injury as a result. The defendant was judged to have been negligent and
therefore responsible for the lady’s injuries.
The personal liability section of a household policy covers the insured’s legal liability as
owner of a domesticated animal. Many policies do not cover other animals, and a more
specialist policy will be required. Most policies also exclude legal liability arising out of
ownership of a dangerous dog as defined in the Dangerous Dogs Act 1991.

Example 6.4
Julie has a Staffordshire Bull Terrier, which slips its muzzle when out exercising. Before it
can be restrained it dashes into the road (causing an accident) and bites a passer-by.
A Staffordshire Bull Terrier is not considered to be a dangerous dog, so what would the
potential liability be for Julie’s household insurers? They may have to settle a claim under
Julie’s personal liability cover.

D2C Dangerous Dogs Act 1991 (amended 1997)

The Act was introduced in response to a series of attacks by dogs kept as family pets,
several of which involved injury to children. Points to note are as follows:
• Breaches of the Act are criminal offences.
• The Act does not change the rules on civil actions arising from an attack by a dog.
However, where the owner is prosecuted for breach of this legislation it may make it more
difficult for insurers to defend a civil claim.
• The Act defines the dogs classified as dangerous. As well as naming specific breeds
such as Pit Bull Terriers and Japanese Tosas, it includes any dog of a ‘type bred for
fighting’.
Chapter 6 Legal and regulatory considerations 6/11

• The Act places restrictions on the breeding, sale, gifting and exchange of such dogs.
• Such dogs must be taken out with a muzzle and lead, but not by anyone under 16 years
of age.
• It is an offence to allow any dog (not only those defined in the Act as dangerous) to be
dangerously out of control in a public place or a private place where the dog has no right
to be. A dog is regarded as ‘dangerously out of control’ under the Act, if there are
grounds for suspecting that it will injure a person, whether or not it actually does so.
The provisions of the Dangerous Dogs Act 1991 have been further amended by the Anti-
social Behaviour, Crime and Policing Act 2014, which became law from 13 March 2014.
The Act extends the provisions of the Dangerous Dogs Act to cover incidents on private
property in addition to public spaces. In addition:
• it is an offence for any dog to attack an assistance dog (guide dog, hearing dog etc.);
• prison sentences have been increased for those convicted of some offences; and
• the police or an appointed local authority now have powers to seize a dangerously out of
control dog in a private place.

E Specific forms of liability

Having looked at the general principles concerning legal liability and how it may arise, we will
now look at some specific forms of legal liability, some of which arise out of common law,
and others created by statute.

E1 Parents’ liability for children

Under the law of tort, it is usually the wrongdoer (tortfeasor) who is liable. It is possible in
certain circumstances for others to be liable, even though they may not actually have
committed the tort. Vicarious liability means that A is liable for the tort of B and applies, for
example, when an employer is held liable for the acts of their employees.

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A parent bears no vicarious liability for the acts of their child. A child is responsible for their
own torts. The degree of care required by a child is less than that required by an adult
because they are less able to foresee or appreciate the hazardous outcomes of their actions.
The test is the amount of care one would expect of a child depending on their age.
Parents may, nonetheless, be liable for their own acts of negligent supervision. This is
demonstrated in the case of Newton v. Edgerley (1959) where the defendant allowed his
twelve-year-old son to buy a gun. He showed him how to use it but gave no specific
instruction on using it safely when others were present. The father told the boy not to take
the gun off the farm or use it when other children were there. The boy disobeyed his father
and injured another boy. The defendant was liable in negligence because he should have
realised that he could not possibly ensure his order was obeyed and should have given the
boy careful instructions on how to use the weapon if others were present.
In deciding whether the parent is liable the following will be taken into account:
• the age of the child;
• the mental capacity of the child; and
• the instruction given to the child.

E2 Occupiers’ liability
People are quite often injured when visiting unsafe or badly maintained premises, including
houses. Even when the building itself is safe the visitor may come into contact with
unexpected hazards, such as dangerous equipment or toxic materials. The responsibility for
ensuring the safety of visitors generally falls on the occupier of a premises, rather than the
owner. The liability of an occupier of premises can be considered under two main headings:
• To persons outside the premises; and
• To persons on the premises.
The occupier is the person on the premises day-to-day and who should be aware of the state
of the premises. However, the owner may be held responsible in some cases. This
responsibility could arise for example, where the owner has a contract with the occupier to
carry out repairs to the premises, or where part of the premises is under the owner’s control.
 6/12 IF6/October 2020 Household insurance products

Two statutes govern the liability of occupiers to those injured on the premises:
• The Occupiers’ Liability Act 1957 is concerned with liability to lawful visitors, i.e. those
who have been expressly invited onto the premises. This Act was passed to simplify the
old common law rules, which were complicated because the occupier’s duty of care
depended upon the status of the person who was injured. A higher standard of care was
expected with regard to invited guests, but a lower standard applied to other people, such
as contractors and officials who entered as of right. No duty of care was owed to
trespassers, although the occupier could not deliberately set traps intended to
injure them.
The Act states that the same duty of care (‘a common duty of care’) is owed to all visitors
present on the land of another, who are not trespassers. The duty is:

a duty to take such care as in all circumstances of the case is reasonable to see that the
visitor will be reasonably safe in using the premises for the purpose for which he is invited
or permitted by the occupier to be there.
Occupiers’ Liability Act 1957

The 1957 Act did not change the law relating to trespassers to whom no positive duty
was owed.
When inviting persons onto the premises the occupier can impose some contractual
terms, make some disclaimer of liability or give some warning which may transfer the risk
and responsibility to the visitor. For example, displaying a ‘beware of the dog’ sign. The
wording of the warning must be sufficiently clear and keep the visitor reasonably safe for
any claim for damages to fail. In the case of young children, the courts will be mindful that
a warning may not be acceptable as they may not understand its meaning.
• The Occupiers’ Liability Act 1984 is concerned with liability to other visitors
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(trespassers). This Act extends the duty of care to apply to trespassers and other
‘uninvited entrants’. It only applies if:
– the occupier is aware of the danger;
– the occupier knows (or has reasonable grounds to believe) that the entrant is in the
vicinity of or may come into the vicinity of the danger;
– the risk is one against which the occupier may reasonably be expected to offer the
non-visitor some protection. The higher the risks the greater are the precautions that
should be taken.
This Act provides that an occupier must be prepared for children to be less careful than
adults. Dangers can be less obvious to children than adults. The Act implies that those
who invite children onto their land, (particularly if unaccompanied by adults) owe a higher
duty of care and must ensure there is higher safety than if they were just inviting adults.
As under the 1957 Act, warning signs can be displayed.
The Countryside and Rights of Ways Act 2000 came into effect in September 2005,
introducing the so-called ‘right to roam’. It provides members of the public with the right to
enter ‘access’ land, such as open country, mountain, moor, heath and down and registered
common land. They now have a legal right to enter private property, which before they could
only have the right to enter as visitors, otherwise they would be deemed as trespassers. The
Occupiers’ Liability Acts have, however, been modified to protect occupiers. Occupiers will
not owe a duty to take action to protect visitors from their own foolhardiness in ignoring
obvious dangers.

E3 Defective Premises Act 1972

The Defective Premises Act 1972 modifies the common law liability between landlords and
tenants, as well as imposing duties in a number of areas. It applies in England and Wales
only, and concerns liability for newly built, converted or adapted dwellings. It does not apply
to buildings used for commercial or industrial premises.
The key features of the legislation are as follows:
Chapter 6 Legal and regulatory considerations 6/13

Builders, developers, The Act imposes duties to build and repair dwellings in a professional/
subcontractors and local workmanlike manner, and to use proper materials so that the dwelling is fit for
authorities habitation.

Vendor or lessor At common law, the vendor or lessor of property owed no duty to purchasers
or lessees for injury arising from the unsafe condition of the premises. The
Defective Premises Act 1972 abolished this common law rule. Vendors or
lessors now owe a duty of care where work has been carried out by
themselves or on their behalf, which is defective. They can be held liable even
after the premises have been sold or let. Accordingly, liability could continue to
attach for several years after ownership has ceased. The cover provided
under the buildings section of a household policy usually includes these
liabilities, for a period of up to seven years after cover has been terminated
following sale of the home.

Landlord and tenant The Act modified the common law position. The landlord is now liable to the
tenant if they are under an obligation to repair and maintain the premises, and
know (or ought to have known) of a defect. In fact this liability extends not just
towards tenants but to all persons who might be affected by defects in the
premises.

Example 6.5
Bradley purchases a house and moves in. One evening, his wife goes to switch on the
lights. She is partially electrocuted. Luckily, she survives. When the electrician comes to
inspect the wiring, they discover that the wiring is faulty. The electrician quotes to rewire
the house. Bradley is going to struggle to pay for the rewiring that needs to be done. On
further investigation, he discovers that the previous owner (the vendor) had rewired the
property themselves, without being qualified to undertake such work. With legal expenses
as an extension to his household cover, Bradley can sue the vendor, for liability under the
Defective Premises Act. There is seven years for this liability from the date of purchase.

Chapter 6
F Limitation of actions
Where a person considers they have a valid case either for breach of the law of contract or
the law of tort, the law only allows a limited period of time in which to begin their action
against the wrongdoer.

Consider this…
Why is the time allowed to bring an action limited in this way?

To allow unlimited time would be unfair to the defendant since the possibility of legal action
would hang over them indefinitely. A very long delay would also make a fair hearing difficult
since evidence becomes less clear and less easily available over time.
The time periods allowed are governed by legislation and a claim which is made too late is
described as being statute-barred. The main limitation periods follow:
• Law of torts
– one year for libel and slander;
– three years where the claim is in respect of personal injuries; and
– six years for most other tort actions (including property damage claims).
These periods are contained in the Limitation Act 1980, as amended by the Latent
Damage Act 1986.
The limitation period begins on the date on which the cause of action accrues. This is
usually the date on which the injury or damage was sustained by the claimant. There are
some exceptions to this. For example, in the case of personal injury, the limitation period
may begin from the date of knowledge (i.e. the date on which the claimant could
reasonably have been aware of the injury) if this is later.
• Law of contract
Six years in an action on a simple contract. Most contracts are simple contracts and
include all contracts other than specialty contracts (see below);
 6/14 IF6/October 2020 Household insurance products

but only:
– three years where the claim is for personal injuries; and
– twelve years in an action brought on a specialty contract (deed). A specialty contract is
a formal contract, which is in writing and must be witnessed, such as a contract to
transfer land.
These periods are contained in the Limitation Act 1980. Again, the limitation period
begins on the date on which the cause of action accrues. This is usually the date of the
breach of contract.

Question 6.2
What is the limitation period for personal injury claims bought under the law of torts?

G Regulatory requirements
In chapter 1 we identified how the sales and administration of general insurances (including
household insurance) is subject to statutory regulation with responsibilities split between:
• the Financial Policy Committee (FPC);
• the Prudential Regulation Authority (PRA); and
• the Financial Conduct Authority (FCA).
The regulatory rules that authorised firms must comply with are contained in the FCA
Handbook and the PRA Rulebook.
The FCA is responsible for setting ‘conduct of business rules’ for all authorised firms,
including those that transact household insurance. They detail how firms must conduct their
business on a day to day basis.
Chapter 6

G1 Fair treatment of customers

Ensuring the fair treatment of customers is central to the FCA’s work. It is a regulatory
approach that flows from what was, at the time, a significant initiative launched by the FSA –
Treating Customers Fairly (TCF). First introduced over ten years ago, TCF encouraged an
approach to doing business that should be embedded within the values of every firm. It is no
longer seen as a distinct initiative, instead the principle of the fair treatment of customers
forms part of the ‘business as usual’ activity of every organisation, including those that
transact household insurance.
The requirement to ensure the fair treatment of customers comes from the High Level
Standards in the FCA Handbook that apply to all authorised firms. These state that all firms,
including those transacting household insurance, must pay due regard to the interests of its
customers and treat them fairly.
The supervisory system under the FCA is designed so that firms are encouraged to base
their business model, culture and how they run the business on a foundation of the fair
treatment of customers. The FCA expects firms to put the well-being of customers at the
heart of how they run their businesses. They have stated that meeting customers’ fair and
reasonable expectations should be the responsibility of firms and not that of the regulator.
The FCA expects firms to embed the principles of the fair treatment of customers in their
corporate strategy and to build it into the firm’s culture and day-to-day operations. There are
no specific rules to deal with the fair treatment of customers – it is a matter for senior
management to ensure the correct approach is embedded in their firm’s practices.
To assist firms, the FCA has published six consumer outcomes that firms should strive to
achieve to ensure the fair treatment of customers. These are core to what is expected of
firms and are seen as critical to a firm’s culture:
• Outcome 1: Consumers can be confident they are dealing with firms where the fair
treatment of customers is central to the corporate culture.
• Outcome 2: Products and services marketed and sold in the retail market are designed
to meet the needs of identified consumer groups and are targeted accordingly.
• Outcome 3: Consumers are provided with clear information and are kept appropriately
informed before, during and after the point of sale.
Chapter 6 Legal and regulatory considerations 6/15

• Outcome 4: Where consumers receive advice, the advice is suitable and takes account
of their circumstances.
• Outcome 5: Consumers are provided with products that perform as firms have led them
to expect, and the associated service is of an acceptable standard and as they have been
led to expect.
• Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to
change product, switch provider, submit a claim or make a complaint.
The FCA calls for firms to make use of suitable management information (MI), both numeric
and descriptive, to monitor the outcomes that they are achieving for their customers. It has
highlighted the importance of this information being forward-looking, so as to enable
management to identify risks to customer outcomes rather than dealing only with known
issues and acted upon when necessary.
The fair treatment of customers is a requirement for both product providers and
intermediaries. Even if firms do not have direct contact with customers, poor conduct can be
carried down the supply chain leading to poor outcomes for customers. All customers should
expect financial services and products that meet their needs from firms they trust. with a
particular focus on consumer outcomes.

Refer to
Positive customer outcomes examined in Importance of ethical behaviours in delivering
positive customer outcomes on page 8/12.

G2 Insurance: Conduct of Business Sourcebook

Under FCA regulation, in addition to the High Level Standards mentioned above, there are
also rules which apply specifically to the selling and administration of general insurance and,
therefore, household insurance. The Insurance: Conduct of Business Sourcebook (ICOBS)

Chapter 6
lays down more detailed rules which firms must comply with when carrying out transactions
on a day to day basis. All of the rules apply to alterations and renewals as well as new
business. They apply to both intermediaries and insurers who sell directly to customers.
ICOBS covers eight areas which can be summarised as follows:
• ICOBS 1: Application
This sets out the scope of ICOBS, including to whom the rules apply, to what activities
they apply and where the rules apply. It helps firms to understand which parts of ICOBS
applies to them, and provides guidance on the application of other parts of the FCA
Handbook to firms carrying on general insurance business.
• ICOBS 2: General matters
The rules in ICOBS 2 relate to five areas:
Client categorisation. This identifies that within the requirements different rules apply
depending on whether the firm is dealing with a consumer or a commercial customer.
These are defined as:
– consumer – a policyholder or potential policyholder acting outside their trade,
business or profession;
– commercial customer – a policyholder or potential policyholder who is not a
consumer.
If it is not clear in a particular case whether a customer is a consumer or a commercial
customer, a firm must treat the customer as a consumer.
Communications to clients and financial promotions. All communications, including
financial promotions, must be clear, fair and not misleading and can only be issued by an
authorised firm. Any claims in financial promotions about the competitiveness of prices,
must be consistent with the result reasonably expected by the majority of its customers. It
must state prominently the basis for any claimed benefits and any significant limitations.
Inducements. An authorised firm must manage conflicts of interest fairly, both between
itself and its customers and between a customer and another client. A firm should not
solicit or accept an inducement if it is likely to conflict with the duty it or the recipient firm
owes to its customers. Inducements can include cash, cash equivalents, commission
goods, hospitality or training programmes.
 6/16 IF6/October 2020 Household insurance products

Record keeping. All firms are required to keep adequate records to demonstrate
compliance with the rules and deal with any complaints that arise, in addition to meeting
requests from the FCA for information.
Exclusion of liability. An authorised firm cannot exclude or restrict any duty it has to a
customer unless that duty arises outside the regulatory system.
• ICOBS 3: Distance communications
This sets out the information which must be provided to a consumer when there is a
distance mediation contract. A distance mediation contract is one which uses a distance
communication: that is any means which does not involve the simultaneous physical
presence of the firm and the consumer, up to and including the time at which the contract
is concluded.
The information which must be provided includes information about the firm and the
services it offers, and detailed information about the product including how to complain.
The aim is to give extra protection to those who have not had the benefit of face to face
advice in relation to an insurance contract. This information must be provided in writing or
another durable medium in good time before completion of the distance contract.
Where the communication is by telephone, clearly it is not possible to provide all the
distance marketing information before conclusion of the contract. Subject to the explicit
consent of the consumer, specified abbreviated information can be provided during the
telephone call. However, a firm must still provide the full information in writing or another
durable medium immediately afterwards.
In addition, firms using websites as one of their distribution channels must comply with
the requirements of the EU E-Commerce Directive.
• ICOBS 4: Information about the firm, its services and remuneration
ICOBS 4 specifies the information that intermediaries (but not insurers) need to provide
about themselves before the contract is concluded. This is usually provided through initial
disclosure documentation, and must include:
Chapter 6

– their name and address and statutory status, and how this can be checked on the
regulator’s register;
– details of any links (10% or more of voting rights or capital) that intermediary has with
any other insurance undertaking;
– whether it gives advice on the basis of a fair analysis of the market; exclusively for one
insurer; or for more than one insurer but not on the basis of a fair analysis of the
market;
– whether it is giving a personal recommendation or information only. A personal
recommendation is given where information is presented as suitable for the person to
whom it is made, or is based on a consideration of the circumstances of that person;
– details of any fees;
– how to complain to the insurance intermediary (including that complaints may be
referred to the Financial Ombudsman Service);
– that the Financial Services Compensation Scheme applies.
The information must be given in a clear, accurate and comprehensible manner. It must
be provided on paper or any other durable medium. However, the information may be
provided orally where the customer requests it or where immediate cover is necessary.
Where the intermediary is dealing with the customer over the telephone the rules noted
previously regarding distance communication apply, allowing abbreviated information to
be provided over the telephone, followed by full information in a durable medium
immediately after the call.
• ICOBS 5: Identifying client needs and advising
A firm must try to ensure that a customer only buys a product under which they are
entitled to claim benefits. They must ensure that any contract is suitable for the
customer’s demands and needs. ICOBS 5 requires a firm to provide customers with a
statement of their demands and needs and the reasons for giving advice to them about
the policy. There are different requirements for advised and non-advised sales, and the
statement must reflect the complexity of the contract. There is no prescribed format for a
demands and needs statement.
Chapter 6 Legal and regulatory considerations 6/17

Insurers dealing direct with consumers with regard to household insurance are exempt
from this requirement.
The statement of demands and needs must be issued prior to the conclusion of the
contract, on paper or another durable medium. If the customer is dealt with by telephone,
the statement of demands and needs can be issued in accordance with the distance
marketing rules discussed earlier.
• ICOBS 6: Product information
This completes the information which is required to be provided to customers. A firm must
take reasonable steps to ensure a customer is given appropriate information about a
policy ‘in good time’, and in a comprehensible form so that the customer can make an
informed decision about the arrangements proposed. This applies pre-conclusion and
post-conclusion, and so includes matters such as mid-term changes and renewals.
Insurers are generally responsible for producing product information and for its content,
whilst intermediaries are responsible for providing that information to customers. An
insurer must produce the information in good time to enable the intermediary to comply
with the rules in this chapter, or promptly on an intermediary’s request.
The level of information required will vary according to matters such as:
– the knowledge, experience and ability of a typical customer for the policy;
– the policy terms, including its main benefits, exclusions, limitations, conditions and its
duration;
– the policy’s overall complexity;
– whether the policy is bought in connection with other goods and services;
– distance communication information requirements;
– whether the same information has been provided to the customer previously and,
if so, when.

Chapter 6
A firm dealing with a consumer (as in the case of household insurance) may wish to
provide information in a policy summary or as a key features document.
ICOBS 6 defines the product information which must be given to consumers under the
following headings:
– the main features of the cover, and the principal terms and exclusions, particularly any
unusual ones;
– a statement of price;
– directive required information about the law applicable to the contract and the
arrangements for dealing with complaints;
– information about cancellation;
– information about the claims handling process;
– a policy document;
– the extent and level of any applicable compensation scheme.
• ICOBS 7: Cancellation
Most general insurance contracts issued to consumers are subject to 14 day cancellation
rights, including at renewal. If the customer decides to withdraw, the insurer must give the
customer a refund within 30 days of the date on which the notice of cancellation was
received by the insurer. The insurers can charge for services they have provided in
connection with a general insurance contract as long as the charge cannot be considered
a penalty.
Certain policies are not subject to cancellation rights including travel policies and other
short term policies of less than one month’s duration, and connected travel contracts.
• ICOBS 8: Claims handling
Insurers are responsible for the prompt and fair handling of claims on policies they write.
If they outsource claims handling to another company, the insurer retains responsibility for
compliance with regulatory rules. The rules set out general rules for handling claims from
when a claim is first notified through to when settlement terms are agreed.
Intermediaries are required to act with due care and skill when acting on behalf of the
customer in relation to a claim. They are also required to avoid conflicts of interest. If an
intermediary acts for an insurer in respect of a claim on a policy they sold to the customer,
 6/18 IF6/October 2020 Household insurance products

the intermediary must inform the customer that they are acting on behalf of the insurer,
not the customer at the point of claim.
We will look at the rules for handling claims in more detail in chapter 8..

G3 Insurance Distribution Directive

Insurance Distribution Directive

The Insurance Distribution Directive 2016/97/EC (IDD) came into force on 22 February
2016 and Member States, including the UK, had to transpose the Directive into their own
legislation by 1 July 2018 (this was delayed from the original transposition date of
23 February 2018). The requirements have applied to firms since 1 October 2018.
The IDD is a revision and replacement of the Insurance Mediation Directive 2002/92/EC
(IMD). The IDD’s aim is to make it easier for firms to trade across borders, strengthen
policyholder protection and provide a level playing field. It sets out consumer protection
provisions in insurance and the scope of regulation is increased to include all firms that
sell, advise on, or conclude insurance contracts and those who assist in administering and
performing them, including those that shortlist as part of a selection process (such as
aggregators), or introduce insurance. However, just providing general information about
insurance products, insurers or brokers without collecting such information has been
excluded, as is providing data on potential policyholders to insurers/brokers.
The key provisions of the Directive are:
• Professionalism. All firms engaged in any of the activities covered by the Directive
must possess appropriate knowledge and ability to complete their tasks and perform
their duties adequately, such as: the insurance market; applicable laws governing
insurance distribution; claims handling; complaints handling; assessing customer
needs and business ethics standards/conflict of interest management. Staff must
complete at least 15 hours of professional training or development per year.
Chapter 6

• Commission disclosure. Pre-contractual disclosure of the intermediary and the

nature, not amount, of their remuneration (whether commission, fee or other type of
arrangement). This would be waived for contracts involving large risks or for
professional customers. The pre-contract disclosure regime will be extended to
insurance undertakings. Firms must state what type of firm they are (intermediary or
insurer) and whether they provide a personal recommendation. Firms that sell
insurance on a non-advised basis must ensure that the products they are selling fulfil
the customers most fundamental needs.
• Harmonisation. The IDD is a minimum harmonisation directive, allowing Member
States to set stricter requirements (‘gold plate’) if they deem this necessary. This allows
the UK to maintain its rules for retail investment advisers under the Retail Distribution
Review (RDR), for example.
• New product governance requirements, which are largely in line with the FCA’s
product governance requirements.
• A new category of insurance settler called Ancillary Insurance Intermediaries. This
includes connected travel insurance providers that don’t sell or introduce insurance as
their main business, but still do so and therefore are subject to selling rules.
• New duties applicable to insurance companies that are selling products through
companies that are not authorised by the FCA.
• A requirement for all general insurance firms in the retail and small corporate market to
provide customers with Insurance Product Information Documents. These are similar
to the Key Features Documents, previously used by insurers. An IPID is a short, pre-
contractual, non-personalised product summary document, the layout of which is fixed
and must follow closely what is prescribed in the IDD. After 1 October 2018, an IPID
must be issued to every retail customer purchasing a general insurance product,
regardless of the channel being used, ahead of closing a sale or renewal. The purpose
is to allow customers at the quotation stage to compare similar products offered by
different insurers in an easy-to-follow consistent way so they can see at-a-glance the
differences between products and make informed decisions. The requirement to
provide an IPID only applies to consumer insurance contracts.
Chapter 6 Legal and regulatory considerations 6/19

G4 Consumer Rights Act 2015

The Consumer Rights Act 2015, which came into force on 1 October 2015, is a
consolidating Act and seeks to reform and simplify UK consumer law. This had become
complex and outdated, previously being set out in eight separate pieces of legislation. The
Act aims to make things clearer for consumers when trying to understand their rights and the
remedies available to them if things go wrong.
As we have seen, the insurance industry is already heavily regulated and so the Consumer
Rights Act is unlikely to have a major impact on insurers. Much of its content is reflected in
the rules previously laid down by the FCA. The main areas of the Act that insurers will need
to take account of, in addition to FCA rules, relate to:
• Digital Content. All digital content must be supplied to a satisfactory standard, be fit for
purpose and as described. Some insurers provide an app alongside, for example, a
household policy which allows policyholders to access their policy documents. Under the
Act, the insurer has a responsibility to ensure that such apps are fit for purpose and
access to them is available continuously.
• Substandard Service. This part of the legislation applies to the supply of services,
except where the service is already subject to legislation providing for more extensive
consumer rights. In the main, FCA rules already meet or exceed the requirements of the
Act, but insurers need to be aware of the requirement to provide a service ‘within a
reasonable time’.
• Unfair or hidden terms and conditions. Currently, the core terms of insurance
contracts, such as exclusions, cannot be challenged on the grounds of fairness. This
default position will remain unchanged under the Act. However, the Act also states that if
a term of a contract is not transparent or prominent, it can be assessed for unfairness.
To avoid challenges for unfairness, insurers will need to ensure that the significant terms
included in their insurance contracts with consumers, such as household insurances,

Chapter 6
meet the rules on transparency and are communicated in a prominent fashion. If a
contract term is deemed unfair it will not be binding, although consumers are still within
their rights to rely on a term if they wish to do so.
These rules cover both the consumer contract (the policy itself) and notices, such as renewal
invitations and customer promotions.

On the Web
For further reading on the Consumer Rights Act 2015, visit www.abi.org.uk/data-and-
resources/tools-and-resources/how-to-buy-insurance/what-the-consumer-insurance-act-
means-for-customers/.
 6/20 IF6/October 2020 Household insurance products

Key points

The main ideas covered by this chapter can be summarised as follows:

Sources of legal liability

• Household policies provide cover for a number of situations in which the insured may
be legally liable to other parties; that is where the insured is under a legal obligation to
pay compensation to another party who has been injured or whose property has been
damaged as a result of the insured’s actions.
• Under English law, an individual in their private capacity can incur legal liability which is
a breach of either criminal law or of civil law. Criminal law is concerned with the control
of behaviour that harms or threatens the peace and stability of the community. Civil law
is concerned with the relationships between individuals. The legal rules which are
relevant to insurance are in the main drawn from civil law.
• There are two main sources of law: legislation and case law. Legislation is law that has
been created in a formal way by Parliament and set down in writing. Case law is based
on the system of binding precedent.
• Civil law can be divided into a number of distinct divisions, the two most important
divisions with regard to insurance being the law of contract and the law of tort.
• Many liability policies, including the liability cover under a household policy exclude
contractual liability.
• A tort is a breach of a fixed duty that the law imposes on everybody. The law of torts is
made up of a number of subdivisions including negligence, nuisance, trespass,
defamation, strict liabilities and breach of statutory duty. Negligence is the tort that
most often gives rise to insurance claims.

Negligence
Chapter 6

• Negligence is a failure to take reasonable care in circumstances where the law

demands that care should be taken and gives rise to a claim for damages by the
person who suffers harm as a result. For an action in negligence to succeed there are
three essentials; duty of care, breach of duty and damage.

Strict liability

• Strict liability is another tort that is particularly relevant to household insurance and is
where legal liability can arise even though there is no fault or negligence. Those types
of strict liability which are relevant to household insurance include liability for the
escape of fire and liability for animals under the Animals Act 1971.
• Vicarious liability arises where one person is liable for the acts of another. A parent
bears no vicarious liability for the acts of their child. A child is responsible for their own
torts. Parents may, however, be liable for their own acts of negligent supervision.
• Two statutes govern the liability of occupiers injured on the premises: the Occupiers’
Liability Act 1957 is concerned with liability to lawful visitors and the Occupiers’ Liability
Act 1984 is concerned with liability to other visitors (trespassers).
• The Countryside and Rights of Ways Act 2000 provides members of the public with the
legal right to enter private property, which before they could only have the right to enter
as visitors. Previously they would be deemed as trespassers.
• The Defective Premises Act 1972 applies in England and Wales only, and is concerned
with liability for newly built, converted or adapted dwellings. It modifies the common law
duty and imposes duties in a number of areas.
• Where a person considers they have a valid case either for breach of the law of
contract or the law of tort, the law only allows a limited period of time in which to begin
their action against the wrongdoer. These periods are contained in the Limitation Act
1980, as amended by the Latent Damage Act 1986.

Regulatory requirements

• The sales and administration of general insurances (including household insurance)

became subject to statutory regulation from January 2005. All firms that transact
Chapter 6 Legal and regulatory considerations 6/21

Key points
household insurance must abide by the conduct of business rules contained in the
FCA Handbook.
• The requirement to ensure the fair treatment of customers comes from the High Level
Standards in the FCA Handbook that apply to all authorised firms. These state that all
firms, including those transacting household insurance, must pay due regard to the
interests of its customers and treat them fairly. The FCA expects firms to embed the
principles of the fair treatment of customers in their corporate strategy and to build it
into the firm’s culture and day-to-day operations.
• Under FCA regulation, there are rules which apply specifically to the selling and
administration of general insurance, and therefore, household insurance. These
Insurance Conduct of Business requirements lay down more detailed rules which firms
must comply with when carrying out transactions on a day-to-day basis.
• The Insurance Conduct of Business requirements cover eight areas. These apply to
alterations and renewals as well as new business. They also apply to both
intermediaries and insurers who sell directly to customers.
• The Consumer Rights Act 2015 seeks to reform and simplify UK consumer law. Much
of the Act’s content is reflected in the rules previously laid down by the FCA, but
insurers will need to take account of the changes made in relation to digital content,
substandard service and unfair or hidden terms and conditions.

Chapter 6
 6/22 IF6/October 2020 Household insurance products

Question answers
6.1 Liability that arises under the terms of an agreement is an unknown exposure to
insurers, without seeing the contract wording. Insurers may be prepared to extend
cover in relation to a specific contract, but will want to assess the contract wording
and may charge an additional premium or decline the risk, depending on the
additional liabilities imposed.

6.2 Three years.

Chapter 6
 Chapter 6 Legal and regulatory considerations 6/23

Self-test questions
1. Which of the following is not a branch of Civil Law?
a. Contract law. □
b. Law of torts. □
c. Family law. □
d. Administrative law. □
2. The law of torts protects people's rights by allowing them to sue:
a. If their interests are invaded, threatened or harmed. □
b. In a situation where legal liability can arise. □
c. Only where a breach of duty occurs. □
d. Where an agreement enforceable by law between two or more persons is broken. □
3. What is a type of strict liability that is relevant to household insurance?
a. Liability for dangerous dogs. □
b. Liability for animals. □
c. Parents' liability for children. □

Chapter 6
d. Occupiers' liability. □
4. To avoid being time barred, within what period of time must a claim be made for
defamation?
a. Three years. □
b. One year. □
c. Six years. □
d. Seven years. □
5. Legal liability for individuals arises primarily from:
a. Contractual agreements. □
b. Negligence. □
c. Nuisance. □
d. Strict liability. □
6. Legal liability that can arise even when there is no fault or negligence is known as:
a. Absolute liability. □
b. Literal liability. □
c. Strict liability. □
d. Stringent liability. □
 6/24 IF6/October 2020 Household insurance products

7. Under the Dangerous Dogs Act 1991, insurance is compulsory for which breed of
dog?
a. German Shepherd. □
b. Bulldog. □
c. Japanese Tosa. □
d. Rottweiler. □
8. With regard to workers who regularly visit a house, the occupiers' liability section of a
household contents insurance policy will not typically pay out for death or bodily
injury to a:
a. Domestic cleaner. □
b. Refuse collector. □
c. Postman/postwoman. □
d. Window cleaner. □
You will find the answers at the back of the book
Chapter 6
 Risk assessment
7
and underwriting
Contents Syllabus learning
outcomes
Introduction
A Risk assessment 5.1, 5.2, 5.5, 6.1
B Calculation of sums insured 5.1, 5.3, 6.1
C Renewals 5.4, 6.1
D Other personal insurances 5.2, 6.1
E Special risks 5.2, 6.1
Key points
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• explain the general principles of premium rating and underwriting of individual risks;

Chapter 7
• describe the rating and underwriting considerations of different household insurance
products;
• describe the basis of cover and how sums insured are calculated;
• describe the renewal process specific to household insurance;
• describe the key features of relevant legislation which affects the underwriting of
household insurances; and
• apply risk assessment, rating and underwriting of household insurance products to a given
set of circumstances.
 7/2 IF6/October 2020 Household insurance products

Introduction
In this chapter we will look at what information is required prior to the insurer agreeing to
accept the insured risk, how this information is gathered and how it is used to calculate an
appropriate premium. For the majority of household risks, this process will be done using
automated computerised systems. There will, however, be a small number of proposers
where the risk is unusual or particularly high and individual underwriting is required.
In chapters 2 and 5 we have considered a range of household products. Regardless of the
product type the process followed will be largely the same, but the detailed underwriting
information required will however vary. This will also be examined in this chapter.

Key terms
This chapter features explanations of the following terms and conditions:

Eligibility statement Indemnity Index-linking New for old

Proposal form Renewals Statement of fact

A Risk assessment
When a proposer applies to take out a household policy, insurers will need to gather
information to enable them to decide whether or not they want to accept the risk and what
premium and terms will apply (material facts). The most common ways to do this are through
the completion of a proposal form or more often a statement of fact. For some risks it may
be necessary to ask for additional information or carry out a survey.

A1 Proposal forms and statements of fact

The proposal form has traditionally been the most common mechanism by which the insurer
receives information regarding the risk to be insured. Obviously it is speedier and more
convenient and cost-effective for insurers to issue proposal forms than to enter into
correspondence with each individual proposer. The proposal form will contain a series of
standard questions to be completed, many of which can be answered by a simple yes or no,
or by ticking a box.
Chapter 7

Proposal forms should be simple to understand and easy to complete.

In chapter 1 we identified the increased role of information technology in the transaction of
household insurance. As a result, the risk assessment information will often be input directly
into a computerised on-screen version of the proposal form, either by the direct insurer or the
intermediary. The material facts are established by asking the insured a series of screen-
prompted questions, either face-to-face (as in a high street intermediary) or over the
telephone. At the end of the process the information gathered is entered into the quotation
system, and a premium is generated if the risk is acceptable. If the proposer wishes to take
up the quotation, a copy of the computer generated proposal form is sent to the insured to be
checked for accuracy. Many insurers refer to this document as a statement of fact rather
than a proposal form. Some insurers require this to be signed and returned. More commonly
the client is asked to retain a copy, and to advise their insurer or intermediary if any of the
information is inaccurate and requires amendment. In either case the proposer remains
responsible for the answers recorded on the statement of fact.
Where cover is arranged through an intermediary, or some more traditional insurance
companies, the insured may still be required to complete a paper-based proposal form,
which is then submitted to insurers by post. Clearly this is a more complicated and time-
consuming process.
The increased use of information technology has also led to more household policies being
purchased via the internet. Here, it is the proposer who completes the computerised on-
screen version of the proposal form.
The application form itself is usually quite brief. Instead of asking lots of questions there is
usually an ‘eligibility statement’ which the proposer has to confirm they comply with. If
cover is taken out confirmation of these facts is incorporated into the insurance contract, and
Chapter 7 Risk assessment and underwriting 7/3

if not correct could invalidate the policy cover. Typically an eligibility statement asks the
proposer to confirm facts such as:
• the house is of standard construction;
• the house is the proposer’s main residence, and is permanently occupied by the proposer
and their family;
• the house is not left empty for more than 60 consecutive days in a year;
• the house is not a weekend or holiday home;
• the house has not been affected by subsidence and is not in an area subject to
subsidence;
• the proposer or anyone living in the house has not had a previous policy cancelled,
refused or subject to special terms;
• the proposer or anyone living in the house does not have any unspent convictions (other
than motoring convictions) or any prosecutions pending;
• the proposer or anyone living in the house has not suffered more than a stated number of
losses. This requirement varies from one insurer, examples including that there have
been no losses in the last three years or not more than one loss in the last four years.
In addition some insurers also ask for confirmation that:
• the house has not been damaged by flood and is not in an area liable to flood, or which
has any past history of flooding;
• the house is maintained in a good state of repair;
• the house is self-contained with its own front door;
• the house is not used for business purposes except clerical work;
• the house is not let or sublet; and
• the proposer or anyone living in the house does not have a listed occupation, such as
professional entertainer, professional athlete, jeweller or antique dealer.
Where the proposer confirms that they comply with the eligibility statement a computer
generated quotation can be provided almost instantly. If cover is taken out, the insured will
either be asked to print off and keep a copy of the statement of fact, or be sent a copy of this
in the post. Where the risk does not meet the criteria contained in the eligibility statement,
the proposer is asked to telephone an adviser who will gather further information to

Chapter 7
determine whether a quotation can be provided.
A1A The Consumer Insurance (Disclosure and Representations)
Act 2012
The risk assessment process for personal insurances has been affected by the introduction
of the Consumer Insurance (Disclosure and Representations) Act 2012. This came into
force on 6 April 2013. It applies to consumer contracts only; that is contracts between an
individual who enters into a contract wholly or mainly for purposes unrelated to the
individual’s trade, business, or profession and an insurer.
The Act has abolished the previous long standing requirement under the Marine Insurance
Act 1906 for consumers to volunteer information about everything which a reasonable
underwriter would consider relevant and instead sets out what a consumer should tell their
insurer before taking out insurance. Under the Act:
• consumers must take reasonable care to answer their insurer’s questions fully and
accurately. If consumers do volunteer information, they must take reasonable care to
ensure that the information is not misleading;
• insurers have to ensure they ask for any information they need to assess the risk being
insured;
• the remedies available to insurers where they have been induced by a misrepresentation
to enter into an insurance contract are prescribed. The action an insurer can take will
depend on the consumer’s state of mind:
– if the misrepresentation was honest and reasonable, the insurer must pay the claim.
The consumer is expected to exercise the standard of care of a reasonable consumer,
taking into account a range of factors including the type of insurance policy and the
clarity of the insurer’s question,
 7/4 IF6/October 2020 Household insurance products

– if the misrepresentation was careless, the insurer will have a compensatory remedy
based upon what the insurer would have done had the consumer taken care to
answer the question accurately. If the insurer would have excluded a certain illness,
for example, the insurer need not pay claims which would fall within the exclusion, but
must pay all other claims. If the insurer would have charged more for the policy, it
must pay a proportion of the claim,
– if the misrepresentation was deliberate or reckless, the insurer may treat the policy as
if it never existed and may decline all claims. It will also be entitled to retain the
premiums, unless there was a good reason why they should be returned;
• ‘basis of contract’ clauses (under which the proposal form becomes part of the contract of
insurance) are no longer permitted.
This brings the law on misrepresentation for consumers largely into line with the approach
adopted by the Financial Ombudsman Service (FOS).
As a result of this legislation, insurers and intermediaries have had to review their
information gathering processes and documentation to ensure that they are asking sufficient
clear and unambiguous questions at the application (or renewal) stage. Insurers can no
longer rely on a duty on the proposer to disclose information whether or not it is the subject
of a question on the proposal form. The proposer now only needs to take ‘reasonable care’
to ensure that any information they provide is not misleading.
A1B Insurance Act 2015
Further changes have been made to the legal principles which govern the transaction of
insurance by the passing of the Insurance Act 2015. This Act received Royal Assent on
12 February 2015, completing a detailed review of the legislation underpinning insurance law
in the UK which was begun in 2006. The Act came into effect on 12 August 2016 and applies
to insurance contracts placed or varied after that date.
The legislation amends insurance law in three main areas:
• the pre-contractual duty of disclosure and the effect of misrepresentations at that stage;
• the effect of warranties contained in the policy; and
• insurers’ remedies for fraudulent claims.
Most of the Act’s provisions apply to commercial (non-consumer) contracts, bringing in
parallel changes to those already implemented under the Consumer Insurance (Disclosure
Chapter 7

and Representations) Act 2012 for consumer contracts. The only changes introduced which
apply to both non-consumer and consumer contracts, and therefore household insurances,
are those concerning insurers’ remedies for fraudulent claims, which were not covered by
earlier legislation. As these changes relate to the claims process rather than the information
gathering stage, they will be examined in more detail in chapter 8.

A2 Rating and underwriting factors

Regardless of the method used to apply for insurance, the information required by insurers
to assess the risk will be the same. The questions contained in a proposal form or statement
of fact for any type of household policy will be designed to gather the following
information:
• general information concerning the insured; and
• specific information regarding the property to be insured.

A3 General information concerning the insured

Most of this information is relevant not only to household insurance but also many other
types of insurance. Here we will consider it specifically in the context of household
insurance.

A3A Name
This identifies who is to be covered by the policy. It also allows insurers to check for any
other insurances, either through their own database or anti-fraud databases, such as the
Claims and Underwriting Exchange (CUE) (see Claim or loss history on page 7/5 on claim
or loss history).
Chapter 7 Risk assessment and underwriting 7/5

A3B Address
This is important to enable insurers to communicate with the insured. If it is also the risk
address it will be an important rating factor. For more information about the risk address, see
Risk address on page 7/6.

A3C Occupation
Some occupations, such as professional sportspersons, professional entertainers,
bookmakers, money lenders, students and child minders are regarded by insurers as
representing an increased moral or physical hazard. This means that they need to be
carefully underwritten or the risk will be declined.
Where the proposer works from home this could either reduce or increase the risk. The risk
may be considered to be lower because the house will be occupied on a more regular basis.
This would also be true if the proposer is retired. However, the risk may be increased
through, for example, the storage of hazardous materials such as chemicals, or increased
numbers of visitors to the home.

Example 7.1
Henry is a self-employed architect who works from home. He lives in a detached
bungalow, where he has converted a bedroom into an office. Clients regularly visit Henry
at home for meetings. How would Henry’s occupation increase or reduce the risk to
insurers?
The property damage risk (particularly theft following a break-in) may be considered to be
lower, as the house will be occupied on a more regular basis. This would also be true
where the insured is retired. However, the liability risk may be increased as clients visit
Henry at home; as may the risk of an opportunist theft or accidental damage. Other
occupations may have other features which increase the risk to insurers, such as the
storage of hazardous materials or certain trades being carried out at the property (for
example, motor vehicle sales or repairs).

A3D Date of birth

This information may be important for rating purposes because many insurers give discounts
for proposers over a certain age. For example, those in their 60s are considered to be a

Chapter 7
lower risk because they are more often in the home and are unlikely to have young children
or teenagers living with them, who tend to cause losses.

A3E Previous convictions

Previous criminal convictions may indicate increased moral hazard and insurers would
consider acceptance of such risks carefully. Insurers cannot take into account convictions
which are ‘spent’ under the Rehabilitation of Offenders Act 1974 (as amended by the
Legal Aid, Sentencing and Punishment of Offenders Act 2012). Depending upon the
conviction, the Act specifies varying periods of time after which convictions need not be
disclosed to other parties, including when taking out an insurance policy. For example the
rehabilitation period for custodial sentences of up to 6 months is 2 years from the end of the
sentence. For custodial sentences of over four years, a conviction is never ‘spent’.

A3F Insurance history

If other insurers have imposed special terms or increased premiums, or have declined
insurance in the past, insurers will want to investigate further the reasons for this, in order to
decide whether or not to accept the proposal on this occasion.
A3G Claim or loss history
If there have been previous losses, insurers will require full details of these, as they may
indicate carelessness on the part of the insured, or that the property is in a poor state of
repair. A poor claims history will lead to increases in premium and/or restrictions in cover. In
extreme cases insurers may decline to offer insurance.
Insurers are able to check the accuracy of this information through the Claims and
Underwriting Exchange (CUE) database. This is a central database shared by insurers
containing information on most personal lines claims.
 7/6 IF6/October 2020 Household insurance products

Member companies submit claims data on individual claimants to the database and are able
to check the true claims history of those individuals. If accessing CUE reveals inaccuracies
in the information supplied, insurers will want to investigate further because this may be
indicative of moral hazard.
To discourage householders from claiming unnecessarily, many insurers offer a no claims
discount which increases each year up to a maximum of, say, 70% after five claim-free
years.

Example 7.2
Tina took out her policy in 2016 and was asked if she had any claims in the previous five
years. She disclosed one claim for damages from a storm in 2015, but didn’t mention a
small claim for escape of water in 2012.
On renewing her policy in 2017, Tina was given a copy of the information previously
provided by her and asked to advise if anything had changed. Tina did not contact the
insurer. It would appear that Tina just assumed that the escape of water claim was more
than five years ago.
As a result the insurer voided Tina’s home insurance and refused her claim when she later
claimed for fire damage. The FOS agreed that Tina hadn’t taken reasonable care not to
misrepresent.

A3H Credit scoring

This involves insurers collecting information available from third parties, including credit
reference agencies, to verify the proposer’s identity, to prevent fraud and to assess the risk.
The results of credit scoring can be an indicator of risk and evidence shows there is a link to
future claims experience. Information collected by reference agencies to determine a credit
score will typically include details of county court judgments (CCJs) and bankruptcy. Not all
insurers use credit scores to assess risk, but where they do a poorer credit history is likely to
lead to a higher premium.

A4 Specific information regarding the risk to be insured

A4A Risk address
Chapter 7

This is the address of the property where the proposer wishes to be insured, and is a
significant rating factor. Most insurers use postcodes to calculate premiums, taking into
account claims statistics for the postcode relevant to the risk. Some postcodes are rated
more highly because they have a higher incidence of particular losses such as theft,
subsidence or flood.
In recent years a major preoccupation for insurers and many householders has been how to
maintain the availability of flood cover for homes. The incidence of flooding continues to
grow, alongside increasing concerns over the effects of climate change. Climate change is
expected to continue to result in major flooding events becoming more frequent.
In 2020 with the aftermath of Storm Ciara and then Storm Dennis, the ABI reassured
homeowners and businesses that have suffered flood and storm damage that insurers will
do all they can to help them recover as quickly as possible.
If the risk address is not the same as the proposer’s correspondence address, insurers will
need to make further enquiries to establish if the property is:
• unoccupied;
• let out to tenants; or
• used as a holiday home.
If unoccupied, insurers may not wish to provide cover or may provide very limited cover.
A4B Flood Re
Flood Re was launched on 4 April 2016 as a joint initiative of the UK Government and the
insurance industry. It provides a facility for insurers to pass the flood risk element from those
households deemed at high risk of flooding to the fund. The contractual responsibility of
Chapter 7 Risk assessment and underwriting 7/7

paying out to customers if a claim is made still rests with the original insurer, but they are
able to seek reimbursement for these costs from the reinsurance pool.
Premiums for the flood risk are calculated based on council tax banding up to a maximum
cap; starting at no more than £210 per annum in Band A and rising to a maximum of £540
per annum in Band G. This provides reassurance to homeowners, as the cost of flood
insurance even in high risk areas is limited. In addition, where in the past various insurers
have applied excesses equivalent to 10% of the last flood claim, in some cases causing
them to reach over £10,000, excesses are now limited to between £250 and £500.
Properties are eligible for the scheme, if they meet all of the following criteria:
• They are covered by an insurance contract that is held in the name of, or on trust for, one
or more individuals or by the personal representative of an individual.
• The holder of the policy, or their immediate family, must live in the property for some or all
of the time (whether or not with others) or the property must be unoccupied.
• They fall within domestic council tax band A to H (or equivalent).
• They are used for private or residential purposes.
• They are a single residential unit or a building comprising of two or three residential units.
• They are insured on an individual basis or have an individual premium.
• They were built before 1 January 2009 (if a home is built before 1 January 2009 but then
demolished and rebuilt, the new home is still eligible).
• They are located within the UK comprising England, Wales, Scotland and Northern
Ireland (excluding the Isle of Man and the Channel Islands).
Properties let out by landlords and holiday homes are not eligible for buildings cover with
Flood Re, but if you are a tenant you can request cover for your contents. Commercial and
business properties are not covered by Flood Re.
Flood Re is funded by the premiums from all ceded policies, together with an industry levy of
£180 million. This equates to an average of £10.50 a year on all household insurance
policies.

On the Web
Visit the following website to find out more about Flood Re: www.floodre.co.uk/.

Chapter 7
A4C Construction and condition of the property
As part of the information gathering process insurers will require information about:
• the type of property – for example, house, bungalow or flat;
• whether the property is detached, semi-detached or terraced;
• the materials used in construction; and
• the type of roof.
Insurers will look for confirmation that the property is:
• of standard construction; and
• in a good state of repair and will be kept in good condition.
Standard construction means that the house is built of brick, stone or concrete, and roofed
with slate, tile, concrete, metal or asphalt.

Question 7.1
Why do insurers want to know if the house is of standard construction?

If an insurer accepts a property of non-standard construction, an additional premium will

usually be charged or an increased excess applied.
A4D Age of property
Insurers may charge higher rates for much older properties. The cost of repair can be
greater because specialist skills and construction techniques may be required to repair or
rebuild the property in the same style.
 7/8 IF6/October 2020 Household insurance products

A4E Number of bedrooms

Some insurers calculate the premium for household insurance based on the number of
bedrooms rather than the sum insured. Cover is automatically provided for a specified
amount of £500,000, £1 million or even an unlimited amount for buildings, and typically
between £35,000 and £75,000 for contents sums insured. Not all insurers will ask for this
information; many continue to calculate the contents premium by applying a rate to the
individual policyholder’s sum insured. The number of bedrooms may also be indicative of
whether the sums insured are adequate.

A4F Ownership
Insurers will want to know whether the property is owned by the proposer or whether it is
mortgaged or rented. Particularly where the property is rented, insurers will want to know
whether it is self-contained. If it isn't this could represent an increased risk to insurers, for
example from theft.
Where the property is mortgaged, this creates an additional interest in the property on behalf
of the mortgagee, such as a bank or building society. Their interest will usually be noted on
the policy, and insurers will have to notify them if a claim is made or the policy is cancelled.
A4G Use of the property
Insurers will want to know:
• whether the home is used for business purposes;
• whether the property is left unoccupied for extended periods;
• whether the property is self-contained; and
• if the property is a holiday or weekend home.
These features could lead to terms being applied or a higher premium charged. Alternatively,
it could indicate the need for a more specialist policy, such as the homeworking policies
discussed in chapter 5.
A4H Security
Insurers will want full information about how the property is secured. In certain postcode
areas, cover will only be granted where minimum standards of security are met. Typically
these would be:
Chapter 7

• the final exit door to be fitted with a five lever mortise deadlock;
• security bolts or a five lever mortise deadlock to be fitted to all other doors;
• window locks to be fitted on ground floor and basement opening windows and accessible
windows or fanlights on upper floors; and
• all such security devices to be used whenever the house is left unattended.
A higher standard of security including, for example, fitting an alarm may be required for
some risks. This may apply if:
• a high contents sum insured is requested, or where there are valuable items to be
insured;
• the proposer has a poor claims history;
• the property is frequently left unoccupied; or
• the property is located in a particularly high risk postcode area.
Failure to meet these security requirements may lead to a claim being rejected or,
alternatively, an increased excess applied.
Where specific security requirements do not apply insurers may give premium discounts if:
• the proposer has voluntarily had a burglar alarm fitted; or
• the proposer belongs to a neighbourhood watch scheme.
A4I Sum insured
Based on the factors identified above, insurers will calculate a premium rate which will be
applied to the overall sum insured on buildings and contents. Household buildings cover is
rated using a range of risk factors. Statistical analysis using computer programs allows the
process to be automated for the majority of risks. Postcode rating enables insurers to take
Chapter 7 Risk assessment and underwriting 7/9

account of the claim statistics for a number of perils for a particular location. Environmental
mapping is used by most insurers to make this process more accurate. In Calculation of
sums insured on page 7/10 we will look in more detail at how the sum insured should be
calculated.

A5 Application verification
Developments in IT and ready access for insurers to a range of databases enable third party
sources to be used in relation to the data that is captured to validate the risk, as part of the
risk assessment and underwriting process. This includes non-insurance sources such as the
electoral roll, postcode information, vehicle registration data and credit reference agencies,
as well as insurance specific databases such as the Claims and Underwriting Exchange.
This enables insurers to underwrite risks more accurately and to identify and resolve
discrepancies before a quotation is produced. It is also seen as key in the industry’s attempts
to tackle fraud at the front end; in other words, at the point of application.
However, in the light of the Consumer Insurance (Disclosure and Representations) Act
2012, insurers must make sure that they are using such third party information sources
effectively. An insurer can no longer repudiate a claim based on information not disclosed by
the proposer at the application stage if the insurer could reasonably have accessed the
information themselves.

A6 Additional discounts
The market for household insurances is very competitive. Insurers have identified a number
of ways to discount their products to make them more attractive to potential customers.
Discounts may be available for:
• Voluntary excesses: compulsory policy excesses (of between £25 and £250) are used by
insurers to reduce the number of small claims made. If the insured agrees to take a
voluntary excess in addition, clearly the risk to insurers is reduced.
• Purchasing cover over the internet: this reduces the cost to insurers of providing cover.
Discounts of 20% are typically available.
• Introductory discounts: these can be used to attract new customers, by offering a
percentage reduction in premium for the first year of cover.

A7 Non-standard risks

Chapter 7
For certain types of risk the information provided on the proposal form may not be sufficient
for insurers to adequately assess the risk and supplementary information may be required.
Examples of such non-standard risks include:

Houses located in If insurers are willing to consider providing cover they will ask for completion of a
areas subject to subsidence questionnaire, giving details of the make-up of the ground on which the house is
subsidence built, whether there are any underground workings, whether other local properties have
suffered damage and details of the height of and distance from any nearby trees. Where the
house to be insured has itself suffered subsidence damage, insurers will also want to see a
surveyor’s report on the property, to establish what remedial work has been carried out.
With this information the underwriter can make their decision on whether or not to offer
cover. Any cover which is offered may be subject to special terms such as an increase in
premium and/or a large excess.

Thatched These present a higher risk from fire and storm damage. Insurers will want details of the
properties types of thatch and confirmation that electrical wiring is kept up to date and regularly
maintained. A fire survey of the property carried out by the insurer’s surveyor will generally
be required. Other positive features that reduce the risk to insurers include, where possible,
using a fire-resistant barrier to separate the roof void from the thatch and spraying the
thatch with a fire-retardant coating to reduce the risk of fire.

Unoccupied Such properties are more vulnerable to losses, such as malicious damage and escape of
properties water. In addition, if a loss occurs this will not be noticed immediately and may result in
greater loss. Cover is likely to be limited to fire, lightning, explosion and earthquake only.
Insurers will require confirmation that the property is inspected regularly, perhaps once a
week, and this will become a policy condition. It may also be an underwriting requirement
that the water, gas and electricity are turned off at the mains, particularly if cover for any
wider perils is to be considered.
 7/10 IF6/October 2020 Household insurance products

A8 Surveys
For the majority of household risks, completion of a proposal form or statement of fact will
give insurers sufficient information to adequately assess the risk. However, for some
particularly high risks insurers may need to supplement the information gathered on the
proposal form by carrying out a survey. The types of risks where this may be necessary
include:
• large country properties;
• property which is particularly exposed to storm or flood damage;
• where the contents sum insured exceeds a certain figure. This could be, for example,
£100,000 in a rural area or £75,000 in an urban area;
• where the amount of valuables to be insured is high;
• where there is a poor claims history. This could be due to a series of losses or a single
large incident; and
• where the property is of non-standard construction.

Example 7.3
Charles applies to take out insurance with the ABC Insurance Company on his 18th
century country mansion. Before confirming whether they can provide cover and the terms
which will apply, insurers will need to carry out a survey because:
• big country properties may contain large amounts of wood used in staircases, wood
panelling and even the external walls, increasing the fire risk. The fire risk is also
increased because such properties are often isolated without a ready supply of water
for the fire brigade to use; and
• the value of contents and valuables is likely to be high. Insurers will want to establish
details of any security measures which exist and may make requirements or
recommendations for improvements.

After visiting the property the surveyor will prepare a report which is passed to the
underwriter to assist in assessing the risk. The survey report will be divided into a number of
sections covering the following aspects:
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A full description of This will include the location, construction and occupation of the property, together with
the risk details of values at risk and any security measures that exist.

An overall assessment The surveyor will give an opinion on whether, taken as a whole, the risk is good or bad,
of the level of risk and whether or not the underwriter should be offering cover.

Recommendations for These are steps that the proposer will be asked to take to protect the risk and prevent
risk improvements future losses. In Specific information regarding the risk to be insured on page 7/6, we
noted the circumstances in which an underwriter will request that an alarm is fitted and
used. Where there is a high value of items such as jewellery, insurers may also require
that these are kept in a safe when not being worn. Insurers will advise the insured on
an acceptable make and model of safe depending on the values at risk. This section of
the report will be particularly important where the survey is being carried out because of
a poor loss record.

A view on the While the fixing of the sum insured is the responsibility of the insured, this provides an
adequacy of the opportunity for insurers to identify any under-insurance.
proposed sum insured

On receipt of the report the underwriter will consider its contents and decide whether or not
to offer cover, and if so what terms and premium should apply.

B Calculation of sums insured

The sum insured is a fundamental rating factor; a rate is applied to this figure to calculate the
premium. It is therefore very important that the figure is correct so that the insurer receives
the right premium for the risk. It is also important if the insured is to receive a full settlement
in the event of a loss.
The sum insured applicable to a policy will depend upon the basis of cover.
Chapter 7 Risk assessment and underwriting 7/11

B1 Basis of cover
There are two alternative ways in which cover can be arranged:

Indemnity New for old

When a claim is settled a deduction is made for wear In the event of a claim, no deduction is made for wear
and tear (depreciation). The measure of indemnity is the and tear or depreciation. Where repair is possible the
value of an item of equivalent type, age and condition. cost of the repair is paid in full. Where an item is lost,
stolen or destroyed, an equivalent new replacement will
be provided. The only exception to this is for clothing
and household linen. For these items, a deduction will
always be made because they have a much shorter
lifespan and will often include items that are no longer
worn/used.

It is now usual for policies to be issued on a new for old basis, although the insured can opt
for an indemnity only policy where there are specific reasons why this would be more
appropriateD.
Depending upon the basis of cover selected, the sum insured should be calculated
accordingly. For most customers this is on a new for old basis, where sums insured should
represent the following:
• For buildings – the rebuilding cost of the property. This should include the cost of
demolition, site clearance, costs of complying with local authority requirements and
architects’, surveyors’ and engineers’ fees. The rebuilding cost should not be confused
with the market value for which the property was purchased or could be sold. Many
insurers produce guides for customers to help them calculate this figure, based on
average rebuilding costs for varying types of property in different parts of the country.
Where there is any doubt about the rebuilding cost, the insured should consult an
independent chartered surveyor.
Where there is a mortgage on the property, the mortgagee may specify a minimum figure
for which the property must be insured so that their financial interest in the property is
fully protected.
• For contents – the cost of replacing all items as new (but making a deduction for wear
and tear on clothing and household linen). Again many insurers have guides to assist

Chapter 7
clients, based on the number of different types of rooms in the property. Any individually
valuable items (for example, in excess of £1,500 or £2,000 for some insurers) need to be
identified, as these will need to be separately specified under the personal possessions/
‘all risks’ section of cover. A professional valuation may be required by insurers for
these items.
To help the insured overcome the difficulties in calculating an adequate sum insured, some
insurers have introduced automatic minimum sums insured, which should be adequate for
most policyholders. These, for example, provide automatic cover of £500,000, or even £1
million, on buildings. Some insurers offer unlimited cover on buildings.

B2 Index-linking
Having established an accurate sum insured at the outset, it is important to keep this figure
up to date. The majority of household policies are index-linked meaning that sums insured
are automatically increased in line with inflation based on a standard index. The most
commonly used indices are:
• buildings – the House Rebuilding Cost Index prepared by the Royal Institution of
Chartered Surveyors; and
• contents – the Consumer Durables section of the Retail Prices Index prepared by the
Office for National Statistics.
Sums insured are adjusted monthly in line with the percentage change in the relevant index.
At renewal, the total percentage increase since the previous renewal is incorporated in the
sum insured shown on the renewal notice, and the premium adjusted accordingly. There is
no charge for any increase between renewal dates.
Index-linking ensures that sums insured are kept reasonably up to date. However, the
responsibility to ensure the accuracy of sums insured remains with the insured who should
 7/12 IF6/October 2020 Household insurance products

review them on a regular basis. Specific amendments to sums insured will be necessary
where any alterations are made to the building (for example, the addition of a conservatory),
or the acquisition of new contents items (for example, the purchase of a home entertainment
system).

Question 7.2
What are the advantages of index-linking to insurers and the insured?

B3 Insurance premium tax

Insurance premium tax (IPT) is a tax on general insurance premiums. There are two rates:
• a standard rate of 12%; and
• a higher rate of 20% for :
– travel insurance,
– electrical appliance insurance, and
– some vehicle insurance.

Question 7.3
When insurance premium tax is charged on a household insurance premium of £200,
the amount of tax payable is:
a. £12. □
b. £24. □
c. £35. □
d. £40. □

C Renewals
Household policies are usually issued for a period of twelve months. While there is no legal
Chapter 7

obligation on either the insured or the insurers to renew at the end of this period, in the
majority of cases insurers will be keen to retain the business. It is more cost-effective for
them to maintain the client base of existing customers, than to incur expenditure on
advertising and setting up new policies to secure new customers.
Insurers must ensure that their renewal processes comply with any regulatory requirements.
Under Financial Conduct Authority (FCA) rules firms must take reasonable steps to ensure a
customer is given appropriate information about a policy ‘in good time’, and in a
comprehensible form so that the customer can make an informed decision about the
arrangements proposed. This applies pre-conclusion and post-conclusion, and so includes
renewals. Accordingly, in advance of renewal the insured will be sent a renewal notice, either
by the direct insurer or the intermediary, inviting renewal of the policy.
In April 2017, new regulatory rules were introduced by the FCA, which affect personal
insurances. These changes were introduced following an FCA consultation into concerns
about levels of consumer engagement and their treatment by firms at renewal, and the lack
of competition that resulted from this. The consultation concluded that price increases were
not transparent at renewal and that long-standing customers were paying more than new
customers for the same insurance product. This meant consumers often defaulted to renew
products that were not good value or had become unsuitable for their changing needs.
As a result of these rules, when inviting renewal, firms are required to:
• show the current premium (including any mid-term changes) alongside the renewal
premium;
• provide information to encourage customers to check their cover, and consider shopping
around for the best deal; and
• identify those customers who have renewed with them on four consecutive occasions and
provide them with additional messaging on shopping around.
Chapter 7 Risk assessment and underwriting 7/13

In addition, the renewal notice will usually contain the following information:
• The renewal date of the policy.
• Where premiums are paid by direct debit, the revised instalment amounts are also
shown.
• Any amendment to the sum insured due to changes caused by index-linking. The renewal
invitation will also remind the insured to check that this revised figure is adequate.
• Any changes to the policy cover or excesses.
• A reminder to the insured of their duty to disclose any material facts which have changed
since the last renewal date.
• Guidance on how to renew the policy.
For the majority of risks the renewal terms will be automatically generated by the insurer’s
computerised underwriting system. Where the insured discloses material facts which
significantly change the risk, or where there have been claims during the year, policies may
need to be individually reviewed. This may lead to an increase in premium or additional
terms being applied, such as increased excesses. In extreme cases the insurer may decide
that they no longer wish to cover the risks and will decline to invite renewal.
Where the premium is paid by direct debit, the insured does not need to take any specific
action to renew the policy, unless there have been changes to the risk which need to be
reported to the insurers. Otherwise the policy will be renewed automatically and a revised
policy schedule sent to the insured shortly after the renewal date.
For other payment methods the insured must contact the insurer or their intermediary to
confirm their intention to renew and make the necessary payment prior to renewal date. A
renewal schedule will then be sent to them to finalise matters. Household insurance is an
annual contract and has days of grace, so that the consumer has typically a 30-day grace
period in which to renew.

D Other personal insurances

In Risk assessment on page 7/2 we examined the risk assessment process for general
household risks. In chapter 4 we identified that there are certain household risks which are
usually offered as separate policies. We will now briefly consider risk assessment in relation
to these risks.

Chapter 7
D1 Caravans
The key information required to assess the risk is:
• the make, model and manufacturer of the caravan. This is required to accurately identify
the property insured;
• the sum insured, which should represent the new replacement or the market value of the
caravan, dependent upon whether cover has been arranged on a new for old or
indemnity basis, respectively. The premium is calculated by applying a rate to the total
value of the caravan and its contents;
• the address at which the caravan is normally kept. Rating of the risk will be based on the
postcode;
• whether the caravan is used by friends and relatives because this may increase the risk
exposure. If the caravan is let out for hire or reward, this is not usually covered;
• the security on the caravan. Many insurers insist on the use of a wheel clamp and/or hitch
lock; and
• the use of the caravan. For example, insurers will want to know if it is used as a touring
caravan, located on a fixed site or used as a permanent residence. Some insurers will
only cover touring caravans. Where wider cover is available for other types of use, this
will need to be reflected in the premiums charged.

D2 Travel
The premium charged will reflect the length of trip and the countries visited. In chapter 4 we
identified the different bands of geographical limits that are used by insurers when
calculating premiums.
 7/14 IF6/October 2020 Household insurance products

Additional premiums will be charged to provide cover for taking part in hazardous pursuits.
Age may also be a rating factor, with discounts for children and increased premiums for
those over a specified age. The age at which premiums begin to increase varies from one
insurer to another, and may be anywhere between the ages of 60 and 70.

D3 Pets and horses

The key information required to assess the risk includes:
• the name, breed, age and sex of the animal, together with any distinguishing colours or
markings for identification purposes. Age may also be an underwriting factor because
some insurers will not cover animals over a certain age; and
• the history of any illness or injuries. If any are disclosed a veterinary certificate may be
required before cover can be confirmed.
In addition, for horses and ponies insurers will require details of:
• the sum insured. This should reflect the current market value of the animal and is the
maximum that will paid out in the event of a claim for death from accident or illness. No
sum insured is required for cats and dogs as cover is subject to standard limits; and
• the use of the animal. In particular, insurers will want to know:
– if the horse is used by anyone other than the insured or family members, and
– whether the horse is used for hacking, shows, jumps, hunting or racing.
Both features represent an increased risk to insurers.
The premium payable per animal will reflect the sections of cover required and the value of
the animal.

D4 Mobile phones
The key information required to assess the risk includes the make and model of the phone
and its value. In addition, insurers may impose the following eligibility criteria:
• The age of the phone. Some insurers will only cover phones up to six months old while
others insure handsets up to three years old.
• The age of the user. Typically cover is only provided for those aged 16 or 18 and over.
These risk assessment factors are used by insurers to establish a flat monthly premium
Chapter 7

per phone.

E Special risks
In chapter 5 we looked at the specialist policies for homeworking, holiday homes, blocks of
flats and shared and rented homes.
In doing so we covered the key underwriting considerations and it is not necessary to
consider these further in this chapter.
Chapter 7 Risk assessment and underwriting 7/15

Key points

The main ideas covered by this chapter can be summarised as follows:

Risk assessment

• The insurer will want to carry out a risk assessment before agreeing to provide
insurance cover. To do this the customer must provide specific information on which
the insurer can base their decision.
• There are various ways of gathering the risk assessment information, including
proposal forms, and now more commonly statements of fact and eligibility statements.
• Insurers will need to gather both general facts concerning the insured and specific
information regarding the property to be insured.
• Insurers are able to check the accuracy of information provided by the insured
regarding their claims history through the Claims and Underwriting Exchange (CUE)
database. This is a central database shared by insurers containing information on most
personal lines claims.
• Insurers will look for confirmation that the property is of standard construction and in a
good state of repair and will be kept in good condition. Standard construction means
that the house is built of brick, stone or concrete, and roofed with slate, tile, concrete,
metal or asphalt.
• In certain postcode areas, cover will only be granted where minimum standards of
security are met.
• For certain types of non-standard risk the information provided on the proposal form
may not be sufficient for insurers to adequately assess the risk and supplementary
information may be required. For some particularly high risks insurers may need to
supplement the information gathered on the proposal form by carrying out a survey.

Calculation of sum insured

• It is very important that the sum insured is correct so that the insurer receives the right
premium for the risk and the insured receives full settlement in the event of loss.
Calculation of the sum insured applicable to a policy will depend upon the basis of
cover; indemnity or new for old. The majority of household policies are index-linked

Chapter 7
meaning that sums insured are automatically increased in line with inflation based on a
standard index.

Renewals

• In order to maintain the relationship with the customer, it is important that the insurance
company acts proactively in inviting the customer to renew their policy. For the majority
of risks this will be an automated process.
• The FCA requires that the renewal process ensures that a customer is given
appropriate information in good time and in a comprehensible form so that a customer
can make an informed decision about the arrangements proposed.

Other personal insurances

• Specific risk assessment factors are used by insurers for other personal insurance
risks which are usually offered as separate policies (e.g. caravans, travel, etc.).
 7/16 IF6/October 2020 Household insurance products

Question answers
7.1 Where the property is not of standard construction, there is likely to be an increased
risk of fire or storm damage. This would be true for example, for a thatched cottage
or if the house is timber-built.

7.2 For insurers, under-insurance is reduced and the process of amending sums
insured at renewal is streamlined and automated.
For the insured, adequate cover is maintained without the need to take any specific
action (although sums insured should still be checked on a regular basis).

7.3 b. £24.
Chapter 7
 Chapter 7 Risk assessment and underwriting 7/17

Self-test questions
1. The general information gathered by insurers when assessing a household risk
includes:
a. The risk address. □
b. The age of the property. □
c. Previous 'unspent' convictions. □
d. The ownership of the property. □
2. A proposer approaches an insurer for a quotation for household insurance and
discloses that the property is built on a flood plain. The insurer would consider this to
be:
a. A moral hazard. □
b. An uninsured peril. □
c. A specific peril. □
d. A physical hazard. □
3. When an insurer issues a renewal notice to a policyholder, what legal process does
this represent?
a. An offer. □
b. Acceptance of an offer. □
c. Consideration. □
d. Ratification. □

Chapter 7
4. What long-standing insurance principle was abolished by the Consumer Insurance
(Disclosure and Representations) Act 2012?
a. The principle of contribution. □
b. The principle of indemnity. □
c. The need for consumers to volunteer information that a 'reasonable insurer' would □
consider relevant.
d. The need for insurers to disclose relevant information to a consumer before the □
contract is entered into.
5. What is the main reason that an insurer would require to survey a property?
a. To assess the risk. □
b. To calculate the sum insured. □
c. To check claims experience. □
d. To check for moral hazard. □
 7/18 IF6/October 2020 Household insurance products

6. Under the buildings section of a household insurance policy, the sum insured must
be based on the:
a. Market value. □
b. Mortgage amount. □
c. Purchase price. □
d. Rebuilding cost. □
7. Between annual renewal dates on an index-linked household insurance policy, what
normally happens to the sum insured and the monthly premium?
a. Neither the sum insured nor the monthly premium is increased during the period. □
b. The sum insured remains level but the monthly premium increases in line with □
the index.
c. The sum insured increases in line with the index, but the monthly premium □
remains level.
d. Both the sum insured and the monthly premium increase in line with the index. □
8. In relation to a household insurance policy, what are days of grace?
a. A specific period after the expiry of the policy when the premium can still be paid □
and cover continues uninterrupted.
b. A specific period after the policy has been taken out when the policyholder can □
change their mind and cancel the policy.
c. A specific period of free insurance given to the policyholder as an incentive to □
renew the policy.
d. A specific period of notice that the insurer is required to give the policyholder □
before cancelling the policy.
9. What are the two main factors affecting premiums charged to a young couple for
travel insurance?
a. The countries visited and the nationality of the couple. □
Chapter 7

b. The length of the trip and the type of transport used. □

c. The countries visited and the type of transport used. □
d. The countries visited and the length of the trip. □
10. What is the sum insured for a pony based on?
a. An auctioneer’s valuation. □
b. The cost of replacement. □
c. The market value. □
d. The purchase price. □
You will find the answers at the back of the book
 Claims procedures
8
Contents Syllabus learning
outcomes
Introduction
A Role of the insured 7.1, 8.1
B Role of the insurer 7.1, 7.2, 7.4, 7.5, 8.1
C Civil Procedure Rules 7.4, 8.1
D Fraud 7.3, 8.1
E Dealing with disputes 7.5, 8.1
Key points
Question answers
Self-test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the principles for establishing the validity of a claim;
• describe the claims handling procedures specific to household insurances;
• explain fraud prevention and detection measures and their operation;
• describe how regulatory and legislative rules apply to the claims process;
• explain complaints handling procedures and dispute resolution; and
• apply claims handling procedures within the context of household insurance products to a
given set of circumstances.

Chapter 8
 8/2 IF6/October 2020 Household insurance products

Introduction
When a customer takes out an insurance policy it is an ‘intangible’ product that is purchased
because the value of the product will not be known until a claim arises. It is only then that the
insured will be able to test whether the insurer can provide the service promised. It is very
important, therefore, that insurers have in place effective procedures to ensure that claims
are met fairly and promptly. In this chapter we will examine these procedures.

Key terms
This chapter features explanations of the following terms and concepts:

ABI domestic ABI personal effects Arbitration Art Loss Register

subsidence contribution (ALR)
agreement agreement
Civil Procedure Claims and Claims inspector Cognitive
Rules Underwriting interviewing
Exchange (CUE)
Contribution Data matching Express duties Financial
software Ombudsman Service
(FOS)
Implied duties Insurance Fraud Insurance Fraud Insurance Fraud
Bureau (IFB) Investigators Register (IFR)
Group (IFIG)
Insurance Fraud Loss adjuster Loss assessor Onus of proof
Taskforce
Reinstatement Salvage Subrogation Voice stress
analysers

A Role of the insured

A1 Onus of proof
When a potential claim arises, initially the onus of proof falls on the insured. It is the duty of
the insured to prove their loss. In particular, the insured must prove the following:

That an insured peril arose The amount of the loss

The insured must show that they have suffered a loss The policyholder must prove both that they have
Chapter 8

directly caused by a peril, which is insured by the policy. suffered a financial loss and the amount of that loss.
For example, the insured must show that damage to a The insured cannot simply claim for a lost or damaged
roof was due to storm and not just wear and tear. item without proving the value of the item. This proof
may take the form of a purchase receipt, a repair
account or valuation.

Having satisfactorily demonstrated the above, responsibility then shifts to insurers to either
meet the claim or prove that an exception applies. We will look at this process in Role of the
insurer on page 8/5.

A2 Insured's legal duties

In proving their loss there are certain legal duties which the insured must comply with. These
can be divided into:
• implied duties; and
• express duties.
If these duties are not fulfilled a claim will be invalid and may be repudiated (turned down) by
insurers.
Chapter 8 Claims procedures 8/3

A2A Implied duties

These are unwritten duties imposed by common law. They must be complied with even if
they are not written into the policy wording. For example, the law requires that the insured:
• should act as though they are uninsured and take all reasonable steps to minimise their
loss. For example, following a burglary the insured must make certain the house is
secure by replacing or boarding up damaged windows and doors to prevent any further
losses;
• should advise the appropriate authorities. In the event of a fire, the fire service should be
notified, or the police in the event of theft;
• must take all reasonable steps to prevent a loss from spreading. For example, taking
steps to extinguish a fire as soon as possible; and
• must not hinder insurers in the claims investigation process. For example, the insured
should not dispose of any damaged items before insurers have the opportunity to
inspect them.
A2B Express duties
Express duties are duties which are specifically written into the contract and are usually
found in the general policy conditions. Some reinforce or modify the implied duties noted
above and are a contractual requirement, as well as common law. An example of this is the
requirement to notify police of theft losses. Others place additional duties on the insured over
and above common law requirements, such as the time scales within which claims must be
notified.
Among the many general conditions which appear on a household policy there will always be
a specific claims condition. This places a number of requirements on the insured, including
the following:

Notification Most household policies require the insured to notify the insurer of a loss as soon as
reasonably possible after the incident to ensure that there is no delay or
disadvantage in their investigation of the claim, or in seeking a recovery. Notification
must be followed by full particulars of the claim in writing.
Special considerations apply in connection with liability claims where there is a
requirement to send to insurers unanswered any letter, claim, writ or summons in
connection with any claim or potential claim immediately it is received. This is to
ensure that the policyholder does not prejudice the claim by, for example, admitting
liability prior to the insurer investigating whether any legal liability actually exists. It
also allows insurers to arrange a suitable defence if necessary and is particularly
important in the light of the Civil Procedure Rules discussed in Civil Procedure Rules
on page 8/12.

Notification to other Household policies require immediate notification to the police of any loss or damage
authorities by theft, malicious damage, riot or civil commotion, or if property has been lost

Chapter 8
outside the home. By requiring the insured to inform the police it helps to prevent
fraud and may enable the speedy recovery of stolen property.
Where the claim is for loss of credit cards under the money section of the policy, the
claim must be reported to the issuing authority immediately. This will help prevent
further fraudulent use of the credit card.

Proof of loss or damage The insured is required, at their own expense, to provide sufficient substantiation of
the claim as insurers may reasonably require. This may include provision of written
estimates, quotations, proofs of ownership and value or confirmation of the cause of
loss or damage.

A3 Notification of losses in practice

A3A Initial notification
We identified above that the claims condition requires the insured to notify insurers of a loss
as soon as reasonably possible. It is usual for this initial notification to be made by telephone
because this is the quickest and easiest means of communication. Many insurers now
include details of freephone telephone numbers within the policy document. These numbers
are manned for 24 hours, every day of the year for the reporting of losses. The insured is
usually encouraged to use this facility to report a loss, even where the business is placed
through an intermediary. It is also possible to register a claim online.
 8/4 IF6/October 2020 Household insurance products

A3B Claim forms

More and more insurers now prefer to register the claim fully over the telephone through the
use of carefully selected questions. Freephone telephone numbers are available. Some
insurers may still require a claim form to be completed. The claim form guides the insured as
to the information required through a series of standard questions. It is also possible to
register a claim online.
All the relevant details of the loss are fed into a computer system, which produces a fully or
partially completed claim form containing all the details supplied by the policyholder. This
document is then forwarded to the policyholder to check, sign and return to the insurer.
Some insurers have dispensed with the need for a claim form for straightforward and smaller
losses.
Some insurers refer to their claim forms as report forms or incident forms, but the purpose is
the same.
Whatever method is used to notify the loss, the information required will include:
• Claimant’s details such as name, address, contact telephone number and policy
number.
• Date, cause and circumstances of loss. This will enable insurers to take an initial view
on whether the claim appears to be covered by the policy. If it is clear that there is no
cover then it is better that the insured is advised of this at the outset. This prevents
raising the claimant’s expectations unjustifiably, which could lead to a complaint if the
claim is subsequently turned down. One advantage of telephone notification is that a
claim can be dealt with effectively by the claims adviser at the start of the process.
Where the claims condition requires notification to the police, insurers will also ask for the
crime reference number, to ensure that the policy condition has been complied with. The
reference number enables insurers to check the circumstances of the loss with the police,
and to register their interest should any property be recovered after they have settled
the claim.
• Estimated amount of loss. It is important from the outset that an estimate is made to
enable insurers to put a reserve on the claim, in order to ensure that sufficient funds are
available to meet expected claims costs. This figure may also influence the way in which
insurers handle the claim because they are more likely to involve experts, such as loss
adjusters on large claims.
The insured will be asked to substantiate the amount claimed by supplying evidence such
as receipts and invoices, or photographs that confirm the make and model of the item.
• Occupancy of the premises. For example, insurers will want to know whether the
premises were unoccupied or tenanted at the time of the loss. We have already seen how
this will affect policy cover in earlier chapters.
Where the premises are unoccupied or tenanted, insurers will also want to check whether
Chapter 8

they have been previously notified of these facts. If there has been non-disclosure it may
lead to voiding of the policy (cancelled from the date of non-disclosure) and the claim
being turned down.
• Any other interests in the property. There may be a mortgage on a house, in which
case it will be necessary to notify the mortgagee and to take into account their financial
interest in settling the claim. Similar considerations would apply to a caravan policy,
where there may be an outstanding loan or hire purchase agreement.
• Any other insurances. If for example, the claim is for personal possessions lost or
damaged while on holiday, there may be a travel policy in force which also covers the
loss. The household insurer will want to consider whether it is appropriate to seek a
contribution from the travel insurer.
The above points summarise the main information needed to make a claim under a
household buildings and/or contents policy, or one of its associated extensions. Where a
claim is made under one of the other types of personal insurance products (such as caravan,
travel, or pets and horses) additional information may be required which is specifically
relevant to that type of policy. For example, under a caravan policy, insurers may want to
know the address of where the caravan can be inspected. For a claim under a pet policy,
insurers will want to know details of the vet who has treated the pet. There may be a section
Chapter 8 Claims procedures 8/5

of the form which the vet must complete, giving the details of any injury or illness, the history
and any treatment given.

B Role of the insurer

B1 Responsibilities of insurers
In Role of the insured on page 8/2 we identified that initially the onus of proof is on the
insured to prove their loss. Once a loss has been satisfactorily demonstrated, responsibility
shifts to insurers to either meet the claim or prove that an exception applies. For a claim to
be valid insurers will need to establish that:
• cover was in force at the time of the loss. In particular, insurers will check that the
premium has been paid. If it is still outstanding, they will request payment before dealing
with the claim.
• the claimant is either the insured person(s) named in the policy, or a person who is
entitled to indemnity. For example, in chapter 2 we noted that a household contents policy
covers ‘household possessions belonging to the insured or any members of their
household…’.
• the loss was caused by an insured event, that it is one of the perils or events listed in the
policy. This would be particularly relevant, for example, where the loss has been caused
by accidental damage. You will recall that this is an optional extension to the buildings
and contents sections of a household policy.
• the insured has taken reasonable steps to minimise the loss. This could for example
include, turning off the water supply at the main stopcock where the insured has suffered
escape of water from a burst pipe.
• all conditions have been complied with. This could be relevant to theft losses where cover
has been granted provided that all windows have been fitted with key operated locks.
• the principle of good faith has been complied with. This will involve checking the details
supplied in relation to the claim against those originally supplied when taking the policy
out. The requirements of the Consumer Insurance (Disclosure and Representations)
Act 2012 must be taken into account. This Act was covered in The Consumer Insurance
(Disclosure and Representations) Act 2012 on page 7/3.
• no exceptions are appropriate. For example, if a property is unoccupied for more than 60
days, the perils of theft, malicious damage, escape of oil or water and breakage of
sanitary fittings are not covered.
• the value of the loss is reasonable.
Dependent upon the extent to which these requirements are met, the claim will be:
• settled in full by insurers, if all the requirements are fully met; or

Chapter 8
• settled in part by insurers. For example, if there is a policy excess this must be deducted
from any settlement. Insurers will also exclude any property not falling within the definition
of property insured; or
• repudiated by insurers. This would apply if, for example, a policy condition had not been
complied with or there had been deliberate non-disclosure.

B2 Policy conditions
In Express duties on page 8/3, we examined the claims condition and how it affects the
insured’s role in the claims process. The claims condition also impacts upon the role of the
insurer by specifying the following rights:
 8/6 IF6/October 2020 Household insurance products

Rights of entry Insurers have the right to enter any building where any loss or damage has occurred.
This is important if the claim is to be properly investigated. For example, a
policyholder who submits a claim for redecoration of their living room following water
damage caused by a burst pipe, must allow insurers to inspect the damage.

Salvage Following settlement of a claim any salvage becomes the property of insurers. This
may apply where insurers have replaced jewellery, which is subsequently found.

Control and conduct of Insurers maintain the right, in the insured’s name or on their behalf, to take complete
claims control of the defence or settlement of any claim. This is particularly relevant to
liability claims and ensures that any defence is properly conducted.

Subrogation This gives insurers the right to take legal action in the name of the insured, to recover
any claims payments from others who are legally liable for the loss or damage. This
could arise, for example, where fire damage to a house has been caused by a
plumber installing a central heating system. If the plumber failed to take reasonable
care, the household insurers would be entitled to take action to recover any claims
payments from the plumber. The only exception to the insurer suing in their own
name is with the peril of riot, where the insurer will sue in their own name due to time
limitations. You may recall from your earlier studies that the policy condition modifies
the common law position. It gives insurers the right to take action before they have
indemnified the insured, rather than waiting until the claim has been settled.

Contribution This section applies where there is more than one policy covering any lost or
damaged property. For example, a household policy and a travel policy may have
overlapping cover. It ensures that the principle of indemnity is maintained by
preventing the insured from claiming in full from both policies. At common law, the
insured can claim against the insurers in any order and for such proportion of the loss
as they see fit. In particular, the insured may choose to claim in full from one insurer,
leaving that insurer to claim a contribution from the second insurer. The policy
condition amends this common law position and allows an insurer to pay only its
rateable proportion of any loss or damage. The insured must then claim the balance
due from the other insurer. This condition sometimes appears as a separate
condition rather than forming part of the claims condition.

In addition to the claims condition, household policies contain two other conditions that are
relevant to the way in which insurers handle claims: arbitration and fraud.
B2A Arbitration
This condition applies where insurers have accepted the claim but there is a dispute
between the insured and the insurer over the amount (quantum) of the settlement. With
quantum disputes, the arbitration condition provides for the dispute to be referred to an
independent arbitrator appointed by the two parties in accordance with current legal
provisions. The arbitrator's decision will be legally binding on both the insured and the
insurer.
B2B Fraud
For many years household policies included a fraud condition, stating that if a claim was in
Chapter 8

any way dishonest or exaggerated the policy would be void and no claims would be paid
under the policy.
More recently, there was concern that the application of the fraud condition had sometimes
been unduly harsh where the insurer suspected but could not prove fraud. This sometimes
resulted in wrongful accusations of fraud and policies being voided after years of paying
premiums.
In chapter 7 we noted that the Insurance Act 2015 came into effect from 12 August 2016
and applies to insurance contracts placed or varied after that date. This introduced a set of
remedies for fraudulent claims, which aim to be both proportionate and appropriate in
deterring fraudulent behaviour, while also minimising the risk of unfair punishment. The key
provisions are as follows:
Chapter 8 Claims procedures 8/7

There is no liability on an insurer If the insurer finds that a claim is fraudulent, they can reject the claim.
to pay a fraudulent claim.
Any payments already made in relation to the fraudulent claim are recoverable from the
insured.

The insurer has the option to Although the Act provides no definition of fraud, it does make a distinction between a
terminate the contract, but only fraudulent claim and a fraudulent act. A fraudulent act is the behaviour that makes the
from the date at which it became claim fraudulent. It may take place after the initial submission of a claim, affecting its
fraudulent. The option of validity.
avoidance (treating the policy as
if it never existed) has been For example, a genuine theft claim submitted in March would become fraudulent if
removed. items which had not been stolen were added to the claim in April.
If the insurer chooses to terminate the insurance contract, they can refuse liability for all
matters occurring after the date of the fraudulent act and do not have to return any
premiums which have been paid prior to this right being exercised.

Any legitimate losses prior to the If a policyholder makes a fraudulent claim, the insurer is not allowed to withhold any
fraudulent act are protected. outstanding payments from prior legitimate claims.
This is the case even if the contract has been treated as terminated from the time of the
fraudulent claim.

In relation to consumer contracts, part 5 of the Insurance Act 2015 prevents an insurer from
contracting out of its provisions with the effect of placing an insured party in a worse position
than they would have been in under its provisions. Insurers have had to amend the wording
of the fraud condition in their policy wording to reflect the requirements of the Act. A typical
fraud condition will state that:
• The insured must be honest in their dealings with insurers at all times.
• Insurers will not pay a claim that is in any way fraudulent, false or exaggerated.
• If the insured, or any other person insured under the policy, or anyone acting on the
insured’s behalf, attempts to deceive insurers or knowingly makes a fraudulent, false or
exaggerated claim:
– the policy may be cancelled;
– insurers may reject the claim and any subsequent claims; or
– insurers may keep any premium paid.
• If fraud is discovered:
– insurers reserve the right to cancel any other policies and to share information about
the fraudulent behaviour with other organisations to prevent further fraud; and
– insurers may also involve the relevant authorities in order to bring criminal
proceedings.

B3 Investigation of losses in practice

Chapter 8
Once a claim has been notified (as discussed in Notification of losses in practice on page 8/
3), this will be investigated by a claims handler from the insurance company. The role of a
claims handler is:
• to deal with all claims which are submitted, quickly and fairly;
• to be able to distinguish between real and fraudulent claims; and
• to settle claims cost-effectively. For example, it would not be appropriate to appoint a loss
adjuster to investigate a claim if the cost of their fees is likely to be far in excess of the
amount of the loss.
Initially the claims handler will check the details supplied, in accordance with the
responsibilities listed in Responsibilities of insurers on page 8/5.
If the claim is relatively small (typically less than £1,000) and straightforward, the claim will
be settled quickly, providing all the necessary details have been included on the claim form
and the appropriate documentation, such as receipts, is attached.
Some claims cannot be settled straight away and the claims handler will identify that further
investigation is required. This may be simply because the claim is larger and more complex.
It may also be due to the claims history on the policy or because there is a suspicion of
fraud.
 8/8 IF6/October 2020 Household insurance products

Those who can assist in investigating the claim further include:

• Claims inspector. A claims inspector is an employee of the insurer whose role is to
assess insurance losses where further investigation is required. This will often involve
visiting the insured at home to obtain further details of the claim, viewing the damaged
property and confirming the circumstances. For liability claims it may be also necessary to
visit the third party who has been injured, or whose property has been damaged.
• Loss adjuster. An independent professional who is appointed by the insurance company
and paid a fee. Their role is to investigate the claim and liaise with both the insurer and
the insured. Their objective is to obtain a speedy and fair settlement for both parties. This
may, for example, involve:
• Solicitor. On liability claims insurers will usually appoint a solicitor to defend the claim on
the insured’s behalf and will pay any legal costs involved. The solicitor will consider the
circumstances of the claim to determine whether the insured is legally liable and seek
further information where required. The solicitor will ensure that the correct legal
procedures are followed and if appropriate, represent the insured in court. This may be
necessary to repudiate a third party claim where the solicitor does not believe the insured
is legally liable, or where agreement on compensation to be paid to the third party cannot
be reached by negotiation between the parties involved.
• Doctor. Where a claim involves personal injury, insurers will often ask for a medical
report to establish the nature and extent of the injury.
• Vet. A veterinary certificate may be required where a claim is made under an equine or
pet policy, following the death of the insured animal.

Question 8.1
What are the advantages of appointing specialists to investigate a claim?

B4 Legal and regulatory requirements

The way in which claims are handled by insurers and intermediaries must be in accordance
with the regulatory requirements. These are detailed in the Financial Conduct Authority
(FCA) Handbook in its Insurance: Conduct of Business Sourcebook (ICOBS). An insurer
remains responsible for claims handling, even if they have outsourced this function. An
insurer must:
• handle claims promptly and fairly;
• provide reasonable guidance to help a policyholder make claim and appropriate
information on its progress;
• not unreasonably reject a claim (including by terminating or avoiding a policy); and
• settle claims promptly once settlement terms are agreed.
Chapter 8

Where the policyholder is a consumer, there are certain circumstances in which the
rejection of a claim is unreasonable, unless there is evidence of fraud. The following table
shows these circumstances and how they have changed with the enforcement of the
Consumer Insurance (Disclosure and Representations) Act 2012:

Contracts entered into or variations agreed before Contracts entered into or variations agreed on or
6 April 2013 after 6 April 2013

Non-disclosure of a fact material to the risk which the Misrepresentation by a customer, which is not a
policyholder could not reasonably be expected to have qualifying misrepresentation under the Consumer
disclosed. Insurance (Disclosure and Representations) Act 2012.
This is discussed in more detail below.
Non-negligent misrepresentation of a fact material to
the risk.

A breach of warranty or condition unless the A breach of warranty or condition unless the
circumstances of the loss are connected with the circumstances of the loss are connected with the
breach. breach.
Chapter 8 Claims procedures 8/9

Qualifying misrepresentation
Under the Consumer Insurance (Disclosure and Representations) Act 2012, a qualifying
misrepresentation is one made by a consumer before a consumer insurance contract was
entered into or varied where:
• they failed to take reasonable care not to make a misrepresentation to the insurer; and
• the insurer shows that without the misrepresentation, they would not have entered into
the contract (or agreed to the variation) at all or would have done so only on
different terms.
A consumer is expected to exercise the standard of care of a reasonable consumer, taking
into account a range of factors including the type of insurance policy and the clarity of the
insurer’s question. There are two types of qualifying misrepresentations:
• If the misrepresentation was careless, the insurer will have a compensatory remedy
based upon what the insurer would have done had the consumer taken care to answer
the question accurately. If the insurer would have excluded a certain illness, for example,
the insurer need not pay claims which would fall within the exclusion, but must pay all
other claims. If the insurer would have charged more for the policy, it must pay a
proportion of the claim.
• If the misrepresentation was deliberate or reckless, the insurer may treat the policy as if
it never existed and may decline all claims. It will also be entitled to retain the premiums,
unless there was a good reason why they should be returned.
If the misrepresentation was honest and reasonable, it is not a qualifying misrepresentation
and the insurer must pay the claim, in line with the rules outlined in ICOBS.
Under ICOBS, further rules apply to intermediaries, which require them to:
• forward any claim notification promptly to the insurer or inform the policyholder
immediately if it cannot deal with the notification;
• manage conflicts of interest fairly;
• avoid conflicts of interest, unless the circumstances have been disclosed to the customer
and the customer’s prior informed consent to proceed has been obtained; and
• inform the customer if it is acting for the insurer in relation to a claim under a policy
arranged by the intermediary.
In May 2014, the FCA published its report following a review of the management of
household and retail travel insurance claims. This showed that across all of the policyholders
surveyed, 64% were either ‘satisfied’ or ‘very satisfied’ with their experience. However, it also
found a number of areas for improvement, including:
• the recording and use of inbound claims calls (mainly household) to ascertain whether
consumer needs are being met;

Chapter 8
• communication and ownership throughout the claim;
• management of supply chains involving, for example, loss adjusters and preferred
suppliers, in household claims;
• ensuring consumers understand what travel insurance cover is provided in relation to
medical conditions;
• managing consumer outcomes in long chains of delegation;
• the clarity of product documentation in helping policyholders to understand the cover they
had bought.
The FCA’s general requirement to settle claims promptly has been affected by the
Enterprise Act 2016, which came into force on 4 May 2017. This has inserted a new section
(13A) into the Insurance Act 2015 and creates a contractual duty to pay insurance claims
within a ‘reasonable time’. For the first time, policyholders will be able to claim damages if an
insurer breaches the duty, but will have to prove the extent of their losses and connection
with the alleged unreasonable delay.
At the moment there is no guidance as to what constitutes a reasonable time. The Enterprise
Act states that this includes a reasonable amount of time to investigate and assess the
claim, and will be influenced by a number of factors including:
 8/10 IF6/October 2020 Household insurance products

• which type of policy the claim is being made under;

• the size and complexity of the claim;
• the need to comply with any relevant statutory or regulatory rules or guidance; and
• factors outside the insurer’s control.
So, every claim will be judged on its own circumstances. The picture will probably only
become clearer as the legislation is tested by cases progressing through the courts.

B5 Settlement of losses
Once all the required information has been supplied by the insured and insurers have
completed their investigations, all that remains is for the claim to be settled. This is the final
stage of the claims process. Under the terms of the policy wording, insurers can choose to
settle a claim in one of four ways:

Payment of money This is one way of settling claims for loss of or damage to property. It is not
always the preferred option, as we will see below. However, for liability claims it
is the usual way of settling a claim, with the payment made directly to the third
party.

Paying for repairs In the case of partial losses, instead of offering cash settlement, insurers may
opt to repair any damage to the insured item paying the costs directly to the
repairers. Where the repair is fairly common and straightforward, insurers will
often have preferred suppliers who will carry out the work at reduced cost and
to a guaranteed standard. This may be the case when there is damage to the
plumbing installation.
Where the repairs required are more difficult and unusual, insurers often have
links with firms which specialise in such work. The cost of claims is reduced
because they are often able to repair items, avoiding the higher costs
associated with replacement. This may be an option where wine or paint has
been spilt on a carpet.

Replacement Where items are lost, destroyed or damaged beyond economic repair this
option is often used. It would apply, for example, where double glazing units or
electrical goods need replacing. As with the repair option, costs are reduced
because insurers use their bulk buying power to secure discounts. This has
been a growing trend for household insurance in recent years, especially with
jewellery claims.

Reinstatement A further option for insurers in the case of extensive damage or complete
destruction of the buildings is to take control of the repair/rebuilding
themselves. However, reinstatement means accepting responsibility to pay the
full costs even where these exceed the sum insured. Therefore, insurers
seldom take this course of action. It is used for listed buildings and where fraud
is suspected.
Chapter 8

Question 8.2
What are the advantages to insurers of using the repair and replacement options?

B5A Factors limiting payment

In settling some claims insurers will need to make deductions from the final settlement to
take account of the following features of cover:

Sum insured In the case of loss of or damage to property, the maximum amount recoverable is the policy
sum insured. This may be the overall sum insured in respect of buildings and contents
(selected by the insured) or may be a limit within the overall sum insured. This would apply in
the case of specified items where, under the contents section, a limit of 5% of the overall sum
insured or a fixed sum applies in respect of any one item.

Policy excess This is the first part of any claim and is paid by the insured. The excess will be stated in the
policy schedule.

Basis of cover Where cover is on an indemnity basis, deductions will be made for wear and tear. Even where
a new for old household policy is in place, insurance for clothing and household linen is always
on an indemnity basis.
Chapter 8 Claims procedures 8/11

Example 8.1
The flat roof to Charlie’s garage is damaged in a storm and will cost £600 to repair. The
roof was a felted roof which had an anticipated life span of ten years. At the time of loss,
the garage was three years old.
Charlie is insured on an indemnity basis with the XYZ Insurance Company. There is a
policy excess of £100.
In calculating an indemnity settlement, insurers will work out how much of lifespan of the
roof has been used, and deduct this to allow for wear and tear:
• Deduction for wear and tear = 3/10 × £600 = £180.
The policy excess must then be deduced:
• Claims payment = £600 – £180 – £100 = £320.

B5B Claims settling agreements

These agreements are used by insurers to save time and money where more than one
insurer may potentially be liable for a loss, either due to overlapping policy cover, or where
subrogation rights arise. They avoid the need for lengthy correspondence and disputes over
who is responsible.
The claims settling agreements that are particularly relevant to household insurance include:
• ABI domestic subsidence agreement. Subsidence claims can be particularly complex
to administer, not least because the damage often occurs gradually over a number of
years, potentially involving a number of insurers. This agreement sets out which
insurer(s) will be responsible for handling any claim. If a claim is made within eight weeks
of changing insurer, the previous insurer is responsible. Claims made between eight
weeks and one year after changeover are handled by the new insurer, with the cost of
settlement shared equally between the two insurers. Any claims made more than one
year after changeover are dealt with by the new insurer alone.
• ABI personal effects contribution agreement. This agreement is concerned with
personal insurances such as household, personal possessions, motor and travel, where
there are small overlaps in cover which give grounds for contribution between insurers.

Question 8.3
Can you think of an example where such an overlap could arise?

Historically, claimants found they were asked to refer to other insurers for payment of small
parts of their claim. For example, a motor policy may cover personal effects up to, say, £100,

Chapter 8
thus overlapping with a household policy. While technically correct because of the relatively
small amounts involved, this attracted a lot of adverse publicity and criticism. It was costly
and time consuming for insurers to pay such small contribution amounts. The agreement
sets out rules for when contribution will – and more importantly – will not apply between
insurers in such circumstances. For example, where an item is specified on a particular
policy, in addition to being covered by a more general policy, it is the insurer of the specified
item who must meet the costs of any claim.
The agreement sets out rules for when contribution will – and more importantly – will not
apply between insurers in such circumstances.

Example 8.2
Laura’s diamond ring is stolen while she is on holiday. She has a travel policy which
includes cover for baggage and personal effects. The ring is a specified item under the
personal possessions extension to her household policy.
Under the ABI rules the claim will be settled by the household insurer.
 8/12 IF6/October 2020 Household insurance products

B6 Importance of ethical behaviours in delivering positive

customer outcomes
The principles set by the FCA reflect the professional and ethical standards that should
guide those who work in insurance as they go about their day-to-day activities. However, it's
vitally important for an industry that relies on trust for customers to have confidence that they
are dealing with people who are putting their interests first; not because they have to, but
because they believe it's the right thing to do.
Organisations with a record of great customer service, treating every customer fairly and with
respect, build themselves a good reputation; those who don't won't be recommended to
other people.
The CII Code of Ethics provides members of the insurance and personal finance profession
with a framework in which to apply their role-specific technical knowledge in delivering
positive consumer outcomes. Under the fifth 'Core duty' within the Code, members are
required to: 'treat people fairly regardless of: age, disability, gender reassignment, marriage
and civil partnership, pregnancy and maternity, race, religion and belief, sex and sexual
orientation'.

C Civil Procedure Rules

When considering any liability claim for personal injury, the insurer must take account of the
Civil Procedure Rules, which were first introduced in April 1999. Following Lord Woolf’s
review of the civil justice system, a number of changes (the Woolf Reforms) were made to
the civil justice system to make the process of taking legal action through the courts quicker,
fairer, more affordable and accessible. The changes apply to England and Wales only.
The aim of the reforms was to address what Lord Woolf considered to be the key problems
facing civil justice; namely cost, delay and complexity. The overriding objective was to enable
the court to deal with cases justly. This includes ensuring that the parties are on an even
footing, saving expense and dealing with the case in ways which reflect the amount in
dispute, the nature of the case and the parties’ financial position.
The changes in civil justice procedures resulting from the Woolf Reforms were significant
and far-reaching and have since been updated to ensure they remain relevant and fit for
purpose through a number of Ministry of Justice consultations.
Rules are now in place that provide procedures outside the litigation process to encourage
early settlement of claims. These rules take the form of protocols, which set out procedures
to be complied with by the parties and that are subject to clear time limits. One of the most
widely used protocols is the personal injury protocol.
The main changes which have impacted upon insurers and in particular, the claims process
for household insurance products, are:
Chapter 8

• ‘Plaintiff’ has been replaced with the new word ‘claimant’.

• The first step in the process is the preparation of a letter of claim, which must be sent by
the claimant to the defendant.
• The letter of claim must include certain information such as what happened, where and
when it happened, the reasons for alleging fault on the part of the defendant, a
description of the injury and the claimant’s personal and employment details. The
defendant or their insurers have 21 days to acknowledge the letter.
• The second stage of the timetable allows the defendant a further three months in which to
investigate the claim, at the end of which the claimant must be informed, with reasons,
whether the claim will be defended in whole or part, or whether liability will be accepted.
• The protocols stipulate various rules to be followed concerning the disclosure of
documents, nomination of medical experts etc.
• Should it be necessary for the case to proceed to litigation, the claimant issues a
summons (now called a claim form). If the claim is defended, the court will require the
completion of an allocation questionnaire for which an £80 fee is payable.
Chapter 8 Claims procedures 8/13

• On receipt of the completed questionnaire, the court will allocate the case to one of three
tracks, namely:
– small claims track (for cases up to £10,000, or £1,000 for personal injury and housing
claims);
– fast track cases (for cases above £10,000 up to £25,000, or above £1,000 up to
£25,000 for personal injury); and
– multi-track cases (for cases above £25,000, or those involving complex issues).
The Civil Procedure Rules mean that immediate notification of incidents to insurers is
absolutely essential, in view of the timescales which apply. Any delays in the process incur
financial penalties for the insurer and give the claimant the right to commence proceedings
without penalty. It is important, therefore, that insurers have processes in place to ensure
personal injury claims are managed effectively and without delay.

D Fraud
The most recent figures available from the ABI for 2018 highlight the extent of fraudulent
claims activity. They also showed that:
• Insurers detected 107,000 cases of attempted claims fraud, up 5% on 2018.
• These frauds were worth £1.2bn.

On the Web
https://www.abi.org.uk/.../uk-insurance-and-long-term-savings-key-facts

Fraud is a significant problem. The insurance industry is committed to tackling fraud by

allocating more resources more effectively and by using a range of fraud detection
techniques. While detection rates are improving, it is believed a significant number of
fraudulent claims still go undetected, particularly as the sophistication of fraudsters is
increasing.

D1 Industry initiatives
The ABI plays an important role in encouraging collaboration between insurers and other
agencies involved in fighting fraud, such as police forces. This recognises that fraud can be
tackled most effectively by working together on industry-wide initiatives.
In this section we will look at the measures used by insurers to detect and prevent fraud, and
their operation. These include:

Claims and Underwriting Exchange CUE is the central database of motor, home and personal injury incidents
(CUE) reported to insurance companies. Information held on CUE is a powerful

Chapter 8
tool in the fight against fraud. CUE has been expanded to accept data
relating to travel insurance claims with launch of the new platform, CUE
Travel. Membership of CUE includes all major insurers and many self-
insured organisations, such as local authorities. CUE enables members
to access the claims history of an individual when taking out a policy, or
prior to payment of a claim. Customers are made aware at the notification
stage that such a check will be made, with the intention of discouraging
fraudulent claims. CUE is becoming more important as it is increasingly
being used in the quotation and underwriting process, as well as in the
claims process.

Art Loss Register (ALR) This was established in 1990 through collaboration between the
insurance industry and the art world, in response to increasing art theft. It
is the world's largest private database of stolen and missing works of art.
In the event of a claim, any insurer which is a member will record the loss
on the register. The ALR team will then search auction house catalogues
and visit art galleries, dealers and museums to try to locate missing
works of art. The service also works closely with law enforcement
agencies in identifying and recovering stolen works of art.
 8/14 IF6/October 2020 Household insurance products

Insurance Fraud Register (IFR) This was established in 2012 and aims to encourage firms to share
information to prevent fraudsters moving from insurer to insurer in a bid to
deter repeat offenders. Sponsored by the ABI on behalf of all its
members, the register is an industry-owned database enabling insurers to
share information on known cheats. The database will enable insurers to
identify anyone who fails to declare a previous fraudulent insurance
claim. Listed offenders are informed that they are on the IFR.

Insurance Fraud Bureau (IFB) This was launched in July 2006 by the ABI to tackle the growing problem
of organised fraud. It acts as a central hub for sharing insurance fraud
data and intelligence. It also operates a free confidential helpline for the
reporting of information on suspected insurance fraud (Cheatline – 0800
422 0421). It currently receives around 5,500 calls a year.
The IFB launched the Insurance Fraud Intelligence Hub (IFiHUB) in June
2019. This counter fraud intelligence sharing platform went live with
eleven insurers. It will host industry data on suspected fraudsters and
professional enablers.

Insurance Fraud Enforcement This is a specialist police unit established in 2012 and dedicated to
Department (IFED) prosecuting insurance fraudsters. IFED is funded by the ABI and Lloyd’s
of London members. It is tackling established criminality and focuses on
emerging threats, such as illegal insurance advisers (‘ghost brokers’).

Insurance Fraud Investigators This is a members’ organisation dedicated to the detection and
Group (IFIG) prevention of insurance fraud. It is a non-profit making organisation
created to tackle the growing problem of insurance fraud in the UK and to
disrupt insurance fraudsters. Members include insurers, lawyers, loss
adjusters and investigation agencies.

Cognitive interviewing This is essentially a fact-finding exercise carried out over the telephone
which aims to distinguish between the honest and the deceptive claimant.

Voice stress analysers These tools, also known as lie detectors, do not prove conclusively that
claimants are lying. They simply detect changes in the voice which
indicate that the caller may not be telling the truth. They simply highlight
the need for further investigation.

Data matching software Many insurers use software which can search their data for suspicious
matches.

Using alternative methods of We have already identified that insurers can choose to settle a claim by
settlement cash, repair, replacement or reinstatement. Insurers have found that
where settlement is made other than by payment of money, this limits the
opportunity for fraud as well as keeping costs down.

Example 8.3
A former AIG claims handler was jailed for a £390,000 fraud. He had abused his position
to fund his drug habit and was sentenced to two years in jail. The IFED led the criminal
investigation after receiving a referral from AIG. You can read more about it here:
Chapter 8

www.bbc.co.uk/news/uk-england-london-49235499.

The above are resources that can be used if a fraudulent claim is suspected, in addition to
investigation by claims inspectors and loss adjusters as described in Investigation of losses
in practice on page 8/7. Some loss adjusters specialise in investigating fraudulent claims.
The various initiatives taken by the industry seem to be having a positive impact in some
areas. As noted earlier, while the number of fraudulent claims continues to rise, the overall
value of insurance fraud has fallen slightly in recent years.

D2 Government initiatives
The industry fight against fraud was given a boost at the end of 2014 when the Government
announced the formation of the Insurance Fraud Taskforce. It was established to
investigate the causes of fraudulent behaviour and to recommend solutions to reduce rising
levels of insurance fraud. The Taskforce was made up of five bodies: the ABI, the British
Insurance Brokers’ Association, the Insurance Fraud Bureau, the Financial Services
Consumer Panel, the Citizen’s Advice Bureau and the Financial Ombudsman Service (FOS).
The Taskforce produced its final report in January 2016, making a number of
recommendations designed to tackle different types of fraud including organised,
premeditated and opportunistic fraud at the claims stage, as well as application fraud when a
Chapter 8 Claims procedures 8/15

policy is purchased. To take these recommendations forward the Taskforce called on the
Government to establish a body to provide oversight over implementation, as well as to
ensure continued collaboration between different sectors regarding insurance fraud. The
Government has stated that it will do what it can to assist in making sure that all of the
recommendations are actively pursued. However, it has not yet committed to establishing a
formal oversight body.
Another government initiative has led to the passing of the Criminal Justice and Courts
Act 2015. This offers insurers a powerful tool with which to challenge claims for personal
injury. Under section 58, an application can be made to the Courts to dismiss the entire claim
where ‘fundamental dishonesty’ is proven. However, the term ‘fundamental dishonesty’ is not
defined in the legislation.
Although fraud prevention is a real concern for insurers, it is important to maintain a balance
between ensuring that honest customers are paid out promptly and suspicious claims are
thoroughly investigated in order that unscrupulous customers are identified and appropriate
action taken. An effective process which enables the early identification of potentially
fraudulent claims should also enable legitimate claims to be fast-tracked through the system.
Insurance fraud is increasingly taking on an international dimension and is not just causing
problems for insurers but is also an economic drain on society and often has links with other
criminal activities. The insurance industry is committed to improving liaison and
understanding between international agencies and through this is developing initiatives to
tackle the problem.

E Dealing with disputes

While the majority of claims reach a settlement that is acceptable to both insurers and the
claimant, there are some customers who are not happy with the decision reached on their
claim or the service provided and will wish to complain.
Each insurer will have its own complaints procedure that will be designed to meet the
regulatory requirements of the FCA. The FCA also prescribes set time limits for dealing with
a complaint from an eligible complainant (defined in Financial Ombudsman Service (FOS) on
page 8/16):
• all complaints must be acknowledged in writing promptly. The complainant must be kept
informed of the progress of their claim;
• within eight weeks a firm must send the complainant either:
– a final response, or
– a response which indicates when a final response can be expected, together with the
reasons for any delay, and informs the complainant that the complaint may be referred
to the Financial Ombudsman Service.

Chapter 8
Where these procedures still do not lead to a satisfactory outcome, the customer will then
have the option to:
• take their case to arbitration, where the dispute is over the amount of a settlement
(quantum dispute); or
• refer the claim to the Financial Ombudsman Service (FOS).

E1 Arbitration
In Policy conditions on page 8/5 we noted that household policies contain an arbitration
condition. This will operate where there is a dispute over the amount (quantum) to be paid,
insurers having accepted that the claim falls within the cover provided by the policy. It is a
legal process, which is governed by the Arbitration Acts 1950, 1979 and 1996, and
involves the appointment of an independent arbitrator who will look at the merits of the case
and make a judgment. The decision of the arbitrator is final and legally binding on both
parties.
 8/16 IF6/October 2020 Household insurance products

E2 Financial Ombudsman Service (FOS)

The FOS is a free, independent and impartial service that deals with certain disputes
between individual consumers or small businesses and financial organisations. Membership
is compulsory for all authorised firms, including intermediaries.
The full rules and guidance relating to the handling of complaints, and on the operation of the
FOS, are contained in the FCA Handbook in the Dispute Resolution: Complaints (DISP)
sourcebook. The FCA requires all firms to have a written complaints procedure.
From 1 April 2019, the list of eligible complainants includes:
• consumer;
• micro-enterprise with fewer than ten employees and a turnover or balance sheet total of
no more than €2m*;
• charity with an annual income of less than £6.5m;
• trustee of a trust with a net asset value of less than £5m;
• consumer buy-to-let (CBTL) consumer;
• small business with an annual turnover of less than £6.5m and fewer than 50 employees
or a balance sheet total of less than £5m; or
• guarantor.
*(This value is in euros as 'micro-enterprise' is an EU-defined term.)
Before a complainant can take their complaint to the FOS they should have exhausted the
internal complaints procedures within the organisation or intermediary, and still be
dissatisfied with the outcome.
The complainant can refer their complaint to the FOS within the earliest of:
• six months of the date on the firm's letter advising the claimant of its final decision
regarding the complaint;
• six years after the event complained about; or
• three years after the complainant knew, or should have known, that they had cause for
complaint.
The FOS must investigate the complaint and has 90 days to answer the complainant.
However, both parties have a right of appeal to the initial outcome, in which case one of the
panel of ombudsmen will make a final decision.
The FOS will reach a decision based on what is fair and reasonable in all the circumstances,
taking into account the law, FCA rules and guidance and good industry practice, including
relevant ABI statements and codes of practice. The FOS is not bound by the law or legal
precedent and will make a judgment on the merits of each case.
Chapter 8

Redress can be awarded in two ways:

• A 'money award', telling the firm what specific sum of money it should pay the customer
to cover any financial losses they have suffered as a result of the problem they have
complained about. The maximum award the FOS can require a firm to make to a
complainant changed on 1 April 2020. It is now:
– £355,000, plus interest, costs and interest on costs, for complaints about actions or
omissions by firms that occurred on or after 1 April 2019, and were referred to the
FOS on or after 1 April 2020.
– £3500,000 for complaints referred to FOS between 1 April 2019 and 31 March 2020
about acts or omissions by firms on or after 1 April 2019.
– £160,000, plus interest, costs and interest on costs, for complaints about actions or
omissions by firms that occurred before 1 April 2019, but which were referred to the
FOS after this date.
The FOS may recommend a higher figure, but this will not be binding on the firm.
• A 'directions award' telling the firm what actions it needs to take to put things right for its
customer. The decision (with reasons) must be notified in writing to the complainant and
the respondent (the firm about which the complaint is made). The complainant must then
accept or reject the decision within the time limit specified by the FOS.
Chapter 8 Claims procedures 8/17

The decision (with reasons) must be notified in writing to the complainant and the
respondent (the firm about which the complaint is made). The complainant must then accept
or reject the decision within the time limit specified by the FOS.
The FOS is funded by both:
• a general levy paid by all firms; and
• a case fee payable by the firm to which the complaint relates.

Chapter 8
 8/18 IF6/October 2020 Household insurance products

Key points

The main ideas covered by this chapter can be summarised as follows:

Role of the insured

• When a customer takes out an insurance policy it is an ‘intangible’ product that is

purchased. It is very important that insurers have in place effective procedures to
ensure that claims are met fairly and promptly.
• When a potential claim arises, initially the onus of proof falls on the insured who must
prove that an insured peril arose and the amount of the loss.
• In proving their loss there are certain legal duties which the insured must comply with
both implied duties (imposed by common law) and express duties (stated in the policy).
If these duties are not fulfilled the claim will be invalid.
• The claims condition in the policy requires the insured to notify insurers of a loss as
soon as reasonably possible. It is usual for this initial notification to be made by
telephone. It is also possible to register a claim online. Completion of a claim form is a
way for the insured to provide full details of the claim in writing. Some insurers have
dispensed with claim forms on smaller and straightforward claims.

Role of the insurer

• Once a loss has been satisfactorily demonstrated, responsibility shifts to insurers to

either meet the claim or prove that an exception applies. The claim may then be settled
in full by insurers, or settled in part by insurers, or repudiated by insurers.
• The claims condition in the policy gives the insurers a number of rights when
investigating and settling a claim.
• Claims will be investigated by a claims handler from the insurance company, whose
role is to deal with all claims which are submitted, quickly and fairly, to be able to
distinguish between real and fraudulent claims and to settle claims cost-effectively.
• Some claims cannot be settled straight away and the claims handler will identify that
further investigation is required, which may involve one or more specialists.
• The way in which claims are handled by insurers and intermediaries must be in
accordance with the regulatory requirements contained in the FCA Handbook.
• Insurers can choose to settle a claim in one of four ways: payment of money, paying
for repairs, replacement or reinstatement.
• There are a number of factors which may limit payment of a claim including sums
insured, the policy excess, underinsurance and the basis of cover.
• Claims settling agreements are used by insurers to save time and money where more
than one insurer may potentially be liable for a loss, either due to overlapping policy
Chapter 8

cover, or where subrogation rights arise. They avoid the need for lengthy
correspondence and disputes over who is responsible.

Civil Procedure Rules

• When considering any liability claim for personal injury, the insurer must take account
of the Civil Procedure Rules, which were first introduced in April 1999.

Fraud

• Fraud is a significant problem for the insurance profession to combat. There are a
number of measures used by insurers to detect and prevent fraud.

Dealing with disputes

• There are some customers who are not happy with the decision reached on their claim
or the service provided and will wish to complain. Each insurer will have its own
complaints procedure. In addition, the FCA Handbook requires all authorised firms to
have in place and operate effective internal complaint handling procedures.
Chapter 8 Claims procedures 8/19

Key points
• Where insurers own complaints procedures do not lead to a satisfactory outcome, the
customer will then have the option to take their case to arbitration or refer the claim to
the Financial Ombudsman Service (FOS).

Chapter 8
 8/20 IF6/October 2020 Household insurance products

Question answers
8.1 Specialists have a wealth of knowledge and experience in a particular field.
Appointing a specialist to fully investigate a claim can help protect the insurer’s
interests and can assist the claimant providing appropriate advice and guidance.

8.2 There are several benefits to insurers:

• The discounts they are able to negotiate mean lower claims costs.
• Fraudulent claims will be discouraged because a fraudster is more likely to be
looking for cash from a claim rather than goods.
• There are customer service benefits associated with these options because
suppliers will be required to carry out repairs or replace goods promptly. In the
case of replacement, they will often deliver and install the goods for the insured.

8.3 An overlap could arise where an item of jewellery is covered under the specified
personal possessions section of a household policy and the general baggage
section of a travel policy.
Chapter 8
 Chapter 8 Claims procedures 8/21

Self-test questions
1. Most household policies require the insured to notify the insurer of a loss:
a. Immediately. □
b. As soon as reasonably possible. □
c. Within five working days. □
d. Within one month. □
2. The right of the insurer to take complete control of the defence and settlement of any
claim is most important in connection with which type of claim?
a. Fire. □
b. Theft. □
c. Explosion. □
d. Liability. □
3. What is the maximum claim value under the Civil Procedures Rules for personal
injury claims to be allocated to the small claims track?
a. £25,000. □
b. £5,000. □
c. £10,000. □
d. £1,000. □
4. If a dispute over the amount of a claims settlement is taken to arbitration, the
decision of the arbitrator is binding on:
a. Neither the insurer nor the insured. □
b. Both the insurer and the insured. □
c. The insurer only. □
d. The insured only. □ Chapter 8

5. Which fraud detection and prevention measure was launched in July 2006 to tackle
the growing problem of organised fraud?
a. Insurance Fraud Bureau. □
b. Art Loss Register. □
c. Claims and Underwriting Exchange. □
d. Insurance Fraud Enforcement Department. □
 8/22 IF6/October 2020 Household insurance products

6. When a potential claim arises under a household insurance policy, the onus of proof
that an insured peril occurred falls on the:
a. Agent. □
b. Insured. □
c. Insurer. □
d. Loss adjuster. □
7. Under a household insurance policy, an insurer will normally deduct an amount such
as £50 from all claims. What is the technical term for such a deduction?
a. A discount. □
b. An excess. □
c. A franchise. □
d. A penalty. □
8. Which database allows insurer to access data and information on household
insurance claims to help combat fraud?
a. ABI. □
b. ALR. □
c. CUE. □
d. MIB. □
9. The arbitration condition deals with insurance related disagreements when the
dispute is regarding the:
a. Amount of an insurance claim. □
b. Interpretation of a policy wording. □
c. Time taken to settle a claim. □
d. Way in which a complaint has been handled. □
Chapter 8

You will find the answers at the back of the book

 i

There are no chapter 1 questions

ii IF6/October 2020 Household insurance products

Chapter 2
self-test answers
1 a. Riot, escape of water and theft.
2 c. £1,000.
3 d. Travel tickets.
4 c. Child of the insured visiting for the weekend.
5 d. Defective Premises Act 1972.
6 a. Damage which occurs gradually.
 iii

Chapter 3
self-test answers
1 d. Loss of a handbag snatched by a thief at a railway station.
2 c. Maximum value of all items worth less than the single article limit, that will be taken
outside the home at any one time.
3 a. Contamination by freezing agents.
4 b. 14 days.
5 a. Nothing.
6 b. Legal action taken to enforce the rights of the insured against a third party.
iv IF6/October 2020 Household insurance products

Chapter 4
self-test answers
1 d. Lower limits usually apply to a caravan policy than a household policy.
2 b. Personal accident.
3 c. Lifetime policy.
4 c. 50%.
5 d. Loss.
 v

Chapter 5
self-test answers
1 b. £10,000.
2 c. The property must be heated all winter.
3 d. Terrorism.
4 a. Students.
5 c. Request a surveyor to visit the property.
6 b. Is of a clerical nature.
7 a. The homeowner.
8 c. A forcible and violent entry or exit clause.
vi IF6/October 2020 Household insurance products

Chapter 6
self-test answers
1 d. Administrative law.
2 a. If their interests are invaded, threatened or harmed.
3 b. Liability for animals.
4 b. One year.
5 b. Negligence.
6 c. Strict liability.
7 c. Japanese Tosa.
8 a. Domestic cleaner.
 vii

Chapter 7
self-test answers
1 c. Previous 'unspent' convictions.
2 d. A physical hazard.
3 a. An offer.
4 c. The need for consumers to volunteer information that a 'reasonable insurer' would
consider relevant.
5 a. To assess the risk.
6 d. Rebuilding cost.
7 c. The sum insured increases in line with the index, but the monthly premium
remains level.
8 a. A specific period after the expiry of the policy when the premium can still be paid
and cover continues uninterrupted.
9 d. The countries visited and the length of the trip.
10 c. The market value.
viii IF6/October 2020 Household insurance products

Chapter 8
self-test answers
1 b. As soon as reasonably possible.
2 d. Liability.
3 d. £1,000.
4 b. Both the insurer and the insured.
5 a. Insurance Fraud Bureau.
6 b. Insured.
7 b. An excess.
8 c. CUE.
9 a. Amount of an insurance claim.
 ix

Cases
B
Blyth v. Birmingham Waterworks (1856), 6C

D
Donoghue v. Stevenson (1932), 6B2, 6C1

N
Newton v. Edgerley (1959), 6E1

O
Oddy v. Phoenix Assurance Company (1966),
2A2A

P
Pitcher v. Martin (1937), 6D2B

R
Rylands v. Fletcher (1868), 6B2, 6D1

S
Stannard (t/a Wyvern Tyres) v. Gore (2012),
6D1
Sturge v. Hackett (1962), 6D1
x IF6/October 2020 Household insurance products
 xi

Legislation
A R
Animals Act 1971, 6D2A, 6D2B Rehabilitation of Offenders Act 1974, 7A3E
Anti-social Behaviour, Crime and Policing
Act 2014, 6D2C
Arbitration Act 1950, 8E1
T
Arbitration Act 1979, 8E1 Theft Act 1968, 2A2A, 6A1
Arbitration Act 1996, 8E1

C
Commonhold and Leasehold Reform Act
2002, 5C
Computer Misuse Act 1990, 6A2
Consumer Insurance (Disclosure and
Representations) Act 2012, 7A1A, 7A5,
8B1, 8B4
Consumer Rights Act 2015, 6G4
Countryside and Rights of Ways Act 2000,
6E2
Criminal Justice and Courts Act 2015, 8D2

D
Dangerous Dogs (Amendment) Act 1997,
6D2C
Dangerous Dogs Act 1991, 4C, 6A1, 6D2B,
6D2C
Dangerous Dogs Act 2014, 4C
Data Protection Act 2018, 6A2
Defective Premises Act 1972, 2C1, 5D1, 6E3

E
Enterprise Act 2016, 8B4

H
Highways Act 1980, 6B2
Human Rights Act 1998, 6A

I
Insurance Act 2015, 7A1B, 8B2B

L
Latent Damage Act 1986, 6F
Legal Aid, Sentencing and Punishment of
Offenders Act 2012, 7A3E
Limitation Act 1980, 6F

M
Marine Insurance Act 1906, 7A1A

O
Occupiers’ Liability Act 1957, 6E2
Occupiers’ Liability Act 1984, 6E2
xii IF6/October 2020 Household insurance products
 xiii

Index
A claimant, 2C2, 6A2, 6C, 6C1, 6C3, 6D1, 6F,
8A3B, 8B1, 8C, 8D1
ABI, See Association of British Insurers (ABI) claims
additional discounts, 7A6 condition, 8A2B, 8A3B, 8B1, 8B2, 8B4
adverse weather conditions, 4B3 control of, 8B2
aerial emergency travel, 5B2
fittings, 2A2A forms, 8A3B, 8B3
masts, 2A2A fraudulent, 1C8, 7A1B, 8B2B, 8B3, 8D
receiving, 2A2A handler, 8B3
affinity group schemes, 1C5 history, 7A3A, 7A3G, 7A4H, 8B3, 8D1
agents inspector, 8B3, 8D1
multi-tied, 1C1 rejection of, 8B4
single-tied, 1C1 service, 5B2
aggregators, 1B3 settling agreements, 8B5B
aircraft, 2A2A, 2B1, 3B, 5E Claims and Underwriting Exchange (CUE),
airspace closure cover, 4B3 7A3A, 7A3G, 8D1
all risks, 5D2, 5E, 7B1 cleaning, 2B2B, 2B2C, 3A3, 3B
alternative accommodation, 2B2B, 5C, 5D2 clothing, 4A2, 4B1D, 7B1, 8B5A
application verification, 7A5 cognitive interviewing, 8D1
arbitration, 8B2A, 8E, 8E1 coins, 3A1
architects’ fees, 2A2B collision, 2A2A
arson, 5B common law, 6D2A, 6E, 6E2, 6E3, 8A2A, 8A2B,
Art Loss Register (ALR), 8D1 8B2
art, works of, 3A1, 5E, 8D1 confiscation, 2D, 3A3, 4B5
Association of British Insurers (ABI), 1C8, contact lenses, 2B2C, 3A3, 4B5
1C8, 8D contribution, 8B2, 8B5B
domestic subsidence agreement, 8B5B convictions, 7A3E
personal effects contribution agreement, 8B5B corrosion, 2A2A, 3A3
atmospheric conditions, 2A2A, 2A2C, 2B2C, cost of working, 5A1
3A3 cover
accidental damage, 2A2C, 2B2B
additional features of, 2C2
B additional items of, 2A2B, 2B2, 2B2B
baggage, 4B, 4B1D, 4B3 automatic extensions to, 2B2B
delayed, 4B3 away from the home, 3A, 3A2
loss of, 4B5 buildings, 2A, 2B1, 5D
bancassurance, 1C1 contents, 2B1, 5D, 5D
banks, 1C1 for communal areas, 5C
bills of exchange, 3A3 higher levels of, 5A2
binoculars, 3A1 liability, 2C, 6B1, 6C1
block of flats, 5C, 7E notes, 1B2
bodily injury, 4B3, 4B5, 6C3 optional extensions to, 2A2C, 3B, 4B3
bonds, 3A3 provided, 2A2, 2B2, 2D, 3A2, 3B, 5A2, 5C
breach of duty, 6C, 6C2 credit cards, 2B2A, 3B, 4B1D, 5D2, 8A2B
warranty, 8B4 credit scoring, 7A3H
breakdown criminal law, 6A, 6A1
electrical, 2B2B, 2B2C, 3A3, 3B
mechanical, 2B2B, 2B2C, 3A3, 3B, 4B3 D
building societies, 1C1
damage, 2A2A
accidental, 2A2B, 2B2B, 3B, 8B1
C existing, 2D
call centres, 1B1, 1B2 malicious, 2A2A, 5B, 5B1, 5D, 7A7, 8A2B, 8B1
cameras, 3A, 3A1 to services, 2A2B
caravans, 2B1, 4A, 7D1, 8A3B data matching software, 8D1
case law, 6A2 data protection, 6A2
catastrophe or disaster cover, 4B3 death, 4B, 4B1A, 4B1B, 4B1C, 4B2, 6C3
cats, 4C, 4C1 accidental, 4C1, 4C2
ceramic hobs, 2B2B from illness, 4C1, 4C2
certificates, 2B1 debris removal costs, 2A2B
china, 2B2B deception, 2B2A, 3B, 4A4, 5D
chipping, 2B2B deeds, 3A3
civil commotion, 8A2B defamation, 6B2
law, 6A, 6A1 defendant, 6A2, 6C, 6C2, 6C3, 6D1, 6D2B, 6E1,
Civil Procedure Rules, 8A2B, 8C 8C
xiv IF6/October 2020 Household insurance products

definitions section, 2A1, 2B1 freezing, 5B

deliberate acts, 2D, 3B, 6D frost, 2A2A
demolition, 2A2A, 2A2C fungus, 2A2C, 3A3
denting, 2B2B, 3A3 furs, 3A1, 3A2
direct insurance, 1B1
direct insurer, 7A1
distribution channels, 1C1
G
doctor, 8B3 garden, 2B2B, 5E
documents, 2B1, 3A3 gates, 2A1, 2A2A
dogs, 4C, 4C1 geographical limits, 3A2, 3B, 4B4
drives, 2A1, 2A2A glass, 2B2B
duty of care, 6C, 6C1, 6E2 goods in transit, 5A, 5A2
gradually operating cause, 2A2A, 2A2C, 2B2C,
E 3A3, 3B
ground heave, 2A2A
earthquake, 2A2A, 7A7 guests, 2A2A, 5E
electronic data interchange (EDI), 1B2
eligibility statement, 7A1
employee, 5A
H
employees, 2A2A hazardous activities, 4B1A, 4B5, 6C2
English law, 6A, 6A2 materials, 7A3C
equine insurance, 4C2 pursuits, 3B, 7D2
equipment, 3A3 hearing aids, 3A3
business, 5A, 5A1 hedges, 2A2A
camping, 3A3, 3B, 4B5 helplines, 1C7, 3B, 4B1B, 4B3, 4C1, 5B2
computer, 2D high net worth households, 5E
dangerous, 6E2 holiday
entertainment, 2B2B cancellation, 4B1C, 4B2, 4C1
photographic, 3A2 curtailment, 4B1C, 4B2
riding tack, 4C2 homes, 1A, 1C3, 5B, 5B1, 5B2, 7A1, 7A4A,
sports, 3A1, 3A3, 3B 7A4G, 7E
European Community law, 6A homeworking, 1A, 1C3, 5A, 7A3C, 7A4G, 7E
excess, 2D, 3A3, 3B, 4A4, 4B2, 5A1, 5C, 7A4H, horsebox, 4C2
7A6, 7A7, 8B1, 8B5A horses, 2B1, 3A3, 4C, 4C2, 7D3, 8A3B, 8B3
exclusions, 2A2A, 2B2A, 2B2B, 2B2C, 2D, 3A3, hospital cash benefit, 4B3
3B, 4A4, 4B5, 4C1, 5D household goods, 2B1
explosion, 2A2A, 7A7 hovercraft, 2B1
express duties, 8A2, 8A2B

I
F
illness, 4B, 4B1B, 4B1C, 4B5
fair treatment of customers, 6G1 implied duties, 8A2, 8A2A
falling indemnity, 7B1, 7D1, 8B1, 8B2, 8B5A
aerial, 2A2A professional, 5A, 5A2
trees, 2A2A third party, 8B3
faulty index-linking, 3A2, 7B2
design, 2A2A, 2A2C industrial action, 4B3
materials, 2A2A, 2A2C, 3A3 information
workmanship, 2A2A, 2A2C, 3A3 general, 7A2, 7A3
fences, 2A1, 2A2A specific, 7A2, 7A4
Financial Conduct Authority (FCA), 6G, 6G2, insects, 2A2A, 2A2C, 3A3
6G4, 7C, 8B4, 8E insurable interest, 5C
Financial Ombudsman Service (FOS), 6G2, Insurance Fraud Bureau (IFB), 8D1
6G2, 7A1A, 8D2 Insurance Fraud Enforcement Department
Financial Services Compensation Scheme, (IFED), 8D1
6G2 Insurance Fraud Investigators Group (IFIG),
fire, 2A2A, 7A7, 7A8, 8A2A 8D1
fixed glass, 2A2B Insurance Fraud Register (IFR), 8D1
fixtures and fittings, 2B1 Insurance Fraud Taskforce, 8D2
flood, 2A2A, 7A1, 7A4A, 7A8 insurance premium tax (IPT), 7B3
Flood Re, 7A4B Insurance: Conduct of Business Sourcebook
food, 2B2C, 3B, 5D2 (ICOBS), 6G2, 8B4
footpaths, 2A1, 2A2A intermediaries, 1B, 1B1, 1B2, 1C1, 1C3, 1C5,
force, 2B2A, 3A3, 4A4, 5D 4C, 5B, 5E, 6G2, 7A1, 8A3A, 8B4
FOS, See Financial Ombudsman Service personal lines, 1B
(FOS)
fraud, 8A2B, 8B2B, 8B2B, 8B5, 8D
remedies, 8B2B
fraudulent act, 8B2B
 xv

J misrepresentation
(continued)
jewellery, 3A, 3A1, 7A8, 8B2 qualifying, 8B4
judicial precedent, 6A2 mobile phone insurance (MPI), 4D
money, 2B1, 2B2A, 2B2C, 3A1, 3A3, 3B, 4B1D,
4B2, 5A, 5A1, 5D2
L moral
labour, 2A2A hazard, 7A3C, 7A3E, 7A3G
landlords, 5C, 5D, 5D1, 5D2, 6B1, 6E3 rules, 6A
landslip, 2A2A mortgage, 8A3B
law of contract, 6A, 6B, 6B1, 6F motor
of torts, 6A, 6B, 6B2, 6F cycles, 2B1
legal vehicles, 2B1, 3A3
duties, 8A2 multi-track cases, 8C
expenses, 3B, 4B3, 5A2
fees, 2A2B N
liability, 2C1, 4A3, 5C, 6A, 6A1, 6D, 6D2B, 6E,
8B2, 8B3 negligence, 6B2, 6C, 6C1, 6D, 6D1, 6D2B
rules, 6A neighbour principle, 6C1
legislation, 6A2 new for old, 7B1, 7D1, 8B5A
letter of claim, 8C non-disclosure, 5D, 8A3B, 8B1, 8B4
liability non-insurance services, 1C7
civil, 6B non-standard risks, 7A7
claims, 8A2B notification, 8A2B, 8A3, 8A3A, 8A3B, 8B4, 8C,
common law, 6D2B 8D1
employers’, 2C2, 4A3, 5A, 5A1, 5C nuisance, 6B2, 6D2B
for animals, 6D, 6D2
for animals straying onto the highway, 6D2A
for dangerous species, 6D2A
O
for the escape of fire, 6D, 6D1 occupation, 7A3C
landlords, 6E3 occupier, 2B1
occupiers’, 2C2, 5D2, 6E2 oil
personal, 2C2, 5D2, 6D2B escape of, 2A2A, 5B1, 5D, 8B1
products, 5A, 5A2 loss of, 2B2B
property owners’, 5C, 5D1 tanks, 2A1, 2A2A
public, 5A, 5A1 onus of proof, 8A1, 8B1
strict, 6B2, 6D, 6D1, 6D2A, 6D2B optional extensions, 2A2C, 2B2, 2B2C, 8B1
tenants, 6E3 owner, 2B1, 5C
tenants’, 2C2 hospitalisation of, 4C1
third party, 4C1, 4C2 ownership, 7A4F
vicarious, 6E1 proofs of, 8A2B
lightning, 2A2A, 7A7
limit, 4B2, 5E
of indemnity, 2C2, 4A3 P
single article, 2B1, 3A2, 4A2
patios, 2A1, 2A2A
valuables, 2B1
payment
linen, 7B1, 8B5A
factors limiting, 8B5A
livestock
of a claim, 8D1
worrying of, 6D2A
of money, 8B5
loss, 2A2A
prompt, 8B4
adjusters, 8A3B, 8B3, 8B4, 8D1
pedal cycles, 2B2C, 3A1, 3A3, 3B
estimated amount of, 8A3B
peer-to-peer insurance (P2P), 1C2
of keys, 2B2B
perils
of money, 3B
individual, 2D
of passport, 4B1D, 4B3
insured, 2A2A, 2B2, 2B2A
of rent, 2A2B
personal
of rental income, 5C, 5D1
accident, 4B1A, 4B2, 4C2, 5A2
belongings, 3A, 3A1
M effects, 3A1, 4B, 4B1D, 4B2, 4B5, 8B5B
injury, 4C2, 6F, 8B3
manuscripts, 3A3 liability, 2C2, 4B1E, 4B2
market pools, 2D possessions, 2B1, 3A, 5D, 5E, 7B1, 8A3B
value, 7D1 pets, 2A2A, 2A2C, 2B1, 2B2C, 3A3, 4C, 7D3,
marketplace, 1B, 1C, 1C1, 1C3, 5E 8A3B, 8B3
medals, 3A1 policies
medical expenses, 4B1B, 4B2, 4B4 branding of, 1C5
mid net worth customers, 5E buildings, 2A, 2A1, 8A3B
mirrors, 2B2B buildings and contents, 1A, 2B2C
misrepresentation, 8B4 buildings only, 1A
xvi IF6/October 2020 Household insurance products

policies (continued) Retail Prices Index, 3A2

caravan, 8A3B rights of entry, 8B2
combined, 1A riot, 2A2A, 5D, 8A2B
commercial, 5A risk
commercial combined, 5A additional discounts, 7A6
conditions, 5D, 8B2 address, 7A3B, 7A4A
contents, 3A, 5D, 8A3B, 8B1 assessment, 7A, 7D, 7D1, 7D3
contents only, 1A non-standard, 7A7
general exclusions, 2A2A rot, 2A2C, 3A3
home-business, 5A, 5A1 rusting, 2A2A
landlords’, 5D, 5D1
motor, 8B5B
package, 1A
S
stand-alone business, 5A salvage, 8B2
tenants’, 5D, 5D2 sanitary fittings, 2A2B
travel, 4A2, 4B, 4B1, 4B1D, 8A3B, 8B2, 8B5B scratching, 2B2B, 3A3
wording, 2A1, 2A2A, 2B1, 2B2B, 3B, 4A1, 5B, securities, 2B1, 3A3
5B2, 5C, 8A2A, 8B5 security, 5B1, 7A4H, 7A8, 7D1
political disturbances, 2A2A septic tanks, 2A1, 2A2A
pollution, 2D services
ponies, 4C, 4C2, 7D3 assistance, 3B
positive customer outcomes, 6G1, 8B6 settlement, 2A2A, 2A2C, 2B2C, 8B3, 8B4, 8B5,
pottery, 2B2B 8D1
precious metals, 3A1 shared and rented homes, 5D, 7E
price comparison websites (PCWs), 1B3 shrinkage, 2A2A, 2A2C, 2B2C
property slaughter, 4C2
age of, 7A4D solicitor, 8B3
condition of, 7A4C sonic bangs, 2D
insured, 3A1 specified items, 3A2
let, 5D stamp collections, 2B1, 2B2C, 3A1
mortgaged, 7A4F stand-alone business, 5A2
rented, 7A4F standard construction, 7A1, 7A4C
thatched, 7A7 statement of fact, 1B2, 7A, 7A1, 7A2, 7A8
unfurnished, 2A2A, 2A2B, 2B2B, 5C statute law, 6A2
uninhabitable, 5C, 5D1 statutory liability, 6B2
unoccupied, 2A2A, 2A2B, 2B2B, 2B2C, 5B, storm, 2A2A, 7A7, 7A8, 8A1, 8B3
5B1, 5D, 7A4A, 7A4G, 7A4H, 7A7, 8A3B, straying, 4C1, 4C2, 6D2A
8B1 strikes, 2A2A, 4B3
used for business, 2B1, 3B, 5A, 7A4G structural alteration, 2A2A, 2A2C
proposal form, 1B2, 7A, 7A1, 7A1A, 7A2, 7A8, subrogation, 8B2
8A3B rights, 8B5B
subsidence, 2A2A, 7A1, 7A4A, 7A7
Q sum insured, 2A2B, 2B2B, 3A2, 4B1D, 4B3,
4C2, 7A4E, 7A4H, 7A4I, 7A8, 7B, 7B1, 7B2,
questions 7D1, 8B5A
standard, 8A3B adequacy of, 8B3
calculation of, 7B, 7B1
temporary increases to, 2B2B
R surveyor, 7A8, 7B1
radioactive surveyors’ fees, 2A2B
contamination, 2D surveys, 7A8
risks, 4A4 swimming pools, 2A1, 2A2A
rating and underwriting factors, 7A2
regulation, 1C6 T
regulatory requirements, 6G, 8B4
reinstatement, 8B5 Takaful, 1C4
reinstatement ancillary clauses, 2A2B tenants, 2A2A, 2B1, 2C2, 5C, 5D, 5D1, 5D2,
removal 6B1, 6E3, 7A4A, 8A3B
household, 2B2B tennis courts, 2A1, 2A2A
temporary, 2B2B terraces, 2A1, 2A2A
renewal, 7B2, 7C terrorism, 2D, 5C
repair, 2A2A, 2A2C, 2B2B, 2B2C, 3A3, 3B theft, 2A2A, 2B2A, 2B2B, 3A3, 3B, 4A4, 4C1,
cost of, 7A4D, 7B1 4C2, 5B, 5B1, 5D, 7A3C, 7A4A, 7A4F, 8A2A,
good state of, 7A1, 7A4C 8A2B, 8B1, 8B1, 8D1
paying for, 8B5 title deeds, 2B2B
poor state of, 7A3G trailers, 2B1
to plumbing, 2A2B travel, 4B, 5E, 7D2, 8B4
replacement, 8B5 delay, 4B3
restoring, 2B2C, 3A3, 3B interruption, 4B3
 xvii

travel (continued)
policy, 4B1, 4B1D, 8A3B, 8B2, 8B5B
trespass, 6B2, 6D2B, 6E2

U
under-insured, 3A2, 5E, 7A8
unrecovered damages, 2C2
unspecified items, 3A2

V
valuable items, 2B1, 3A1, 7A4H, 7A8, 7A8,
7B1, 8B5A
vandalism, 2A2A, 4A4, 5B1, 5D
vermin, 2A2A, 2A2C, 3A3
vet, 8B3
veterinary fees, 4C1, 4C2
violence, 2B2A, 3A3, 4A4
voice stress analysers, 8D1

W
walls, 2A1
war risks, 2D
washing, 2B2C, 3A3
watches, 3A1, 3A2
water
escape of, 2A2A, 5B1, 5D, 8B1
metered, 2B2B
watercraft, 2B1, 3A3, 3B
wear and tear, 2A2A, 2A2C, 2B2B, 2B2C, 3A3,
3B, 4A4, 7B1, 8A1, 8B5A
Woolf Reforms, 8C
xviii IF6/October 2020 Household insurance products
Chartered Insurance Institute
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Ref: IF6TB1