Motor

insurance
products
IF5

2023
STUDY
TEXT
 Motor insurance
products
IF5: 2023 Study text

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2 IF5/October 2022 Motor insurance products

© The Chartered Insurance Institute 2022

All rights reserved. Material included in this publication is copyright and may not be reproduced in whole or in part
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written permission must also be obtained before any part of this publication is stored in a retrieval system of any
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Every attempt has been made to ensure the accuracy of this publication. However, no liability can be accepted for
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legal position. Specific advice should always be obtained before undertaking any investments.
Print edition ISBN: 978 1 80002 539 4
Electronic edition ISBN: 978 1 80002 540 0
This edition published in 2022

The author
Graham Williams, BA, PGC ([Link]), ACII [Link] has worked for over 25 years in the insurance industry,
having previously been employed by Groupama Insurances. He has been associated with the CII for a number of
years, having been previously involved with writing study texts etc. He now has his own company, Intralex Ltd,
which provides law and insurance training. Additionally, Graham is a part-time lecturer in law.
Graham Williams has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as The
Author of this study text.

Updater
Andy Fletcher, BSc (Hons), FCII.
The CII would like to thank Valerie Jackson, BSc, FCII for her assistance with the first edition of this study text.

Acknowledgements
We gratefully acknowledge the contributions of the following to the production of this text:
Groupama Insurances Allianz Cornhill Insurance plc
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.
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MIX
Paper from
responsible sources
FSC® C020438
 3

Using this study text

Welcome to the IF5: Motor insurance products study text which is designed to support the
IF5 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.
Each chapter also has stated learning objectives to help you further assess your progress
in understanding the topics covered.
Contained within the study text are a number of features which we hope will enhance
your study:

Activities: reinforce learning through Key points: act as a memory jogger at

practical exercises. the end of each chapter.

Be aware: draws attention to important Key terms: introduce the key concepts
points or areas that may need further and specialist terms covered in each
clarification or consideration. chapter.

Case studies: short scenarios that will Refer to: Refer to: extracts from other CII study
test your understanding of what you texts, which provide valuable information
have read in a real life context. on or background to the topic. The
sections referred to are available for you
to view and download on RevisionMate.

Consider this: stimulating thought Reinforce: encourages you to revisit a

around points made in the text for which point previously learned in the course to
there is no absolute right or wrong embed understanding.
answer.

Examples: provide practical illustrations Sources/quotations: cast further light

of points made in the text. on the subject from industry sources.

In-text questions: to test your recall of On the Web: introduce you to other
topics. information sources that help to
supplement the text.

At the end of every chapter there is also a set of self-test questions that you should use to
check your knowledge and understanding of what you have just studied. Compare your
answers with those given at the back of the book.
By referring back to the learning outcomes after you have completed your study of each
chapter and attempting the end of chapter self-test questions, you will be able to assess your
progress and identify any areas that you may need to revisit.
Not all features appear in every study text.
Note
Website references correct at the time of publication.
 5

Examination syllabus

Motor insurance products

Objective
To provide knowledge and understanding of the practices and procedures connected with private
motor, motorcycle and commercial motor insurance, with reference to applicable legal and regulatory
considerations 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 market place for motor insurance products. 5

2. Apply the principles contained within motor insurance to a given set of 2

circumstances.

3. Understand the scope of cover provided by motor insurance products. 6

4. Apply the principles contained within the scope of cover provided by motor insurance 3
products to a given set of circumstances.

5. Understand the legal and regulatory considerations for motor insurance. 11

6. Apply the legal and regulatory principles for motor insurance to a given set of 5
circumstances.

7. Understand risk assessment, rating and underwriting for motor insurance. 15

8. Apply the principles contained within risk assessment, rating and underwriting for 8
motor insurance to a given set of circumstances.

9. Understand claims procedures for motor insurance products. 11

10. Apply the principles of claims procedures for motor insurance to a given set of 6
circumstances.

11. Understand information and communication technology as this relates to motor 2

insurance.

12. Apply the principles of information and communication technology as this relates to 1
motor insurance 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.

Published October 2022

©2022 The Chartered Insurance Institute. All rights reserved. IF5
6 IF5/October 2022 Motor insurance products

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 2023 until 31 December 2023.
• Candidates will be examined on the basis of English law and practice unless otherwise stated.
• This PDF document is accessible through screen reader attachments to your web browser and has
been designed to be read via the speechify extension available on Chrome. Speechify is an
extension that is available from [Link] If for accessibility reasons you require this
document in an alternative format, please contact us on [Link]@[Link] to discuss your
needs.
• 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 [Link]/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 2022 2 of 5

©2022 The Chartered Insurance Institute. All rights reserved.
 7

1. Understand the market place for motor 7. Understand risk assessment, rating and
insurance products. underwriting for motor insurance.
1.1 Explain the principal differences in the transaction of 7.1 Describe the content, use and legal significance of
private motor insurances. proposal forms and statements of facts in the
1.2 Explain the role and function of the Motor Insurers’ transaction of motor insurance as they apply to both
Bureau and the DVLA. consumer insurance contracts and commercial
insurance contracts.
2. Apply the principles contained within 7.2 Explain the general principles of rating and
motor insurance to a given set of underwriting individual risks in motor insurance.
circumstances. 7.3 Describe the rating and underwriting considerations
2.1 Apply the principles contained within the transaction for different motor vehicles.
of private motor insurances to a given set of 7.4 Describe the content of and legal requirements
circumstances. relating to the cover note and the certificate of motor
2.2 Apply the principles contained within the role and insurance.
function of the Motor Insurers’ Bureau to a given set 7.5 Explain the construction of private and commercial
of circumstances. insurance policies.
7.6 Explain the use of no claim discounts and the
3. Understand the scope of cover provided distinctions between standard, protected and
by motor insurance products. guaranteed discounts.
3.1 Describe the core cover provided under different 7.7 Explain the operation of a typical renewal system for
motor insurances. private and commercial motor insurance.
3.2 Describe the additional non-insurance benefits 7.8 Describe the frequency of renewal and its
available under private and commercial motor significance to continuity of cover.
insurance policies.
7.9 Describe the renewal documentation and renewal
4. Apply the principles contained within the terms specific to motor insurance.
scope of cover provided by motor 8. Apply the principles contained within risk
insurance products to a given set of assessment, rating and underwriting for
circumstances. motor insurance to a given set of
4.1 Apply the principles contained within the scope of circumstances.
cover provided by motor insurance products to a
8.1 Apply the principles contained within risk
given set of circumstances.
assessment, rating and underwriting for motor
5. Understand the legal and regulatory insurance to a given set of circumstances.
considerations for motor insurance. 9. Understand claims procedures for motor
5.1 Describe the relevant parts of the Road Traffic Act insurance products.
1988 as amended by the Road Traffic Act 1991.
9.1 Explain the ethical considerations in the transaction
5.2 Describe the provisions of the Road Traffic Act 1988 of motor insurance products.
Part VI, relating to third party liabilities.
9.2 Describe the principles of claims-handling applied to
5.3 Describe the provisions of EU Directives applicable motor insurance.
to motor insurance.
9.3 Describe the claims-handling procedures for different
5.4 Explain the effect on motor insurance of relevant motor vehicles.
legislation and regulatory considerations.
9.4 Explain the role of motor engineers.
5.5 Describe the legal position of employees using their
9.5 Explain the use of recommended repairers.
own and their employers’ motor vehicles in the
conduct of company business. 9.6 Explain the role of MIAFTR2 and CUE.
5.6 Describe the law relating to the use of vehicles 9.7 Explain fraud prevention and detection measures
outside the UK. and their operation.
5.7 Describe which vehicles are exempt from 9.8 Explain the role of the Financial Ombudsman
compulsory insurance under the Road Traffic Act Service and the Financial Services Compensation
1991 and in what circumstances. Scheme.
5.8 Describe, in broad outline, the scope and general
effect of the Insurance: Conduct of Business
10. Apply the principles of claims procedures
sourcebook (ICOBS) as it relates to the for motor insurance to a given set of
administration of motor insurance. circumstances.
10.1 Apply the principles of claims procedures for motor
6. Apply the legal and regulatory principles insurance to a given set of circumstances.
for motor insurance to a given set of
circumstances.
6.1 Apply the legal and regulatory principles for motor
insurance to a given set of circumstances.

Published October 2022 3 of 5

©2022 The Chartered Insurance Institute. All rights reserved.
8 IF5/October 2022 Motor insurance products

11. Understand information and Reading list

communication technology as this relates
to motor insurance. The following list provides details of further
11.1 Explain the implications of IT development for the reading which may assist you with your
motor insurance market. studies.
Note: The examination will test the
12. Apply the principles of information and syllabus alone.
communication technology as this relates
to motor insurance to a given set of The reading list is provided for guidance
only and is not in itself the subject of the
circumstances. examination.
12.1 Apply the principles of information and
communication technology as this relates to motor The resources listed here will help you
insurance to a given set of circumstances. keep up-to-date with developments and
provide a wider coverage of syllabus topics.

CII study texts

Motor insurance products. London: CII.
Study text IF5.
Books and eBooks
Bird’s modern insurance law. 10th ed. John
Birds. Sweet and Maxwell, 2016.
Colinvaux’s law of insurance. 11th ed.
London: Sweet & Maxwell, 2016.
Guide to Motor Insurance Bureau claims.
Donald Williams and Malcolm Johnson. The
Law Society, 2012.
Insurance law in the United Kingdom. 3rd ed.
John Birds. The Netherlands: Kluwer Law
International, 2015.
Insurance law: an introduction. Robert
Merkin. London: Routledge, 2014. *
The law of motor insurance. Robert M
Merkin, Jeremy Stuart-Smith. 2nd ed.
London: Sweet and Maxwell, 2015.
Periodicals
The Journal. London: CII. Six issues a year.
Post magazine. London: Incisive Financial
Publishing. Monthly. Contents searchable
online at [Link].
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.
Road Traffic Act 1988. Available online at
[Link].

* Also available as an eBook through eLibrary via [Link]/elibrary (CII/PFS members only).

Published October 2022 4 of 5

©2022 The Chartered Insurance Institute. All rights reserved.
 9

Examination guide
If you have a current study text enrolment,
the current examination guide is included
and is accessible via Revisionmate
([Link]/login). 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.

Published October 2022 5 of 5

©2022 The Chartered Insurance Institute. All rights reserved.
 11

IF5 syllabus
quick-reference guide
Syllabus learning outcome Study text chapter
and section
1. Understand the market place for motor insurance products.
1.1 Explain the principal differences in the transaction of private 1A, 1B, 1C
motor insurances.
1.2 Explain the role and function of the Motor Insurers’ Bureau and 1D, 1E
the DVLA.
2. Apply the principles contained within motor insurance to a given set of circumstances.
2.1 Apply the principles contained within the transaction of private 1A, 1B, 1C
motor insurances to a given set of circumstances.
2.2 Apply the principles contained within the role and function of the 1D, 1E
Motor Insurers’ Bureau to a given set of circumstances.
3. Understand the scope of cover provided by motor insurance products.
3.1 Describe the core cover provided under different motor 2A, 2B, 2C
insurances.
3.2 Describe the additional non-insurance benefits available under 2B, 2D
private and commercial motor insurance policies.
4. Apply the principles contained within the scope of cover provided by motor insurance
products to a given set of circumstances.
4.1 Apply the principles contained within the scope of cover provided 2A, 2B, 2C, 2D
by motor insurance products to a given set of circumstances.
5. Understand the legal and regulatory considerations for motor insurance.
5.1 Describe the relevant parts of the Road Traffic Act 1988 as 3A
amended by the Road Traffic Act 1991.
5.2 Describe the provisions of the Road Traffic Act 1988 Part VI, 3B
relating to third party liabilities.
5.3 Describe the provisions of EU Directives applicable to motor 3C
insurance.
5.4 Explain the effect on motor insurance of relevant legislation and 3A, 3E
regulatory considerations.
5.5 Describe the legal position of employees using their own and 2B, 3E
their employers’ motor vehicles in the conduct of company
business.
5.6 Describe the law relating to the use of vehicles outside the UK. 3C, 3D
5.7 Describe which vehicles are exempt from compulsory insurance 3A
under the Road Traffic Act 1991 and in what circumstances.
5.8 Describe, in broad outline, the scope and general effect of the 1F
Insurance: Conduct of Business sourcebook (ICOBS) as it
relates to the administration of motor insurance.
6. Apply the legal and regulatory principles for motor insurance to a given set of
circumstances.
6.1 Apply the legal and regulatory principles for motor insurance to a 3B, 3C
given set of circumstances.
7. Understand risk assessment, rating and underwriting for motor insurance.
7.1 Describe the content, use and legal significance of proposal 4C
forms and statements of facts in the transaction of motor
insurance as they apply to both consumer insurance contracts
and commercial insurance contracts.
12 IF5/October 2022 Motor insurance products

Syllabus learning outcome Study text chapter

and section
7.2 Explain the general principles of rating and underwriting 5A, 5E
individual risks in motor insurance.
7.3 Describe the rating and underwriting considerations for different 5B, 5C, 5D
motor vehicles.
7.4 Describe the content of and legal requirements relating to the 4A
cover note and the certificate of motor insurance.
7.5 Explain the construction of private and commercial insurance 2B, 4B, 4C
policies.
7.6 Explain the use of no claim discounts and the distinctions 5F
between standard, protected and guaranteed discounts.
7.7 Explain the operation of a typical renewal system for private and 5G, 5H, 5I
commercial motor insurance.
7.8 Describe the frequency of renewal and its significance to 5G
continuity of cover.
7.9 Describe the renewal documentation and renewal terms specific 5G
to motor insurance.
8. Apply the principles contained within risk assessment, rating and underwriting for
motor insurance to a given set of circumstances.
8.1 Apply the principles contained within risk assessment, rating and 5A, 5B
underwriting for motor insurance to a given set of circumstances.
9. Understand claims procedures for motor insurance products.
9.1 Explain the ethical considerations in the transaction of motor 5A
insurance products.
9.2 Describe the principles of claims-handling applied to motor 6A, 6B
insurance.
9.3 Describe the claims-handling procedures for different motor 6A
vehicles.
9.4 Explain the role of motor engineers. 6A
9.5 Explain the use of recommended repairers. 6A
9.6 Explain the role of MIAFTR2 and CUE. 6C
9.7 Explain fraud prevention and detection measures and their 6C
operation.
9.8 Explain the role of the Financial Ombudsman Service and the 6A, 6D
Financial Services Compensation Scheme.
10. Apply the principles of claims procedures for motor insurance to a given set of
circumstances.
10.1 Apply the principles of claims procedures for motor insurance to 6A
a given set of circumstances.
11. Understand information and communication technology as this relates to motor
insurance.
11.1 Explain the implications of IT development for the motor 1B, 1C, 1E, 3A
insurance market.
12. Apply the principles of information and communication technology as this relates to
motor insurance to a given set of circumstances.
12.1 Apply the principles of information and communication 3A
technology as this relates to motor insurance to a given set of
circumstances.
 13

Introduction
In March 2022, Government vehicle licensing statistics reported that there were 39.1 million
licensed vehicles on the roads in Great Britain. This was made up of 31.9 million cars, 1.3
million motorcycles, 4.4 million vans, 560,000 HGVs and 140,000 buses and coaches.
To address this diversity, the insurance industry has designed a range of covers which not
only satisfy the legal requirements at home and abroad, but also protect policyholders’
financial interests in the vehicles they use or own.
Today, the annual premium spend on motor insurance runs to many billions of pounds and
also provides an important source of revenue to the Government by way of Insurance
Premium Tax.
This study text gives an overview of the various motor insurance products available to
consumers and commercial clients alike, the distribution channels through which these are
marketed, and the legal and regulatory obligations attached to their provision.
We begin by considering motor insurance products designed to cover private cars,
commercial vehicles, motor cycles and motor fleets. We then discuss the roles of direct
insurers, brokers, other intermediaries and Lloyd’s, as well as important bodies such as the
Motor Insurers’ Bureau.
The differing levels of cover available are discussed next, before we examine the Road
Traffic Acts and EU Directives, which have shaped the minimum cover requirements that
exist today. We also consider to whom the law applies, in which circumstances, and the
alternatives to arranging compulsory insurance.
Other legislative instruments relevant to the provision and transaction of motor insurance
follow, including the differing duties placed upon consumers and commercial customers
when proposing insurance cover. We also take a brief look at the legislative strategy
proposed by the Government to cater for those who might be injured by ‘driverless’ cars.
The documentation central to the transaction of motor insurance in the UK is then
considered, in particular the significance of the certificate of motor insurance and the legal
requirements concerning its issue and content, along with the policy schedule which serves
to customise the policy to the policyholder.
The construction of motor insurance policies as a contract of insurance is explored, starting
with the use of proposal forms and/or statements of facts, distinguishing between the two,
and outlining the legal effects of their completion. The component parts of the policy booklet
are explained together with common policy conditions and exclusions.
The viability of insurance to insurers, and the need for them to obtain sufficient premium to
cover their claims costs, business expenses, and a margin for profit, follows. This leads us to
consider the general rating and underwriting principles applicable to this class of business.
Finally, we consider the claims handling procedures applied to motor insurance starting with
the essential principles of insurable interest, indemnity, contribution, and subrogation. We
look at how claims may be notified to the insurer and the information commonly requested
when doing so. Procedures applicable to differing claims including own damage, third party
property and third party personal injury are then discussed. This is followed by consideration
of the various motor industry databases used to identify and reduce fraudulent claim
submissions and uninsured driving, and the roles of the Financial Ombudsman Service and
Financial Services Compensation Scheme.
 15

Contents
1: The market place
A Products 1/2
B Purchase and supply options 1/4
C Motor insurance vendors and suppliers 1/6
D Motor Insurers’ Bureau (MIB) 1/10
E Driver and Vehicle Licensing Agency (DVLA) 1/15
F UK financial services regulatory structure 1/17

2: Scope of cover provided

A Types of cover 2/2
B Policy wording – private car, commercial vehicle and motorcycle 2/5
C Uninsured loss recovery – legal expenses policy 2/24
D Breakdown cover 2/25

3: Legal and regulatory considerations

A Road Traffic Act 1988, as amended by the Road Traffic Act 1991 3/2
B Part VI RTA in practice 3/19
C Use of vehicles outside the UK 3/21
D Green Card system 3/25
E Other legislation affecting motor insurance 3/28

4: The Certificate of Motor Insurance and the construction of

policies
A Content and legal requirements of the cover note and the Certificate of 4/2
Motor Insurance
B Policy schedule 4/5
C Construction of commercial and private motor insurance policies 4/5

5: Rating and underwriting

A General principles of rating and underwriting 5/2
B Rating and underwriting considerations specific to private car insurance 5/7
C Rating and underwriting considerations for commercial motor insurances 5/11
D Fleet risks 5/15
E Risk management 5/19
F No claim discount and other driving incentives 5/20
G Renewal of cover 5/24
H Private car renewal procedure 5/27
I Commercial vehicle renewal procedure 5/28
16 IF5/October 2022 Motor insurance products

6: Claims procedures
A Principles of claims handling applied to motor insurance 6/2
B Contributory negligence 6/18
C Motor industry computer databases 6/20
D Financial Ombudsman Service (FOS) and Financial Services 6/23
Compensation Scheme (FSCS)

Appendix 1: Road Traffic Act learning aid A1/1

Appendix 2: Part VI of the Road Traffic Act 1988 A2/1
Self-test answers i
Cases vii
Legislation ix
Index xi
 Chapter 1
The market place
1
Contents Syllabus learning
outcomes
Introduction
A Products 1.1, 2.1
B Purchase and supply options 1.1, 2.1, 11.1
C Motor insurance vendors and suppliers 1.1, 2.1, 11.1
D Motor Insurers’ Bureau (MIB) 1.2, 2.2
E Driver and Vehicle Licensing Agency (DVLA) 1.2, 2.2, 11.1
F UK financial services regulatory structure 5.8
Key points
Question answers
Self test questions

Learning objectives
After studying this chapter, you should be able to:
• explain the basic differences between the main areas of motor insurance products;
• describe the nature of the main vendors and suppliers of insurance and methods of sale;
• describe the role and functions of the Motor Insurers’ Bureau;
• explain the role and responsibilities of the Driver and Vehicle Licensing Agency; and
• describe the FCA’s ICOB rules, TCF initiative and the FCA regulatory regime.
Chapter 1 1/2 IF5/October 2022 Motor insurance products

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

Aggregators Commercial fleet Driver and Vehicle Fair treatment of

policy Licensing customers
Agency (DVLA)
Financial Conduct Insurance Insurance: Conduct Intermediaries
Authority (FCA) Distribution of Business
Directive (IDD) Sourcebook (ICOBS)
Motor insurance Motor Insurance Motor Insurers’ Policies
Database (MID) Bureau (MIB)
Private car insurance Purchase options Supply options UK Information
Centre (UKIC)

Motor insurance, like all other types of insurance, is normally based on the payment of an
annual premium. Likewise, policies are traditionally issued annually, and a renewal is offered
if the risk remains acceptable.
Thus, insurance is a cyclical business. The motor insurance market operates on the same
principles; the cycle begins with a situation where rates are set at a level for profits to be
generated, generally referred to as a ‘hard’ market.
New entrants to the market see the attraction of writing profitable business, even if they are
at slightly more modest premium levels. This then encourages competition, and insurers
already in the market may then consider lowering premium rates with a view of gaining a
greater market share.
All this creates greater competition, with rates being driven downwards. The market then
becomes ‘soft’. As a result, there is a lack of profitability, producing a difficult period for the
market, encouraging company mergers, withdrawal of insurers from the market and,
perhaps, even the failure of companies or motor syndicates.
Once capacity reduces substantially, then the rates begin to improve (harden) and the cycle
begins again.
As we shall see, the methods by which private car, motorcycle and commercial vehicle
insurance are viewed and the methods of underwriting vary considerably.

A Products
We should start by looking at the basic differences between private car, motorcycle and
commercial vehicle insurance.

A1 Private car policies

These are policies issued invariably to individual policyholders although there may, on
occasions, be ‘joint’ policies. These may be issued, for example, to a policyholder and their
spouse or civil partner. These policies will not be issued to companies, firms and the like,
although they will often allow business use. Most of the vehicles insured are built for
personal/family use.
For many people, the use of a private car is an essential part of daily life and so the demand
for, and the number of, private car insurance policies issued to private individuals far
exceeds the number of all other motor insurance policies. Indeed, private cars make up more
than 80% of the total number of vehicles registered in the UK.
Around 1.65 million new cars were registered in the UK in 2021 and car manufacturers
compete fiercely for their market share. This was a significant reduction on the 2019 figure of
2.31 million due to the worldwide economic impact of the COVID-19 pandemic.
Each year new models appear with a range of bespoke specifications, while advances in
technology and concerns for the environment have given rise to a new generation of pure
Chapter 1 The market place 1/3

Chapter 1
electric and hybrid-powered cars with zero or low CO emissions. Also, driverless cars are
already a reality.
Such a diverse range of cars have to be catered for by insurance policies, to not only protect
the policyholder’s financial interest in what is a valued asset but to also satisfy the demands
of legislation contained within the Road Traffic Acts.

Question 1.1
Roughly what proportion of vehicles registered on UK roads are private cars?
a. Less than 50%. □
b. Less than 75%. □
c. More than 80%. □
d. More than 90%. □
A2 Motorcycle policies
This type of insurance tends to be offered by a relatively small number of insurers but, like
private car insurance, it is invariably process-orientated, using information technology with
little need for specialised underwriting. There are, however, brokers or intermediaries who
may specialise in insurance for particular groups, e.g. despatch riders.

A3 Commercial type motor policies

What is a commercial type motor policy?
• Commercial policies can vary, from what is a small business policy for a single vehicle up
to fleet policies with hundreds of vehicles insured, and anything in between.
• Some commercial vehicle policies may be specifically for a particular type of vehicle (e.g.
small vans).
• There may be types of policies aimed at goods-carrying type risks (e.g. hauliers).
• Some insurers will offer a particular policy for those commercial businesses which have,
say, six or less vehicles in their fleet.
• They are only issued to businesses where the motor vehicle use includes business use –
this includes vans, lorries, minibuses etc. (but can also include cars).
• If the ‘mix’ of vehicles is varied, and includes private cars, then it may be more beneficial,
both financially and administratively, for the risk to be insured on a ‘fleet’ policy. The
alternative would be to arrange separate policies for the cars and the commercial
vehicles.
While private car insurance is largely capable of being administered though automated
processes, commercial vehicle insurance does, particularly for large vehicles and multiple
vehicle risks, remain a more risk specific and people-dependent business, and it is often
arranged through intermediaries who may specialise in this area.
Commercial vehicle policies are underwritten on the basis that each vehicle acquires its own
no claim bonus (or no claim discount). In other words, provided a particular vehicle remains
claim free, then the Bonus/Discount can be built up on that vehicle.
There is normally greater individual underwriting of commercial risks, partly because of the
huge variety of different categories and uses. For fleets of motor vehicles, there is the need
to consider the individual policy experience in advance of each renewal. Levels of cover and
service, including risk management services, tend to be more dominant factors for
commercial risks – though price will always remain an important consideration.
Again, because the commercial vehicle market is so diverse, there are also policies which
cater for those commercial risks which comprise solely of passenger-carrying vehicles.
Chapter 1 1/4 IF5/October 2022 Motor insurance products

A3A Commercial fleet policies

A number of insurers will consider any combination of vehicles owned by a particular
policyholder as a potential ‘fleet’ risk. However, there has to be a minimum number of
vehicles owned by the policyholder, and this figure is usually five.
The fundamental difference is that with fleet risks, the vehicles are rated collectively, i.e. fleet
rated, based mainly on the policyholders’ claims history, although in order to calculate the
premium, the insurers will often take into account the area of operation, types of vehicles,
cover, driving restrictions and perhaps other factors. It is the type of risk where the
underwriter is required to underwrite in its truest sense.
A further type of fleet policy is a ‘mini-fleet’ policy. This is a fleet policy where the vehicles are
fleet rated but may be restricted to cars or vans, although some insurers will cover hauliers
or taxis under such ‘a policy’.

A4 Other types of motor policy

Aside from the above, there are a diverse number of different types of motor policy, including
the following:
Home fleets: Appeals to those risks where the number of vehicles to be insured will exceed
the number of drivers.
• Where three or more vehicles are owned by the policyholder. The home fleet policy is
based upon the drivers, with each vehicle having a specific driver and offers the flexibility
of one policy to cover a number of vehicles and drivers from the same household. Each
vehicle is individually NCD rated.
• Vehicles may include a prestigious and/or high performance type vehicle, for example a
Porsche and/or a Mercedes.
Motor trade: This can include repairers, MOT testing stations, and car sales garages, but
may also include auto electricians, tyre fitters etc.
• If the risk is purely a ‘road risks’ type (and does not include any premises cover) then it
can be rated on a named driver, trade plate or points basis.
• It may also include workshop fitters, car jockeys etc.
Specialist motor risks: Policies may be arranged for various types of vehicles, including
agricultural diggers and tractors, classic cars, private hire, buses, coaches, kit cars, etc.

Question 1.2
Which category of motor vehicle will have the highest policy count?
a. Bus. □
b. Private car. □
c. Truck. □
d. Van. □

B Purchase and supply options

The public are now aware of the possibility of shopping for a whole range of products by
telephone and on the internet and insurance is no exception. A large number of people shop
around in order to obtain the best possible quote for private car insurance. The ‘best’
normally means the cheapest in the view of the buyer.
The telephone is being superseded by the internet and aggregators (or price comparison
sites) are frequently used when arranging private car insurances.
Aggregators are online quotation services that can calculate premiums in seconds from a
number of different insurers and schemes on one website. Customers are prompted by
selected questions to enter the details of their insurance requirements, and the aggregator
website then calculates and displays a range of premiums and terms.
Chapter 1 The market place 1/5

Chapter 1
Aggregators compete with each other, relying on their technology to provide fast quotations
from a variety of providers. The premiums are displayed in ascending order, allowing the
customer to select a quotation based on price. Quotation terms are also shown to help the
customer compare the policies. If the customer selects a quotation, they will be transferred to
the insurer’s website to have their quote confirmed and any documentation processed. To
complete the purchase, the premium is paid online and the policy documents are sent
electronically to the customer or made available on the insurer's website, unless the
customer has requested otherwise.
An advantage of aggregators is that they are available 24 hours a day, so the customer can
make their choice at a time convenient to them. The aggregator is paid a fee by the winning
insurer for each customer who purchases a policy.
However, not all insurers are quoted on aggregators; some choose to promote their products
directly so that they can fully control the purchasing process and price without being directly
compared to other insurers. These insurers encourage customers to make decisions based
on the services provided and other benefits, rather than purely on price.

On the Web
Have a look at [Link] as just one example of an aggregator/price comparison
site, providing a choice of quotes from different insurers and schemes for the same risk.
However, be aware that they cannot offer the technical expertise and personal
advice provided by an insurance broker.

It is also to be noted that some of the aggregators are owned by insurers and/or large
intermediaries. Sometimes the choice of potential insurers on such sites is not as great as
may be initially believed as while the brand may differ, the underlying insurer is the same.
Furthermore, some insurers do not participate on aggregators at all.
Other websites, such as Tesco’s or ASDA’s, offering motor insurance cover may be
underwritten by a panel of insurers.

Activity
Take a look at the following website [Link]/car-insurance/.

There are still a proportion of motorists who like to transact their business through the
traditional high street intermediary, which offers different types of policies, underwritten by a
range of insurers. The proportion is, however, getting smaller and they are finding it difficult
to compete and survive. Those who specialise in commercial vehicle risks still remain
competitive, however, as they continue to offer a personalised service and often handle most
of the administrative tasks associated with such risks. Sometimes, they will enhance their
service and provide additional assistance – for example, by logging information onto the
Motor Insurance Database (MID) on behalf of the customer.

Be aware
As already indicated, information technology has played a large part in shaping the motor
insurance market. Direct-sell companies used to have the advantage of being able to alter
rates quickly in response to statistical analysis. They have no need to communicate
changes to large numbers of selling agents, and will contend that the savings that are
made by not paying broker commission can be transferred to the proposer in reduced
premiums. Without a high level of technological sophistication, the direct-sell operations
would not, perhaps, have made such an impact. However, most traditional insurers have
now developed their IT systems in order to remain competitive.

Most brokers now use the services of software houses which offer a distribution
mechanism for the quotation systems used by different insurers. The software house
basically supplies the brokers with regular updates of the rating schemes – insurers can
easily amend their premiums charged for different risks. Provided the computer systems are
adequate, the rating structure can be revised regularly, daily or hourly.
There are also combined quotation and EDI systems. EDI stands for Electronic Data
Interchange. The insured’s details can be captured directly onto the intermediary’s computer
Chapter 1 1/6 IF5/October 2022 Motor insurance products

system. Here, the insurance documents (e.g. proposal form/statement of facts, certificate,
schedule and even cover note) can be printed at the point of sale by the intermediary and
the insurer’s system can be updated electronically without further manual intervention.
Quotation and EDI systems can be, and are, used at renewal as well as at inception. This
option was originally confined to the private car market, but is now being increasingly utilised
for single vehicle commercial vehicle business, and even by a few insurers for smaller
fleet risks.
As a further refinement to the process, some insurers have offered to take the renewal
burden totally away from intermediaries by issuing documentation direct from the insurer’s
office. This will avoid the need for further computer interaction at renewal and will allow the
intermediary to concentrate on securing new business. In recognition of the reduced
workload, the commission level is reduced for renewals of this type.
The above options would principally apply to private car and motorcycle insurance. As can
be seen, commercial vehicle insurance is predominately transacted through intermediaries,
who focus on such business. Perhaps the only notable exceptions would be central or local
authorities which have their own insurance departments and habitually transact direct with
large commercial insurers with the necessary support systems in place to cater for large
mixed risks.

C Motor insurance vendors and suppliers

C1 Insurance companies
C1A Traditional insurance companies
These will still transact with high street intermediaries and the like. Basically, the
intermediary sells policies on behalf of a selection of insurers and, while price may be one of
the important factors, the benefits or cover offered by a particular policy and the level of
service provided by the intermediary may well be taken into account by a potential buyer.
C1B Direct sell companies
When considering the cost of selling insurance, there are two areas where expense levels
might potentially be reduced, these being handling costs and broker commissions. Direct
Line was set up in the 1980s and was the first insurer to introduce the direct-sell model,
made possible by the development of information technology, the greater use of telephones
and a growing acceptance of buying insurance at a distance rather than face to face. By
dealing direct, they avoided the necessity of having to pay broker commission, and the
savings made were then directed towards the advertising and marketing of their products in
order to maximise sales.
Call centres
Call centres provide direct sell companies with an efficient method of transacting insurance
with customers. Their sales activities are focused on achieving specific targets, such as
defined sales volumes, call-queuing times and numbers of customers purchasing. The
popularity of call centres has grown out of the competitive market as their efficiency reduces
the transaction costs of policies.
Call centres can be located in any place where employees may be trained. This includes
countries such as India where employee costs are much lower than in the UK. However,
some customers now prefer call centres to be operated in their own country as a result of
poor past experiences.
Employees, who are often referred to as agents or operators, are guided by the software
through a series of question prompts to ask customers. Agents generally follow a script to
ensure that the sales process is consistent and complies with regulations around asking
clear questions and making customers fully aware of the basis on which the quote is being
provided. Telephone calls are held in a queue until one of the agents is ready to handle the
call. The process is automated with the caller hearing a pre-recorded interactive voice
recognition (IVR) introductory message before the agent begins the conversation.
Where, as is usually the case, the call is recorded for training and quality assurance
purposes, the customer must be made aware of this. Calls are also recorded as evidence of
Chapter 1 The market place 1/7

Chapter 1
what was said by both parties during the conversation in case there is a later dispute about
whether a particular question was asked or how it was answered.
In addition to making new business sales, call centres are often used to support and develop
the customer relationship. Outbound calls can promote the benefits of optional cover
extensions ('add-ons') and alternative products to existing customers; for example, motor
insurance customers usually require home insurance as well. The more products that a
customer buys from a certain organisation, the more likely they are to remain with it out of
loyalty. Customers are also likely to become less price-sensitive as they associate
themselves with a brand.
Websites
With advances in online technology, many direct insurers have their own websites through
which consumers can arrange and pay for their insurances without having to call. In addition,
while many call centres are now open for extended hours both during the week and at
weekends, websites are generally available 24 hours a day, 365 days of the year.
From a regulatory point of view, quotations are provided on a ‘non-advised’ basis, since only
that particular insurance company’s products are considered.

Be aware
While some direct companies may also have a presence on price comparison sites, others
– noticeably Direct Line – choose not to do so and prefer to use high-profile advertising on
television and other media to attract customer numbers.

Be aware
Direct selling operations now transact 40%–50% of private car insurance and this, clearly,
has an adverse effect on the business left for traditional brokers and intermediaries, which
tends to consist of less straightforward risks.

Aware of the effect on their business, and seeing the advantage of direct selling, a number of
larger intermediaries and the bigger insurers have created direct selling operations of their
own, using similar sales and marketing techniques and technology. The intermediary may
issue their own policy booklet, but the underwriting may be by one of a panel of insurers.
C1C Internet companies
Many insurers sell directly via the internet through divisions within their existing structure but
still deal with brokers for distribution of different products, while others use this
method alone.
With a company like Esure, they tend to prefer the ‘standard’ type of risk, as this makes it
easier to calculate premiums and, therefore, provide a quote. For example, they may only
quote on policyholders with four or more years no claim discount (NCD).
Other insurers may be selective, by only considering those risks that are distinguished by the
following factors:
• by driver age (say, between 25 and 65 years of age), claims or conviction record;
• by vehicle type; and
• by use (possibly not wishing to insure those engaged in commercial travelling).
As a result of a European Courts of Justice ruling in 2011, insurers are no longer permitted to
use gender as a rating factor after December 2012 and are no longer able to charge different
premiums to men and women purely due to gender.
The ECJ ruling, often referred to as the 'Test-Achats judgment' after the Belgian consumer
organisation which brought the test case to the ECJ, applies only to contracts entered into or
renewed after 21 December 2012.
Other rating factors such as driver age, driving experience and mileage remain relevant.

Activity
Take a look at websites such as [Link] and [Link].
Chapter 1 1/8 IF5/October 2022 Motor insurance products

C1D Lloyd’s motor syndicates

From November 2008, the restriction that only a Lloyd’s broker could place business at
Lloyd’s was removed. The Lloyd’s Council was empowered to achieve this by means of
appropriate bye-laws which allow syndicates to accept business from both Lloyd’s and non-
Lloyd’s brokers so long as the non-Lloyd’s broker meets the same standards as the Lloyd’s
broker.

C2 Intermediaries
C2A Types of intermediaries
Previously, there were three types of intermediaries, who were entitled to subscribe to the
General Insurance Standards Council. However, the Financial Services and Markets Act
2000 (FSMA) and associated regulations facilitated the creation of the Financial Services
Authority (FSA), and regulation is now a statutory requirement.
The FSA created a detailed handbook (the FSA Handbook), incorporating a section entitled
‘Insurance: Conduct of Business’ (ICOB) which came into force from 14 January 2005.
Towards the end of 2007, the FSA published a revised version known as the Insurance:
Conduct of Business Sourcebook (ICOBS), which is more principles-based, and a
number of the ‘old’ rules were removed. This came into effect on 6 January 2008, followed
by a six-month transitional period for firms to be able to comply with the new requirements.
Following the disbandment of the Financial Services Authority in April 2013, and the creation
of the new regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct
Authority (FCA), the FSA ICOBS Rules have been adopted into the Financial Conduct
Authority’s Handbook.

Refer to
See Financial Conduct Authority (FCA) on page 1/17 for more information on ICOBS

It is the ICOBS which outlines the standards for intermediaries, and their conduct in relation
to the sale and provision of motor insurance products.
C2B Direct sell intermediaries
A number of these direct-sell intermediary operations have taken the concept of 'own
branding' a step further by performing the whole range of underwriting tasks.
In effect, they act as though they were the insurance company rather than the intermediary,
leaving the risk-carrying insurer to accept premiums monthly on a bulk basis and, of course,
to pay the cost of claims.
They may now offer full claims handling facilities and, therefore, in every way look and act as
though they were an insurer, without running the ultimate risk of paying claims.
To ensure that such operations will not place commissions and customer retention ahead of
the need for profitability, many are on profit-share arrangements with the risk-carrying
insurers.
C2C Summary overview
Market structure
The motor insurance market, in terms of insurers, is now broadly split into direct sellers and
broker companies, although those within Lloyd’s still maintain a separate identity.
To complicate the situation even further, the larger insurers have created direct selling
operations of their own, either as separate divisions or, indeed, as separate companies.
Moreover, there has been a greater diversification within the general financial market, with
banks, building societies and other financial institutions offering a broad range of insurance-
related products.
It is now possible for a building society to offer a mortgage and, perhaps, a life assurance
policy, a household policy and even policies for the family’s cars and pets. This is not only
more convenient but also enables the service provider to gain a greater market share in what
were once considered distinct areas.
Chapter 1 The market place 1/9

Chapter 1
Products
Private car insurance is a fast-moving, process-driven operation that is moving more and
more towards telephone and online transactions. From the public’s perspective, the
motivation for changing insurer is virtually always cost although there may be variations in
the extent of the cover which should be explored.
Even though some of the trends evident in private car insurance could influence the single
vehicle or small commercial vehicle risks, there is now evidence that this is happening in the
larger commercial market, although, perhaps, only to a limited extent.

Be aware
There is now a trend among certain insurers to focus on what are termed small and
medium-sized enterprises (SMEs). These are the smaller commercial risks which are
conducive to a certain element of processing, and are less true underwriting-based.

Insurers will often place a ceiling on the premium to be charged to be classified as an SME,
but this varies from one insurer to the next. However, many commercial risks are placed
through brokers or other intermediaries, often alongside the company’s other general
insurances, and it may be difficult to envisage a substantial move towards the private car
system.
Recently, however, one prominent direct insurer has begun advertising SME products, the
promotion being aimed at ‘businesses’, focusing on various types, including residential
property, shopkeepers, tradesmen, working from home etc.
C2D Insurance law reform
The Law Commission review of insurance contract law included a focus on:
• customers’ duty of disclosure;
• misrepresentation; and
• breach of warranty.
It concluded by making recommendations for reform of the then current law.
A fundamental criticism of the law was that a failure by the proposer to disclose a material
fact entitled the insurers to avoid the contract completely – even though the insured may
have acted honestly.
The insured may have failed to realise that a particular fact was material or may have
assumed that they only had to answer the questions asked on the proposal form truthfully
and that no additional information was required of them.
There was also concern about the way in which a ‘material fact’ is defined in law in that it
required the proposer to disclose any fact that would influence the mind of a prudent insurer.
Critics suggested that an ordinary person could not be expected to know what an underwriter
is likely to regard as ‘material’. They suggested instead that the test should be based on
what an ordinary person would consider to be material.
These provisions have now been incorporated into the Consumer Insurance (Disclosure
and Representations) Act 2012. This Act attempts to address deficiencies in consumer
insurance contract law in major areas, including misrepresentation and non-disclosure by the
insured before the contract is made, remedies for breach, warranties and similar terms etc.
We will discuss this more fully in Consumer Insurance (Disclosure and Representations) Act
2012 (CIDRA) on page 3/34.
The legislation is designed to level the pre-contract disclosure playing field between
consumers and insurance companies, making it harder to prevent claims being paid out on
the grounds that the customer has inadvertently provided inaccurate or misleading
information.
Similar considerations were given to the transaction of non-consumer insurance contracts
culminating in the passing of the Insurance Act 2015 which came into effect in August 2016.
This is discussed more fully in Insurance Act 2015 on page 3/37 and Insurance Act 2015 on
page 5/3.
Chapter 1 1/10 IF5/October 2022 Motor insurance products

D Motor Insurers’ Bureau (MIB)

The Road Traffic Act 1988, like its predecessors, makes motor insurance compulsory for
third party bodily injury and property damage. However, it does not always cover all possible
scenarios, including, for example, where a driver has failed to take out insurance. In addition,
the remedies under the RTA rely upon there being a negligent person to sue, but this does
not cover the situation where someone is struck by a vehicle which then disappears,
commonly known as a ‘hit and run’ situation.

Refer to
Chapter 3 deals with the Road Traffic Act 1988 in more detail

To ‘fill the gaps’, the Motor Insurers’ Bureau (MIB) was formed in 1946, although the idea
was formulated some time before that when it was realised that there were scenarios where
victims were left without compensation.

D1 Role of the MIB

The function of the MIB is that of ‘insurer of last resort’. In other words, it is set up on the
basis that it will only be called upon to pay in the event that there is no insurer for the
responsible driver, or the responsible vehicle/driver cannot be traced.
In order to preserve its status as last resort payer, and to ensure that any relevant insurer
ultimately pays the claim, the Bureau has to have a separate agreement with its members.
The MIB is a private company limited by guarantee for the purpose of entering into
agreements with the Government to compensate the road traffic accident victims of negligent
uninsured and untraced motorists.
As a ‘company limited by guarantee’, this means that they hold no assets to cover their
potential liabilities, but that their members guarantee that they will pay their liabilities as and
when the need arises.
The RTA makes it compulsory for all insurers transacting motor insurance business in the UK
to be members of the MIB. Their membership requires them to fund the Bureau through a
levy based upon premium income. It is from these levies that the MIB finances the running of
its operation and pays compensation under either the Uninsured or the Untraced Drivers
Agreement. The total 2020 MIB levy funded by insurer members was £404m.
In the past, the Bureau itself only handled some of the smaller claims, particularly those
solely involving property damage. Nowadays, most of the MIB claims are handled ‘in-house’.
In this way, it is hoped that greater control can be exercised upon spending from the
central fund.
There are technical committees which decide the way that individual claims are handled and
by whom. These committees are chaired by senior members of the Bureau but are otherwise
made up of representatives from different member insurers.

D2 Agreements with the Secretary of State

There are now two agreements with the Secretary of State.
The Untraced Drivers’ Agreement, the most recent version of which came into force on
1 March 2017, relates to accidents occurring on or after this date. The earlier version, dated
14 February 2003, remains in force for accidents on or after this date but before 1 March
2017. The Agreement covers ‘hit and run’ cases where the negligent driver remains
unidentified and applies to compensation for personal injury or death and, for the first time, to
property damage. However, for a claim for property damage to be considered, the police
must be notified within five days of the incident occurring, provided that such notification is
reasonably possible and there must also have been ‘significant personal injury’ to someone
as defined in the 2011 Supplementary Agreement.
Property damage claims are also subject to a £400 excess, whereas previously this was
£300. While the driver who has been responsible cannot be traced, the vehicle which caused
the damage must be identified.
Chapter 1 The market place 1/11

Chapter 1
A case heard by the Court of Appeal attempted to shift some 'untraced driver' claims from
the MIB to insurers. In Cameron v. Hussain (2017) the driver was untraced but the vehicle
was identified along with its insurers. In a change to previous legal precedent, the Court of
Appeal agreed that a case could be brought in the name of 'the person unknown driving
vehicle {VRM} who collided with vehicle {VRM} on {date}'. The claimant, therefore, had the
option to pursue a claim against either the insurer under Section 151 of the RTA or the MIB.
However, following an appeal to the Supreme Court, the Court of Appeal's decision was
overturned. Consequently, claims involving untraced motorists will continue to be handled by
the MIB.
Under the agreement, the MIB nominates one of its members, on a rota basis, to negotiate
settlement of the claim on its behalf, the cost being met by way of the levy imposed on MIB
members.
The Uninsured Drivers’ Agreement, the most recent version of which came into force on 1
August 2015, is effective for all incidents that occurred on or after date. It simplified and
replaced the earlier 1999 agreement. The objective of this agreement is to settle unsatisfied
court judgments where damages are awarded for third party personal injury (£ unlimited)
and/or property damage up to £1.2m (since the Motor Vehicles (Compulsory Insurance)
Regulations came into force on 31 December 2016) and where there is no motor insurance
policy in force. The previous figure for third party property damage was £1m.
Under this latter agreement, where insurers may have had an obligation under the RTA they
are compelled to take over the running of any claim on behalf of the Bureau and, of course,
to make appropriate payments. The insurer is referred to as the 'Article 75' insurer. This
could arise, for example, when there is an insurance policy in force but it is defective in some
way, such as for breach of its terms. If the Bureau, nonetheless, pays such a claim, then the
insurer is obliged to repay.
Claims for property damage under this agreement were subject to £300 excess. However,
since the implementation of the Fifth EU Motor Directive in 2007, the excess has ceased to
apply. However, if there is no insurer in the background, then the MIB will have to meet the
claim in full.
A Supplementary Uninsured Drivers' Agreement was introduced in March 2017 to maintain
consistency with the revised Untraced Drivers' Agreement. The key changes introduced by
this Agreement were the acceptance of vehicle damage claims from claimants who were
themselves uninsured and the deletion of the terrorism exclusion which previously excluded
liability for loss or damage caused by or in the course of terrorism. These changes were also
introduced into the 2017 Untraced Drivers' Agreement.

Refer to
See Part VI RTA in practice on page 3/19 for more information on the Motor Insurers’
Bureau

The MIB does have the right to recover any sum it might pay out from the driver concerned.
This will entail seeking an agreement with the uninsured motorist that the MIB can deal with
the claim, and then the uninsured motorist will reimburse the MIB. In reality however, it may
be far more difficult to secure recovery from a person who had not arranged insurance in the
first place.
Chapter 1 1/12 IF5/October 2022 Motor insurance products

D3 Green Card
The Green Card is a document that is recognised in over 40 countries including all the
countries in Europe.

Key points about the Green Card

It does not offer insurance cover It is proof that the minimum legal requirements for third party liability
insurance in any country for which the Green Card is valid are
covered by the insured’s own motor policy.

It is not required by law to cross All EU countries and certain other countries comply with the first
borders within the EU and some other directive on motor insurance, which says that every insurance policy
countries issued in the EU must provide the minimum insurance cover required
by law in any other EU country.
See below for the UK's position regarding Green Cards following its
departure from the EU.

Key points about the Green Card section of the MIB (prior to end of Brexit transition period on 31
December 2020)

Deals with accidents that occur Its main activity is identifying and corresponding with the insurers of
overseas foreign vehicles involved in accidents with British nationals or British-
insured cars abroad.

It does not pay compensation to UK It does, however, assist the insurance industry by trying to identify a
drivers foreign insurance company and supports innocent UK victims involved
in motor accidents whilst abroad.

Post-Brexit Green Card position

Green Cards were not required for travel in the EU and other participating countries, known
as the 'free circulation zone', when the UK was a member of the EU. The vehicle's certificate
of motor insurance (which may include an explanatory message in several European
languages) and number plate bearing the GB mark (or a separate GB sticker) was regarded
as evidence of a satisfactory level of insurance. However, policyholders occasionally insisted
on taking a Green Card with them for peace of mind.
One of the outcomes of the UK leaving the EU was the end of the free circulation zone for
UK motorists. The consequence of this was that following the transition period which ended
on 31 December 2020, UK travellers needed to obtain a Green Card from their insurer and
carry it with them as evidence of insurance whenever they took their vehicle to an EU or
associated country. EU motorists needed to do likewise if they brought their vehicles into the
UK, although an agreement was reached with the Republic of Ireland to waive this
requirement for vehicles. However, an agreement was reached between the UK and the EU
to re-admit the UK to the Green Card Free Circulation Area and waive the obligation to carry
a Green Card when travelling between the UK and the EU. This became effective from 2
August 2021.
If there is an accident in the UK where the driver of a foreign registered vehicle is being held
responsible, the MIB can be contacted to find out if there are any UK agents for the foreign
insurer to whom the claim can be directed.
If there are no agents or the vehicle comes from an EEA (European Economic Area) country
or certain other identified countries, and is uninsured, the MIB may be able to handle the
claim on behalf of the foreign insurer or Bureau, and pay compensation which it can then
recover from the foreign bureau.
The MIB is also the ‘Compensation Body’ appointed under Article 6 of the Fourth EU Motor
Directive from 19 January 2003. If a UK citizen is involved in an accident in another country
of the Green Card (GC) system, with a motorist from the EEA, when they return to the UK
they can contact the UK Information Centre (UKIC) to establish details of the foreign
insurers of the other vehicle/vehicles, plus the identity of their UK claims representatives.
If the insurer or claims representative fails to give a reasoned response within three months,
or the citizen is unable to identify any insurers at all, they can contact the MIB who may be
able to handle the claim on behalf of the foreign insurer or foreign guarantee fund involved,
according to the law and claims handling practices of the country of accident.
The countries in which a Green Card is not needed are:
Chapter 1 The market place 1/13

Chapter 1
Andorra, Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland,
Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland,
Portugal, Romania, Serbia, Slovak Republic, Slovenia, Spain, Sweden, Switzerland.
The countries in which a Green card is needed are:
Albania, Belarus, Republic of North Macedonia, Islamic Republic of Iran, Moldova, Morocco,
Russia, Montenegro, Tunisia, Turkey, Ukraine.
The Fourth EU Motor Insurance Directive was designed to make it easier to claim from a
foreign insurer when an EU citizen is involved in an accident outside their country of
residence.
To satisfy the requirements of the directive, insurance details of vehicles within the UK are
held on the Motor Insurance Database (MID).
Position post-Brexit transition period (1 January 2021)
The Motor Vehicles (Compulsory Insurance) (Amendment etc.) (EU Exit) Regulations 2019
was implemented from the end of the Brexit transition period. Its main purpose was to
remove the requirement for the Motor Insurers' Bureau (MIB) to act as a Compensatory Body
for UK residents injured by uninsured or untraced motorists in road traffic accidents in the
EEA. It also removes the requirement previously on the MIB to reimburse its foreign
counterparts in respect of EU27 visitors in the UK who have been compensated by their
'home' Compensation Body. These requirements have been replaced by bilateral reciprocal
agreements between the MIB and most other EU27 Compensation Bodies.
Under these Bilateral Protection of Visitors agreements, the MIB and the foreign
Compensation Body both commit to continuing compensation for victims of accidents
involving uninsured drivers in their own country. Claims will need to be brought in the country
where the RTA occurred, but claimants will benefit from the MIB's assistance.
Where no reciprocal agreement exists, a UK-resident claimant's entitlement to recover
against an EU member state's Compensation Body will depend on the law of that member
state. Claims will need to be brought in the country where the accident occurred and
entitlement to compensation will be assessed under the law of that country. The Guarantee
Funds of some countries that have not signed reciprocal agreements have confirmed that
they will continue to compensate UK-resident victims of uninsured drivers. Claimants may
require foreign legal advice.
There are still several EU member states who have neither signed reciprocal agreements
with the MIB nor confirmed that they will compensate UK-resident victims. Consequently,
there is currently a risk that where a UK motorist is involved in a road traffic accident with an
uninsured driver in one of these states, compensation will not be available.

D4 The UK Information Centre (UKIC)

The UKIC is the UK’s designated information centre, in accordance with the EU Fourth Motor
Insurance Directive. The company, formerly known as the Motor Insurers Information Centre,
incorporated by guarantee, was created in 1998. This is a subsidiary company of the MIB
and its costs are met from a supplement from the MIB levy.
The UKIC is responsible for maintaining a register of vehicles normally based in the UK. The
Motor Insurance Database is the register used by the UKIC to identify insured UK vehicles
by their registration numbers.

D5 Motor Insurance Database (MID)

It is estimated that over a million cars on the road are being driven without proper insurance
cover. As a result, every honest motorist in the UK is required to contribute through their
insurance premium to compensate the innocent victims of those who do not insure.
The MID project was set up a few years ago with the aim of reducing the number of
uninsured vehicles on UK roads, considered to have the worst record in Europe.
The Fourth EU Motor Insurance Directive, which was published in 2000, was designed to
make it easier for EU citizens who are involved in a motor accident in the EU but outside
their home country to claim from a foreign insurer. The Directive requires each Member State
Chapter 1 1/14 IF5/October 2022 Motor insurance products

to maintain a central information database which can provide details of the insurer of every
vehicle registered for road use.
The intention was to give the police easy access to such a database that would hold the
registration and insurance details of every single vehicle in the UK.

Phase 1 (completed 2001) Related to insured vehicles.

Phase 2 (with effect from 20 January 2003) Details of all vehicles insured under fleet, motor trade
and self-drive hire policies be lodged with the MID.

The idea is that EU citizens would find it easier to pursue a claim where the incident has
occurred outside their country of residence.
Commercial vehicle policyholders are now legally responsible for supplying all vehicle
registration and insurer details to the MID database. Some insurers and commercial brokers
are assisting their policyholders with this task, but others leave the insured to submit the
information direct to the MID.
Insurers are only obliged to provide the MID with brief details of the policy cover, policyholder
details and insurer contact information.
However, the MID also includes the names and addresses of the registered keepers,
together with the corresponding registration plates. The benefit is that insurers are quickly
able to access the database to establish the identity of the insurers of other parties involved
in an accident.
Responsibility for creating and maintaining the database in the UK lies with the UKIC which
is a subsidiary of the MIB.

Question 1.3
Why was the Motor Insurance Database (MID) created?
a. To monitor motor insurers. □
b. To tackle insurance fraud. □
c. To reduce the number of uninsured vehicles. □
d. To assist with the handling of foreign claims. □
D6 The MIB Police Helpline
The ABI estimates that the total cost of uninsured motoring in the UK exceeds half a billion
pounds each year.
In order to combat this problem, the MIB launched the Police Helpline project in the spring of
2007, following a pilot scheme. Under section 165 of the Road Traffic Act 1988, a police
officer may seize any vehicle that they have reasonable grounds to believe is uninsured.
They may also stop a vehicle, provided they have a valid reason for doing so. If that reason
is because the officer believes that a motoring offence has been committed, then they may
search the relevant database.
The vehicle may not appear on the MID, although the driver may claim that he or she is
insured. Prior to the Police Helpline, the officer had a dilemma: if they let the driver drive
away, it could be that they were allowing an uninsured motorist to escape a criminal
conviction. On the other hand, if the vehicle is seized, and it transpires that it is insured, then
this action could undermine the reputation of the enforcement authorities, and the insurance
industry.
As a result of the creation of the Police Helpline project, a police officer may contact the
dedicated Police Helpline team who, in turn, will liaise with what is believed to be the vehicle
insurer, to determine whether a valid insurance policy is in force. Once the Police Helpline
team member has completed their enquiries, and transmitted their findings to the officer,
then the officer is in a position to make an informed decision, as to whether there is a valid
insurance policy in force. Consequently, they can then decide whether to seize the
vehicle or not.
Chapter 1 The market place 1/15

Chapter 1
The Police Helpline project rolled out to all police forces in February 2008 has proved to be
extremely successful.
By January 2020, more than 2 million uninsured vehicles had been seized by police since
powers to stop and seize uninsured vehicles were first introduced in 2005.

E Driver and Vehicle Licensing Agency

(DVLA)
The Driver and Vehicle Licensing Agency (DVLA) operates from the Driver and Vehicle
Licensing Centre (DVLC) in Swansea, South Wales.
As the name suggests, the main functions of the DVLA, through its two main
departments, are:
• to regulate the issuing of licences to drivers; and
• to regulate the issuing of licences for vehicles and registration of vehicles.
It does offer a range of other services, including taxation of vehicles online, indicating
whether a vehicle is off the road in accordance with the Statutory Off Road Notification
requirements, and even the booking of driving theory and practical tests online. The services
available on the website can be seen at [Link]/dvla.
Evidence about the licensing situation of vehicles and, in particular, drivers that they are
asked to insure may, if required, be obtained by insurers from the physical driving licences or
vehicle registration documents themselves. In the majority of cases, this proves to be
sufficient.

How can the DVLA database be used?

When the driving license is missing or an With the permission of the licence holder and subject to the
incorrect document may have been payment of a fee, the DVLA will supply information to insurers,
produced although driving licence particulars will be subject to a signed
mandate.
The insurer applicant must satisfy the DVLA of the ‘reasonable
cause’ to enquire.

To trace the registered keepers of vehicles A registered keeper enquiry can be made by an insurer and will be
involved in road traffic accidents whom produced upon request and the payment of a fee.
the insurer may want to pursue for claims
Registered keeper information is now available to insurers
electronically and the fees can be paid monthly on a bulk basis.

To find out the exact specification of a This can be provided through the above procedures, but if the
vehicle enquiry does not involve any personal information (e.g. details of
present and past keepers), then it can be obtained through one of
a number of third party organisations online. For this type of
enquiry it is not necessary for the enquirer to indicate a reason for
the enquiry.

Following a joint initiative between the DVLA, the Department of Transport and the insurance
industry, represented by the ABI and the MIB, motor insurance customers searching for car
insurance quotes after mid-2014 may be asked to provide their Driving Licence Number
(DLN). This is a unique 16 character sequence displayed on the driving licence.
From the DLN, insurers will be able to get information from the DVLA on the type of licence a
customer holds, how long they have held it and whether there are any driving convictions.
As a result of this important development, commonly known as 'MyLicence', the data
provided by the DVLA will remove the opportunity for customers to make mistakes or lie
when declaring information about their driving history.
It is estimated that one in five policyholders under-declare the number of motoring
convictions they have, some by accident, others maliciously seeking to pay a lower premium.
As well as offering a saving to honest customers when arranging their insurance cover, the
initiative will mean that insurers will need to ask customers fewer questions when applying
for cover and will speed up the purchasing process for everyone.
Chapter 1 1/16 IF5/October 2022 Motor insurance products

As an alternative to MyLicence, where an insurer is concerned about the accuracy of the

conviction data provided, they may request a driver to provide a printout of their driver
licence details via the online service 'View Driving Licence' or a mandate from the licence
holder for the insurer to obtain the required information from DVLA. This facility has been
made available following the abolition of the counterpart to the photocard driving licence,
meaning that details of convictions and endorsements are no longer shown on driving
licences.
Insurers also play a key role in maintaining the vehicle licensing information held by the
DVLA. Whenever a vehicle is dealt with as an insurance ‘write-off’, the handling insurer
sends details to the DVLA on a form known as a V23. A write-off means that the cost of
repairs is greater than the value of the vehicle. This information, together with the surrender
of the registration document, allows the DVLA to control the registration of vehicles that
might not be roadworthy; this is done through a system of inspections. Depending on the
extent of damage, the vehicle will be allocated a code: A, B, S or N. A and B are the most
extensively damaged and should not be returned to road use while codes S and N are for
vehicles which are capable of adequate repair but are deemed uneconomical in relation to
the overall value of the vehicle.
There has been hope that, eventually, the information held by the DVLA may be integrated
with other data already held by insurers such as the Motor Insurance Anti-Fraud and Theft
Register (MIAFTR) and the Claims and Underwriting Exchange (CUE) Register. This would
assist in the exchange of data in both directions.
Following the introduction of the MID, there is now a national index of motor insurance
policies.
With the assistance of the Association of British Insurers (ABI), and in anticipation of
implementation of the Fourth EU Directive, the MIB completed the creation of the above
database of vehicle registration numbers, together with particulars of the corresponding
motor insurer (the MID).
Thus, not only does such a database assist with compliance with the Fourth Directive, it will
undoubtedly help in the reduction in the number of uninsured cars on the road. Furthermore,
the Information Commissioner (formerly the Data Protection Registrar) requires every effort
to be made to ensure that the data recorded is accurate, which will not only include the
accuracy of the addresses, but also the prompt amendment of the record.
Continuous Insurance Enforcement
Section 143 of the Road Traffic Act 1988 states that it is an offence to use, on a road or
public place, a vehicle for which there is no valid motor insurance.
In recent years, there has been a public consultation on the principle of ‘Continuous
Insurance Enforcement’, because of the high number of vehicles registered with the DVLA,
but which are uninsured.
Section 22 of the Road Safety Act 2006 introduced a new offence of being the registered
keeper of a vehicle which does not meet statutory insurance requirements.
In September 2009, a report was published by the Department of Transport, and this can be
found on the Department’s website ( [Link]). Among the main conclusions is that
the Road Safety Act 2006 requires a change in perception of responsibilities for motor
insurance. Now, in addition to the driver having a responsibility for insurance when the
vehicle is used, the keeper, who may or may not be the driver, also has a responsibility to
ensure that appropriate insurance is in place.
What does the process of making a Statutory Off Road Notification (SORN) to the DVLA entail?

A declaration that the vehicle is off the To declare the vehicle will not be used or kept on a public road
road (with a twofold purpose) without vehicle excise licence (or nil licence if appropriate) being
taken.

To declare that the vehicle will not be used or kept on a public road
or in a public place without the minimum insurance requirements
being met.

Those that used to tax a vehicle but did not continue insurance because the vehicle was not
in use now need to provide a SORN for the appropriate period.
Chapter 1 The market place 1/17

Chapter 1
The offence of being the registered keeper of a vehicle with no insurance is set out in s.144A
of the Road Traffic Act 1988 and is referred to as a ‘s.144A’ offence.
The Continuous Insurance Enforcement Scheme took effect from April 2011.
The Scheme works by comparing the DVLA vehicles' register with the MID to identify 'from
the record' those vehicles which appear to be registered but not insured. The registered
keepers of these vehicles are sent an Insurance Advisory Letter (IAL) stating that their
vehicle does not appear to be insured. Failure to act on this letter will result in the issue of a
£100 fixed penalty notice and a further warning letter. Where a vehicle remains uninsured, it
may be immobilised, seized and ultimately destroyed with the keeper being liable to court
prosecution and a fine of up to £1,000.
Currently the Scheme results in around 6,000 prosecutions of keepers of uninsured vehicles
each month. Over 5 million IALs have been issued since the Scheme began in 2011.
Approximately 750,000 IALs are issued each year.

F UK financial services regulatory structure

F1 Financial Conduct Authority (FCA)
Insurance: Conduct of Business Sourcebook (ICOBS)
With the demise of self-regulation within the insurance industry, it was for the Financial
Services Authority (FSA), overseeing the implementation of the statutory regulation regime,
to provide the rules relating to the handling of insurance business. These are now to be
found in the current FCA Insurance: Conduct of Business Sourcebook (ICOBS).
Under the regulatory structure created in April 2013, three new financial services regulatory
bodies have been established in the UK:
Financial Conduct Authority (FCA): • Separate independent regulator responsible for consumer protection
through regulation of conduct of business and markets issues for all
firms, and prudential regulation of small firms like insurance
brokerages and financial advisory firms.
• Focuses on taking action early before consumer detriment occurs.

Prudential Regulation • Sits within the Bank of England and is responsible for the solvency
Authority (PRA): and prudent management of systemically important financial
institutions, such as banks and insurers.
• Does not seek to prevent all firm failures but to ensure that firms can
fail without bringing the entire financial system down.

Financial Policy Committee (FPC): • A committee within the Bank of England responsible for anticipating
emerging risks to the financial system as a whole and providing
strategic direction for the entire regulatory regime.

The FCA’s strategic objective is stated in the legislation to

ensure that the relevant markets function well
and it has three operational objectives:
Consumer Protection: securing an appropriate degree of protection for consumers.
Integrity: protecting and enhancing the integrity of the UK financial system.
Competition: promoting effective competition in the interests of consumers.
To this end it will regulate the conduct of business of all authorised firms engaged in financial
services, and will regulate the prudential issues of firms which are deemed to be of limited
systemic importance.
The prudential issues of firms deemed to be systemically important (including insurers) will
be regulated by the Prudential Regulation Authority (PRA).
The FCA has responsibility for the Financial Ombudsman Service, oversees the Money and
Pensions Service (MaPS), previously known as the Single Financial Guidance Body (SFGB),
and has responsibility for the Financial Services Compensation Scheme.
Chapter 1 1/18 IF5/October 2022 Motor insurance products

On 1 April 2013, the FSA Handbook which contained the ICOBS Rules was split between
the FCA and the PRA to form two new handbooks, one for the FCA and one for the PRA.
Most provisions in the FSA Handbook were incorporated into the PRA’s Handbook, the
FCA’s Handbook, or both, in line with each new regulator’s set of responsibilities and
objectives.
The replacement handbooks reflect the new regulatory regime and in some areas more
substantive changes were made to reflect the existence of the two regulators, their roles and
powers.
Once authorised, a firm must then abide by the principles and rules laid down by the
regulators.
The rules indicate that a policyholder includes anyone who, upon the occurrence of the
contingency insured against, is entitled to make a claim directly to the insurance undertaking.
Only a policyholder or a prospective policyholder who makes the arrangements in
preparation to concluding a contract of insurance (directly or through an agent) is a
customer.
Under the rules, customers are either consumers or commercial customers:
• A consumer is any natural person who is acting for purposes which are outside his trade
or profession.
• A commercial customer is a customer who is not a consumer.
The rules apply to both intermediaries and insurers who sell directly to customers.
The principal requirements of the eight parts of the ICOBS rules can be summarised as
follows:
• ICOBS 1: Application
This explains the scope of the ICOBS, including to whom the rules apply, to what
activities they apply and where the rules apply. Aside from outlining the extent of the
application of the ICOBS, it provides guidance to firms on the application of other parts of
the FCA Handbook.
• ICOBS 2: General matters
The main rules in ICOBS 2 relate to client categorisation.
These include:
2.2 Communications to clients and financial promotions. Communications with customers
must be clear, fair and not misleading.
2.3 Inducements; for instance, a firm must manage conflicts of interest fairly.
2.4 Record-keeping.
2.5 Exclusion of liability and reliance on others. A firm must not seek to exclude or
restrict, or rely on any exclusion or restriction of, any duty or liability it may have to a
customer or other policyholder unless it is reasonable for it to do so and the duty or
liability arises other than under the regulatory system.
• ICOBS 3: Distance communications
This mirrors (and thereafter enhances) the Distance Marketing Directive.
For example, a firm must provide a consumer with the distance marketing information in
good time before conclusion of a distance contract. Detailed guidance on the Distance
Marketing Directive is also provided.
• ICOBS 4: Information about the firm, its services and remuneration
This states that prior to the conclusion of an initial contract of insurance and, if necessary,
on its amendment or renewal, a firm must provide the customer with a number of details.
These include:
1. its name and address;
2. the fact that it is included in the FCA Register and the means for verifying this;
3. whether it has a direct or indirect holding representing more than 10% of the voting
rights or capital in a given insurance undertaking (that is not a pure reinsurer);
4. whether a given insurance undertaking (that is not a pure reinsurer) or its parent
undertaking has a direct or indirect holding representing more than 10% of the voting
rights or capital in the firm; and
Chapter 1 The market place 1/19

Chapter 1
5. the procedures allowing customers and other interested parties to register complaints
about the firm with the firm and the Financial Ombudsman Service or, if the Financial
Ombudsman Service does not apply, other methods of resolving disputes.
In the case of telephone selling, the information may be given in accordance with the
distance marketing disclosure rules. If the information is provided orally, it must be
provided to the customer in accordance with part of ICOBS 4 ([Link]) immediately after
the conclusion of the contract of insurance.
• ICOBS 5: Identifying client needs and advising
A firm must take reasonable care to ensure the suitability of its advice for any customer
who is entitled to rely upon its judgment. This part also includes advice on general
demands and needs.
• ICOBS 6: Product Information
The responsibilities of insurers and insurance intermediaries are outlined, including the
nature of pre-contract information.
As with a number of other parts, the rules and responsibilities are split between general
insurance contracts and pure protection contracts.
A pure protection contract will be one where the benefits are paid on death, or because of
incapacity (e.g. sickness).
• ICOBS 7: Cancellation
According to 7.1.1, a consumer has a right to cancel, without penalty and without giving
any reason, within:
1. 30 days for a contract of insurance which is, or has elements of, a pure protection
contract or payment protection contract; or
2. 14 days for any other contract of insurance or distance contract.
By exercising the right to cancel, the consumer withdraws from the contract and the
contract is terminated.
• ICOBS 8: Claims handling
As with the earlier ABI Statement of General Insurance Practice, an insurer must handle
claims promptly and fairly.
Additionally, they should provide reasonable guidance to help a policyholder make a
claim and appropriate information on its progress. Moreover, an insurer should not
unreasonably reject a claim (including by terminating or avoiding a policy); and thereafter
settle claims promptly once settlement terms are agreed.
Specifically, under 8.1.2, cases in which rejection of a consumer's claim would be
unreasonable (in the FCA's view) include, but are not limited to rejection:
1. for misrepresentation, unless it is a qualifying misrepresentation;
2. where the claim is subject to the Insurance Act 2015, for breach of warranty or term,
or for fraud, unless the insurer is able to rely on the relevant provisions of the
Insurance Act 2015; and
3. where the policy is drafted or operated in a way that does not allow the insurer to
reject.
The Insurance Act 2015 sets out a number of situations in which an insurer may have no
liability or obligation to pay. For example:
• section 10 provides situations in which an insurer has no liability under a policy due to a
breach of warranty;
• section 11 places restrictions on an insurer's ability to reject a claim for breach of a term
where compliance is aimed at reducing certain types of risk; and
• sections 12 and 13 provide for the extent to which a firm is entitled to reject fraudulent
claims.

Insurance Act 2015

While ICOBS 8 primarily refers to consumer insurance contracts, students should also
refer to the provisions of the Consumer Insurance (Disclosure and Representations) Act
2012 and the Insurance Act 2015, which are more fully considered in chapters 3 and 5.
Chapter 1 1/20 IF5/October 2022 Motor insurance products

Under the subsection 8.2 Motor vehicle liability insurers, elements of the EU Fourth Motor
Directive are reiterated, including the requirements and conditions for appointing claims
representatives, and the conditions for notification of such appointments.
Again, in accordance with the requirements of both the Fourth and Fifth Motor Directives
(ICOBS 8.2.6), within three months of the injured party presenting his claim for
compensation:
1. the firm of the person who caused the accident or its claims representative must make
a reasoned offer of compensation in cases where liability is not contested and the
damages have been quantified; or
2. the firm to whom the claim for compensation has been addressed or its claims
representative must provide a reasoned reply to the points made in the claim in cases
where liability is denied or has not been clearly determined or the damages have not
been fully quantified.

Question 1.4
What is ICOBS 6 concerned with?
a. Claims handling. □
b. Cancellation. □
c. Product information. □
d. Financial promotion. □
F2 Fair treatment of customers
The FCA requires authorised firms to place the fair treatment of customers at the heart of
their business model.
The initiative has six intended outcomes:
• 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.
• 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.
In February 2021, the FCA published their finalised guidance for firms on the fair treatment
of vulnerable customers. The purpose of the guidance was to ensure that vulnerable
customers are given the appropriate degree of protection and experience outcomes as good
as those for other customers. A vulnerable customer is one who, due to their personal
circumstances, is especially susceptible to harm, particularly when a firm is not acting with
appropriate levels of care. Firms are expected to provide their customers with a level of care
which takes into account the characteristics of each customer.

On the Web
Further information is available on the FCA website: [Link]/publication/finalised-
guidance/[Link].
Chapter 1 The market place 1/21

Chapter 1
Principles for Business
Emphasis is placed on the PRA/FCA Principles for Businesses, specifically:
Principle 1: Integrity ‘A firm must conduct its business with integrity.’

Principle 6: Customers’ ‘A firm must pay due regard to the interests of its customers and treat
interests them fairly.’

Principle 7: Communications ‘A firm must pay due regard to the information needs of its clients, and
with clients communicate information to them in a way which is clear, fair and not
misleading.’

Principle 8: Conflicts of ‘A firm must manage conflicts of interest fairly, both between itself and its
interest customers and between a customer and another client.’

Principle 9: Customers: ‘A firm must take reasonable care to ensure the suitability of its advice and
relationships of trust discretionary decisions for any customer who is entitled to rely upon its
judgment.’

General insurance pricing practice (GIPP) rules

Following a subsequent general insurance pricing market study in 2021, the FCA announced
their decision to ban the practice of offering lower premiums to new customers, which
penalises those who renew with the same insurer for many years. This practice, known as
dual pricing or price walking, has received much criticism in the press in recent [Link] it is
considered to be unfair to existing, loyal customers. The new rules, which form part of the
General Insurance Pricing Practice (GIPP) rules (or FCA pricing fairness) apply to all motor
and home policies taken out by consumers and were effective from January 2022. After this
date, insurers must offer an existing customer a renewal premium that is no higher than the
new business premium they would pay for the equivalent cover with the same insurer
through the same channel.
In addition to the prohibition of dual pricing at renewal, the GIPP rules introduced from
January 2022 include:
• a requirement that insurers provide a range of easy and accessible methods of opting out
of auto renewal policies;
• enhanced reporting requirements relating to pricing and claims experience (home and
motor products); and
• new product governance rules to ensure customers in the target market get fair value for
money from their insurance products. The final rule applies to retail and commercial
insurance products.
Consumer duty
The FCA have introduced a consumer duty principle which will require insurers to deliver
good customer outcomes for retail customers.
The regulations, which must be implemented by the end of July 2023 for all new and existing
products and services currently on sale, require firms to review their products and services
against a new standard of fairness. There will be four outcomes with associated metrics
against which firms will be judged to ensure positive customer outcomes. The outcomes are
products and services, fair price and value, consumer understanding and customer support.
The consumer duty rules will aim to:
• end unfair fees and charges;
• make switching or cancelling of products easier;
• provide helpful and accessible customer support;
• provide clear and timely information on products and services to help consumers make
good financial decisions; and
• focus on individual needs of customers, including vulnerable customers.

On the Web
[Link]/resource-library
Chapter 1 1/22 IF5/October 2022 Motor insurance products

F3 Insurance Distribution Directive (IDD)

Insurance Distribution Directive

The requirements of the Insurance Distribution Directive 2016/97/EC (IDD) have
applied to firms since 1 October 2018. This means that although the UK has now left the
EU, the IDD is still in force in the UK as it is part of UK law.
The IDD sets out consumer protection provisions in insurance and the scope of regulation
includes 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.
• 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 could be waived for contracts involving large risks or for
professional customers. The pre-contract disclosure regime extends 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.
• 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. 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. One 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. This requirement now
forms part of ICOBS 6.
Chapter 1 The market place 1/23

Chapter 1
Key points

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

The market place

• The main categories of motor insurance policies relate to private cars, motorcycles and
commercial vehicles.
• ‘Commercial vehicle’ covers various types of vehicles (e.g. vans, lorries, minibuses
etc.) and policies can vary from covering a single vehicle to fleets with hundreds of
vehicles.
• ‘Private car’ policies are usually issued to individual policyholders for vehicles built for
personal/family use.
• Motor insurance can be obtained in various ways, including traditional companies,
direct sell companies, the internet or via intermediaries.
• Where claims involve uninsured or untraced drivers, claims are handled by the Motor
Insurers’ Bureau (MIB).
• The United Kingdom Information Centre (UKIC) is the UK’s designated information
centre in accordance with the EU Fourth Motor Insurance Directive and provides the
Motor Insurance Database (MID) containing details of all insured vehicles in the UK.
• The Driver and Vehicle Licensing Authority (DVLA) is responsible for regulating issue
of licences to drivers and registration of vehicles and issuing road fund licences.
• Under the regulatory structure created in April 2013, three new financial services
regulatory bodies have been established in the UK: the Financial Conduct Authority
(FCA), the Prudential Regulation Authority (PRA) and the Financial Policy
Committee (FPC).
• The Insurance: Conduct of Business Sourcebook (ICOBS) provides FCA rules on the
handling of insurance business. This has eight parts concerned with application;
general matters; distance communications; information about the firm, its services and
remuneration; identifying clients’ needs and advising; product information; cancellation;
and claims handling.
• Authorised firms need to ensure that the FCA’s fair treatment of customers is at the
heart of their business model.
• The aim of the Insurance Distribution Directive (IDD) is to make it easier for firms to
trade across borders, strengthen policyholder protection and provide a level
playing field.
• The IDD sets out consumer protection provisions in insurance, including expanding the
scope to include direct sellers where no intermediation occurs, and uplifting
professional standards.
Chapter 1 1/24 IF5/October 2022 Motor insurance products

Question answers
1.1 c. More than 80%.

1.2 b. Private car.

1.3 c. To reduce the number of uninsured vehicles.

1.4 c. Product information.

 Chapter 1 The market place 1/25

Chapter 1
Self test questions
1. To whom might a joint private car policy be issued?
2. Who can Lloyd's motor syndicates accept business from?
3. In which two areas would an insurer expect to reduce expenses by establishing a
direct selling operation?
4. What is the essential aim of the IDD?
5. What is an insurance write-off and why does information about this need to be
passed to the DVLA?
6. Why are traditional high-street insurance brokers struggling to attract new private car
insurances?
You will find the answers at the back of the book
 2

Chapter 2
Scope of cover provided
Contents Syllabus learning
outcomes
Introduction
A Types of cover 3.1, 4.1
B Policy wording – private car, commercial vehicle and motorcycle 3.1, 3.2, 4.1, 5.5, 7.5
C Uninsured loss recovery – legal expenses policy 3.1, 4.1
D Breakdown cover 3.2, 4.1
Key points
Question answers
Self test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the scope of the different levels of insurance cover available for private car risks;
• describe the differences between private car, motorcycle and commercial vehicle covers;
and
• explain the scope of legal expenses policies and exclusions which may apply to them.
 2/2 IF5/October 2022 Motor insurance products

Introduction
Chapter 2

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

Breakdown cover Commercial vehicle Comprehensive Driving Other

policies Cars (DOC)
Excesses Exclusions Liabilities Policy wording
Road Traffic Act Third Party
(RTA) cover

A Types of cover
There are basically four types of cover normally offered by insurers with all types of policy,
and they are listed in ascending order, with the last mentioned providing the widest cover
available (comprehensive).

A1 Road Traffic Act (RTA) cover

As a consequence of the requirements of the Road Traffic Act 1988 (RTA 1988), the Road
Traffic Act (RTA) cover is the minimum cover provided by motor insurers. At the very least,
insurers are obliged to provide this level of cover. This cover is rare, and often will be
provided where the policyholder has a poor accident and/or conviction record.
It may also be provided where a vehicle is badly damaged following an accident and until the
vehicle is satisfactorily repaired. Increased cover may be conditional upon the production of
an MOT certificate, following the repair.

What does basic RTA cover comprise?

Legal liability to third parties for This is unlimited in amount in respect of death/personal injury, and for
death or bodily injury to any damage to third party property up to a maximum of £1.2m as from 31
person and damage to third party December 2016. This property damage limit was effected following the
property arising from the use of changes created by the Fifth EU Motor Directive.
the vehicle on a road as defined
under the RTA

Emergency treatment payments These are the costs of treatment normally incurred, as a result of an
and hospital treatment fees under ambulance attending after an accident, although it may be a doctor.
the Road Traffic Act

Legal costs incurred in defending These include claimants’ costs awarded against the driver/user of the
an action for damages vehicle. This arises because of the need to consider the third party claims
mentioned above.

Third party cover abroad This must be sufficient to comply with the various EU Directives
incorporated into the RTA.

It must be borne in mind that this cover will not extend to ‘non-road’ use, and therefore will
not normally be an attractive option to most policyholders.

A2 Third party only (TPO) cover

It should be remembered that the ‘third party’ is any other party involved in an accident. The
‘first party’ is the policyholder, i.e. the person buying the insurance, and the second party is
their insurer.
TPO cover may be offered by insurers for similar reasons to those given in respect of RTA
liabilities. However, it is often requested by policyholders because of its relatively low cost. It
may also reflect only sporadic use of the vehicle in question, or a belief by the policyholder
that the risk (of fire or theft damage or loss) may be small or that the vehicle value
itself is low.
This will extend the third party liability cover to any situation involving a motor vehicle.
Chapter 2 Scope of cover provided 2/3

With TPO cover, private car policies provide ‘off the road’ cover in respect of unlimited third
party personal injury and property damage liability up to a minimum of £1.2m. Under private
care policies, the limit is generally set much higher at £20m.

Chapter 2
However, as we shall see later, third-party property liability for other types of vehicle may
be lower.
Cover for certain legal costs exists in a third-party only policy, but this may vary depending
on the type of vehicle covered.
In all policies, the insurer will meet the costs incurred (with its consent) to defend the
policyholder in a ‘court of summary jurisdiction’ in connection with an accident which may be
the subject of a claim. These cover the defence of RTA (criminal) offences and will normally
incorporate the costs of investigation and the obtaining of evidence. A court of summary
jurisdiction is one that hears summary offences (i.e. ones that do not involve a jury – these
are normally heard in a magistrates court).
An insurer will wish to restrict its potential third party liabilities on any individual claim; by
paying for representation at a court of summary jurisdiction it may be able to control its
spend on third party claims if it is successful with a defence, in addition to funding legal
representation to look after the best interests of the insured driver.
In addition, the cost of representation for a policyholder or driver at any coroner’s inquest or
fatal accident inquiry will be met. These hearings are used to assess the actual cause of
death but may, incidentally, look at the question of responsibility for the occurrence.
It may prove worthwhile for an insurer to meet the cost of legal services to defend anyone
covered by the policy if proceedings are taken against them for manslaughter, or causing
death by dangerous driving or causing death while under the influence of drink or drugs.
Again, if successful, it could reduce the amount of any third-party claim.
Passenger indemnity is given which, theoretically, is subject to consent from the policyholder.
This means that passengers are protected for any liability that they may have incurred. For
example, the opening of a passenger door injuring a pedestrian or cyclist.
A third-party only policy will extend to provide protection to the estate of anyone indemnified
under the policy following that person’s death. Cover is, therefore, provided for legal
personal representatives in such circumstances.
Indemnity to the policyholder's employer or business partner arising from their vicarious
liability while the vehicle is being used for business purposes covered by the policy is usually
covered under non-commercial policies.
Third party cover may, on private car policies, be extended to enable the policyholder to
drive a vehicle not belonging to them and be covered for third party liabilities. This is
commonly known as the ‘Driving Other Cars’ (DOC) extension (or ‘Driving Other Vehicles’
(DOV) extension). It basically states that the policyholder may also drive a motor car not
belonging to them and not hired to them under a hire purchase, rental, lease, loan or
hire agreement. However, when a person is driving a vehicle under the DOC extension,
then the cover (while driving a vehicle not belonging to them), is third party only.

A3 Third party fire and theft (TPF&T)

This policy extends a third party policy to incorporate elements of cover that relate to the
policyholder’s own vehicle.
Such a policy will provide indemnity for loss of or damage to the insured’s vehicle and (in the
case of a private car policy) accessories and spare parts, caused by fire, lightning or
explosion or theft or any attempted theft.
Nowadays, most private car policies will provide fire and theft cover in relation to accessories
and spare parts, irrespective of whether they are fitted to the vehicle, but these must
normally be in the policyholder’s private garage at the time of the loss, if not attached.
However, with a motorcycle policy theft of accessories or spare parts will not be covered
unless the vehicle is stolen at the same time.
Identifying the proximate cause is important as it establishes the operation of cover. This is
particularly relevant to TPF&T policies.
 2/4 IF5/October 2022 Motor insurance products

For example, a parked car is damaged by falling debris which has come from a building
struck by lightning. In this situation, the damage would be covered as lightning is the
proximate cause and is a peril covered by a TPF&T policy. However, if the damage to the
Chapter 2

parked car had been caused by falling debris due to the poor maintenance of the building’s
structure, the damage would not be covered by the policy.

Question 2.1
Hussein has a private car and a motorcycle, each of which is insured on a third party,
fire and theft basis.
While the vehicles were locked in his garage, a thief entered and stole some of the
car accessories that had been left on a shelf, and removed some accessories from
the motorcycle, but neither vehicle was stolen.
What items of accessories, if any, can Hussein claim for under his private car and
motorcycle insurances?
a. None of the accessories. □
b. Only the accessories relating to the car. □
c. Only the accessories relating to the motorcycle. □
d. Both the accessories relating to the car and motorcycle. □
A3A Theft
'Theft', within motor insurance policies, is generally given a wider meaning than as defined
within s.1 of the Theft Act 1968, which states that theft must include 'the intention of
permanently depriving'.
Cover is given in respect of loss or damage caused by unauthorised use of the vehicle (e.g.
joy riding).
As there has been an increase in the number of vehicle thefts, there has been a trend
towards the application of a theft excess imposed by insurers on a motor policy of, say, £150
or more, although the more desirable and valuable vehicles may attract a larger excess.
Damage to a vehicle that is stolen and subsequently recovered in a damaged state is
covered under the ‘theft’ section of the policy – theft being the proximate cause of the loss.
Similarly, damage caused while attempting to break into or steal a vehicle (e.g. damage to
locks) is also covered, even though the attempted theft was unsuccessful.
A3B Deception
A number of insurers have a policy exclusion relating to deception.
A typical wording would be as follows:
You are not insured for…
Loss of your car by deception by someone who claims to be a buyer or a buying or
selling agent.
Some insurers would not place an unduly strict interpretation on such an exclusion, where
the intention may be to avoid those claims where a policyholder fails to take reasonable
steps to protect the property at the time of sale or purchase.
What if the supposed purchaser pays for the vehicle by a building society draft or cheque
and the seller releases the vehicle without ensuring that the draft or cheque is cleared first?
In this example, the insurer would consider the claim unless the policyholder has failed to
make any necessary checks into the validity of the method of payment. In the case of
Dobson v. General Accident (1989), the seller of jewellery was given a cheque, which had,
in fact, been stolen. It was held that he had not consented to the third party becoming owner
without giving a valid draft drawn by the building society.
This could be contrasted with a seller being persuaded to let the ‘buyer’ take the vehicle for a
test drive alone and both vehicle and ‘buyer’ subsequently disappearing.
Chapter 2 Scope of cover provided 2/5

A3C Fire
With claims for fire damage, it is sometimes difficult to pinpoint the cause of the fire. While all
types of motor policy will exclude ‘wear and tear, mechanical, electrical, electronic or

Chapter 2
computer failures or breakdowns’, this only applies to the part or parts which have failed
or broken down which, in reality, may often only be a frayed electrical wire or split fuel pipe.
The fire damage itself (and any subsequent failure or damage that results) will be covered.
Normally, damage by scorching or smoking will not constitute ‘fire’ within the meaning of
the term.
If a previous fire loss is revealed at proposal stage or, following enquiries it is discovered that
there has been an earlier loss, then an insurer may treat the claim with particular care and
the possibility of arson investigated.

A4 Comprehensive policies
A comprehensive policy provides the greatest extent of cover, though the term
‘comprehensive’ can be a little misleading in that such a policy does not provide ‘blanket’
cover irrespective of the nature, extent and cause of the loss.
Broadly speaking, a comprehensive motor policy will indemnify the policyholder for loss or
damage to their own vehicle, plus provide additional benefits such as temporary vehicle hire,
personal accident, medical expenses and personal effects cover. Such additional benefits
will depend on the precise policy wording. It also includes cover for third party claims for
damage, injury or death.
A ‘hierarchical’ chart of the different types of cover would be:

Comprehensive

Third party fire and theft

Third party only

Road
Traffic Act

This shows that ‘comprehensive’ provides the greatest extent of cover, with RTA cover being
the minimum.
It should be remembered that there is a policy booklet, certificate and schedule, all of which
must be read together as different parts of the same contract. Additionally, the proposal form
or statement of insurance also forms the basis of the contract.

Question 2.2
What are two circumstances in which an insurer might provide RTA cover?

B Policy wording – private car, commercial

vehicle and motorcycle
During the remainder of this chapter we will look at the various sections of typical motor
policies. We will look in depth at each section of a private car policy followed by details of the
main differences to be found in commercial vehicle and motorcycle policies.
There are many different styles of policy wording in the marketplace. On RevisionMate,
Appendix 2.1 shows the operative clause for the ‘liability to others’ section of a private car
policy, whereas Appendix 2.2 is the ‘loss or damage’ section of a private motor policy.
Appendix 2.3 is an example of an application form for motor cover.
 2/6 IF5/October 2022 Motor insurance products

The basic layout of a policy booklet will follow a similar format, comprising the following:

Preamble (or recital) Usually called the introduction, this will indicate the documents that
Chapter 2

comprise the contract between the policyholder and the insurer. It may
also make reference to the fact that the insurer contributes to the Financial
Services Compensation Scheme, confirming that the policyholder may be
entitled to 100% of the compulsory insurance element of any claim.

Definitions Nowadays, it is common practice to define the common words or phrases

found throughout the policy booklet, or perhaps those that are unusual. In
order to demonstrate that they are defined, the relevant words or phrases
are highlighted, either by being in bold type or starting with capital letters
or both.

The various sections of the policy These could include:

• Third party liabilities.
• Own damage.
• New car replacement.
• Windscreen cover.
• Trailers.
• Foreign use.
• Medical expenses.
• Personal effects.
• Loss or theft of keys.
• Personal accidents.
• Legal expenses and uninsured loss recovery.
• General exclusions.
• General conditions.
• Complaints procedure.
• No claims discount (NCD).

We shall now look at the relevant sections of the policy, focusing on the private car policy.

B1 Private car loss and damage – main cover

Under a private car policy, there will be cover for loss or damage to the car, its accessories
and spare parts when they are lost, stolen or damaged. In such instances, the insurer
will either:
• repair the damage;
• replace what is lost or damaged beyond economical repair; or
• pay in cash the amount of the loss or damage.
As can be seen, the insurer may choose which option it adopts to ‘restore’ the
policyholder to the same financial position they were in immediately prior to the loss or
damage. This is the principle of indemnity.
Cover is on the basis of ‘lost, stolen or damaged’. This is wide enough to cover any damage,
including storm, flood, fire or malicious damage but, as we shall see below, there are
restrictions.
An insurer will normally choose to repair the vehicle through an approved repairer network,
as this will probably be the cheapest option from its perspective. This means that the insurer
is responsible for seeing that the vehicle is collected, properly repaired and returned to the
policyholder.
Such a network is created by insurers to control the repair spend, by agreeing hourly labour
rates. In some instances, the repairers will be able to undertake repairs without the necessity
of the policyholder’s vehicle being examined by a vehicle engineer beforehand, if the cost
falls below a financial ceiling. Where a customer chooses to use a non-approved repairer to
undertake the repair, the insurer may impose an additional 'non-approved repairer' excess
on top of any other excesses which may apply and require a written estimate of the cost of
the repairs before authorising the repairs to be undertaken.
A number of insurers now have a policy wording which states that their approved/
recommended repairers will be entitled to fit parts made by recommended manufacturers or
for which the manufacturers offer a warranty as opposed to only fitting parts authorised by
Chapter 2 Scope of cover provided 2/7

the original vehicle manufacturer. Some insurers go as far as to indicate that, in certain
circumstances they will fit recycled or reconditioned secondhand parts, often referred to as
'green parts'. This is both environmentally friendly and frequently cheaper. In addition, it may

Chapter 2
be the only way of sourcing certain parts as new parts may not be available.
Insurers need to know about any loss as quickly as possible and would prefer to have the
opportunity to inspect any damaged vehicle before repair commences. However, they realise
that policyholders need to have the vehicle back in use as soon as possible and, therefore,
some insurers may give permission for repairs to commence once they have been given full
details, though the wording varies from insurer to insurer.
Some allow for instructions for ‘reasonable repairs’. The word ‘reasonable’ must be related to
the circumstances of the accident. In other words, there must be an obvious link between
what happened in the accident and the extent of the damage sustained.
If the cost of repair exceeds the value of the car or a predetermined percentage of the
vehicle value, then an insurer will treat the vehicle as beyond economical repair and pay a
cash sum equivalent to the pre-accident value for the total loss. The car then becomes the
property of the insurer who will generally sell the vehicle on to a salvage company.
If the vehicle is repairable, then the insurer will sometimes pay ‘cash in lieu of repair’. This is
where they calculate the cost of repairs and pay a cash sum, net of the VAT element. This
situation may arise where the customer prefers to undertake the repairs him or herself or
where the parts necessary to undertake the repair are not readily available.
Insurers will, in certain restricted circumstances, replace under the new car benefit section.
The replacement of new/nearly new vehicles (e.g. less than twelve months old) which are
stolen or substantially damaged with a replacement new vehicle is a fairly standard feature
for comprehensive car policies (despite it resulting in the insured potentially receiving more
than an indemnity).
Some insurers also impose a mileage limit of 10,000–15,000 miles, above which, they will
pay the pre-accident market value rather than replace. The agreement of any interested hire
purchase, leasing or finance company is required.
Furthermore, there is provision for the insurer to settle the claim on a conventional market
value basis in the event an exact replacement is not available or an agreement cannot be
reached with the policyholder and/or the finance company regarding the provision of a
replacement vehicle. Where, in these circumstances, a payment is being made, this will first
be used to settle any outstanding amount owed to the finance company. Any remaining
monies will then pass to the policyholder. If the payment is not sufficient to meet the
outstanding finance, the policyholder will be responsible for making up the difference.

Refer to
New car benefit on page 2/11 covers the new car benefit section of a policy

There may be occasions when an insurer can use its purchasing power together with the
flexibility of a salvage contract to replace a vehicle that has been stolen or substantially
damaged with a new one, even though there may be no contractual obligation. Replacement
with a second-hand vehicle is not normally considered.
 2/8 IF5/October 2022 Motor insurance products

Question 2.3
Tania drives a medium-sized car that she bought brand new 18 months ago and
Chapter 2

which is insured on a comprehensive basis.

While driving the car she swerved to avoid a dog and collided with a wall, causing
slight damage to the car’s bodywork.
Which method is her insurer most likely to choose to indemnify Tania?
a. Arrange for the car to be taken to an approved repairer for repair. □
b. Make a cash payment based upon the car's current market value. □
c. Offer a replacement second-hand car, with the same specification as the □
damaged car.
d. Offer a new replacement vehicle, with the same specification as the damaged car. □
B1A Accessories
An insurer will cover accessories and spare parts if lost, stolen or damaged while in or on the
insured vehicle.
Accessories are those items which are necessary to the functioning of the vehicle and/or
would be sold with the vehicle itself, for example, radio, CD player and floor mats. However,
most insurers have a policy limit for the value of the audio equipment not fitted at the time
the vehicle was built.
Other examples of accessories are the spare wheel and jack, and other permanently fitted
audio and electronic equipment. There may be limits for certain accessories in the
exclusions and there may be no cover for removable audio or electronic equipment which
can be used independent of the vehicle such as a mobile phone or sat nav unit.
Most wordings will also cover accessories and spare parts which are lost, stolen or damaged
while in the policyholder’s private garage. Such items are only covered if they are specifically
for the insured vehicle and no other such as a set of winter tyres or wheels. In other words, a
person with more than one car should not treat the parts as interchangeable.
B1B Excesses
In order to control costs and to minimise small and unnecessary claims, insurers will usually
impose an excess (X/S) on certain sections of the policy. For example:
• ‘Voluntary’ and ‘compulsory’ excesses will be shown in the schedule.
• A ‘fire and theft’ excess may also be shown in the schedule.
A voluntary excess will be over and above any compulsory excess and will usually be taken
to produce a lower premium than would otherwise apply. Thus, for example, if the
compulsory excess is £200 and the insured seeks a voluntary excess of £200, then the total
excess applicable becomes £400.
Another type of excess is a young or inexperienced driver excess. Normally this will be
imposed where the driver or the last person in charge of the vehicle is aged between 17–21
or 21–25, the higher excess applying to the younger band. An excess may also be imposed
where the person driving is a provisional licence holder or has held a full UK or EU licence
for less than a year. This will apply to all sections of the loss or damage section of the policy.
As previously mentioned, insurers may also impose an additional excess if, in the event of a
reparable loss, the policyholder chooses to use a non-approved repairer to undertake the
repairs.
Where, at the time of the accident or loss, the vehicle was parked and unattended, the
applicable excess will depend on the person last in charge immediately prior to the loss.
However, where a young or inexperienced driver has returned the vehicle to its normal
garaging facility and it is securely locked, it is unlikely the insurer will seek to apply an
increased excess in the event of a claim.
Chapter 2 Scope of cover provided 2/9

Often, the amount of the excesses to be applied will not be recorded in the policy booklet as
they may be amended from time to time. Therefore, details of the excess sums are invariably
found in the schedule.

Chapter 2
Normally, all applicable excesses have to be added together.

B2 Exclusions
There will normally be exclusions for loss of use, depreciation, wear and tear,
mechanical or electrical breakdown and electronic, computer software failures or
breakdowns in relation to the insured vehicle.
Effectively, these exclude gradually operating causes. An insurance policy is not a
maintenance contract or contract of guarantee. Cars wear out, parts need replacing and/or
maintaining and generally speaking, their value depreciates over time. All these things are
inevitable and, therefore, excluded from policy cover.
Any mechanical or electrical part that fails is excluded but the results of the mechanical or
electrical failure may be covered (subject to any other term or condition). In other words, if
the electrical failure or breakdown of a particular part causes fire then, providing that the
policyholder has third party fire and theft (TPF&T) or comprehensive cover, the fire loss will
be covered.
Other exclusions include the following:

Damage to tyres from braking or by This type of damage will occur frequently and an insurer’s exposure to
road punctures, cuts or bursts such a risk would be too great.

Loss/damage caused by pressure The Government has a scheme for covering damage caused on the
waves, resulting from aircraft etc. ground by ‘sonic booms’ from aircraft. In theory, this should never
travelling at sonic or supersonic occur, bearing in mind that supersonic flight is banned over UK land.
speeds

A reduction in the market value of the This is a relatively recent exclusion following a spate of claims where it
car, following any repair of the was alleged that there had been a reduction in value following repair.
policyholder’s vehicle, whether as a
result of a claim under the terms of In the absence of any exclusion, it was often argued that such a ‘loss of
the policy or not value’ was deemed to be covered under the terms of the policy. There
have been cases which have shown that vehicles, particularly high
value and/or relatively new ones, depreciate in value if they have
undergone extensive accident repair even though the repair itself
cannot be faulted. In other words, the vehicle is apparently ‘blighted’ on
the re-sale market. Insurers will not pay for this under the policy, where
they have specifically excluded a reduction in market value.

Loss of the car by deception by There are numerous legal cases dealing with ‘theft by deception’.
someone who claims to be a buyer or Insurers may not wish to pay for the policyholder’s ineptitude in
selling agent conducting the sale of their vehicle but will be content to pay for the
results of genuine thefts. Basically, a policyholder should take all
reasonable steps to protect his vehicle and safeguard it from loss or
damage.

Loss of or damage to telephone or There may be no cover for mobile phones etc. However, the approach
communication equipment of varies – some insurers will provide automatic cover whereas others
any kind would wish to include cover by means of an endorsement and/or
require the telephone to be permanently fitted.

Loss of or damage as a result of a This exclusion reflects the principle where a policyholder should not
deliberate act by the insured person benefit from their own deliberate (and destructive) actions. An insurer
would, in any case, maintain that, at common law, no person can
benefit under a policy of insurance from their deliberate act. There may
need to be careful consideration of particular facts in relation to third
party liabilities attracted under the RTA.

Loss of or damage to permanently This may include audio visual equipment, computer games, consoles,
fitted electronic equipment telecommunication and navigational equipment beyond a limit of, for
example, £500, unless it is standard equipment fitted at the time of
manufacture.
 2/10 IF5/October 2022 Motor insurance products

Loss of or damage to the unoccupied Many insurers incorporate this particular exclusion, because it could be
car as a result of theft or attempted seen that the policyholder has failed to take all reasonable steps to
theft, if the keys or electronic ignition safeguard the car. Leaving the keys in the ignition is now a relatively
device are left in or on the car or all common type of theft and does increase the risk considerably.
Chapter 2

doors, sunroofs, windows and all

openings including convertible roofs
have not been closed and locked

Question 2.4
What are the four types of cover normally offered by insurers?

Question 2.5
In which circumstance would loss or damage to tyres not be covered under a
comprehensive private car policy?
a. Theft of a spare tyre from the insured's garage. □
b. Damage following a vehicle fire. □
c. Corrosion following driving through an acid spillage on a roadway. □
d. Punctures due to broken glass on a roadway. □
B3 Other parts of the private car loss or damage section
B3A Market value
‘Market value’ is not always defined within a particular policy wording. In simple terms, it is
the amount that it would cost to replace a vehicle with one of similar make, model, condition
and mileage. This figure will not take into account any loan amount or finance arrangement.
Insurers may wish to restrict the amount to be paid to either the market value of the
car or the insured value, whichever is less.
They also agree to make any payment to the hire purchase or leasing company, if there is an
outstanding agreement.
However, the principle of indemnity requires an insurer to place the policyholder back in the
position they were in, prior to the loss or damage, and unless the amount of premium is
based on the policyholder’s value of the vehicle, the insurer will normally have to pay the
market value.
The only exceptions will be where the vehicle has a declared or agreed value (prestige or
‘classic’ vehicles) or on a standard policy where a new car replacement condition operates
within 12 months of first registration.
B3B Radio/audio/visual/navigation equipment
Generally, private car policies will provide cover for loss or damage for radio and audio
equipment and this may in some cases be extended to cover visual and navigation
equipment up to a defined financial limit, details of which are often outlined within the
policy schedule.
Some insurers will offer unlimited cover for equipment that is part of the manufacturer’s
original specification and only apply the limit in respect of non-standard equipment or
equipment fitted post-manufacture. ‘Top-up’ options may be available with some insurers to
provide unlimited cover for non-standard equipment.
B3C Breakage of glass
Insurers will pay for the cost of a replacement windscreen and windows from any accidental
cause and this will include the cost of repairing the damage to the bodywork that may result
directly from the breakage. There is normally a separate, lower excess applied to glass
claims (the compulsory and voluntary excesses mentioned above do not apply) and the
submission of a claim will not normally affect the policyholder's no claim discount (NCD)
situation.
Chapter 2 Scope of cover provided 2/11

Glass generally includes a glass sunroof but not a panoramic roof. Rear screens in
convertibles which are not made of glass would be excluded.
If it is possible to repair the damage (as opposed to replacing the glass) then the glass

Chapter 2
excess will not normally apply or will be significantly lower.
Nonetheless, recent advances in vehicle technology have affected windscreen claim costs
and have now complicated the process of repairing or replacing windscreens. New
technology such as windscreens with built-in rain sensors has resulted in higher costs for
repair or replacement. There has also been an increased use of sensors linked to Advanced
Driver Assistance Systems (ADAS) that sit against or immediately behind the vehicle’s
windscreen. In some circumstances, this means that where the sensors are not self-
calibrating, the vehicle has to be taken to a specialist facility for the sensors to be re-
calibrated following the replacement or refitting of the windscreen.
Due to the increased cost of windscreens, some insurers will now impose a limit on the total
amount payable under this section, particularly if the work is not carried out by an approved
windscreen fitter.
Increasingly, insurers use approved glass suppliers with whom considerable discounts have
been negotiated due to the volume of business placed with them. Policyholders are
encouraged to use these services by, for example, a waiver of the policy limit or by
differentiated excess levels for using approved or non-approved windscreen suppliers.
B3D Recovery and delivery of car
Insurers will pay for the cost of protecting the car and taking it to the nearest approved
repairers after it has been damaged following an insured accident or recovered following a
theft lost. After repair, they will also pay the reasonable cost of delivering the car back to the
policyholder’s address in the United Kingdom.
However, the policyholder must:
• do whatever is necessary to safeguard the car and its accessories; and
• if the vehicle is not taken to an approved repairer, give the full name and address of the
repairer, a full account of the damage and a detailed estimate of the cost involved in
the repair.
This basically confirms that the reasonable cost of removal to a repairer and then transfer
back to the policyholder following repair is covered. Note, however, that the repairer must be
competent.
Most insurers can arrange repairer uplift and delivery when they have been notified
immediately after an accident however, they will consider reasonable uplift, transportation
and storage costs incurred directly by the policyholder. The latter commonly occurs where
the police have arranged for the removal of the vehicle to a storage facility due to the vehicle
being an obstruction or danger to other road users.
The cost of returning the vehicle after repair can be quite high, particularly if the accident
and, therefore, the repair, took place abroad. In such circumstances, it may be necessary to
consider paying the reasonable expenses of the policyholder to recover the vehicle in person
which may be mutually beneficial.
Many insurers now have authorised contractors who can arrange vehicle repatriation from
Europe.
B3E New car benefit
The vast majority of insurers tend to arrange for the replacement of the vehicle.
If the policyholder’s car is stolen and not recovered or is damaged and the cost involved in
the repair will exceed 60% of the manufacturer’s list price (including car tax and value added
tax) at the time of the loss or damage, the company will often replace the stolen or damaged
car with a new car of the same make and model providing that a replacement car is
available. (Normally the car has to be less than twelve months old and some insurers will
require that the policyholder is the first registered keeper of the vehicle.)
The replacement of the car can normally only take place with the consent of the policyholder
and that of any other known interested parties. The car being replaced will become the
property of the company.
 2/12 IF5/October 2022 Motor insurance products

If a replacement car of the same make and model is not available then the insurer will pay
the market value of the car and its fitted accessories and spare parts at the time of the loss
or damage.
Chapter 2

This particular section, as can be seen, grants increased and enhanced policy benefits, and
the wording can vary from insurer to insurer.
The obligation is upon the insurer to provide an exact replacement but, if one is not
available, then the obligation reverts to market value.
Insurers will seek an agreement from any interested hire purchase or finance company that
the chosen replacement model will not create any additional cost to the insurer, nor indeed
the policyholder. In other words, the finance company must be prepared to transfer any
outstanding balance to the new (replacement) vehicle without any additional financial
responsibility on the part of the insurer. Frequently, this is not the case as the finance
contract is cancelled following the destruction of the vehicle.
It should be appreciated that the new car benefit facility exceeds the ‘indemnity’ requirement,
provided that the conditions of the benefit are met.

Example 2.1
Policyholder A has a vehicle which is seven months old and insured on a comprehensive
basis with the Trusty Insurance Company. The vehicle is involved in a non-fault accident
with a third party vehicle.
The cost of repairs is estimated at around £9,500, including parts, labour and VAT.
However, the replacement cost for a new vehicle is £15,000, and as the cost of repairs is
greater than 60% of the manufacturers list price of the new car, then the Trusty Insurance
Company will replace the damaged vehicle with a new one, provided all the other criteria
are met.
However, Trusty Insurance Company may encounter a problem when pursuing a recovery
from the responsible third party (and/or the third party insurers), as strictly speaking Trusty
can only recover £9,500, and should then allow policyholder A’s no claim discount
position.
Trusty will have the benefit of the salvage value realised from sale of the damaged vehicle
however, the reconciliation with sums recovered from the at-fault insurer may not
be exact.

B3F Personal effects and clothing

What are personal effects? These could be anything within a vehicle which are not
accessories or spare parts and which are personal to someone, though some insurers will
restrict the nature of the items considered to exclude things such as household goods or
tools of the trade – they do not need to belong to the policyholder unless that is specified in
the policy wording.
The benefits offered under this particular clause are only available to comprehensive
policyholders. The maximum amount payable will not be great (often £100 or £200).
However, this is a maximum limit of indemnity and account can be taken for wear and tear,
depreciation etc.
Cover in respect of theft will generally be restricted to items which have been left in a glove
box or luggage compartment and where the vehicle has been left locked.
Some insurers also now agree to replace child car seats when they have been in a vehicle
involved in an accident even where there is no evidence of damage to the seats. An upper
limit per seat may apply.
The following should also be noted:

As the maximum limit of indemnity is low, strict Insurers will often be flexible in this respect.
proof of the value may not be required

The exceptions to this section are either those Examples include money or stamps and business
items where the risk of loss or damage is high and goods or samples.
proof may be difficult or where the items should be
insured under another policy
Chapter 2 Scope of cover provided 2/13

Permanently fitted audio equipment is not regarded as personal effects but as an accessory.

Question 2.6

Chapter 2
Which items would typically be included in the cover for personal effects under a
comprehensive private car policy?
a. Clothing. □
b. Company mobile phone. □
c. Commercial samples. □
d. Money/tickets. □
B4 Commercial vehicle – loss and damage
Commercial vehicle policies generally include the clauses and conditions listed above in
respect of the ‘own damage’ section of a private car policy with the possible exception of
new vehicle replacement.
The personal effects clause may be featured in some of the vehicle fleet or small van
commercial policies, but will not normally be included in goods-carrying type policies.
Normally, an insurer will only cover a policyholder in respect of damage to or loss of the
insured vehicle, accessories or spare parts, while they are attached to the vehicle, whereas
a private car policy will extend such cover to the parts/accessories if they are left in the
private garage. However, there is a move to providing this last benefit for other types of
motor policy (other than private car), as the risk exposure is minimal.
Generally speaking, the young driver excesses will often be higher under commercial vehicle
policies.
Similarly, the excesses to be applied in respect of windscreen breakages and theft/malicious
damage can be higher than those applied under a private car policy as the cost of parts for
commercial vehicles are significantly higher. Voluntary excesses may also be higher as
commercial policyholders are prepared to pay a higher proportion of the cost themselves – in
return for a premium reduction.
B4A Trailers
Trailer cover is often given as standard on commercial vehicle policies. A typical wording
would say:
Your policy applies:
• to any trailer attached to the insured vehicle as though it were the insured
vehicle; or
• under the loss or damage section in respect of any trailer owned by you or for
which you are responsible while it is detached from any vehicle
Provided that you are not entitled to indemnity under any other policy.
‘Trailer’ here could be defined as ‘…any drawbar trailer, semi-trailer or articulated trailer’.
(Drawbar trailers are often used for carrying other vehicles).
A ‘wider’ definition could be ‘…Any trailer or agricultural or forestry implement or machine
which is constructed to be towed by a motor vehicle’.
As can be seen from the above specimen wording, there is a distinction between ‘attached’
and ‘detached’ trailers and third party cover for detached trailers is not usually provided
automatically by most commercial goods vehicle policies but must be declared and the
appropriate premium applied.
From an underwriting perspective, insurers tend to distinguish between ‘specified’ and
‘unspecified’ trailers. Unspecified trailer cover will often be for those firms who tend to borrow
or hire trailers on a regular basis and cover will apply while the unspecified trailer is attached
to the towing vehicle, or temporarily detached during the course of a journey.
 2/14 IF5/October 2022 Motor insurance products

If it is temporarily detached, then it should remain within ‘close proximity’ to the vehicle
(although some insurers will use the term ‘within the vicinity’). In the above circumstances
the cover for the trailer will usually be the same as that provided for the towing vehicle,
Chapter 2

although some insurers will only provide the minimum (RTA) cover, while it is detached,
irrespective of whether it is in close proximity or not. The unspecified trailer cover will often
be for each/every trailer up to a maximum value.
Specified trailers are those trailers that are identified by the make, model and serial number.
The premium charged for each trailer is usually based on the individual value of the
particular trailer.
For specified trailers, the cover will be the same as the towing vehicle, whether attached or
detached, but some insurers will insist that the trailer has to be in a secure compound when
detached (usually this means the operator’s own compound, or in some instances extended
to the customer’s compound).
Following the implementation of the Trailer Registration Regulations 2018 on 28 March
2019, commercial trailers weighing over 750kg and all trailers over 3,500kg must be
registered before travelling to countries which have ratified the Vienna Convention. This
means trailers being taken abroad must be registered with DVLA, display a registration plate
and have a Trailer Registration Certificate. The new Regulations do not alter the insurance
requirements applying to trailers.
B4B Buses and coaches
Vehicles with a seating capacity exceeding eight, including the driver’s seat, are classed as
buses or coaches. These are treated as public service vehicles, are subject to PSV
regulations, and are insured for hire and reward.
Small buses (defined as buses with 9-16 seats) not used for hire and reward are not subject
to those regulations by virtue of the Transport Act 1985, provided they have been granted a
special small bus permit.
These permits may be issued to organisations using such vehicles for education, religion,
charity, social welfare or other activities of benefit to the community (e.g. scout groups). The
permit allows the organisation to charge individual fares to passengers provided there is no
profit involved.
Purpose of use definitions for all policies will exclude use for racing, pacemaking, reliability
trial or speed testing.

B5 Motorcycle – loss and damage

Under motorcycle policies the accessories and spare parts will only be covered for loss or
damage while they are attached to the motorcycle itself. Generally speaking, however,
the loss or damage section of the motorcycle policy follows the basic cover provided under a
private car policy.
Policies usually specifically exclude loss of or damage to helmets and protective clothing,
although cover is often available for an additional premium where the equipment is damaged
at the same time as the vehicle or while being stored in locked panniers attached to the
motorcycle.
One or two of the enhanced policy benefits are not provided, e.g. personal effects, medical
expenses and personal accident. Moreover, there will be a higher excess, as the motorcycle
is more prone to being damaged or stolen.
There are more superior motorcycle policies which may include additional benefits by virtue
of a specific motor recovery service, e.g. transporting rider, passengers etc. to their
intended destination, following the accident. There may be a new motorcycle replacement
clause within the policy, but such a facility may only be available if, for example, the
motorcycle is stolen and not recovered.
Some insurers will stipulate that they will not indemnify in respect of any loss if the
motorcycle is not fitted with a manufacturer’s steering lock. It will also be a requirement that
the lock is set and in operation.
Chapter 2 Scope of cover provided 2/15

B6 Contingent Liability and Occasional Business Use

Contingent Liability: Contingent liability policies are issued where one person may rely on
another to arrange insurance but due to that insurance proving inoperative for some reason,

Chapter 2
incurs a liability in circumstances over which they have no direct control.
A typical example is the vicarious liability incurred by an employer when they allow an
employee to use their own vehicle on the employer’s business. The standard motor policy
issued to the employee provides an indemnity to the employer provided the policy permits
business use, but the employer has no better rights under the policy than the employee. So,
if the employee is in breach of their policy or it is inoperative (e.g. because the employee has
failed to renew it) the protection given to the employer falls alongside that of the employee.
To cater for this scenario, the employer can effect contingent liability insurance to protect
themselves and cover their vicarious liability.
It is important to remember that the policy does not indemnify the employee/owner of the
vehicle. It only covers the employer and there is no cover for the employee if the claim is
pursued against them. Likewise, there is no cover for damage to the vehicle.
The policy excludes vehicles being driven by the policyholder or owned by the policyholder,
the employer in the above scenario (these should be insured in their own right in the
policyholder’s name). The policy wording is similar to that used for commercial vehicles but
there is no RTA cover and a certificate of insurance is not issued. There is consequently no
compulsion for these policies to be issued by the motor department and they are sometimes
issued by general liability insurers. Motor fleet policies tend to provide this cover
automatically but it can be obtained as a standalone product.
Occasional Business Use (OBU): There could be occasions where an employee’s own car
needs to be insured for their employer’s business but the use allowed by the employee’s
policy does not cover business use and that cover cannot be obtained, or it is impractical for
it to be arranged. Similarly, the employee might use a car belonging to someone else (e.g. a
friend or relative) on their employer’s business. In such a case it is highly unlikely that the
vehicle owner’s policy would extend to the business use of the additional driver’s employer.
To cater for such circumstances, a policy is available to cover only the occasional
business user.
The policy is restricted strictly to the business of the employer (no social, domestic and
pleasure use is permitted) and excludes the carriage of passengers for hire or reward,
together with the usual ‘racing and pacemaking’ exclusion. The policy is inoperative if there
is any other policy in force covering the same loss or liability. Cars owned or hired by the
employer are excluded. OBU is, therefore, not a contingent cover, but a primary cover that
replaces the need for the employees to insure their cars for business use.
Unlike the contingent liability cover, which indemnifies the policyholder (the employer) but not
the employee, the OBU policy indemnifies the policyholder or, at their request, their
employee. A certificate of insurance is issued in the name of the employer. It follows that if
comprehensive OBU cover is effected, the employee can enjoy the protection of the
employer’s policy for their own damage cover while the vehicle is being used on the
employer’s business. There is some scope for selection against the employer where, for
example, the employee has only third party cover for their own personal use but there is
comprehensive OBU cover in force and it is difficult to establish whether the vehicle is being
used for private or business purposes. Employers are, therefore, sometimes selective in
offering this cover to their employees.
As with contingent liability, OBU is often included in fleet policies but can be provided
separately.

B7 Private car – liability to others

This will normally cover the policyholder (plus anyone insured under the terms of the policy),
in respect of any legal liabilities for death, personal injury, and damage to any third party
property, as a result of an accident involving the car (insured under the terms of the policy).
The above merely reiterates that the policy provides indemnity in respect of liabilities that
arise under the law of tort. The wording of this ‘operative clause’ of this section will often be
wide, the pertinent phrase being ‘as a result of an accident involving your car’. Provided the
policyholder’s vehicle did in some way cause the accident, then the liability section is
triggered to operate.
 2/16 IF5/October 2022 Motor insurance products

Normally the policy will state that the request for indemnity must come from the policyholder
themselves. Theoretically, it is only the policyholder who can seek contractual indemnity
under the terms of the policy, hence the need for the policyholder to request indemnity
Chapter 2

for others.

Who will be entitled to cover?

Anyone entitled to drive under the The same cover will be provided to these people if permitted by the
terms of the policy certificate of insurance.

Anyone who ‘uses’ the vehicle for This in some ways is an echo of the position under RTA 1988 –
social, domestic and pleasure referring to the ‘use’ of the vehicle. Section 143 of the RTA requires
purposes that there must be a policy of insurance in force which provides cover
in respect of any liability arising out of the use of a vehicle on the road.

Any person travelling in or getting This refers principally to the liability of passengers and is more
into or out of the car extensive than RTA liabilities.

The policyholder’s employer, if the car The car must not belong to the employer nor must it be hired to them.
is used with the policyholder’s This covers an employer’s vicarious liability, i.e. a liability incurred due
permission, provided the use is to the acts or omissions of a servant or agent – in this case the
permitted by the policy policyholder. The employers of named drivers are not covered. Note
that the use has to be otherwise permitted by the policy.

The ‘third party’ section of the car policy does not only provide cover in respect of liability to
passengers, should they be injured in an accident for which the policyholder is responsible.
It also includes the liability of passengers, should they be the cause of an accident.
For example, if a passenger opens a door into the path of an oncoming car, causing the car
to swerve and cause an accident, the ‘third party’ section would cover the passenger’s
liability for the accident. The passenger does not need to be the insured, nor be the one
driving the vehicle, and the policyholder does not need to be personally liable. This cover,
therefore, goes beyond the requirement of the Road Traffic Acts.
Where the permitted use of the vehicle includes business use, the policy will effectively
indemnify the policyholder’s employer for any vicarious liability arising from the policyholder’s
use of the vehicle in the course of their employment.
For example, if the policyholder is a health visitor employed by a local council, they may use
their own car to visit patients at home. Should they accidentally collide with a wall while
visiting a patient, the local council could be held vicariously liable for the negligent act of its
employee. In such circumstances, as long as the permitted use of the vehicle within the
insurance policy includes business use by the insured, the ‘third party’ claim would be valid
under the motor policy.
This area of cover, however, is restricted to the policyholder only and does not extend to
include named drivers.
There is no question of providing cover for anyone driving the car unless they are permitted
to do so on the certificate. Furthermore, as the vicarious liability can only arise from a work
situation, then cover must include an element of business use.
The benefits of the policy can be transferred to the estate of the policyholder, in the event of
their death. The Law Reform (Miscellaneous Provisions) Act 1934 states, among other
things, that the death of any party to an action does not prevent the liabilities or rights
passing to the deceased person’s estate. Consequently, protection is provided to the legal
personal representatives of anyone entitled to indemnity under this section.
Nowadays motor policies will limit liability for third party property damage to, say, £20m for
motor car policies, although some may include an additional sum for costs.
A few insurers will state that they will not insure the policyholder if the policyholder no longer
has the car or if it has been previously damaged and it would cost more than its pre-accident
value to repair. This excludes cover if the insured vehicle has been disposed of or has been
damaged beyond economical repair. The reason for such an exclusion is to stop the
potential misuse of the Driving Other Cars (DOC) extension. The intention with DOC cover
was that it would be used infrequently. The fear is that with the specifically insured vehicle
unavailable, the policyholder would utilise the DOC section of the policy for an extended
period without purchasing further cover.
Chapter 2 Scope of cover provided 2/17

This exclusion came into being following the decision in Dodson v. Dodson (2001) which
held that, contrary to the previously established position (i.e. that the policy came to an end
upon disposal (or total loss) of the specifically insured vehicle – Tattersall v. Drysdale

Chapter 2
(1935) ) this would not apply for the purpose of the operation of the DOC extension, unless
the policy specifically said so.
B7A Exclusions
When considering exclusions (or what is sometimes termed the ‘what is not insured’ part), to
the third party section it should be remembered that many will have no effect on the insurer’s
liabilities under the RTA. As motor insurance is compulsory, any contractual condition cannot
defeat an insurer’s responsibilities under the RTA.
Insured vehicle – Clearly, this being the third party liability section, there should not be any
intention to cover the policyholder’s vehicle as this must be covered under the accidental
damage section.
Driver licence – The policy will not cover anyone who is driving the car covered under the
terms of the policy, who has never held a licence or who is disqualified from holding or
obtaining a licence.
Some policies exclude cover if a vehicle is being driven by, or in the charge of, anyone who
does not keep to the conditions of their driving licence. Such an exclusion would have the
effect of invalidating cover if, for example, a learner driver was using a vehicle while
unaccompanied or accompanied by an ineligible person in breach of their provisional licence
conditions.
Conditions/exceptions/endorsements – If anyone fails to comply with any of the terms,
exceptions, conditions and endorsements of the policy which apply to them, then such failure
would be regarded as a breach of that policy contract.
Other insurance – Where a driver might be entitled to such cover under any other policy
then the normal rules of contribution apply.
In other words, if another policy provides cover and it is excluded under the private car
policy, then the ‘other’ policy will operate. However, if both policies are mutually exclusive (in
other words, they both exclude each other), then, if allowed, this would mean that no cover
would operate, which would not be acceptable. The courts take a practical view of this
situation, and the general common law rule is that where two policies operate, then both
policies will contribute 50% each towards the loss. This is decided on the principle of ‘equity’
(justice). In practice, this will usually result in one of the insurers dealing with the claim, and
then seeking the appropriate contribution from the other insurer.
Employers’ liability risks – There is an exclusion which will not cover liabilities arising out
of and in the course of that person’s employment, except in so far as is required under the
terms of the Road Traffic Acts.
Effectively this means that the motor policy will meet the liability to passengers arising from
their employment if it is an RTA liability. If it is not (e.g. an accident occurring other than on a
‘road’) the Employer’s Liability policy will meet the liability.
Property owned or in custody/control – Another exclusion is loss or damage to property
belonging to or in the custody or control of any person who is insured and who is driving
under the terms of the policy.
This is to avoid the situation where the claimant and the person liable are one and the same;
clearly a claimant cannot sue themselves and, thus, the liability for such damage to property
is excluded under this section. An example would be where the driver, driving one vehicle
(say, vehicle A), reverses into a stationary vehicle (vehicle B), the latter belonging to the
driver of vehicle A. They cannot then claim against themselves.
However, if the stationary vehicle (B) is insured on a comprehensive basis, the driver would
still be able to seek indemnity from the insurers of vehicle B for the damage sustained to B
as an accidental damage claim. Additionally, if vehicle A is also insured comprehensively,
then A’s insurers would also be in a position to consider dealing with the damage to vehicle
A, providing the driver is covered to drive. There would be no right of recovery in either case
and the appropriate own damage excess would need to be paid on both policies. Unless
protected, both policies would also lose no claim discount as no recovery has been possible.
 2/18 IF5/October 2022 Motor insurance products

Other exclusions – Other exclusions (which in some instances used to be confined to

commercial type policies), have often been incorporated into private car policies.
These could include the following:
Chapter 2

Liability for any loss or damage

While any vehicle is being used on:– part of an aerodrome or airport used for
aircraft taking off and landing; – aircraft parking areas including service roads; –
ground equipment parking areas; or – any parts of passenger terminals within the
Customs examination area; except where such liability is required to be covered
under by the Road Traffic Acts.
This exclusion reflects the fact that the use of vehicles ‘airside’ is a substantial risk. It should
be borne in mind that the ‘airside area’ is usually restricted to vehicles which are not used by
members of the public, and while the exclusion wording does extend to cover any RTA
definitions, it does appear that it will not fall within the definition of ‘road (or other public
place)’.
Terrorism – While a terrorism exclusion used to be confined to commercial fleet and motor
trade policies, it is now inserted into some private car wordings.
Such an exclusion may state that:
The policy does not cover liability of whatever nature or any costs or expenses
whether directly or indirectly caused by or contributed to or arising from terrorism
as defined in the Terrorism Act 2000 except as so far as is necessary to meet the
requirements of the Road Traffic Acts.
Terrorism may be defined to include (but is not limited to):
the use or threat of force and/or violence and/or harm or damage to life or to
property (or the threat of such harm or damage) including but not limited to harm
or damage by nuclear, chemical, biological and/or radiological means; when any
such act is committed by any person(s) or group(s) of persons in whole or in part
for political, religious, ideological or similar purposes, or is claimed to be
committed in whole or in part for such purposes.
Under some policies, the terrorism exclusion appears as a general exclusion and so applies
to loss or damage as well as liability.
Recent incidents where an insured vehicle has been used as a weapon by terrorists have
highlighted the fact that there is no contractual liability due to the terrorism exclusion and no
RTA liability due to the use (a deliberate act) not being covered by the policy. However, as
there is now no terrorism exclusion under either the Uninsured or Untraced Drivers'
Agreements, prior to 1 January 2019, the MIB Articles of Association required the insurer to
deal with any third party injury or damage claims resulting from the use of the vehicle under
the MIB's Article 75. It is for this reason that an agreement was reached to 'mutualise' such
claims. With effect from 1 January 2019, they are handled on behalf of UK motor insurers by
the MIB. The MIB Articles of Association have been amended to incorporate this change in
practice.

B8 Commercial vehicle – liability to others

The main provisions of the Commercial Vehicle Liability to Others section follow those in
the private car policy. However, there are some fundamental differences and we shall
concentrate only on such differences. In the absence of any comment to the contrary, the
commercial vehicle policy wording will follow that of the private car policies.
Driving other vehicles
Mention is made here that the ‘Driving Other Vehicles’ extension is not normally available on
commercial vehicle policies.
To grant such an extension would be to expose the insurer to potential third party liabilities
which cannot easily be established or calculated, especially as the choice of different types
of commercial vehicles is considerable.
Third party property damage limit
It should be noted that with commercial vehicle policies there may be a third party property
damage limit.
Chapter 2 Scope of cover provided 2/19

Basically it states that the liability for third party property damage shall be limited to £5m, or
any greater sum as may be required in the compulsory insurance legislation as may be
required in the country in which the accident occurred, in respect of an accident or series of

Chapter 2
accidents arising out of the same event.
The above property damage limit may vary from insurer to insurer. It can often be increased
upon payment of an additional premium, although the level quoted would hopefully be
sufficient to cover most property damage claims taking account of the potential for more
extensive damage to be caused by a larger commercial vehicle.
As will also be noted, the limit is in respect of any one accident or a series of accidents
where the cause is the same. It is, of course, possible for a particular insured to be involved
in more than one serious accident during the course of a particular underwriting year.
Furthermore, the limit will be automatically increased if the accident occurs in a country
where the minimum compulsory motor legislation requires a higher level.
Some insurers may state in their condition that they may still be liable for costs and
expenses of legal fees recoverable or incurred in respect of matters prior to the date of such
payment.
Trailers

Refer to
Trailers were also covered in Trailers on page 2/13 of this chapter

It has now become standard practice for insurers to include in the goods-carrying vehicle
policy third party cover for trailers while attached to the insured vehicle.
Insurers who issue policies which do not automatically provide cover for trailers will normally
do so by payment of an additional premium. The choice of cover (i.e. TPO, TPF&T or
COMP) is then made.
On what basis might these be on?

Specified Requires the policyholder to identify each trailer in the endorsement, extending the policy.
Cover here will be provided when a (specified) trailer is detached or attached.

Unspecified Trailer policies compel the policyholder to identify the vehicles which will be used to tow the
trailers. Again, the towing units will be listed in the policy extension and each unit will generate
an additional premium. As a consequence, cover operates only when a unit is being towed by a
specified vehicle.

The cover for the unspecified trailer will usually be the same as that provided for the towing
vehicle, provided it is in the vicinity of the towing vehicle, although some insurers will only
provide the minimum (RTA) cover, while it is detached, irrespective of whether it is in close
proximity or not.
All motor insurers who offer trailer cover must provide at least the minimum cover (i.e. RTA
cover) while the trailer is attached (and is in the United Kingdom).
B8A Exceptions – commercial vehicle – liability to others
Referring to the standard operative clause to the third party liability section, it becomes
evident that a number of additional exclusions are necessary under a commercial vehicle
policy. This is particularly so bearing in mind that there is usually no restriction on the vehicle
which may be driven. Some of the additional exclusions are as follows:
• Loading/unloading.
This will normally state that:
The insurer shall not be liable for damage, death or injury caused by or arising
beyond the limits of any carriageway or thoroughfare, in connection with:
The loading or unloading of the vehicle by any person other than the driver or
attendant of the vehicle.
The reason for such an exclusion is because of the potential operation of two different
policies – a motor policy or a public liability policy. The latter type of policy should cover
those liabilities which arise as a result of loading and unloading of goods or, alternatively,
 2/20 IF5/October 2022 Motor insurance products

the removal of the goods following unloading. Often the latter type of activity will occur
within a consignee’s warehouse, for example.
Therefore, the loading, unloading or bringing/taking of a load is covered when it occurs
Chapter 2

within the limits of any carriageway or thoroughfare. While ‘carriageway’ and

‘thoroughfare’ are not defined within a policy, this will normally mean within the immediate
vicinity of a road (including the pavements). If it is the driver or attendant of the vehicle
who is bringing the load for loading, or removing it after it has been unloaded, then the
loss or damage arising will be covered, wherever the accident happens.
• Indemnity to any passenger.
Most commercial vehicle insurers provide indemnity for a passenger who may have
caused an accident, although granting such indemnity may be at the request of the
policyholder so the precise wording should be checked in each case.
• Airside risks.
This will normally exclude liabilities while an insured vehicle is on the side of the airfield,
aerodrome etc., where the planes take off and land. Additionally, it will also exclude the
area where there is aircraft parking, including any associated service roads, refuelling
areas etc.
Such legal liability will be excluded whether it is directly or indirectly caused by or
contributed to by or arising from the insured vehicle.
This is quite detailed wording, the intention being to avoid those potential catastrophic
losses that could occur if a commercial vehicle were to be involved in an accident in the
more hazardous areas of an airfield.
• Wrongful delivery.
This is where the company shall not be liable for the death of or bodily injury to any
person or damage to property directly or indirectly caused by delivery of a load by the
insured or, where relevant, the driver or passenger or any principal director, employee of
the insured or any agent or apparent agent where the delivery was not authorised, not
ordered, negligently carried out, unlawful or otherwise wrongful.
These liabilities would be covered under another type of policy (e.g. goods in transit,
public liability, professional negligence). It is also intended to reinforce the requirement
that an employee should not embark on a frolic of their own, particularly those excursions
or arrangements which are unlawful.
• Weight of load.
A number of commercial vehicle policies may have a ‘weight of load’ exclusion. A typical
wording may state that the insurer will not be liable for:
Damage to any weigh-bridge, bridge, viaduct or road, or anything above or
beneath, or fixed to them by vibration or by the weight of the vehicle, and its
load if the Insured Vehicle exceeds the maximum gross vehicle, plated or train
weight permitted by the relevant law.
To deal with such a claim would be to tacitly condone an unlawful act.
B8B General exceptions
Pollution and contamination
Insurers will exclude liability:
For loss, damage, death of or bodily injury to any person or damage to property
directly or indirectly caused by pollution or contamination unless arising by a
sudden, identifiable and unexpected incident which occurs in its entirety at a
specific time and place during the period of insurance.
In light of the fact that general liability policies were carrying a gradual pollution exclusion, it
was deemed prudent for car insurers to incorporate such an exclusion. The fear was that,
without such a clause, a policy may be called upon to meet a liability which it was never
intended to cover.
The wording quoted is a model wording recommended by the ABI and is principally designed
to be incorporated in commercial vehicle policies. However, it could, theoretically, be adapted
for inclusion in private car policies and, as precaution, is often included.
Chapter 2 Scope of cover provided 2/21

Defective products
It may say that the company will not be liable:
For the death of or bodily injury to any person or damage to property directly or

Chapter 2
indirectly caused by or through or in connection with or arising from:
• Any defects in or the action of any commodities or goods or anything (including
packaging, containers and labels) transported by or disposed of from the
Insured Vehicle or any motor vehicle not the property of nor provided by the
insured.
• Treatment given or services provided at or from the insured vehicle or any
motor vehicle not the property of nor provided by the Insured.
The exclusion hinges on the fact that the vehicle from which such treatment, services etc., is
provided is not the insured’s, nor is it provided by them.
Terrorism
With terrorism an increasing concern among insurers, precipitated mainly by the events of
‘September the 11th’ (2001), there has been a move to restrict liabilities that arise therefrom.
Some insurers have now inserted a clause that restricts their responsibilities.
An example would be:
The policy does not cover liability of whatever nature or any costs or expenses
whether directly or indirectly caused by or contributed to or arising from terrorism
except as so far as is necessary to meet the requirements of the Road Traffic Acts.
As can be seen from the above, liabilities are restricted to those necessary to meet the
requirements of the Road Traffic Acts, there being a third party property limit of £1.2m.
The definition of ‘terrorism’ could be wide, and could include:
the threatening of harm of whatever nature or means made or claimed to be made
in whole or in part for religious, political or ideological purposes.

Refer to
Terrorism was also covered by Exclusions on page 2/17 of this chapter

However, a more restrictive definition of ‘act of terrorism’ may confine the acts of persons, in
connection with any organisation which undertakes activities intended to overthrow Her
Majesty’s Government by force or violence.
Tool of trade
A more general type of the wording would be:
liability for death of or bodily injury to any person or damage to any person’s
property caused by or arising out of the operation as a tool of any vehicle, trailer
or plant.
While the exclusion does not specifically mention the RTA, liabilities that arise as a result will
have to be considered under the motor policy. In fact, in the light of the EU Directives, the
policy will be required to meet the requirements of any compulsory insurance legislation
operative within the territorial limits of the policy, and a statement to this effect will be found
within the policy document.
Trade plate
This excludes those losses which fall to be considered under a motor trade policy, but also
complements the latter type of policy by providing cover while the vehicle in question is
temporarily garaged at premises not owned or occupied by the insured.

B9 Motorcycle – liability to others

The third party liability section will provide indemnity for any accident when the policyholder
is riding their motorcycle resulting in:
• death or injury to any persons including pillion or sidecar passengers;
• damage to other people’s property; and
• legal costs incurred with the insurer’s consent in connection with such claims.
 2/22 IF5/October 2022 Motor insurance products

Legal costs, emergency treatment and use abroad are dealt with in the same way as for
private car insurance.

B10 Private car – foreign use

Chapter 2

With foreign use, it should be noted that the private car policy automatically provides the
minimum cover within the EU countries. To extend the cover to that granted in this country, a
foreign use extension has to be requested. A policyholder has to specifically extend the full
policy cover for the vehicle to other countries in the 'Green Card' system.
Those countries in the system are the 27 EU states, plus other states complying with the EU
Directives, including the UK. In other words, if a UK resident has comprehensive cover on
their own vehicle, and they wish to travel to say, France, in that vehicle, then he/she should
contact their motor insurer, and extend the cover, so that comprehensive cover operates
while in France. Such an extension may result in payment of an additional premium.
Some EU States require compulsory insurance to apply to detached as well as attached
trailer units. Where this is a requirement of the State, the compulsory insurance provided by
the UK insurer while an insured vehicle is in that State will extend to include a trailer while
detached. While this requirement is more relevant to commercial vehicles, it could still apply
to a private car.
While travelling in countries which are members of the Green Card free circulation zone, a
Green Card is not legally required to be produced; however, unless the motor insurers are
informed and the policy suitably extended (which may trigger the issuing of a Green Card),
the maximum cover applicable would be that provided by the RTA (or the national equivalent
of the country being visited), whichever is the greater.
To avoid the assertion that a particular policyholder was uninformed, insurers and brokers
should outline what should be done at the time a policyholder indicates that they intend to
travel abroad.
The policy will normally specifically highlight the fact that (by payment of an additional
premium) cover can be the same as that provided in the UK while a policyholder is travelling
abroad. This will also include the cost of recovery to the UK, delivery to the policyholder’s
own address and the foreign custom duty payable.
Some insurers may automatically provide full policy cover for a limited period of time,
typically a maximum of 30 days in any one period of insurance while travelling within other
EU Member countries.
The waiver of the requirement for UK motorists to carry a Green Card when visiting other
States complying with the EU Directives was one of the situations which initially changed as
a result of Brexit (UK's decision to leave the EU). Immediately following the end of the
transition period Green Cards became necessary both for UK motorists travelling in the EU
and for EU motorists travelling to the UK. However, with effect from 2 August 2021,
agreement was reached between the UK and the remaining EU states to re-admit the UK to
the Green Card free circulation zone. Consequently, travel between the UK and the EU or
other associated countries no longer requires the issue of a Green Card and the status quo
has been restored.

B11 Private car – additional benefits

The following additional benefits are generally found in private car comprehensive policies.
They may also be given in some small commercial policies, fleet policies and, possibly,
motor trade combined policies.
B11A Personal accident benefits
This particular additional benefit is commonly referred to as the personal accident insurance
section and provides modest personal accident benefits.
Chapter 2 Scope of cover provided 2/23

What will this normally cover?

Death, loss of eyes or loss of limbs As well as the policyholder, this section also covers the
policyholder’s wife or husband. Often ‘wife’ or ‘husband’ is not

Chapter 2
defined and some insurers will include the term ‘partner’ or 'spouse/
civil partner'.

An insurer may pay in respect of In respect of cars other than the one covered under the policy, the
injury caused in direct precise wording must be checked.
connection with the insured car or
the cover may extend to travelling in
any car

As a ‘benefit’, there can be no There is no subrogated right of recovery. This additional benefit is
contribution from any other policy or only available to comprehensive policyholders and there is often a
compensation payment. wide variation in the wordings and the benefits payable.

As an example, an insurer may be willing to pay £10,000 if the accidental bodily injury
directly results in:
• death;
• permanent loss of sight in one or both eyes; or
• loss of any limb.
Further points to consider are as follows:
The benefit is not necessarily restricted to vehicles insured by the policy.
• There may not be a definition of ‘loss of any limb’ within the policy.
• This benefit is not intended to provide complete personal accident benefits.
• An insurer may not pay for anyone aged 65 or over; however, many insurers will pay up
to the age of 70, or even 75.
• It is possible that both the husband and wife are insured for their respective cars with the
same insurance company.
• The cover may require that the death or loss of eye or limb must occur within three
months of the accident.
• Payments will not be made for a driver who was under the influence of drink or drugs at
the time of the accident.
• In respect of a deceased driver, and in the event that drink or drugs are suspected, then a
copy of the coroner’s report should be obtained.

The benefit is not necessarily restricted to vehicles insured by the policy

There may not be a definition of ‘loss of any limb’ This may result in some harsh decisions: a partially
within the policy paralysed limb would not fit the definition.

This benefit is not intended to provide complete If a policyholder desires full personal accident cover,
personal accident benefits then a separate standalone policy should be purchased.

An insurer may not pay for anyone aged 65 or over; If there is any doubt then access to a copy of the birth
however, many insurers will pay up to the age of 70, (and, if appropriate, the death) certificate will be
or even 75 required.

It is possible that both the husband and wife are In the event of an injury, both policies might provide
insured for their respective cars with the same cover. However, although there is no right of
insurance company contribution the insurer may pay out only once.

The cover may require that the death or loss of eye This is to ensure as far as possible that the two events
or limb must occur within three months of the are connected. In such cases, the death certificate or
accident. very precise details from a medical report will be
required.

Payments will not be made for a driver who was This is linked to the RTA and, therefore, if a person is
under the influence of drink or drugs. convicted under the RTA for a drink or drugs offence,
the benefit will not be paid.

In respect of a deceased driver, and in the event that An insurer will then have to decide from the information
drink or drugs are suspected, then a copy of the secured whether or not an offence under the RTA would
coroner’s report should be obtained have been successfully prosecuted but for the death.
 2/24 IF5/October 2022 Motor insurance products

B11B Medical expenses

The following is a typical wording for such a clause:
Chapter 2

If you, your driver or any of your passengers are injured in an accident involving
your car we will pay you the medical expenses incurred for each injured person up
to the amount specified in your schedule.
As with the personal accident section, the cover is intended to be basic and the maximum
limit of the benefit is invariably low, say, up to £250.
Claims rarely arise under this section, especially as medical treatment is invariably provided
by NHS hospitals.
Insurers will often apply a generous interpretation of the phrase ‘medical expenses’ in view
of the nominal level. For example, the cost of a replacement hearing aid, following the
alleged breakage of the original in any accident, may well fall within the definition.

C Uninsured loss recovery – legal

expenses policy
This type of policy is principally available for private motorists, although it may be offered as
'Commercial Legal Expenses' on commercial vehicle type policies (motor fleet, motor
trade etc.). It is also known as 'Before the Event' (BTE) legal expenses insurance.
The cost of cover is often a comparatively small amount, and this option is offered at
inception of the main motor policy. It relieves intermediaries and agents of the need to
provide assistance with clients’ uninsured loss recovery claims and provides peace of
mind for policyholders. Examples of an uninsured loss are the excess, or transport costs
incurred, while the policyholder’s own vehicle is off the road.
It will cover the legal expenses incurred in pursuing the legal rights of an insured person to
recover any uninsured losses (including a claim for resultant personal injury) and costs
arising from an insured accident. This will include any appeal (or defence of appeal) against
the judgment of a relevant civil court.
The insurer will provide a lawyer of its choice to try and recover the above for the
policyholder from a third party either on their behalf or on behalf of the driver or passenger at
the request of the insured person. That person may nominate a lawyer, but they must tell the
insurer and it can refuse to accept such nomination.
For operation of the policy, the lawyers must be satisfied that, in all the circumstances of the
claim, there is a reasonable prospect of recovering all or at least 50% of the uninsured
losses.
There must be at least an even chance of success. This may be termed ‘reasonable
prospects of a satisfactory outcome’, or something similar within the policy. Clearly, a legal
expenses insurer will not fund an action which has little hope of succeeding.
Other stipulations could be:
• the maximum amount to be paid for any one incident is £50,000; and/or
• the cover will only apply to events involving the policyholder’s car occurring within the
territorial limits of your policy or in any country to which the policy has been extended.
While the territorial limits mirror those provided by the main policy, some insurers may
choose to limit the benefit to the normal territories (e.g. Great Britain, Northern Ireland, the
Channel Islands and the Isle of Man).
As with the operative clause, the exclusions that apply will often vary., but may include the
following.
Chapter 2 Scope of cover provided 2/25

An insurer will not be liable for:

• an insured event reported more than six months after it occurred;
• fees, costs and payments which are not reasonably and necessarily incurred prior to

Chapter 2
written acceptance of the claim;
• malicious acts; and/or
• a conflict of interest between the insured person and any other insured person, unless the
claim is in respect of bodily injury.
Also, a claim may not be paid where the insured person:
• pursues or defends legal actions, contrary to or in a different manner from that advised by
the insurer or their appointed solicitor;
• fails to give proper instructions in due time to the insurers or any appointed solicitor;
• is responsible for delay, which in the insurer’s reasonable opinion is prejudicial to the
pursuit of the legal risks of the insured person; and/or
• is (or would be, in the absence of this section) covered under any other policy or policies
of insurance.
The following points should be noted:
• Normally, a policyholder’s NCD will not be affected solely because of a payment made
under this cover.
• Control of the claim must ultimately rest with the insurer. It may, therefore, require direct
access to the appointed solicitor who, in turn, should disclose any documentation,
information etc., as and when required.
The passing of the Civil Liability Act 2018, which received Royal Assent on 20 December
2018, and was implemented from 31 May 2021, may impact legal expenses insurance. It
extends the small claims track limit which is applied to certain defended cases in civil courts
to include personal injury (PI) claims up to £5,000 resulting from road traffic accidents. The
limit is currently set at £1,000. The effect will be that the majority of RTA-related PI claims
(over 80% of which are under the £5,000 limit) will fall within the small claims track and,
consequently, would no longer qualify for the recovery of legal costs and fees. This will mean
that either:
• insurers offering legal expenses insurance will have to pay the legal costs of the solicitors
appointed to handle the case themselves; or
• claimants will have to pursue their claims without legal representation, being litigants in
person.
One of the key aims of the legislation is to tackle the compensation culture by reducing the
number of fraudulent whiplash claims. Insurers deal with over 1,500 whiplash claims every
day which costs around £2bn each year. They currently account for 78% of PI claims in
England and Wales compared with 48% in the rest of the EU. A series of fixed tariffs have
been introduced for personal injuries lasting up to two years, replacing the previous general
damages element of the claim. In addition, there is now a ban on any offers to settle
whiplash claims not accompanied by medical evidence. These measures are expected to
reduce motor insurance premiums by around £35 a year per policy.

D Breakdown cover
Vehicle breakdown assistance has historically been available to motorists as a benefit from
membership of the major motoring organisations and affinity schemes. It continues to be
available as a stand-alone product but is sometimes marketed as part of the comprehensive
motor policy, either as an integral part of the policy or an optional add-on. Its main purpose is
to provide for breakdown assistance and recovery, rather than recovery after an accident,
which is the concern of the comprehensive motor policy.
There are different levels of assistance that are available, and it can be based on specified
vehicles, persons or both.
For example, if the breakdown cover was vehicle based, then cover would be limited to
vehicles identified in the schedule. It may operate irrespective of who was driving or
travelling in the vehicle.
 2/26 IF5/October 2022 Motor insurance products

The alternative is that cover would be limited to nominated persons, regardless of which
vehicle was being driven or travelled in. Usually this will be limited to the policyholder and
spouse or partner. There might also be a vehicle description limitation, in that cover may only
Chapter 2

be provided if the vehicle is a private car (including estate) or light van.

It is possible to extend one of the options to include the other. For example, the vehicle
based option may be extended to include personal cover.
The extent of cover will vary, depending on the options offered by the particular motor
insurer, and the choice made by the policyholder.
For example, there may be a ‘roadside assistance’ option, whereby following the
breakdown of the vehicle during a journey, then the insurer will arrange for roadside
assistance, including labour charges.
Initially, attempts will be made to rectify the fault at the roadside, failing which removal to a
local suitable repairer, sometimes within a specified radius of the incident, will be arranged.
Breakdowns that occur within a short distance (say, one mile) from the policyholder’s
address (or garaging address, if different), will usually be excluded.
There may be an ‘at home’ assistance extension available upon payment of an additional
premium that caters for breakdown occurring within the exclusion zone specified under the
standard roadside assistance.
The ‘at home’ cover would typically apply to incidents occurring less than one mile from
either the policyholder’s home or the place where the vehicle is usually kept; this might be a
nearby garage owned or rented by the policyholder or the home address of another driver of
the vehicle. To avoid any potential fraud exposure, this cover would normally not be effective
until the day after the policyholder had arranged this cover for the first time.
There may also be a ‘nationwide recovery’ option. If the vehicle fault cannot be rectified or
the vehicle repaired within a reasonable time (typically by the end of the working day) cover
will include the transport of the vehicle (and any passengers in the vehicle at the time)
together with its contents, to a single destination of the policyholder’s choice within the UK.
Passengers would be deemed to be those present in the vehicle at time of breakdown.

Example 2.2
Let’s say that a policyholder, John, has a diesel powered vehicle, but while at a garage fills
the fuel tank with unleaded petrol, and then realises the error of his ways before starting
the engine. He has breakdown cover under the terms of his policy, but as the incident
occurred on a Saturday afternoon and no garages are open to take the vehicle, under the
terms of his roadside assistance policy, he is entitled to have the vehicle towed to his
home address. This is arranged, and on the following Monday, he books the vehicle into a
garage, and arranges for the recovery service to collect the vehicle from his home and
take it there.
However, the insurers indicate that as the engine has not been started, there is no
‘accidental damage’, and the cost of draining the tank and replacing any filters is not
covered under the terms of the motor insurance policy. Therefore, John must bear the cost
of the draining of the tank and replacement of any filters, but the cost of the recovery is
covered under the roadside assistance section of his policy.

There are additional benefits that may be available:

Hire cars may be available for a relatively short This is to enable completion of the journey if the vehicle
period of time cannot be made usable within the specified timeframe
(e.g. same day of breakdown).

The cost of overnight accommodation for the This will be up to a maximum amount, for
passengers and driver example, £150.

As an alternative to overnight accommodation the Again, up to a maximum of £150.

refund of the cost of public transport for the driver
and up to four passengers to complete their journey
Chapter 2 Scope of cover provided 2/27

Be aware
As is usual with insurance policies, there are various exclusions. Here are a few
examples:

Chapter 2
• The cost of parts or cost of labour which is not incurred at the roadside.
• Cover if the vehicle had broken down, or was unroadworthy, when cover was taken
out. It is not intended that the breakdown service is to be used as a means of avoiding
the costs of repair, or lack of maintenance.
• The cost of supplying a spare wheel and tyre if a serviceable one is not provided by the
policyholder.
• The cost of, if needed, a locksmith or a bodyglass or tyre specialist.
• Recovery of a vehicle stranded in a ditch, bog, beach, snow or water or that has
overturned.
• Breakdown at the premises of a motor trader.

It must be remembered that the breakdown cover complements the comprehensive cover
offered under the terms of the (principal) motor policy. Thus, if a vehicle sustains accidental
damage, then the insurer will be asked to provide indemnity. Indemnity will invariably include
the cost of recovering the vehicle and delivery to the repairer.
Conversely, if there has been a mechanical breakdown (excluded under the motor policy),
then the breakdown cover will operate, although the cost of rectifying the mechanical
breakdown fault is not covered, and the cost of the work will have to be borne by the
policyholder.
There will be subtle variations with the benefits offered here, depending on the insurer and
the choice of breakdown service provider. Of course, a policyholder may wish to arrange
breakdown cover when travelling abroad. This will usually be subject to payment of an
additional premium.
 2/28 IF5/October 2022 Motor insurance products

Key points

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

Chapter 2

Scope of cover provided

• There are basically four types of cover: Road Traffic Act (RTA) cover, third party only
cover, third party fire and theft (TPF&T) cover, and comprehensive cover. RTA cover is
the most basic and is rarely provided.
• Private car policies typically cover loss or damage to the car, including loss, damage or
theft of car accessories and spare parts; but there are also exclusions and certain
policy sections may be subject to an excess. Liability to others is covered but, again,
with exclusions.
• The loss and damage section of commercial policies is not very different to private car,
although cover for loss/damage to parts/accessories normally only applies while these
are attached to the vehicle, rather than stored in a garage. Excesses may also
be greater.
• Commercial liability to others provisions are also similar to private car although a
‘driving other vehicles’ extension is not normally available and there may be a lower
third party property damage limit.
• Motorcycle policies are provided on a ‘specific motorcycle’ basis. While the loss and
damage section follows the basic cover for private car, the level of excess is higher and
loss/damage to spares/accessories applies only when attached to the motorcycle.
• For foreign use, private car policies automatically provide the minimum cover within EU
and certain other countries.
• Although mainly available to private car, legal expenses policies are also offered in
small commercial vehicle fleets to enable the legal rights of an insured to pursue
recovery of any uninsured losses arising from an insured accident.
• Breakdown cover can be bought as an optional add-on.
Chapter 2 Scope of cover provided 2/29

Question answers
2.1 b. Only the accessories relating to the car.

Chapter 2
2.2 • Where the policyholder has a poor accident and/or conviction record.
• Where a vehicle is badly damaged following an accident and until it is repaired
satisfactorily.

2.3 a. Arrange for the car to be taken to an approved repairer for repair.

2.4 • Road Traffic Act only.

• Third party only.
• Third party, fire and theft.
• Comprehensive.

2.5 d. Punctures due to broken glass on a roadway.

2.6 a. Clothing.
 2/30 IF5/October 2022 Motor insurance products

Self test questions

1. Do unspecified trailers have to be in the vicinity of the towing vehicle for the same
Chapter 2

cover as the towing vehicle to be in place?

2. List five exclusions that normally appear in a motor policy.
3. How is breakage of glass treated?
4. List the three ways in which loss, theft or damage to car accessories and spare parts
will be dealt with by an insurer.
5. What is 'market value'?
6. Which policy provides cover for clothing and personal effects?
You will find the answers at the back of the book
 Legal and regulatory
3
considerations

Chapter 3
Contents Syllabus learning
outcomes
Introduction
A Road Traffic Act 1988, as amended by the Road Traffic Act 1991 5.1, 5.4, 5.7, 11.1, 12.1
B Part VI RTA in practice 5.2, 6.1
C Use of vehicles outside the UK 5.3, 5.6, 6.1
D Green Card system 5.6
E Other legislation affecting motor insurance 5.4, 5.5
Key points
Question answers
Self test questions

Learning objectives
After studying this chapter, you should be able to:
• describe the scope and intention of Parts I to VII of the Road Traffic Act 1988 and to
describe particularly the effect of the provisions in Part VI of the Act;
• describe the principles of the EU Motor Insurance Directives and how these have been
addressed in the UK;
• explain the purpose of the Green Card and why this is still used by UK insurers; and
• describe the effects of other legislation which has impacted on motor insurance.
 3/2 IF5/October 2022 Motor insurance products

Introduction
Key terms
This chapter features explanations of the following ideas:

Automated and Consumer Insurance Continuous Disability

Electric Vehicles Act (Disclosure and Insurance Discrimination Act
2018 (AEVA) Representations) Act Enforcement 1995 (DDA 1995)
Chapter 3

2012 (CIDRA)
EU Motor Directives Green Card system International Insurance Act 2015
Certificate of
Insurance
Rehabilitation of Road Safety Act Road Traffic Act Statutory Off Road
Offenders Act 1974 2006 (RTA) as amended Notification (SORN)
by the Deregulation
Act 2015
Legal Aid
Sentencing and
Punishment of
Offenders Act 2012
(LASPO)

A Road Traffic Act 1988, as amended by the

Road Traffic Act 1991
The most important legislation dealing with motoring law in England, Scotland and Wales is
the Road Traffic Act 1988 (RTA 1988) which came into force on 15 May 1989. The 1988
Act has already been amended in part by the Road Traffic Act 1991 and by various other
regulations. Further offences have been added by the Road Safety Act 2006, which have
created amendments to the original 1988 Act. These amendments will be mentioned as
appropriate in the following text.
It should be noted that RTA 1988 is a ‘consolidating statute’, which means it brings
together various pieces of legislation brought onto the statute books since the previous
consolidation in 1972.
It can also be described as an ‘enabling Act’, which provides that the Secretary of State
may, in certain circumstances, issue regulations which do not require full parliamentary
procedure to become effective.
The law in this area continues to change and is influenced by European law, most notably
the EU Motor Directives.
RTA 1988 is divided into seven parts, each of which is further divided into numbered
sections. The most important part from the point of view of motor insurance is Part VI, which
will be dealt with here in some depth. The more important aspects from other parts will be
mentioned briefly.
At the end of this chapter, appendix 3.1 provides a brief description of each section dealt with
and a reference to where they can be found.
It should be remembered that the Road Traffic Act is principally a piece of legislation relating
to criminal law.

A1 Part I of RTA 1988

Part I is headed ‘Principal Road Safety Provisions’ and is concerned with driving and
cycling offences – for example, reckless and careless driving, driving while under the
influence of drink and drugs and breath tests. It is also an offence to cycle while under the
influence of drink or drugs, although this is not covered by the RTA which pertains only to
mechanically propelled vehicles.
Chapter 3 Legal and regulatory considerations 3/3

Certain offences were amended by RTA 1991. For example, death by reckless driving as
prescribed in RTA 1988 no longer exists.
The 1991 Act created two ‘new’ offences, as follows:
• causing death by dangerous driving (s.1 of the 1991 Act); and
• causing death by driving when under the influence of drink or drugs (s.3 of the 1991 Act).
Additionally, the Road Safety Act 2006 further created new offences, namely:

Causing death by careless or • This offence is linked to the standard and quality of driving. For example, a

Chapter 3
inconsiderate driving (s.20) driver could be found guilty of this offence if they pull out onto a road and
misjudge the flow of traffic colliding, say, with a motorcyclist on a major
road, resulting in the death of the motorcyclist. The driver need only fail to
adopt a reasonable standard of care.

Causing death by driving • This offence deals with causing a death by driving while unlicensed,
while unlicensed, disqualified disqualified or uninsured. It is not dependant on the driver’s standard or
or uninsured (s.21) quality of driving: they do not have to drive in a careless or reckless
manner.

This new offence is of particular relevance to companies who have employees driving on
company business, irrespective of who owns the vehicle being used. It is possible that, for
example, a driver is not adequately protected by insurance (perhaps due to an administrative
error by the employer or the employee).
These new offences apply in England, Scotland and Wales.
Part I of the RTA 1988 also covers preventive measures, principally pertaining to road safety.
It is here that mention is made of such things as seat belts and safety helmets.

Question 3.1
A driver is involved in a car accident when, due to their speeding, they collide with an
oncoming car on a hidden bend. The other driver subsequently dies from their
injuries.
Under which section of Part 1 of the Road Traffic Act 1988 can the driver be
prosecuted?

A2 Part II of RTA 1988

Part II is entitled ‘Construction and Use of Vehicles and Equipment’, and deals with the
following:
• General regulations for construction and use, including weight and equipment.
• Testing of vehicles.
• Design, construction, equipment and marking of vehicles.
• Maintenance and loading of goods vehicles.

A3 Part III of RTA 1988

Part III relates to the 'Licensing of drivers of vehicles', including the minimum ages for
obtaining a driving licence for various types of vehicles. The various ages are governed by
s.101 of the Act as amended.
For example, a light motorcycle with an engine size of 50cc or above will normally require
the minimum age to be 17, unless the rider is riding any size motorcycle, with or without a
sidecar, if they have completed the large motorcycle Direct Access Scheme.
A number of the above categories have weight limitations and in others the ages are also
amended subject to certain conditions.

Activity
Go to [Link]/driving-licence-categories for more on these categories and restrictions.
 3/4 IF5/October 2022 Motor insurance products

A3A Physical fitness of drivers

The physical fitness of drivers is dealt with in ss.92–96. If the holder of a driving licence
becomes aware of a ‘relevant or prospective disability’, they must inform the Secretary of
State – notification will be to the DVLA.
Similarly, an insurer who refuses to issue a policy of motor insurance on the grounds (or
including the grounds) of the state of health of an individual must inform the Secretary of
State, giving the name, address, sex and date of birth of the person concerned.

Refer to
Chapter 3

Go to Equality Act 2010 on page 3/32 for related information on the Equality Act 2010

A4 Part IV of RTA 1988

Part IV is headed ‘Licensing of Drivers of Large Goods Vehicles and Passenger-Carrying
Vehicles' and deals solely with the rules and regulations concerned with the driving of LGVs
and PCVs.

A5 Part V of RTA 1988

Part V, ‘Driving Instruction’ – as the title suggests – deals with driving instruction for payment.
Driving tuition in return for payment can only be conducted by those on the Register of
Approved Instructors.

A6 Part VII of RTA 1988

Part VII is headed ‘Miscellaneous and General’ and some of the more important sections are
outlined below:

S.165 gives the police the power to require the production of a certificate of insurance from a
motorist. If the certificate cannot be produced immediately then it might be produced at a
police station within seven days, unless this is not reasonably practicable.

S.170 specifies that the driver of any motor vehicle involved in an accident and causing third party
injury or damage, including damage to certain prescribed animals, must: stop;
• upon being required to do so by anyone having reasonable grounds, give their name and
address plus the name and address of the vehicle owner and identification marks of the
vehicle; and
• where personal injury is involved, give details of insurance to a police constable or to
someone having reasonable grounds to request them.

Where a driver has not provided the above information at the time of the accident, they must
report the matter to the police as soon as reasonably practical and, in any case, within
24 hours:

S.171 requires the owner of a motor vehicle to produce a certificate to the police to determine whether a
motor vehicle was or was not being driven without insurance.

S.174 makes it an offence for any person to make a false statement or withhold any material information in
order to obtain certain documents, licences or certificates.

S.175 makes it an offence to issue a certificate of insurance which to the issuer's knowledge is false in
some particular way.

S.185 contains a number of definitions for words and phrases used in the Act.

S.192 also contains a number of definitions, the most important of which is the definition of a road. For the
purpose of the Act, ‘road’, in relation to England and Wales, means any highway and any other road
to which the public has access and includes bridges over which a road passes.

The Motor Vehicle (Compulsory Insurance) Regulations 2000 came into force on 3 April
2000, and specifically extended the definition of ‘road’ to ‘other public place’ in relation to
s.143, which is the requirement for motor vehicles to be insured or secured against third
party risks. The extension of the definition in relation to other aspects of road traffic law had
already been implemented by virtue of the Road Traffic Act 1991.
• S.194 lists the expressions defined in the Act together with the section numbers in which
they are defined.
Chapter 3 Legal and regulatory considerations 3/5

Question 3.2
Which section of the Road Traffic Act gives the police the power to require the
production of a certificate of insurance or security from a motorist?
a. Section 154. □
b. Section 165. □
c. Section 170. □

Chapter 3
d. Section 174. □
A7 Provisions of Part VI of the Road Traffic Act 1988,
relating to third party liabilities
In general, this part of the Act is concerned with ensuring that all victims of the use of a
vehicle on a road are compensated, where injury or damage is caused by the careless acts
of the vehicle driver or user. It does this by making it compulsory to have effective insurance
cover. As will be seen, the Act goes on to make sure that defective insurance cover should
not defeat an innocent road victim from gaining compensation.

Be aware
It should be remembered that the Road Traffic Act 1988 (and its predecessors), was
principally created to protect third parties who were involved in motor vehicle accidents. It
creates the framework set out to ensure that motor insurance is in place, and also outlines
the motor offences that can be committed (for example, driving without due care and
attention, using a vehicle without insurance etc). The scope and type of offences has been
extended by subsequent acts.
From a motor insurer’s perspective, they will normally consider any third party claims in
accordance with the policy wording agreed with their policyholder, which indemnifies the
policyholder (and any named drivers). It is usually where there has been some breach of
policy conditions (and/or breach of the law), that an insurer will have to consider a third
party claim as ‘Road Traffic Act insurer’.

A7A S.143 – Users of motor vehicles to be insured

Most people would find it difficult to compensate the victims of road traffic accidents out of
their own wealth. Section 143 of the Act, therefore, makes insurance cover mandatory.
S.143 sets out the two offences of driving without insurance and permitting driving without
insurance. It can be seen that a person will escape prosecution if they are driving their
employer’s vehicle and did not know or had no reason to believe that there was no
insurance.
In the case of Monk v. Warbey (1935), the owner of a vehicle allowed a destitute but
uninsured driver to use the car, and thereby committed an offence under s.35 of the Road
Traffic Act 1930 (i.e. permitting driving with no insurance). The owner had, effectively,
caused the claimant to be in a position whereby their claim against the driver was of
no value.
Within this section there are four phrases that are of utmost importance and which have,
over the years, been considered by the courts.
‘Use’
Elliot v. Grey (1960) a vehicle left on the road outside a house and jacked up so that its wheels are off the
ground is still being ‘used’ on the road even if the battery has been removed.

Cobb v. Williams (1973) the owner of a vehicle travelling in it as a passenger while it is being driven by
someone else is deemed to be ‘using’ the vehicle within the meaning of the Act.

Brown v. Roberts (1965) a passenger opening a vehicle door, which collided with a pedestrian on the
pavement. This was deemed not to be using the vehicle, for there had to be an
element of control or managing the vehicle.
 3/6 IF5/October 2022 Motor insurance products

‘Motor vehicle’
As defined in s.185 of RTA 1988. For the purpose of the Act, a ‘motor vehicle’ means a
mechanically propelled vehicle intended or adapted for use on roads. The fact that a
particular vehicle may not be capable of being mechanically propelled because, perhaps, the
engine has been temporarily removed will not avoid the need for insurance or security.
It should be noted that the fact that the definition refers to ‘mechanically propelled’ does not
mean that this has to be strictly defined. The definition appears to cover any form of
propulsion, including electricity and steam. Somewhat interestingly, vehicle excise duty
(‘road tax’) is only charged on mechanically propelled vehicles, and not an electrically
Chapter 3

propelled vehicle.
For example, an electrically powered golf buggy or e-scooter may be a ‘motor vehicle’ within
the meaning of the Act, but is exempt from vehicle excise duty and all-electric cars attract
zero road tax liability.
‘Road’
The statutory definition, set out in s.192(1) of the Act is: ‘Any highway and any other road to
which the public has access and includes bridges over which a road passes’.
The Motor Vehicles (Compulsory Insurance) Regulations 2000 extends the definition of road
and adds the phrase ‘or other public place’ in relation to the requirements of s.143 of RTA.
Additionally, the Regulations were not of retrospective effect.
In the case of May v. DPP (2005), it was held that a car park which was attached to
commercial premises, and intended for the use of customers only, was a ‘public place’ for
the purposes of s.3 of the RTA 1988 (as amended by the 1991 Act). The car park was
accessible from a public place although it was gated at the entrance, and this was only open
during the day. The court took the view that there were no restrictions on the public on
entering the car park, although the gates were shut at 6 or 7 pm each evening.
There is no definition of ‘public place’ provided within the regulations, and to determine
whether a place is a ‘public place’ will be based on the facts of each case, and local
evidence will be an important factor. It must be a place to which the general public has
access, and not just those local to the immediate vicinity.
Vnuk consultation
The case Damijan Vnuk v. Zavarovalnica Triglav (2014) at the European Court of Justice
raised the question of what should be considered within the RTA definitions of 'use', 'road'
and 'vehicle'. The court held that, to comply with Article 3(1) of the First EU Motor Directive
concerning the duty to insure 'the use of vehicles', compulsory motor insurance must cover
any accident caused by the use of a vehicle 'consistent with the normal function of that
vehicle', in this case, manoeuvring a trailer into position in a farmyard. The judgment was not
influenced by the fact that the incident occurred on private land.
The European Commission (EC) subsequently launched a review which was followed by a
consultation to look at possible ways forward but with a general aim of clarifying the scope of
compulsory motor insurance cover. Four options were considered:
• do nothing;
• introduce new legislation to broaden the scope of compulsory insurance;
• amend the Directive to restrict compulsory insurance to accidents caused by motor
vehicles in the context of traffic; or
• exclude certain types of vehicles from the scope of the Directive.
A formal proposal was put forward by the Commission in May 2018 which includes a
definition of the 'use of a vehicle' being all use of a vehicle as a means of transportation on
all terrains, including private property, whether moving or stationary. This approach would
widen what types of use or activities require compulsory insurance in order to protect victims
of motor vehicle accidents. If this approach were to be adopted in the UK, it will require the
amendment of UK legislation, in particular the Road Traffic Act, to broaden:
• the application of compulsory motor insurance beyond roads and other public places; and
• the definition of 'vehicle' to include, for example, invalid carriages, off-road motorcycles,
ride-on lawnmowers and vehicles used in motor sports.
Chapter 3 Legal and regulatory considerations 3/7

Three of the key issues identified with the commission's proposal are as follows:
• The potential increase in fraud associated with 'accidents' on private land away from
potential witnesses.
• The difficulty in enforcing any widening of the compulsory insurance requirements which
may undermine the Government's message that driving uninsured will result in
prosecution.
• The serious implications for the Statutory Off Road Notification (SORN) process.
It was hoped that the EC would agree to amend the Motor Directive to restrict compulsory

Chapter 3
insurance to accidents caused by motor vehicles in the context of traffic rather than adopting
the much broader approach currently proposed. However, despite representations from
member states and the European Parliament, the European Council have largely agreed the
proposal originally put forward by the EC. Use will be defined as:

Any use of such vehicle as a means of transport, that is, at the time of the accident,
consistent with the normal function of that vehicle, irrespective of the vehicle's
characteristics and irrespective of the terrain on which the motor vehicle is used and of
whether it is stationary or in motion.
Vehicle will be defined as:
• Any motor vehicle propelled exclusively by mechanical power on land but not running
on rails with: A maximum design speed of more than 25 km/h, or a maximum net
weight of more than 25 kg.
• Any trailer to be used with a vehicle referred to in point a) whether coupled or un-
coupled. This definition would specifically exclude wheelchairs and light electric
vehicles (e.g. electric bikes).
Source: [Link]

This definition would specifically exclude wheelchairs and light electric vehicles (e.g. electric
bikes). Furthermore, following recent agreement between the European Parliament and the
European Council, motorsport vehicles would also be exempt.
Despite having left the EU, if the UK Government wish to remain aligned with EU laws and
regulations, changes to widen the application of compulsory motor insurance will be
necessary at some point.
Until the EC proposal is implemented, and unless the UK Government introduces changes to
widen the application of compulsory motor insurance, there remains the possibility of the
Government facing Francovich claims – that is, claims against the State due to its failure to
fully implement EU laws.
A number of cases have already been decided on the basis of the Vnuk judgment which
increase the scope of compulsory insurance. In the case of Lewis v. Tindale, MIB and the
Secretary of State for Transport (2018), a claimant injured on private land by the use of an
uninsured vehicle was, in the light of the Vnuk judgment, held to have a right of action
against the MIB. While the MIB was not under a duty to satisfy the judgment under the RTA
or the Uninsured Drivers' Agreement (as the incident did not take place on a road or other
public place), it was held to be under a duty to satisfy the judgment under the 2009 EU Motor
Directive. This was because the Directive imposes an obligation on Member States to
ensure compulsory insurance 'in respect of the use of vehicles usually based in its territory'.
The MIB was responsible as it was held to be an 'emanation of the State' – i.e. an arm or
extension of the UK State. The MIB was given permission to appeal to the Court of Appeal
but the appeal was dismissed as the Court of Appeal supported the earlier High Court ruling.
The decision highlights the current gap between the emerging European and judicial view of
compulsory motor insurance and that currently set out under the RTA and MIB agreements.
Following the UK's leaving of the EU, the UK Government announced that it would not be
implementing the changes proposed by the EC. Consequently, changes to widen the
application of compulsory motor insurance in relation to both:
• The geographical scope of compulsory motor insurance requirements (private land).
• The types of vehicles to which the compulsory motor insurance law applies will not now
be introduced in the UK.
 3/8 IF5/October 2022 Motor insurance products

In order to clarify the UK's position the Motor Vehicles (Compulsory Insurance) Act 2022
removes the European Court of Justice's Vnuk ruling from UK law.. An identically named Act
applying in Northern Ireland has also received Royal Assent. Consequently, the Vnuk
interpretation of the Motor Insurance Directive will not be applied anywhere within the UK
In future, this may mean that the UK is no longer fully aligned with EU insurance laws and
regulations.

Brexit
The UK left the European Union (EU) on 31 January 2020, following the referendum on 23
Chapter 3

June 2016. A transition period applied until 31 December 2020, during which the UK
continued to follow all the EU's rules.
From 11pm on 31 December 2020, UK insurers and intermediaries lost their passporting
rights to conduct business in the European Economic Area (EEA). To continue servicing
their EEA clients, many UK insurers and intermediaries decided to operate through new or
existing subsidiaries in the EEA, while the UK agreed to EEA firms continuing their
activities for a limited period of time, if they entered the UK's Temporary Permissions
Regime (TPR) at the beginning of 2020.
The EU has expressed its opposition to 'post box' European operations. And, it has
challenged arrangements where a new European operation was set up by the UK insurer
purely to deal with EU business post Brexit, with no or few employees physically present
in the relevant Member State.
Regarding the run-off period for existing insurance contracts, the UK has allowed EEA
insurers a 15-year period to continue servicing such contracts with UK insureds. The
matter is more complex for UK insurers’ contracts with EEA insureds, as every EU State
has implemented different rules which apply to UK insurers in its jurisdiction.
Negotiations about an equivalence regime between UK and EU regulation started in
March 2021 but have since broken down. It is unlikely the EU will grant equivalence to the
UK's regulatory regime, due to the expected divergence by the UK from EU rules in the
future, particularly in respect of Solvency II. Equivalence under EU law occurs where a
third party's regulatory framework is sufficiently similar to EU standards that firms from that
country are given access to the EU market. Equivalence is granted at the discretion of the
EU Commission and can be withdrawn or changed at any time. It is not, therefore, the
same as the passporting status enjoyed by UK firms before Brexit.
From the UK's perspective, the EU Solvency II regime has been criticised because of its
imposition of high-risk margin requirements. In fact, during the Queen's Speech on 10
May 2022, it was announced that the Financial Services and Markets Bill will revoke
retained EU law on financial services, replacing it with an approach to regulation that is
designed for the UK.
Please note: This is the position at the time of publication. Any relevant changes that may
affect CII syllabuses or assessments will be announced as they arise on the qualification
update page for the unit.

‘Cause or permit’ (as in permitting no insurance)

Cause involves a measure of direction or control. This may include either knowing or
deliberately ignoring.

Permit requires a degree of control – it may suffice to have the ability to refuse the use of the
vehicle, which requires actual or constructive knowledge that the vehicle is to be driven
but turning a blind eye.

Why are all these definitions important? Because, as we shall see, a Road Traffic Act liability
is one that arises out of the use of a vehicle on a road (or public place). If only one aspect of
that definition is not met (say, because it does not fall within the definition), then there may
be no requirement for an RTA liability to be met.
It should be remembered that most motor insurance policies provide cover for third party
liabilities which is far greater than that which is created by the Road Traffic Act 1988, and in
such circumstances, the extent of any third party liabilities under the RTA or the operation of
the Act does not normally arise. Among other things, the RTA outlines the ‘minimum’
Chapter 3 Legal and regulatory considerations 3/9

compulsory cover available, which becomes particularly important if an insurer declines

indemnity (i.e. refuses to deal with a third party claim in accordance with the policy
conditions), or declares the policy void (i.e. as if the policy did not exist).
Provision of a security or deposit as an alternative to a policy of insurance
Prior to 1 November 2019, the heading of section 143 read 'Users of motor vehicles to be
insured or secured against third party risks'. The options to obtain a security or provide a
deposit as an alternative to insurance were removed by the Motor Vehicles (Compulsory
Insurance) (Miscellaneous Amendments) Regulations 2019.
The option of obtaining a security was withdrawn as security givers are not regulated by the

Chapter 3
Financial Conduct Authority and the Prudential Regulation Authority to the same extent as
insurers. This means that there is an increased risk of a security giver being unable to meet
their liabilities. In addition, security givers are not required to contribute to the funding of the
MIB, meaning that insures, and ultimately, their policyholders, are subsidising those who
take out a security.
Lodging a deposit of £500,000 was also considered inappropriate and withdrawn as the
amount may not be sufficient to meet future claims. This could leave innocent victims of road
traffic accidents not fully compensated.
Furthermore, in both cases, the Government was concerned that allowing securities and
deposits as an alternative to third party insurance may not be fully compliant with the EU
Insurance Directives.
A7B S.144 – Exceptions from requirement of third party insurance
As explained above, prior to 1 November 2019, certain companies or categories of people
had the capability to make adequate provision for compensation even without insurance
backing. Section 144 took this into account by describing certain exemptions, but they still
upheld the basic principle of protecting the innocent victim.
Subsection (1) allowed any person to deposit a sum of money with the Accountant General
as an alternative to insurance. This figure was set by s.20 of RTA 1991 at £500,000 and also
within the same section of the 1991 Act the Secretary of State had powers to review that
sum from time to time.
Few organisations took up this exemption. When they did, they had a need to operate a
claims department of their own or to subcontract such work to someone else – often an
insurance company. They may for example had been a large bus company, capable of
managing their own affairs, to ensure that they had adequate resources to meet third party
liabilities.
Subsection (2) still lists the categories of people exempt from the insurance and/or deposit
requirements. Once again, although such bodies are exempt, many protect themselves
through various levels of insurance.
A7C S.145 – Requirements in respect of policies of insurance
In order to ensure that the cover is adequate to provide sufficient compensation to third
parties, s.145 sets out the minimum cover that a policy must provide if it is to be acceptable
under the Act.
It should firstly be noted that, by subsection (2), a policy must be issued by an ‘authorised
insurer’ which is later defined by subsection (5) as being, among other things, one that is a
member of the Motor Insurers’ Bureau.
Subsection (3) specifies that the policy must insure specified persons or categories of
persons against liabilities for death, bodily injury and property damage, such death, injury or
damage being caused by, or arising out of, the use of a vehicle on a road in Great
Britain or throughout the member states of the European Union.
The above phrase in bold is probably the most important one in the entire Part VI, as it forms
the bedrock from which third party liabilities are determined. It should of course be
remembered that this has been extended to ‘other public place’, following the Road Traffic
Act 1991.
Subsection (3) has been amended (or added to, to be more accurate) since 1988 in order to
bring into force the EU Third Directive. Subsection (3)(b) had already made European cover
mandatory but subsection (aa) took the European concept on uniformity across borders a
 3/10 IF5/October 2022 Motor insurance products

step further by making cover compulsory up to the minimum law of the country where the
vehicle is normally based or the country being visited, whichever gives the greater cover.

Example 3.1
As an example, a UK motorist may take their vehicle to France, but fail to extend their
insurance policy to provide cover while abroad. This means that the ‘minimum’ insurance
cover operates, which will be either the compulsory cover in France (i.e. the French
equivalent of the Road Traffic Act), or that in the UK (Road Traffic Act), whichever is the
greater.
Chapter 3

Subsection (3)(c) makes it compulsory for a policy to cover emergency treatment fees.
(See S.159 – Supplementary provisions as to payments for treatment on page 3/18.)
Following the bringing into force of the main sections of the Automated and Electric Vehicles
Act 2018 by the Automated and Electric Vehicles Act 2018 (Commencement No 1)
Regulations 2021, Subsection 3A of Section 145 of the RTA sets out how the introduction of
automated vehicles will extend the obligations of insurers to insured persons where the
vehicle is in autonomous mode at the time of an accident.
The compulsory third party cover so far described is very wide, however, it is reduced by
subsection (4). Subsection (4)(a) states that liability ‘arising out of and in the course of
employment’ need not be insured.
This is because the RTA 1988 originally did not cover employers’ liability insurance where
such liabilities arose out of the use of a vehicle on a road. This situation has been changed
as a result of the requirements of the Third EU Directive.
Regulations which came into force on 31 December 1992 removed the employers’ liability
exemption from RTA 1988 unless cover is provided pursuant to a requirement of the
Employers’ Liability (Compulsory Insurance) Act 1969. However, further regulations
came into force on 1 July 1994 which exempted an employer from the requirements of the
Employers’ Liability (Compulsory Insurance) Act 1969 in so far as they related to passengers
in motor vehicles.
The combination of these two sets of regulations means that with effect from 1 July 1994
liability for injury to passengers travelling in motor vehicles falls under motor policies,
whether or not the liability arises out of and in the course of employment.
Taking all of s.145 into account, the minimum cover that a policy must provide in order to
comply with the Act may be summarised as follows:
• ‘Use’ of a ‘motor vehicle’ on a ‘road’ (including public place) anywhere in Great Britain
or in any Member State of the European Union.
• Up to the level of compulsory cover in either the ‘base’ state or the ‘visited’ state,
whichever is the greater.
• Unlimited third party liability cover for death or bodily injury other than:
– contractual liability; or
– liability in respect of death or bodily injury arising out of and in the course of
employment unless no cover is available under any employers’ liability policy.
• Third party liability cover for property damage up to £1.2m other than:
– to the insured vehicle;
– to any goods being carried for hire and reward on the insured vehicle or trailer;
– to any goods in the user’s custody or control; or
– any contractual liability.
A7D S.146 – Requirements in respect of securities
Repealed by the Motor Vehicles (Compulsory Insurance) (Miscellaneous Amendments)
Regulations 2019.
Chapter 3 Legal and regulatory considerations 3/11

A7E S.147 – Issue and surrender of certificates of insurance

The Deregulation Act 2015
The Deregulation Act received Royal Assent on 26 March 2015 and was passed as part of
the Government’s strategy to simplify regulatory processes which otherwise hindered the
free development of business within the UK and added to operating costs.
It is a wide ranging piece of legislation, but within the context of motor insurance, s.9 is
particularly relevant as it amends s.147 of the Road Traffic Act 1988, with consequential
amendments to the wordings of s.148, s.151 and s.152.

Chapter 3
A motor policy must be effective at the time that the vehicle is used on the road. In order to
be certain of the exact start and end times, s.147 dealt with the issue and surrender of
certificates of insurance.
Before a policy was effective for the purposes of RTA 1988, section 147 required that a
certificate in prescribed format be ‘delivered’ to the policy holder. Until that point, the
motorist was ‘uninsured’ and guilty of an offence under s.143 if the vehicle was used on a
road. A ‘cover note’ constituted a certificate for the purposes of the Road Traffic Act.
However, Section 9 of the Deregulation Act amends s.147 so that delivery of the
certificate is no longer required for the policy to be legally effective.
In practice many organisations, such as the police, no longer rely on the insurance certificate
as proof that insurance is in force, and instead will access data recorded on the Motor
Insurance Database to verify whether a vehicle has the requisite cover in force. To this
extent the legislation change supports modern practice in this area.
Section 147 (iv) of the Road Traffic Act required policyholders to return their certificate of
insurance to the insurers, where a policy was cancelled mid-term, and it was a criminal
offence to fail to do so.
Section 9 of the Deregulation Act also removes this requirement, as any mid-term
cancellation will be recorded on the Motor Insurance Database, and it will no longer be an
offence to withhold return of the certificate.
These provisions took effect from 30 June 2015.
The practical implementation of these changes mean that an insurer’s liability is no longer
incepted or reliant on the delivery of the certificate of insurance.
Furthermore, the provision under s.152 that an insurer’s liability continues even after
cancellation of a policy, unless the policyholder surrenders the certificate or the insurer
obtains a Court Order that the policy is void, will no longer apply.

Reinforce
At inception and from the implementation of these changes, a policy of motor insurance
will be effective regardless of whether the certificate of insurance has been delivered, and
delivery is no longer relevant to the validity of the cover.

Although a certificate of insurance will still be issued, it is the Motor Insurance Database
(MID) which will record the actual inception date of cover. Fleet insurers, however, are likely
to want to retain the practice of issuing certificates promptly as individual vehicles are not
always entered on the MID.
At cancellation, insurers will find it easier to terminate their liability, though it is essential that
they update the MID immediately, to show the correct position.
Cancellation of a policy, where a policyholder has failed to comply with policy conditions, e.g.
failure to maintain the vehicle in a roadworthy condition, will also be easier as insurers will no
longer be required to retrieve the insurance certificate or seek a lost certificate declaration in
respect of contractual cancellation. Instead, insurers can simply invoke the terms of the
policy’s cancellation condition, and section 152(1) is amended accordingly.
It is important, however, that insurers should abide fully by the terms of the contract, as
failure to do so may result in the cancellation being challenged and, if found to be ineffective,
their liability under section 151 of the Road Traffic Act will continue.
 3/12 IF5/October 2022 Motor insurance products

Insurers will therefore have greater control over their contractual liability, and potential
statutory liability can be minimised by ensuring that the MID is immediately updated.
A7F S.148 – Avoidance of certain exceptions to policies
As a consequence of the Deregulation Act, the reference in the wording of s.148 to the
requirement of delivery of a certificate of insurance under s.147 is now irrelevant, although
the provisions of Section 148 still otherwise apply in full.
The minimum cover having been determined, the whole purpose of the Act would be
defeated if a policy should become ineffective due to breach of condition or due to some
Chapter 3

exclusion. The RTA does not seek to restrict the parties in agreeing the terms of the policy,
but no term should have the effect of denying third party victims the right to compensation
under the Act.
Subsection (2) sets out the policy restrictions that will be of no effect for the purposes of the
Act. These comprise:

condition of
the vehicle
horsepower/
number of
cylinder capacity
persons
or value of the
vehicle carries
vehicle

carrying on weight/
the vehicle of physical
any particular Subsection 2 characteristics
apparatus of goods the
vehicle carries

the age/physical/ time/areas the

mental condition vehicle is used
of drivers carrying on the
vehicle of any
particular means
of identification*

*other than any means of identification required to be carried by or under the Vehicles
Excise and Registration Act 1994
What this section is saying is that if a policyholder is in breach of a policy condition relating to
any of the above, that will not prevent the insurer of the policyholder (assuming that they are
in some way responsible) having to meet its legal liabilities under the RTA.
It should be noted that the use to which the vehicle can be put (e.g. ‘social domestic and
pleasure’, ‘use in connection with business’) is not among the restrictions.
In order to ensure market consistency and, effectively, prevent the avoidance of an insurer’s
responsibilities, the Motor Conference of the ABI created an agreement whereby subscribing
insurers agreed not to raise the ‘use’ argument to avoid subrogated claims presented by a
third party insurer. A subrogated claim is one incurred by the insurers of a policyholder, as a
result of the contractual arrangements with that person, for example, where an insurer deals
with a claim from its policyholder for the cost of repairs, as the cover on the vehicle is
comprehensive. It may then pursue recovery in the name of its policyholder. The agreement
was signed by all insurers and relates to all motor accidents which occurred on or after
1 July 1999.
As has been said, the Act does not attempt to dictate the terms agreed between the
contracting parties. If an insurer compensates a victim solely in accordance with the
provisions of the Road Traffic Act 1988, then there is a right to recover the sums paid from
the policyholder. The insurance policy booklet will also contain a term, enabling the insurer to
pursue recovery against the policyholder.
Chapter 3 Legal and regulatory considerations 3/13

Subsection (5) provides that any condition in a policy which would enable an insurer to
escape liability unless a particular course of action were followed by a policyholder (or any
other person seeking indemnity) after an accident shall be of no effect so far as it concerns
RTA liabilities. Policies normally contain conditions that call for certain actions to be taken
after an accident occurs. For example, the policy will require that an accident is reported to
the insurer, and sadly, there are a few policyholders who fail to notify their insurers of an
incident likely to give rise to a claim. Even when that insurer has not been informed of the
incident it is the right of the insurer to seek reimbursement from the policyholder under any
appropriate condition of the policy.

Chapter 3
Example 3.2
An insurer (Trusty Insurance Company) is notified of a motor vehicle accident by one of its
own policyholders (Mr A). The driver at the time is not a named driver, but a 19 year old on
a full driving licence (Wayne). The policy excludes drivers under 21.
However, s.148(2) of the Road Traffic Act states that notwithstanding the age (or physical
or mental condition) of persons driving the vehicle, the vehicle insurer will be obliged to
handle any third party claims that may be pursued, subject to the ‘minimum’ requirements
of compulsory insurance, this being unlimited third party liability cover for death or bodily
injury plus third party liability cover for property damage up to £1.2m (this is subject to
exceptions which need not concern us here). This is, of course, subject to responsibility
for the injury or damage.
The 19 year old is at fault, as the vehicle he was driving crossed the central white line of
the road, and collided with a third party vehicle (in other words, he is fully liable). The third
party has suffered injury and associated losses.
Insurers of Mr A will have a right to decline indemnity under the policy, as the driver was
not covered to drive. However, they will still be obliged to consider the third party claims, in
accordance with the RTA 1988. The problem is that it is Wayne (the driver) who is the one
that the insurers will need to indemnify but he is not covered.
So Trusty will wish to secure a completed Letter of Consent and Indemnity. This is a letter
which Trusty would wish Wayne to sign, confirming that he consents to the above insurer
dealing with the claim (in accordance with the terms of the RTA), but the letter will also
indicate that Wayne agrees to reimburse Trusty.
In most cases, insurers like Trusty may only be able to secure a signed Letter of Consent,
as Wayne (and most people who are not covered to drive, in circumstances as described),
are most unlikely to have the funds (or at the very least to be willing), to reimburse Trusty
Insurance Company their outlay. However, once the insurer (like Trusty) has managed to
at least secure a Letter of Consent, then they will be able to control the claim, and
ensure that the costs of the claim are managed.

Tattersall v. Drysdale (1935)

The last paragraph of s.148 states that the insurer must ‘indemnify the persons or classes of
persons specified in the policy’. Its meaning was explained in the case of Tattersall v.
Drysdale (1935). T had a motor car insured with the London and Edinburgh Insurance
Company, and his policy also covered him against third party risks while driving any car not
owned by him and not hired to him under a hire-purchase agreement (the ‘driving other cars’
extension). In August 1934, T decided to buy a new car and accordingly approached a firm
of dealers. The car he wanted was not immediately available, although he handed his old car
over to the dealers all the same. They lent him one of their own cars, which was insured with
a group of Lloyd’s underwriters.
T was involved in an accident while driving the borrowed car and a dispute then arose as to
whether his insurers or the car dealers’ insurers should deal with the claim. T’s insurers
argued that, because he had disposed of his old car, the subject matter of the policy issued
by them had disappeared.
Consequently, their policy (including the ‘driving other cars’ extension) was invalid. The
dealers’ policy, on the other hand, permitted driving of the insured vehicle by anybody acting
on the insured’s order or with their permission. The courts held that the dealers’ insurers
should pay the claim. The effect of this decision is to provide an indemnity for all classes of
persons mentioned in the policy although they may not be specified by name.
 3/14 IF5/October 2022 Motor insurance products

Note that for the purposes of RTA liabilities it is, effectively, the vehicle that is insured and,
therefore, liabilities for insurers arise irrespective of who is driving. (See s.152 for more
details).
A7G S.149 – Avoidance of certain agreements as to liability towards
passengers
This section prevents the driver of the vehicle from relying upon any agreement made prior
to the accident with an injured passenger, or passengers, under the terms of which they
agree not to bring any action against the driver in the event that they are injured.
Chapter 3

Reinforce
As an example, if the driver of the vehicle were to agree with a passenger that the latter
was to travel in the car ‘at their own risk’, then this would be meaningless, insofar as RTA
liabilities are concerned.

A7H S.150 – Insurance in respect of private use of vehicle to cover

use under car-sharing arrangements
Where the insurance cover on a vehicle is in respect of private use only, s.150 provides that
the driver is, nevertheless, permitted to accept a contribution towards the running cost of the
vehicle under ‘a car-sharing arrangement’. This would be despite the normal exclusion of
‘hire and reward’.
To prevent this provision being used by private car hire drivers or taxi drivers without them
taking out full commercial insurance, three conditions must be complied with:
• the vehicle must not be capable of carrying more than eight passengers and it must not
be a motorcycle;
• the fare paid or the aggregate fares paid by the passenger or passengers must not
exceed the total running costs for the vehicle for that journey;
• the amount of each fare must be agreed before the commencement of the journey.
This section reflects the provisions of the Transport Act 1978.
A7I S.151 – Duty of insurers to satisfy judgment against persons
insured against third-party risks
As a consequence of the Deregulation Act, the reference in the wording of s.151 to the
requirement of delivery of a certificate of insurance under s.147 is now irrelevant, although
the provisions of Section 151 still otherwise apply in full.
So far, we have seen how insurance up to certain minimum levels is made compulsory and
how insurers are restricted in applying policy terms for the purposes of the Act. There needs
however, to be a mechanism by which they can force the insurer to pay compensation.
Section 151 sets this out.
Firstly, the third party must obtain a ‘judgment’ against someone covered by the policy or
against any other person who would have been covered if the policy were on an ‘any driver’
basis. It is important to note that the guilty party must be identified and successfully sued.
The Act does not protect the victims of ‘hit and run’ accidents, which are dealt with by
the MIB.

Subsection (3) makes it clear that the driver does not have to hold a valid licence before the
Act comes into play.

Subsection (4) deals with victims who are also aiding and abetting the crime of theft or
unlawful taking. To compensate such persons would be against public policy.
Therefore, any passenger who knew or had reason to believe that they were
being carried in a vehicle that had been stolen or unlawfully taken, might still
be able to successfully sue the driver, but cannot then seek to have the
judgment paid by the insurer of the vehicle.

Subsections (5) and (6) state that the insurer must satisfy the judgment by paying the victim the full
amount or any amounts for property damage up to £1.2m. This figure was
previously £1m but was last amended on 31 December 2016.
Chapter 3 Legal and regulatory considerations 3/15

Once again, there are subsections which give the insurer the right of recovery against any
driver who would not otherwise have been entitled to cover under the policy. This includes
recovery from the policyholder themselves if, for example, they had permitted the use of the
vehicle by someone who was not insured to drive under the terms of the policy itself.
A7J S.152 – Exceptions to s.151
Following the introduction of the Deregulation Act, section 152 (1) is amended so that
following a mid-term cancellation it is no longer necessary for the insurer to:
• retrieve the certificate of insurance; or

Chapter 3
• obtain a statutory declaration of loss; or
• commence proceedings against the insured for the recovery of a non-returned certificate
for the insurer to escape continued liability under the cancelled policy.
The insurer of a motor vehicle must satisfy any judgment in respect of RTA liabilities,
irrespective of whether there has been a breach of the terms of the policy, except in respect
of a passenger knowingly travelling in a stolen vehicle. This seems quite onerous, but s.152
gives the insurer some element of relief.
Firstly, under subsection (1) the claimant (i.e. the third party) or their solicitors must give
notice to the insurer of the bringing of the proceedings either before they commence or
within seven days of the issue of the summons or writ (now called a Claim Form). Notice
under s.151(1) has been a matter of interpretation by the courts.
The prevailing view of the courts at one time was that such notice of the commencement of
proceedings should be clear both in its intent and in the period of time. However, there have
been further (Court of Appeal) decisions on the question, which appear to have modified the
‘notice’ position.
In Wylie v. Wake (2001), the previous case law was considered. Lord Justice Kennedy felt
that the requirement of notice was to ensure that the insurer was not met with information
‘out of the blue’. It seems that the question of notice is linked with the question of prejudice.
In other words, has the defendant been prejudiced by the lack of notice? Where no such
notice letter has been sent to the insurer, then a defendant insurer may be able to avoid
paying damages, even though they were aware of proceedings (Wake v. Page and
Another (2000)).
To a certain extent, this particular section potentially requires revision in the light of the
changes to the Civil Procedure Rules 1998, introduced in April 1999, whereby the claimant’s
representative is required to comply with the Pre-Action Protocols, which require that a Letter
of Claim is sent to the party deemed responsible prior to the consideration of proceedings.
Subsection (1)(c) deals with cancellation of the policy and, on the face of it, looks
complicated. However, in simple terms, if the policy were cancelled before the accident
occurred, either by consent of the parties or by a term of the policy (e.g. the cancellation
clause), then the insurer will not have to satisfy any judgment, provided it has updated the
MID with the cancellation.
In a similar way to cancellations, subsection (1)(d) deals with avoidance of policies for
misrepresentation or non-disclosure.
This subsection enables the insurer to exempt itself from the RTA liability to meet unsatisfied
judgments if the insurance has been avoided on the ground of misrepresentation, or a
breach of the duty of fair presentation, of material information. 'Material' in this context
means 'of such nature as to influence the judgment of a prudent insurer in determining
whether they will take the risk and, if so, on what terms'. To do so, the insurer must obtain a
court declaration of its entitlement to avoid on that ground and commence proceedings to
obtain the declaration before an event giving rise to a liability under s.151 has occurred.
Subsection 2 was amended by the Motor Vehicles (Compulsory Insurance) (Miscellaneous
Amendments) Regulations 2019 from 1 November 2019. Prior to this date, under subsection
2 the insurer could exempt itself from RTA liability to meet unsatisfied judgments if a
declaration had been obtained before, or within three months after, the commencement of
proceedings in which a judgment had been given.
The amendments to section 152 of the RTA contained in the Regulations mean insurers can
no longer obtain a court declaration entitling them to avoid a policy and deny the payment of
 3/16 IF5/October 2022 Motor insurance products

compensation to a third-party victim under the RTA after an accident has occurred. Obtaining
a court declaration prior to an accident occurring still gives the insurer the right to avoid any
liability and refuse payment.

Reinforce
Potential consequences of the Deregulation Act
In summary, Section 9 of the Deregulation Act 2015 offers insurers greater control and the
prospect of reduced operational overheads currently borne and associated with
cancellations, retrieval of certificates and associated complaints processes.
Chapter 3

Given these changes in legislation, insurers may exercise a lower tolerance threshold and
a higher number of cancellations ensue if insurers discover minor breaches.
However, there will still remain the regulatory obligation set by the Financial Conduct
Authority, to ensure the fair treatment of customers and any apparent failure to do so may
result in the increased attention of the Ombudsman.
Where a major claim is involved, cancellation of a policy by an insurer will be closely
scrutinised, and if not wholly in accordance with contractual terms may be challenged, and
if successful, then liability under S.151 will remain.
Where there is a delay in updating the Motor Insurance Database, following cancellation
of a policy, the insurer will still retain Article 75 liability until such time as the database is
updated.

A7K S.153 – Bankruptcy etc., of insured persons not to affect claims

by third parties

Section 153 makes it clear that if the policyholder dies or becomes bankrupt, or if the policyholder is a
company and is wound up, then the third party does not lose their rights under the RTA.
This means that the third party might still exercise their rights under the Third Parties
(Rights Against Insurers) Act 2010 which came into force on 1 August 2016. If the
individual or a company becomes bankrupt or goes into liquidation and has incurred a
liability to a third party, the rights of the insured under the policy are transferred to the third
party for the purposes of that liability.

The 2010 Act has superseded the Third Parties (Rights Against Insurers) Act 1930.
This means that if a policyholder becomes insolvent, then the third party/third parties can
pursue a judgment for Road Traffic Act liabilities from the insurers of the insolvent
policyholder. The third party will now be able to issue a claim against the insurer without first
having to establish the liability of the insured.
A7L S.154 – Duty to give information as to insurance where claim
made
Section 154 makes it compulsory for a motorist to provide any person making a claim
against them with details of any insurance policy held.
Where a certificate has not been delivered, they must supply the registration mark of the car
or other identifying particulars, the policy number, the name of the insurer, and the period of
the insurance cover. If, without reasonable excuse, a person fails to comply with the above
or wilfully makes a false statement, then they are guilty of an offence.
A7M S.155 – Deposits
Repealed by the Motor Vehicles (Compulsory Insurance) (Miscellaneous Amendments)
Regulations 2019.
A7N S.157 – Payment for hospital treatment of traffic casualties
S.157 deals with the repayment of hospital treatment fees.
Chapter 3 Legal and regulatory considerations 3/17

The following should be noted:

Liability

The liability to pay rests directly with the insurer or the

owner of the vehicle if self-insured.

Liability attaches as soon as compensation has been

paid to the injured third party.

The insurer needs to have knowledge that hospital This normally stems from the fact that the hospital
treatment has been given. authority would have notified the insurer of its interest.

Chapter 3
There does not have to be an admission of liability The liability exists even if the third party was paid ex
though the insurer will have had to make some form of gratia (this means without legal obligation).
payment in respect of the injury sustained.

Liability for payment exists even where the third party is

guilty of contributory negligence.

Patient fees

There are separate figures for inpatient and The inpatient fees are calculated by basing them upon
outpatient fees. the average cost of maintaining a bed at the hospital.

The insurer’s liability is limited. The limits are revised from time to time to take account
of inflation.

Unlike other parts of the RTA, this section applies to accidents not only on a road but also in
other places where the public has access.
This is now more closely aligned with the rest of the RTA, following the change introduced by
the Motor Vehicles (Compulsory Insurance) Regulations 2000, although there remains a
slight difference.
There is a fear that the insurance industry may ultimately be asked to pay all the costs of all
hospital treatment. Certainly if the law is amended, claims costs will rise dramatically and
much, if not all, of the cost will have to be recouped through increased premiums.
Following the introduction of the Road Traffic (NHS Charges) Act 1999, the mechanism for
recovering NHS charges was transferred to the Compensation Recovery Unit (CRU), where
compensation is paid on or after 5 April 1999.
However, since the Road Traffic (NHS Charges) Act 1999, there have been further
developments, relating to reimbursement of NHS treatment costs. In 2003, the Health and
Social Care (Community Health and Standards) Act 2003 was enacted, and Part 3 makes
provision for the establishment of a scheme to recover the costs of providing treatment to an
injured person where that person has made a successful personal injury compensation claim
against a third party.
Effectively, the 2003 Act extended the right of recovery to ‘non’ RTA situations and, as
indicated above, relates to any instance where there has been a successful compensation
claim against a third party.
Part 3 of the 2003 Act provides the legislative framework for the NHS Injury Costs Recovery
(ICR) Scheme that came into force on 29 January 2007. The Personal Injuries (NHS
Charges) (Amounts) Regulations 2007 came into force on the above date, and
implements the ICR scheme. It makes provision concerning the amounts of NHS charges to
be recovered from persons who pay compensation in cases where an injured person
receives NHS hospital treatment or ambulance services.
The 2007 regulations now set the tariffs for outpatient and inpatient treatment, the provision
of NHS ambulance services and the maximum amount to be recovered in relation to any one
injury. The regulations only apply to England and Wales.
The existing road traffic recovery scheme uses a simple tariff system to determine the
amounts to be recovered. This means that a single one-off payment is made where hospital
treatment is provided without admission or a daily rate for each day or part-day of admission
to hospital, excluding the day of discharge.
Additionally, there is a statutory maximum on how much can be recovered in relation to
treatment of injuries resulting from any one incident. The amounts sought for inpatient and
outpatient treatment are reviewed and amended annually in April of each year.
 3/18 IF5/October 2022 Motor insurance products

Contributory negligence can now be taken into account where it has been a factor in the
primary compensation claim.

Example 3.3
When an insurer receives a claim for compensation (i.e. a claim from a third party), they
then send a CRU1 form (with details of the insurer and the claimant) to the Compensation
Recovery Unit (which is part of the Department of Work and Pensions) within 14 days.
Completion of the form does not mean that the insurer has accepted any liability for the
accident, injury or disease.
Chapter 3

The CRU will then send the insurer the CRU4 form to acknowledge that they have
received the CRU1. This is then to be completed by the insurer when applying for a
Certificate, or a Certificate of NHS Charges.
Once the insurer is in a position to make a ‘compensation’ payment to the third party, then
they have to apply for a Certificate (of NHS Charges). This is because the CRU have
priority on any compensation payment that is due to be made.
If the insurer does not have a Certificate or a Certificate of NHS Charges when they are
ready to settle the claim, then an application for one must be made by returning the CRU4
form, and the CRU will acknowledge receipt of the request. The CRU will then issue the
Certificate within four weeks of receiving a request. The Certificate will specify the total
amount of NHS Charges or ‘recoverable benefits’ and/or lump sums. Recoverable benefits
are those benefits paid to the claimant by the DWP, but depending on the type of benefit,
this may be deducted from the head of claim that is pursued from the insurer. The insurer
may become liable to pay the CRU immediately before paying any compensation to the
third party.

A7O S.158 – Payment for emergency treatment of traffic casualties

Section 158 makes provision for the payment of emergency treatment fees.
Where a person is killed or injured as the result of the use of a motor vehicle on a road and
immediate examination or treatment is required and given by a qualified medical practitioner,
the person using the vehicle at the time (or normally their insurers) must pay a fee to the
doctor for each person examined or treated, plus a mileage charge. If, as will often be the
case, the emergency treatment is first given in hospital, the hospital will have the same rights
to fees as would a doctor attending at the scene.
The important points to note are as follows:
• The fee has to be paid by the motorist involved in the accident (or their insurer).
• The injured person can be anyone – the motorist, their passenger or employee or a
person outside the vehicle.
• The payment has to be made whether or not the motorist was negligent.
• If someone else caused the accident, the motorist has a right of recovery against them.
• This is a compulsory inclusion in the insurance.
• Because it is made regardless of negligence, payment does not affect any no claim
discount (NCD) arrangement. Insurers include a clause to this effect in their policies.
As a result of the Road Traffic (NHS Charges) Act 1999, hospitals will cease to seek
recovery of emergency treatment fees, as it is considered that such charges are
incorporated in the ‘without admission’ amount. However, GPs will still be at liberty to make
such a charge. This situation remains unaffected following the introduction of the Health and
Social Care (Community Health and Standards) Act 2003.
A7P S.159 – Supplementary provisions as to payments for treatment
Section 159 defines the bodies and/or authorities who may claim payment of emergency
treatment or hospital treatment expenses.
The Act states that the driver involved in the accident may be asked orally for payment of the
expenses or that a written claim may be sent to them within seven days. The hospital
authorities are authorised, if need be, to obtain details of the driver involved in an accident
(name, address etc.) from any police officer who may have taken particulars of the event.
Chapter 3 Legal and regulatory considerations 3/19

A7Q S.160, 161 and 162

The remaining sections of the Act, namely 160, 161 and 162, provide further definitions of
some of the terms used in this part of the Act or say where in the Act they are defined.
A detailed knowledge of these is not necessary for the purpose of this course.

Question 3.3
What does Part VI of the Road Traffic Act 1988 deal with?
□

Chapter 3
a. Third party liabilities.

b. Principal road safety provisions. □

c. Licensing of drivers of vehicles. □
d. Driving instruction. □

B Part VI RTA in practice

The main purpose of Part VI of the Road Traffic Act is to ensure that the innocent victims of
road traffic accidents do not go uncompensated. With this in mind, perhaps the best way to
demonstrate how it works is from the perspective of a Road Traffic Act victim – in insurance
terminology, we will call them the ‘third party’:

A third party may be the owner of damaged property Alternatively they may be someone who has sustained
bodily injury, perhaps the driver of a third party vehicle,
or a passenger or perhaps a pedestrian or cyclist.

There has to be someone to blame for the accident, This does not mean that the third party is not at all at
other than the third party themselves fault: it is possible that the third party is partially at fault.
Additionally, there may be more than one third party and
responsibility may have to be divided between all the
parties involved.

The guilty, or negligent, party is the one responsible Sometimes that is exactly what happens and that is the
for compensating the victim (there may be more end of the matter.
than one party responsible through contributory
negligence)

More often than not, the negligent party has no In the absence of indemnity from an insurance policy
inclination to pay the victim and/or has no funds to where there is no money a court cannot force payment
do so personally from that negligent party.

Section 143 of the Road Traffic Act makes it a It would be nice to think that most people would
criminal offence to use a motor vehicle on a road voluntarily take out motor insurance in any event, but
without effective insurance being in place the Road Traffic Act offence is an added incentive.

In the normal course of events, the negligent party’s insurers will pay the third party’s claim
without formality. Certainly, if the third party successfully sues the negligent party in a court of
law, then the insurer will ‘indemnify’ the insured person (who may be its policyholder or
another insured driver/user of the vehicle) by paying the judgment debt. Usually, the insurer
will try to settle the third party claim by negotiation, in order to minimise any solicitors’ or
court costs, and to comply with the spirit of the Civil Procedure Rules.
Sometimes there is, or was, a policy in force which may be defective in some way. For
example, there may have been a breach of some policy condition or other (s.148 of the RTA
refers) when the driver may not be a ‘named’ driver on the policy, where it is established on a
named driver basis. As a consequence, he or she would therefore not be covered under the
terms of the policy. However, as far as the third party is concerned, the insurance is still
effective to protect them.
If, for any reason, an insurer refuses to compensate a third party, then the Road Traffic Act
sets out the procedure that needs to be taken.
While the third party now has a direct course of action against the insurers, as a result of the
EU Fourth Motor Directive, the usual situation is that the third party will identify, and issue
court proceedings against, the person that caused their injuries or damage.
 3/20 IF5/October 2022 Motor insurance products

Before, or within seven days of, commencement of such proceedings, the third party must
tell the insurers of the action being taken (s.152(1)(a) of the RTA refers). This is to allow the
insurer to protect its interests.
Section 154 of the Road Traffic Act makes it compulsory for the negligent party to divulge
details of insurance. If they do not, then the police should be informed in order to compel
disclosure and/or bring charges.
The third party’s action against the defendant will follow the normal court rules, and both the
defendant and/or their insurers will have the opportunity to defend or pay at any time.
Chapter 3

If the proceedings conclude with damages awarded to the third party, then that judgment will
be against the negligent party, who must pay if capable of doing so.
If the judgment is not satisfied (paid) then the third party can apply to the court to have the
judgment settled by the insurers, who then must pay the judgment unless it can be shown
that the Road Traffic Act rules have been complied with and the insurer is, therefore, exempt
from payment (s.151 of the RTA).
Although of no concern to the third party, any insurer who has paid a judgment by virtue of
s.151 of the RTA will have a right of recovery against the original judgment debtor (s.151 and
s.148 of the RTA).
The Motor Insurers’ Bureau becomes involved if there is no insurer whatsoever to pick up
the judgment.

Refer to
Motor Insurers’ Bureau (MIB) on page 1/10 for more information on the role of the MIB

It should be noted that, as a result of Article 75 of the MIB’s Articles of Association (formerly
the Domestic Regulations), an insurer is obliged to compensate accident victims from their
own funds.
An insurer under Article 75 is defined as being the insurer who, at the time of the RTA
liability, was providing ‘any insurance against such liability in respect of the vehicle arising
out of the use of which the liability of the judgment debtor was incurred, irrespective of
whether that insurance was evidenced by documentation, as required by the Road Traffic
Act, or by a record on the Motor Insurance Database’.

Article 75 (an MIB Article of Association)

covers the a ‘sweeping up’ covers where there is an

scenario where agreement situations which insurer in the
there is ‘evidence are not covered background
of insurance’ but by the RTA
no certificate of
insurance has
been ‘delivered’

So, what if there is no identifiable negligent party to take to court? Once again, the role of the
Motor Insurers’ Bureau in such circumstances then becomes important, in view of the
Untraced Drivers Agreement.
Chapter 3 Legal and regulatory considerations 3/21

C Use of vehicles outside the UK

C1 EU Motor Directives
It should be remembered that the intention of this area of European law is to harmonise the
laws of the Member States and thereby facilitate freedom of travel across borders. We shall,
therefore, now outline how the various EU Directives have been introduced into domestic
legislation.
While the UK is no longer a member of the EU, currently, there are no indications that the

Chapter 3
Government will repeal any of the legislation which enshrines the existing Motor Directives
into UK law.
It should be remembered that the Council of Bureaux was established, and this comprises a
bureau for each of the countries within the Green Card system. The bureau for the UK is the
MIB, which is, of course, also the body responsible for the administration of both the
Uninsured and the Untraced Drivers Agreements. All insurers transacting motor insurance in
the UK must be members of the MIB, and there are, in fact, 40 members of the Council of
Bureaux, excluding those who represent non-EU members.
Each country has signed the Uniform Agreement, which means that they must provide
compulsory motor insurance for vehicles used within their territory.
C1A First Directive 1972
Until the terms of the First Directive were brought into UK law under the Road Traffic Act
1972, a typical motor insurance policy issued in the UK provided cover only within Great
Britain, Northern Ireland and the Channel Islands.
When a motorist wanted to travel abroad it was necessary to extend the policy by payment
of an additional premium or to purchase separate 'continental' cover at the border of the
country visited. Without making such arrangements it was unlikely that they would be
granted permission to enter the country and, of course, they ran the risk of prosecution from
local police if they did.
The First Directive stipulated that all motor policies issued within Member States must
provide the minimum cover of each other Member State, thus allowing any EU motorist to
travel legally between EU countries armed only with their normal policy. The requirement of
the Directive is extended to countries other than EU members provided they are authorised
signatories.
The effects of the First Directive can be seen in s.145 (3)(b) of RTA 1988.
Motor policies issued in the UK were altered in order to comply with the Directive. Policies
still have the normal UK territorial limits governing the entire document while extending the
third party or foreign use section accordingly.
The provisions of the Directive have made it legal for motorists to travel across borders,
subject to being in possession of a motor policy issued within the European territories.
However, if the motorist relies solely on such restricted cover then, among other things, they
will not have cover for loss or damage to their own vehicle. Motorists are, therefore, advised
to extend the full cover and pay any additional premium before travelling.
One of the objectives of the Directive was to abolish the need for the International
Certificate of Insurance – the Green Card. The Green Card has, indeed, fallen into disuse
in most EU countries but for various reasons, mostly of convenience, it is still used
extensively in the UK.
The abolition of border inspection of Green Cards occurred with effect from 15 May 1974.
C1B Second Directive 1988
Despite the terms of the First Directive, there was still disparity in the minimum policy
requirements prescribed by the laws of the various states. The Second Directive tried to
address this by incorporating two areas of cover that were not previously within the minimum
cover prescribed by the RTA:
• liability for third party property damage; and
• liability for all drivers whether or not they are named in the policy.
 3/22 IF5/October 2022 Motor insurance products

The Directive did, in fact, impose minimum limits for both third party personal injury and third
party property damage.
The Directive also limited the exclusions that were permitted. It stated that liability cannot be
excluded for those:
• unauthorised to drive, for example thieves (except for passenger liability in circumstances
where the passenger knows that the vehicle is stolen);
• without licences; or
• in breach of a technical requirement concerning the condition or safety of the vehicle.
Chapter 3

It specified that a compensation fund should be set up to compensate victims where there is
no insurance in force at all.
The third party property damage element was brought into UK law by s.145(4)(b) of the
Road Traffic Act 1988 at a figure of £250,000. This made very little difference in practice,
except to the very few policies that had been issued on the basis of the minimum that UK law
required (called Road Traffic Act cover). All other policies carried greater limits as standard.

Be aware
This third party property damage limit was increased to £1m in July 2007, by regulations
that enacted the pertinent part of the EU Fifth Motor Directive, and again increased to
£1.2m in December 2016.

C1C Third Directive 1992

Although the first two Directives brought about a high level of harmonisation, there were still
differences in the laws of the Member States. Rather than make wholesale changes to
existing minimum levels of cover, the EU issued the Third Directive which, effectively, called
for policies to cover the minimum legal requirement of the state where the vehicle is normally
kept or the minimum legal requirement in the state visited, whichever is higher.
Its other provisions were that:
• Payment of compensation must be made as soon as liability is established.
• Where there is a dispute, Member States must oblige either the insurer or the MIB to pay
once liability is established and sort things out between themselves afterwards.
• All parties involved in an accident must exchange insurance details.
• Passenger liability (including pillion passengers on motorcycles) must be included in
motor insurance policies.
• A single premium charged for a motor policy must cover use in the whole of the EC
(now EU).
The provisions of the Third Directive were incorporated into the RTA 1988 through
amendments stipulated in the Motor Vehicles (Compulsory Insurance) Regulations 1992.
These are shown under s.145(3)(a) (aa) and (b).
Policy wordings adopted following the previous two Directives were sufficient to carry
forward the provisions of the Third Directive and did not, therefore, require changes.
C1D Fourth Directive
This was introduced with the basic intention of simplifying the process of claiming against a
foreign insurer, when an EU citizen is involved in a motor accident outside their normal
country of residence. It does not apply to citizens of non-EU Green Card countries.
An injured party is granted a direct right of action against the insurer concerned.
Alternatively, if the injured party is unaware of the precise insurance particulars of the other
party, they can contact the ‘information centre’.
Each information centre has access to information to establish a direct link between each
vehicle and the relevant insurer.
An information centre will compile and disseminate information. Upon application from a UK
resident, contact is made with the information centre in the native country of the third party,
and the registration number of the latter’s vehicle supplied.
Chapter 3 Legal and regulatory considerations 3/23

The information to be provided to a claimant upon identifying a vehicle is as follows:

• The numbers of insurance policies covering that vehicle and the date of termination of
cover, where the policy has expired.
• The Green Card number, if covering the vehicle involved in the accident.
• The name and address of the insurer and the claims representative.
• Where the vehicle is exempt from insurance, details of the body who will handle
the claim.
• The information centre is obliged to supply the name and address of the registered

Chapter 3
keeper, where the injured party has a ‘legitimate interest’ in knowing the information.
In this country, the information centre is the UK Information Centre (UKIC), formerly known
as the Motor Insurers’ Information Centre (MIIC). As a result, the injured party can obtain
information up to seven years after the date of the accident, as a result of the Motor
Vehicles (Third Party Risks) (Amendment) Regulations 2001.
In light of the above, it is necessary for such specified bodies, exempt from insurance, to
provide details of vehicles for inclusion on the Motor Insurance Database, and to the
information centre on request.
The other duty placed on the UKIC is to provide details of insurers and their claims
representatives in the state where the victim is resident, but they are entitled to make a
reasonable charge for such enquiries.
Each insurer in the EU must appoint a claims representative in every other Member State,
who must, in turn, be able to deal with the injured party, in their own language. Claims
representatives must collect all the relevant information on the claim, to take appropriate
action to settle the claim, including paying compensation and, where provided by the Fourth
Directive, to represent the insurer in court. Existing insurers were required to appoint claims
representatives by 20 January 2003.
Once a claim has been notified, then either the claims representative or the insurer (if
contacted direct) has three months in which to either:
• provide a calculated offer of compensation where liability is not in contention and damage
can be quantified; or
• supply a reasoned response where neither of the above two criteria can be met.
It should be noted that this is a requirement not dissimilar to the Pre-Action Protocol
timescales found within the Civil Procedure Rules.
Irrespective of which ‘compensation body’ resolves the claim, it is bound by the law of the
country where the accident actually took place.
In the UK, the Motor Insurers’ Bureau was appointed as the compensation body. However,
there is a right of recovery from the compensation body in the country where the vehicle was
registered or, alternatively, the country of the accident if the vehicle is unidentified.
It should be noted that UK insurers will not be required to appoint claims representatives in
the UK.
The Fourth Directive facilitates a direct right of action against the insurer responsible for the
accident. The MIB estimates that, on average, the UK courts deal with less than 50 claims
per year from residents living in other Member States, and the majority of these are dealt
with in Northern Ireland.
Following Brexit, the position of the MIB has changed. The Motor Vehicles (Compulsory
Insurance) (Amendment) (EU Exit) Regulations 2019 was implemented from the end of
the Brexit transition period. Its main purpose was to remove the requirement for the Motor
Insurers' Bureau (MIB) to act as a compensatory body for UK residents injured by uninsured
or untraced motorists in road traffic accidents in the EU/EEA. It also removes the
requirement previously on the MIB to reimburse its foreign counterparts in respect of EU27
visitors in the UK who have been compensated by their 'home' Compensation Body. These
requirements have been replaced by bilateral reciprocal agreements between the MIB and
most other EU27 compensation bodies.
Under these Bilateral Protection of Visitors agreements, the MIB and the foreign
compensation Body both commit to continuing compensation for victims of accidents
 3/24 IF5/October 2022 Motor insurance products

involving uninsured drivers in their own country. Claims will need to be brought in the country
where the RTA occurred, but claimants will benefit from the MIB's assistance.
Where no reciprocal agreement exists, a UK-resident claimant's entitlement to recover
against an EU member state's compensation body will depend on the law of that member
state. Claims will need to be brought in the country where the accident occurred and
entitlement to compensation will be assessed under the law of that country. The guarantee
funds of ten countries (including Italy) that have not signed reciprocal agreements have
confirmed that they will continue to compensate UK-resident victims of uninsured drivers.
Claimants may require foreign legal advice.
Chapter 3

There are still several EU member states who have neither signed reciprocal agreements
with the MIB nor confirmed that they will compensate UK-resident victims. Consequently,
there is currently a risk that where a UK motorist is involved in a road traffic accident with an
uninsured driver in one of these states, compensation will not be available.
C1E Fifth Directive
The Fifth Motor Directive was adopted on 11 May 2005, nearly three years after its original
submission. Its principal objectives are to fill gaps and clarify a number of provisions in
earlier Directives, and to ensure consistency of interpretation among the EU Member States.
Additionally, it is to update and improve the protection offered by compulsory insurance to
victims of motor vehicle accidents and to enhance the single market in motor insurance by
providing solutions to issues raised.
Bearing in mind that Member States had two years in which to implement proposals, the
Fifth Directive was fully operational by 11 June 2007.
The principal changes are as follows:
1. The Fifth Directive proposed changes to third party liability cover, the first such
amendment since the 1983 Second EU Motor Directive. The increases are as follows:
a. For third party personal injury, €1m (increased from €350,000) per victim, with an
option for Member States to introduce a minimum amount of €5m per claim, whatever
the number of victims. The position in the UK is, of course, governed by section 145(3)
of the Road Traffic Act 1988, and the cover offered for third party personal injury (or
death) is unlimited.
b. For third party property damage, €1m (increased from €100,000) per claim, whatever
the number of victims.
These amounts are to be reviewed automatically every five years to reflect changes to
the European Index of Consumer Prices. Member States are allowed a five-year
transitional period within which to increase the new minimum amounts up to the
new levels.
As a result of the Motor Vehicles (Compulsory Insurance) Regulations 2007, from
11 June 2007, the compulsory third party property damage limit was increased to £1m.
Following the five-yearly review to reflect the changes to the European Index of
Consumer Prices, this limit has been further increased to £1.2m with effect from
31 December 2016.
2. Member States are currently entitled to limit or exclude the payment of compensation in
respect of property damage caused by an unidentified vehicle, and this position is
maintained.
However, if the victim has sustained ‘significant personal injury’, they will now be entitled
to claim for any damage caused to their property in the same accident. ‘Significant’ in this
context is not defined, and this is left to Member States. However, to limit the scope for
fraud, each Member State may take into account whether the victim required hospital
care. They may also make such payments subject to an excess of up to €500.
Chapter 3 Legal and regulatory considerations 3/25

3. Under the Fifth Directive it will be permissible for an insurer authorised to transact
business in one Member State to insure a vehicle registered in another.
This means that UK insurers will be able to provide cover for a non-UK-registered vehicle
that a customer wishes to drive back to the UK prior to it being re-registered here. Again,
this is currently subject to consideration by the Council of Bureaux. Once this process has
been completed, then the requirement will be implemented by the Motor Insurers Bureau.
4. It is confirmed that the principle of direct right of action against insurers for victims of
accidents when in another Member State is to be extended on a Community basis to all
victims, i.e. including domestic victims. This was originally raised in the EU Fourth

Chapter 3
Directive, and has been implemented in the UK by the European Communities (Rights
against Insurers) Regulations 2002.
5. MEPs have successfully introduced a provision requiring Member States to take the
necessary measures to ensure the availability of data to speed up the settlement of
victims’ claims, and this will be included in the Fifth Directive. This requirement was, in
fact, implemented by the Motor Vehicles (Compulsory Insurance) (Information Centre
and Compensation Body) Regulations 2003.
An earlier draft had referred specifically to the need for police accident reports to be
made readily available, which has been and remains an issue of current concern to UK
insurers. At the moment, all police forces record such detail manually and release the
data, on request, to any party involved in the accident. A project is currently underway to
enable all police forces to access data on road traffic collisions, irrespective of the
location of the force or the accident, but this is subject to installation of appropriate
software applications.
6. In order to facilitate the transfer of business from one insurer to another, insurers will be
required upon request, to provide a statement relating to a policyholder’s third party
claims or the absence of such claims. Such a statement need only be given voluntarily,
and is not required to be disclosed automatically.
C1F The Codifying Directive
In a Directive dated September 2009, the original five EU Motor Directives have now been
codified into a Directive, called the Codifying Directive. There has been no change to the
law created by the original five directives, other than the fact that they may now have been
given a new article number.

D Green Card system

The EU originally had a stated aim of allowing freedom of travel between Member States.
It had two main objectives:
• Visiting motorists should not be impeded by the need to comply at each frontier with the
separate insurance requirements of the country visited.
• Road traffic victims in one country should not suffer from the fact that the cause of the
injury or damage was a visiting motorist.
It should be noted that the countries affected by the Green Card system are greater in
number than those in the EU.
The Council of Bureaux comprises a bureau for each of the countries within the Green Card
system. The bureau for the UK is the MIB, which is, of course, also the body responsible for
the administration of both the Uninsured and the Untraced Drivers Agreements. All insurers
transacting motor insurance in the UK must be members of the MIB and are bound to that
organisation by what is known as the Domestic Regulations.
Each of the countries that are party to the Green Card system will have needed to amend its
laws to incorporate the principles. In the UK these are reflected within RTA 1988.
 3/26 IF5/October 2022 Motor insurance products

D1 International Certificate of Insurance (Green Card)

One of the early aims of the working party was to produce a uniform certificate of insurance
that could be easily recognised as such and would be acceptable in all countries as evidence
of insurance. This has produced the Green Card, named after its colour. It is an
internationally recognised document that serves solely as evidence that the holder has the
minimum insurance cover required by law in the country visited, but provides no insurance
cover in itself. Insurers do not normally charge for a Green Card, though a broker may levy
an administration fee for arranging it.
Prior to Brexit, the UK was a member of the European 'free circulation zone' a UK motorist
Chapter 3

was not required to have a Green Card when visiting the majority of European countries.
While this was no longer the case immediately following the end of the Brexit transition
period, the position has now reverted back to the pre-Brexit state.
All policies issued in this country only provide the minimum cover when a UK policyholder
travels abroad. Wider cover, often for a limited number of days each year, may be provided
as part of an insurer's standard policy or if the policyholder contacts his or her insurer before
travelling, and the insurer agrees to extend the cover to that which is provided in this country.
In the absence of such a foreign use extension, the ‘minimum cover’ when visiting an EU
state will be the minimum required in the state being visited or the minimum required in
Great Britain, whichever is the higher. For non-EU states complying with the directives and
being visited, the level of cover is the minimum required in that state.
Green Cards may be regarded as a necessity when a UK motorist travels outside the
countries of the European Union or the European Economic Area.
For private car and private car fleets, many UK insurers no longer charge for limited periods
of travel and, indeed, some have now incorporated fully extended European cover within the
standard wording of their policy and certificate of insurance. As a result, prior to Brexit, the
issuing of Green Cards on private car policies was a diminishing practice – although they
were often still supplied for commercial risks.

Example 3.4
Generally insurers will incorporate a wording within their policy booklet, which may say:
Subject to our consent and the payment of an appropriate premium we will
provide the same level of cover as you have in the territorial limits for the period
agreed in the countries specified in the endorsement issued.

In readiness for the possible reintroduction of the need to issue Green Cards following the
UK's exit from the EU, it was agreed that from July 2020 Green Cards can be printed in black
ink on white paper – a Green Card, therefore, no longer needs to be green or printed on
card! Furthermore, Green Cards can be sent out electronically, although policyholders must
then print off a physical copy to carry with them. These changes were implemented through
the Motor Vehicles (International Motor Insurance Card) (Amendment)
Regulations 2020.
Chapter 3 Legal and regulatory considerations 3/27

D2 Operation of the Green Card system

The system works in the following way in respect of a ‘visiting motorist’ causing damage or
injury which would be covered under the compulsory insurance laws of the country visited:

The injured party The handling bureau Should the handling

(third party) will make will have full powers to bureau choose to
a claim against the accept service of the allow the third party to
bureau of the visited claim and subsequent seek a court
country (‘handling legal proceedings and judgment, then the
bureau’). may dispose of the handling bureau will

Chapter 3
claim as it sees fit. be required to satisfy
that judgment.

The paying bureau will The paying bureau will Once the handling
seek recovery from be obliged to bureau has paid the
the insurer of the reimburse the claim, either
visiting motorist. handling bureau by voluntarily or by
virtue of the Uniform judgment, it will seek
Agreement. repayment from the
bureau of the country
of the visiting motorist
(‘paying bureau’).

The insurer will be The handling bureau

obliged to pay by may appoint an agent
virtue of its agreement to handle the claim, in
with the paying which case power to
bureau. pay and to recover
becomes invested in
that agent.

• Most claims ‘short circuit’ this procedure by the paying bureau, or its member insurer, with
the permission of the handling bureau, appointing an agent in the country concerned. The
agent has the powers of the handling bureau but will deal directly with the paying bureau
or its member insurer.
• UK insurers have agents already appointed and approved within the major European
countries in accordance with the terms of the EU Fourth Directive. Policyholders will be
provided with details before travelling and will be requested to report any accidents to
the agent.
• Following the UK's exit from the EU, the UK's bureau (the MIB), has signed reciprocal
arrangements with the majority of bureaux in EEA countries to continue with the above
arrangement for compensating victims of motor accidents involving untraced or uninsured
motorists.

On the Web
There is a facility on the MIB website for prospective claimants to check for details of a
foreign insurer local representative in the UK. Follow the steps below to find this
information.
Go to [Link], select the ‘making a claim’ tab, then select ‘Accidents in the UK
involving a foreign registered vehicle’ and open up the new page ‘Find a UK
Representative of a foreign insurance company’ to find the UK representative.

Where a local insurer representative is identified, any claim should be submitted direct to
them. If no local insurer representative is identified, the claim should be submitted to the MIB
as Handling Bureau for consideration. Where appropriate, the MIB will handle and pay the
claim and seek a recovery from the home bureau of the visiting motorist.
 3/28 IF5/October 2022 Motor insurance products

Question 3.4
Which of the EU Motor Directives has the basic intention of simplifying the process of
claiming against a foreign insurer when an EU citizen is involved in a motor accident
outside their normal country of residence?
a. First. □
b. Second. □
c. Third. □
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d. Fourth. □

E Other legislation affecting motor insurance

In addition to legislation already discussed, there are a number of UK statutes that have an
effect on motor insurance.

E1 Rehabilitation of Offenders Act 1974

Under this Act, persons convicted of certain criminal offences are said to be ‘rehabilitated’
after a certain period of time. The time period can vary from one to ten years. In effect, once
the rehabilitation period has expired, the offenders are treated as though they had never
committed the crime.
The effects of the law spread to all walks of life but the Act has had a considerable bearing
upon the question of disclosure in insurance contracts. While it is still open to an insurer to
call for disclosure of convictions suffered during the proposer’s lifetime, the proposer is not
obliged to give details of any rehabilitated offences, as they are treated as ‘spent’.
Should the proposer volunteer information concerning spent convictions, insurers must take
no account of them when considering the premium or the application of underwriting terms.
E1A Rehabilitation periods
The relevant section of the Legal Aid, Sentencing and Punishment of Offenders Act
2012 (LASPO) came into effect on 10 March 2014 and introduced a number of reforms into
the criminal and civil justice system in England and Wales.
One such reform was to amend the rehabilitation periods provided under the Rehabilitation
of Offenders Act 1974.

Reinforce
The changes apply only to the Rehabilitation of Offenders Act in England and Wales.
They do not amend the Rehabilitation of Offenders Act in Scotland or the Rehabilitation of
Offenders Act (Northern Ireland) Order in Northern Ireland. The Management of
Offenders (Scotland) Act 2019 introduced similar changes in Scotland from
November 2020.
A consultation on proposals to reform rehabilitation periods in Northern Ireland closed in
March 2021 and resulted in the Rehabilitation of Offenders (Amendment) Order (Northern
Ireland) 2022 being introduced in June 2022..

The rehabilitation period commences with the date of conviction, rather than the date of the
offence (bearing in mind that, at that point, there is no guarantee that a conviction will be
secured), and the rehabilitation period differs, depending upon the severity of the penalty
imposed.
Convictions resulting in a penalty of imprisonment exceeding four years are never said to be
rehabilitated. For shorter custodial sentences the rehabilitation periods are made up of the
total sentence length, plus an additional period that runs from the end of the sentence, which
is referred to as the ‘buffer period’.
The buffer periods are halved for those who are under 18 at the date of conviction (except
for custodial sentences of six months or less, where the buffer period is 18 months).
Chapter 3 Legal and regulatory considerations 3/29

Sentence of imprisonment Buffer period for adults Buffer period for under-18s

Over 4 years Never spent Never spent

2 ½–4 years 7 years 3 ½ years

6 months–2 ½ years 4 years 2 years

Less than 6 months 2 years 18 months

The main changes affecting motoring offences in England and Wales are:

Chapter 3
• The rehabilitation period for a fine is reduced from five years to one year (two and a half
years reduced to six months if the offender is under the age of 18 at the date of
conviction).
• The status of endorsements and penalty points has been clarified. Endorsements for RTA
offences carry a rehabilitation period of five years (two and a half years if the offender is
aged under 18 at the date of conviction).
• Penalty points carry a three year rehabilitation period, but with no differential for the age
of the offender.
The net effect of these changes is that the rehabilitation period for those motoring
convictions featuring both endorsements and fines will remain at five years for adults as,
where more than one penalty is imposed, the longer of the rehabilitation periods applies.
Where penalty points are imposed, the period for an offender under 18 at the date of
conviction would be three years, as this is longer than the halved periods for a fine (six
months) and endorsement (two and a half years) applicable to offenders under 18.
Note that the rehabilitation period for a driving licence endorsement is five years,
notwithstanding the fact that some endorsements may require to remain on a licence for
considerably longer. The Court of Appeal case of Power v. Provincial Insurance PLC
(1997) now stands as a precedent. This case established that the ‘endorsement’ period
cannot be taken into account when determining rehabilitation. In this case, Mr Power had
sustained a drink–drive conviction, but the rehabilitation period was deemed to be five years,
even though the endorsement would remain on the licence for eleven years.
On motor insurance proposal forms, questions regarding convictions differ in their content
between insurers. The effect, however, remains the same and, mindful of their
responsibilities towards the insuring public, many insurers – particularly those who maintain
an ‘open-ended’ question regarding convictions – print a notice on the proposal form,
drawing the proposer’s attention to the terms of the Rehabilitation of Offenders Act (as
amended).
Most insurers will seek details of convictions that have been sustained within five years of
the date of completion of the proposal form.

On the Web
For further information on the changes, including the rehabilitation periods for custodial
sentences, refer to: [Link]/government/news/reforms-to-help-reduce-reoffending-
come-into-force.
For the Ministry of Justice guidance on the changes, including examples, refer to: [Link]/
2n2qtzs.
The ABI updated its Good Practice Guide to Insurers’ Approach to People with
Convictions and Related Offences in 2019; search ‘convictions and related offences’ on
the ABI website for a pdf of the document. See in particular Annex A for the rehabilitation
periods now applicable in England and Wales at: [Link].
 3/30 IF5/October 2022 Motor insurance products

Question 3.5
A proposer is seeking insurance for his private car and discloses three previous
convictions, the earliest of which has already been spent. Which convictions will the
underwriter consider when deciding on the terms to apply?
a. All three convictions will be taken into account. □
b. Only the spent conviction will be taken into account. □
c. As the first conviction is already spent all three convictions must be disregarded. □
Chapter 3

d. Only the two unspent convictions will be taken into account. □

E2 Limitation Acts 1939–80 and Latent Damage Act 1986
The Limitation Acts lay down periods of time for the commencement of court proceedings
following breaches in contract or tort. The purpose behind such limitations is to ensure that
potential defendants are made aware of the nature and extent of any claims against them in
sufficient time to investigate and prepare their defence properly. Court cases should follow as
soon after the breach as possible and before essential witnesses have forgotten the detail.
For motor insurers, the limitation periods allow some element of certainty with the knowledge
that, after a certain period of time, they can assume that no further third party claims will
arise from individual accidents. Files can, therefore, be closed and reserves removed.
In tort (this being the legal term for a civil wrong), the principal period of limitation is six
years, but this is for property damage. In other words, any court action must commence (i.e.
the claim form must be issued) before six years have expired from the date of the breach
(e.g. the motor accident).
Where the claim consists of any element of personal injury, the limitation period is reduced to
three years.
In Scotland the limitation period in respect of personal injury is three years but for damage to
property it is five years as laid down by The Prescription and Limitation (Scotland)
Act 1973.
The Limitation Acts have been affected by the Latent Damage Act 1986, which only applies
to property damage and not personal injury. In addition to the limit of six years, there is a limit
of three years from the time the defect is discovered but with an overall limit of fifteen years
from the date of the negligent act or breach of contract.
This is not likely to affect many motor claims. However, if a vehicle were to hit a building and
the damage did not appear until some years later, then, provided it could be proved that the
vehicle hitting the building caused the damage, the claim may have to be paid.
A court judge does have the discretionary power to waive limitation periods if the claimants
can successfully show that it would be unfair to deny them the right to claim. However, such
powers are not used lightly and the position of the defendants needs also to be considered.
Where the claimant is under any form of ‘disability’ or limitation as to mental capacity – the
main example being that of a minor or someone who has suffered brain damage – then the
limitation period does not commence until the disability ceases. If the disability is solely due
to age then the limitation period would effectively start to run when the claimant reaches the
age of majority at 18. If the disability is permanent in terms of brain damage, the limitation
period would not technically start running at all.
In practice, most persons under a disability will normally sue through a ‘litigation friend’ well
before the limitation period takes effect.

Example 3.5
An example would be a nine-year-old boy who was hit by a vehicle while crossing the
road. He would have until his 21st birthday to issue proceedings and pursue a claim
against the motorist who he thought was responsible.
Chapter 3 Legal and regulatory considerations 3/31

Insurers who have received notification of an accident involving a person under a disability
but who have not received a claim within the normal limitation period will have to make a
decision as to how long a reserve is held. Normally after a ‘safe’ period of, say, the limitation
period plus one year, the file will be settled with the reserve removed. The file will be marked
‘do not destroy’ to retain the evidence.
Limitation periods differ from country to country. In continental Europe the periods are
normally shorter than in the UK.

E3 Road Traffic (New Drivers) Act 1995

Chapter 3
This Act, perhaps, reflects a fact that has been well known to insurers for many years – that
is, that new and, by coincidence, often young drivers are more likely to drive poorly, have
accidents and commit road traffic offences than others.
Under the Road Traffic (New Drivers) Act 1995, any person accumulating six points on
their licence within two years of passing the driving test will automatically have their licence
revoked and they will need to apply for a provisional licence should they wish to resume
driving. This will, of course, mean that a further test will have to be taken and passed before
they can drive unaccompanied.
If the licence were full at that time of inception of the policy, then insurers would expect it to
stay that way and such change in licence status would constitute a material circumstance
which must be disclosed.
At subsequent renewals, any convictions would have to be disclosed together with the
penalties imposed.
Underwriters would need to be on their guard for the effects of this Act and, possibly, impose
terms greater than they might otherwise have done simply for the accumulation of the points.

Question 3.6
A driver, having passed his driving test 18 months previously, has been caught using
his mobile phone while driving and so has accumulated six points on his licence.
What effect will this have?
a. His licence will revert to a provisional status. □
b. His licence will be revoked. □
c. He will serve a minimum three-month driving ban. □
d. He will serve a minimum six-month driving ban. □
E4 Disability Discrimination Act 2005 (DDA 2005)
The DDA 2005 received Royal Assent on 7 April 2005. Some of the provisions came into
force at the end of 2005, whereas others became effective from December 2006.
Among other measures, the DDA 2005 amended the Disability Discrimination Act 1995
(DDA 1995) by giving public bodies new duties and covering the transport of disabled
vehicles. Specifically, it made it unlawful for operators of transport vehicles to discriminate
against disabled people.
The 2005 Act ensured that discrimination law covered all the activities of the public sector
and requires public bodies to promote equality of opportunity for disabled people.
The Act amended the requirement for mental impairment, and mental illness no longer
needed to be clinically well recognised. This allowed non clinically recognised illnesses to be
considered a disability.
It should be noted that a person who has cancer, HIV infection or multiple sclerosis is
deemed to have a disability and, hence, to be a disabled person.
The vast majority of the provisions of this Act have now been incorporated into the Equality
Act 2010.
 3/32 IF5/October 2022 Motor insurance products

E4A Equality Act 2010

UK legislation covering the protected characteristics of age, disability, gender reassignment,
marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and
sexual orientation has been developed over more than 40 years. All the major parties agreed
that harmonising the legislation was long overdue and The Equality Act (2010) was passed,
endeavouring to meet that aspiration. All the above are now to be known as ‘protected
characteristics’.
From 1 October 2010, the Equality Act replaced most of the DDA 1995. However, the
Disability Equality Duty in the DDA continues to apply. The concept of ‘disability related
Chapter 3

discrimination’ is repealed and replaced with discrimination ‘arising from a disability’. It also
allows an indirect disability discrimination claim.
The meaning of ‘disability’ is based on the definition as given in the DDA 1995 and the Act
has now been repealed. In general the definition of who is a disabled person for the
purposes of protection from discrimination has not changed.
Direct discrimination or harassment based on association or perception are made unlawful,
or in some cases more clearly unlawful. This might apply, for example, where a friend of a
disabled person is harassed, or where an impairment does not actually have a substantial
effect but someone thinks it does (i.e. the concept of perception, as mentioned above). The
Act and the broadening of some of the categories that were previously covered by earlier
legislation could potentially create greater exposure to risks, especially with regard to
employer liability risks.
Insurance services providers may justify treating people differently when providing them with
insurance if they are disabled if:
• the treatment is based on information that is relevant to the assessment of that risk;
• the information used is from a reliable source; and/or
• it is reasonable for an insurance service provider to do so.
An insurer cannot rely on untested assumptions, stereotypes or generalisations when
making decisions about offering insurance services to someone who is disabled.
It should be remembered that certain conditions have also to be advised to the DVLA, who
may place restrictions on, or withdraw entirely, the licence to drive.
If, and subject to full and accurate disclosure, the DVLA continue to grant a licence, then
insurers must be under at least a moral obligation to quote rates that would not, effectively,
force the disabled off the road. Given that the proposer can obtain a licence and is able to
comply with any restrictions, then insurers will generally quote at more or less
standard rates.

E5 Third Parties (Rights Against Insurers) Act 2010

Normally, the rights of a claimant in tort against a person who becomes a bankrupt (or a
company which goes into liquidation) end when the bankruptcy is discharged. However, this
rule does not apply in respect of liabilities that arise for personal injury, following negligence,
nuisance or breach of statutory, contractual or other types of duty.
Effectively, if a person or a company becomes bankrupt or goes into liquidation and has
incurred a liability to a third party, the rights of the insured under the policy are transferred to
the third party for the purposes of that liability. The third party can continue to pursue the
claim from the insurer.
The 2010 Act supersedes Third Parties (Rights Against Insurers) Act 1930.
The new Act created a statutory transfer to third parties of the right to the benefit of a
liability policy in the event that an insured subject to an insolvency procedure incurs a liability
to that third party. The third party is able to issue a claim against the insurer without first
having to establish the liability of the insured.
The new Act gave the third party new rights to obtain certain information relating to the
insolvent insured’s insurance both before and after the issue of proceedings.
The different ‘events’ are listed in subsection 2 of s.153, and among them are the scenarios
where the insured (if a person) either becomes bankrupt, or if a company is wound up or
placed in liquidation.
Chapter 3 Legal and regulatory considerations 3/33

Section 153 Road • provides that persons dying or becoming bankrupt do not lose rights under the Act;
Traffic Act 1988
• the happening of certain events will not affect the liability of a person who should be
covered under a policy of insurance; and
• in other words, the rights of a third party to pursue a claim against a responsible
person are maintained.

E6 Contracts (Rights of Third Parties) Act 1999

This Act applies to all contracts that came into force after 11 May 2000. The term ‘third party’
here means any party who may have an interest in the performance of a contract, and not

Chapter 3
the ‘other’ party to an accident.
Basically, the 1999 Act can be used to grant additional rights to those parties who may have
an interest in the performance of the contract, whether that right is specifically granted or not.
The parties have the option to either ‘opt in’ or ‘opt out’ of the requirements of the Act, which
means that the requirements of the Act are not compulsory.
The Act effectively amends the law of privity of contract. The rule of privity of contract is the
principle that a third party cannot sue for damages on a contract to which they are not
a party.
It can potentially open the door for certain third parties to rely upon, and benefit from, the
terms of a contract to which they were not a party. A potential ‘third party’ to a contract may
be for example a named driver under the policy. However, to be able to exercise any rights
under the contract, the insurer must have indicated in the terms and conditions that the
Contracts (Rights of Third Parties) Act applies. Most, if not all insurers will state that a person
or company who was not a party to the policy has no rights under the Contracts (Rights of
Third Parties) Act 1999.

Example 3.6
Let us suppose that the Ideal Insurance Company issue a private motor policy to Frank N
Stein, where his wife, Phyllis, is a named driver on the policy. There is a personal effects
limit of £500 on the policy. Additionally, there is a requirement that all personal effects
should be placed in the boot of the vehicle, when it is left parked and unattended. On
2 August 2020, Phyllis drives to her local shopping centre and parks the vehicle. Unknown
to her, Frank had left a couple of valuable items of hers in the glove compartment.
While parked, the vehicle is broken into and the personal effects taken from the glove
compartment. Additionally, other items were taken from the boot itself. Ideal refuse to
indemnify, on the grounds that not all personal effects were in the boot. As there was no
‘opt out’ condition in the policy relating to the Contracts (Rights Against Third Parties) Act
1999, then Phyllis endeavours to seek indemnity for her own personal items that were
taken. It is still possible for such third parties to exercise their rights under the contract to
ensure that the appropriate obligations are met. Without the appropriate contractual
restrictions, it may be possible for, say, the additional driver (Phyllis) to enforce the
operation of the policy, even though it may be the policyholder (Frank) who is, in fact, in
breach of a policy condition.
Here Phyllis, a named driver, is an interested third party to the contract, in that she clearly
benefits from the continued existence of the policy. Other potential third parties are a
partnership repairer, where there is a general reference to ‘partnership repairers’ within
the contract, or a hire company, if they provide a hire vehicle while the policyholder’s is
being repaired etc.
As indicated above, the rights conferred by the contract (e.g. the motor insurance policy in
this instance) can be expanded to incorporate the provisions of the Contracts (Rights of
Third Parties) Act 1999 or to exclude them altogether. However, the first option is likely to
be unattractive, in view of the potential exposure.
As an example, it would be possible to state within the policy itself that ‘it is agreed that
this policy is to be construed as if the Contracts (Rights of Third Parties) Act 1999 had not
been enacted’. If this wording had been in the insurance policy issued to Frank Stein, then
Phyllis would have been unable to pursue a claim, as in the example just given.
 3/34 IF5/October 2022 Motor insurance products

E7 Road Safety Act 2006

This particular piece of legislation has been generally supported by all interested
organisations and political parties. The background is that in 2004, the Government
published the first three year review of the Road Safety Strategy ‘Tomorrow’s Roads – Safer
for Everyone’, originally launched in 2000 by the then Prime Minister. The main target was to
achieve a reduction of casualties of 40% of those killed and seriously injured (50% for
children) by 2010.
The Road Safety Act is the major piece of legislation devised to achieve such targets, with
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the general aim of improving road safety, and logically reducing the number of accidents,
and their severity.
Among the provisions included are:
• Graduated fixed penalties for speeding. In other words, and depending on the
circumstances, there may be three or four penalty points for such an offence.
• The Act increases the maximum penalties for various road traffic offences. It also
provides for the graduation of fixed penalties for offences and in circumstances specified
by order, the general intention being (for this and the above bullet point) to match the
punishment to the severity of the offence.
• Financial penalty payment deposits, whereby a penalty payment deposit is made to the
Secretary of State. This is made to prevent foreign drivers escaping punishment in the
UK by requiring them to pay a deposit where an offence is committed.
• Gives police the power to detect uninsured driving through the use of Automatic Number
Plate Recognition technology and to seize vehicles which are found to be without valid
insurance cover.
• Drink-drive offenders can be required to re-take the driving test.
• To help prevent fatigue related accidents, the Act allows for a pilot of motorway rest areas
similar to French ‘aires’.
• The creation of new offences of causing death by careless or inconsiderate driving,
causing death by driving while unlicensed, disqualified, or uninsured and keeping a
vehicle that does not meet insurance requirements.

Refer to
See Driver and Vehicle Licensing Agency (DVLA) on page 1/15 for more information on
offences covered by the Road Safety Act

Specific mention should be made of the new offence of causing death by careless driving.
This is a lesser offence, when compared with causing death by dangerous driving, but can
still result in up to five years imprisonment. The burden of proof is that the driving fell below
the standard to be expected of a competent and careful driver. Many policies provide cover
for the cost of legal representation in relation to charges of causing death by careless or
dangerous driving or attendance at a Coroner’s or Fatal Accident Inquiry.
The Road Safety Act 2006 came into force in November 2006 and has been used to explain
or amend the Road Traffic Offenders Act 1988, the Road Traffic Act 1988, and other such
road traffic legislation.

E8 Consumer Insurance (Disclosure and Representations)

Act 2012 (CIDRA)
Steps have now been taken to revise the law relating to insurance contract law by the
passing of CIDRA, which came into force on 6 April 2013.
Its main focus is the abolition of the duty imposed on consumers to volunteer material facts
over and above that which may have been requested in questions posed by the insurer, to
fully assess the risk presented.
It should be stressed that this Act only applies to ‘consumers’ as defined within the Act,
being ‘an individual who enters into the contract wholly or mainly for purposes unrelated to
the individual’s trade, business or profession’.
Chapter 3 Legal and regulatory considerations 3/35

Therefore, the provisions of this Act do not apply to commercial contracts of insurance which
are subject to the provisions of the Insurance Act 2015. These are covered in Insurance Act
2015 on page 3/37.
Under the Act the duty of disclosure is replaced by a requirement on consumers to take
reasonable care not to make a misrepresentation.
E8A Main definitions
Section 1 of the Act defines a consumer insurance contract as being a contract of insurance
between:

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1. an individual who enters into the contract wholly or mainly for purposes unrelated to the
individual’s trade, business or profession; and
2. a person who carries on the business of insurance and who becomes a party to the
contract.
Therefore, this legislation is only applicable to consumer insurance contracts and does not
apply to commercial contracts of insurance.
Disclosure and representations before contract or variation
Section 2 makes provision for disclosure and representations by a consumer to an insurer
before a consumer contract is entered into and places responsibility on the consumer to take
reasonable care not to make a misrepresentation to the insurer.
A failure by the consumer to comply with the insurer’s request to confirm or amend
particulars previously given is capable of being a misrepresentation for the purposes of
this Act.
The duty set out in section 2 replaces any duty relating to disclosure or representations by a
consumer to an insurer which existed in the same circumstances before this Act applied.
There is, therefore, no obligation upon the consumer proposing for insurance to volunteer
information not requested by the insurer, but they must exercise reasonable care to ensure
that answers to insurers’ specific questions are not misrepresented.
Reasonable care
Section 3 states that whether or not a consumer has taken reasonable care not to make a
misrepresentation is to be determined in the light of all relevant circumstances and in
particular that the standard of care is that of a reasonable consumer, subject to:
1. Taking into account whether the insurer was or ought to have been aware of any
particular characteristics or circumstances of the actual consumer; and
2. A dishonest misrepresentation is always to be taken as showing lack of reasonable care.
Qualifying misrepresentations: definitions and remedies
Section 4 states that an insurer has a remedy against a consumer for a misrepresentation
made by the consumer, before a consumer insurance contract was entered into or varied,
only if:
1. the consumer made the misrepresentation in breach of the duty set out in section 2, (i.e.
failing to exercise reasonable care); and
2. the insurer shows that without the misrepresentation, that insurer would not have entered
into the contract (or agreed to the variation) at all, or would have done so only on
different terms.
A misrepresentation for which the insurer has a remedy against the consumer is referred to
in the Act as a ‘qualifying misrepresentation’, and only such remedies as are set out in
Schedule 1 to the Act apply.
The Act specifies the permitted remedies which an insurer may have, depending upon the
seriousness of the misrepresentation, in Schedule 1. This section has the effect of overriding
s.152 of the Road Traffic Act in the context of Consumer Insurance Contracts.
Qualifying misrepresentations: classification and presumptions
Section 5 states that a qualifying misrepresentation is either:
1. deliberate or reckless; or
2. careless.
 3/36 IF5/October 2022 Motor insurance products

A qualifying misrepresentation is deliberate or reckless if the consumer:

1. knew that it was untrue or misleading, or did not care whether or not it was untrue or
misleading; and
2. knew that the matter to which the misrepresentation related was relevant to the insurer, or
did not care whether or not it was relevant to the insurer.
A qualifying misrepresentation is careless if it is not deliberate or reckless.
It is for the insurer to show that a qualifying misrepresentation was deliberate or reckless, but
it is to be presumed unless the contrary is shown:
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1. that the consumer had the knowledge of a reasonable consumer; and

2. that the consumer knew that a matter about which the insurer asked a clear and specific
question was relevant to the insurer.
Consequently, should an insurer seek to avoid a consumer insurance contract due to non-
disclosure or misrepresentation, the onus is on the insurer to show that the
misrepresentation was deliberate or reckless and not merely careless.
If they fail to do so, and the misrepresentation was careless, they would have to show that
they would not have entered into the contract at all.
Otherwise the remaining remedies outlined in Schedule 1 would apply.
Warranties and representations
Section 6 applies to representations made by a consumer:
1. in connection with a proposed consumer insurance contract; or
2. in connection with a proposed variation to a consumer insurance contract.
and provides that any such representation is not capable of being converted into a warranty
by means of any provision of the consumer insurance contract by declaring the
representation to form the basis of the contract or otherwise.
Agents
Section 9 refers to schedule 2 of the Act which determines for the purposes of this Act only,
whether an agent through whom a consumer insurance contract is effected is the agent of
the consumer or of the insurer.
Contracting out
Section 10 states that a term of a consumer insurance contract, or of any other contract,
which would put the consumer in a worse position as per the matters mentioned in section 2
than the consumer would be in by virtue of the provisions of this Act is to that extent of
no effect.
In other words the insurer is not permitted to contract out of the provisions of this Act.
E8B Schedule 1
Insurers’ remedies for qualifying misrepresentations
Deliberate or reckless misrepresentations
If a qualifying misrepresentation was deliberate or reckless, the insurer:
1. may avoid the contract and refuse all claims; and/or
2. need not return any of the premiums paid, except to the extent (if any) that it would be
unfair to the consumer to retain them.
Careless misrepresentations – claims
If the qualifying misrepresentation was careless, the insurer’s remedies are to be based on
what it would have done had the consumer complied with the duty set out in section 2:
1. If the insurer would not have entered into the consumer insurance contract on any terms,
the insurer may avoid the contract and refuse all claims, but must return the
premiums paid.
2. If the insurer would have entered into the consumer insurance contract, but on different
terms (excluding terms relating to the premium), the contract is to be treated as if it had
been entered into on those different terms if the insurer so requires.
3. In addition, if the insurer would have entered into the consumer insurance contract
(whether the terms relating to matters other than the premium would have been the same
Chapter 3 Legal and regulatory considerations 3/37

or different), but would have charged a higher premium, the insurer may reduce
proportionately the amount to be paid on a claim.
Careless misrepresentations – treatment of contract for the future
Where a misrepresentation is careless but does not relate to a claim, and the insurer would
have the right to avail itself of the rights conferred in paras b) and/or c) above, the
insurer may:
1. give notice to that effect to the consumer; or
2. terminate the contract by giving reasonable notice to the consumer.

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If the insurer gives notice to that effect to the consumer, the consumer may terminate the
contract by giving reasonable notice to the insurer.
If either party terminates the contract under this paragraph, the insurer must refund any
premiums paid for the terminated cover in respect of the balance of the contract term.
Note that the provisions in this Act require an amendment to the RTA s.152, which you will
recall provides a remedy to the insurer where a policy is avoided on the ground of material
misrepresentation or non-disclosure.
E8C Schedule 2
Rules for determining status of agents
This schedule sets out the rules for determining, for the purposes of this Act only, whether an
agent through whom a consumer insurance contract is effected is acting as the agent of the
consumer or of the insurer.
The agent is to be taken as the insurer’s agent in the following cases:
1. When the agent does something in the agent’s capacity as the appointed representative
of the insurer for the purposes of the Financial Services and Markets Act 2000.
2. When the agent collects information from the consumer, if the insurer had given the agent
express authority to do so as the insurers agent.
3. When the agent enters into the contract as the insurer’s agent, if the insurer had given
the agent express authority to do so.
In any other case, it is to be presumed that the agent is acting as the consumer’s agent
unless, in the light of all relevant circumstances, it appears that the agent is acting as the
insurer’s agent.

E9 Insurance Act 2015

E9A The duty of fair presentation
The Insurance Act updates and replaces the existing duty on non-consumer policyholders to
disclose risk information to insurers before entering into an insurance contract, and
establishes a ‘duty of fair presentation’, effectively requiring policyholders to undertake a
reasonable search of information available to them and defining what a policyholder knows
or ought to know. Responsibility is placed on insurers to play a more active role in asking
relevant questions.
The Act makes provision for a new system of proportionate remedies where the duty has
been breached which replace the existing single remedy of avoidance of the contract, except
where the policyholder has breached the duty deliberately or recklessly.
The Act defines a ‘non-consumer insurance contract’ as being a contract of insurance which
is not a consumer insurance contract as defined in CIDRA.
A fair presentation of the risk is one:
1. which makes the disclosure required by sub-section 4 (see below);
2. which makes that disclosure in a manner which would be reasonably clear and
accessible to a prudent insurer; and
3. in which every material representation as to matter of fact is substantially correct, and
every material representation as to a matter of expectation or belief is made in good faith.
 3/38 IF5/October 2022 Motor insurance products

Be aware
Note that para b) above places responsibility on the insured to present the information in a
coherent and organised format and not simply to present the insurer with an overwhelming
mass of undigested data.

Sub-section 4 requires the disclosure to be:

1. disclosure of every material circumstance which the insured knows or ought to know; or
2. failing that, disclosure which gives the insurer sufficient information to put a prudent
Chapter 3

insurer on notice that it needs to make further enquiries for the purpose of revealing those
material circumstances.
However, in the absence of enquiry the insured is not required to disclose a circumstance if:
• it diminishes the risk;
• the insurer knows it;
• the insurer ought to know it;
• the insurer is presumed to know it; or
• it is something to which the insurer waives information.
The Act sets out what the insured knows or ought to know for the purposes of making a fair
presentation of the risk.
An insured who is an individual knows only:
• what is known to the individual; and
• what is known to one or more of the individuals who is responsible for the insured’s
insurance.
An insured who is not an individual knows only what is known to one or more of the
individuals who are:
• part of the insured’s senior management; or
• responsible for the insured’s insurance.
Whether an individual or not, an insured ought to know what should reasonably have been
revealed by a reasonable search of information available to the insured (whether the search
is conducted by making enquiries or by any other means).

Be aware
A proposer cannot therefore escape its responsibility to make a fair presentation by
turning ‘a blind eye’ to suspicions or facts which may exist.

The Act also defines what the insurer ‘knows’, ‘ought to know’ and ‘is presumed to know’ for
the purpose of identifying the exceptions of information which need not be disclosed to the
insurer and will comprise:
• things which are common knowledge; and
• things which an insurer offering insurance of the class in question to insureds in the field
of activity in question would reasonably be expected to know in the ordinary course of
business.
A material representation is substantially correct if a prudent underwriter would not consider
the difference between what is represented and what is actually correct to be material.
Remedies for breach of the duty of fair presentation against the insured only arise if the
insurer shows that, but for the breach, they:
• would not have entered into the contract of insurance at all; or
• would have done so only on different terms.

Refer to
Refer to Schedule 1 – Insurers’ remedies for qualifying breaches on page 3/41 for more
on Schedule 1
Chapter 3 Legal and regulatory considerations 3/39

The remedies are set out in Schedule 1.

E9B Qualifying breaches
A breach for which the insurer has a remedy against the insured is referred to in this Act as a
‘qualifying breach’.
A qualifying breach is either:
• deliberate or reckless if the insured:
1. knew that it was in breach of the duty of fair presentation; or

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2. did not care whether or not it was in breach of that duty;
• neither deliberate or reckless.
It is for the insurer to show that a qualifying breach was deliberate or reckless.
Under the Marine Insurance Act 1906 a breach would only give the insurer a single remedy
of avoidance of the whole contract.
Under the Insurance Act 2015 however, the insurer has different remedies depending on the
situation. One distinction being whether the proposer’s breach of the duty of fair presentation
was deliberate or reckless. An insured will have acted deliberately if it knew that it did not
make a fair presentation. An insured will have acted recklessly if it ‘did not care’ whether or
not it was in breach of the duty, but this is intended to indicate a greater degree of culpability
than merely acting ‘carelessly’. The definitions of ‘deliberate’ or ‘reckless’ will include
fraudulent behaviour.
The deliberate or reckless definition echoes that in CIDRA.
However, in CIDRA a ‘qualifying breach’ must be either deliberate/reckless or careless, since
the consumer’s duty is to take reasonable care not to make a misrepresentation to the
insurer. In non-consumer insurance, breaches do not have to be careless or deliberate/
reckless in order to be actionable. ‘Innocent’ breaches of the duty will also give an insurer a
remedy if the insurer can show inducement.
E9C Warranties and other terms
Prior to the Act, an insurer could add a declaration to a non-consumer insurance proposal
form or policy stating that the insured warrants the accuracy of the answers given, or that
such answers form the ‘basis of the contract’. This had the legal effect of converting
representations into warranties and discharged the insurer from liability under the policy if
the insured made any misrepresentation, even if it was immaterial and did not induce the
insurer to enter the contract.
The Act abolishes basis of contract clauses in non-consumer insurances, such clauses
having been abolished in consumer insurances by Section 6 of CIDRA. Insurers can,
however, still include specific warranties in their contracts.
The Act replaces the existing remedy for breach of warranty in an insurance contract, which
is contained within section 33(3) of the 1906 Act. Under that section, the insurer’s liability
under the contract is completely discharged from the point of the breach. This Insurance Act
repeals these statutory rules and any common law equivalent. However, the definition of a
warranty is retained, and a warranty still ‘must be exactly complied with, whether material to
the risk or not’.
The provision of the Act as regards warranties is that a breach of warranty by an insured
suspends the insurer’s liability under the insurance contract from the time of the breach, until
such time as the breach is remedied. The insurer will have no liability for anything which
occurs, or which is attributable to something occurring, during the period of suspension.
However, the insurer will be liable for losses occurring after a breach has been remedied.
These provisions apply to all express and implied warranties.
E9D Terms not relevant to the actual loss
In the event of non-compliance with such a term, it is intended that the insurer should not be
able to rely on that non-compliance to escape liability unless the non-compliance could
potentially have had some bearing on the risk of the loss which actually occurred.
 3/40 IF5/October 2022 Motor insurance products

For example, failure to comply with a locked vehicle warranty should not allow the insurer to
repudiate liability for a loss where, due to an electrical fault, the vehicle caught fire.
The section does not only apply to warranties and may catch other types of contractual
provision such as conditions precedent or exclusion clauses – provided those terms relate to
a particular type of loss or a loss at a particular time or place.
If a loss occurs and a contractual term to which this section applies has not been complied
with, the insurer cannot rely on that non-compliance to avoid or limit its liability for the loss, if
the insured shows that the non-compliance could not have increased the risk of the loss
which actually occurred in the circumstances in which it occurred.
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However, the provision does not apply to clauses which define the risk as a whole, for
example, a requirement that a vehicle should not be used for hire or reward.
E9E Insurers’ remedies for fraudulent claims
The Act provides the insurer with clear statutory remedies when a policyholder submits a
fraudulent claim, i.e. if a claim is fraudulent, the policyholder forfeits the whole claim. The
insurer may also refuse any claim arising after the fraudulent act, although previous valid
claims are unaffected.
1. If the insured makes a fraudulent claim under a contract of insurance:
a. the insurer is not liable to pay the claim;
b. the insurer may recover from the insured any sums paid by the insurer to the insured
in respect of the claim; and
c. in addition, the insurer may by notice to the insured treat the contract as having been
terminated with effect from the time of the fraudulent act.
The ‘fraudulent claim’ is to be distinguished from the ‘fraudulent act’. The latter is intended to
be the behaviour that makes a claim fraudulent, which may be after the initial submission of
the claim. The timing of the fraudulent act is relevant in determining when the liability of the
insurer ceases.
For example, if an insured submits a genuine claim in January and adds a fraudulent
element in March (for example, adding an additional fabricated head of loss), the ‘fraudulent
act’ takes place in March. This is the point at which the contract may be treated as having
been terminated, and from which the insurer’s liability ceases.
1. If the insurer does treat the contract as having been terminated:
a. it may refuse all liability to the insured under the contract in respect of a relevant event
occurring after the time of the fraudulent act; and
b. it need not return any of the premiums paid under the contract.
E9F Good faith and contracting out
The Act abolishes any rule of law permitting a party to a contract of insurance to avoid the
contract on the grounds that the other party has failed a duty of utmost good faith.
Nevertheless, the provisions of this Act with regard to fair presentation and the provisions of
CIDRA prevail and the common law prevails that insurance contracts are contracts of
good faith.
Contracting out: non-consumer insurance contracts
Generally, parties can agree to contract terms which are less favourable to the insured than
the provisions of the Act, but such terms will only be valid where the insurer has complied
with the ‘transparency requirements’.
The transparency requirements are that the insurer must take sufficient steps to draw the
term to the insured’s attention, to ensure that the insured is given reasonable opportunity to
know that the disadvantageous term exists before it enters into the contract. Under the
general law of agency, this requirement could also be satisfied by taking sufficient steps to
draw the term to the attention of the insured’s agent.
The term must also be clear and unambiguous as to its effect.
This is intended to require the effects of the disadvantageous term to be set out explicitly, not
merely that the language is clear and unambiguous.
Chapter 3 Legal and regulatory considerations 3/41

In determining whether the transparency requirements have been met, the characteristics of
the insured persons of the kind in question should be taken into account, as should the
circumstances of the transaction.
What is sufficient for one type of insured may not be sufficient for another. The insurer is not,
however, permitted to contract out to the detriment of the insured with regard to the
prohibition of basis of contract clauses.
E9G Schedule 1 – Insurers’ remedies for qualifying breaches
Schedule 1 sets out the remedies available for qualifying breaches of the duty of fair

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presentation in relation to non-consumer insurance contracts, and includes breach of that
duty in relation to renewals.
Deliberate or reckless breaches
Where the qualifying breach was deliberate or reckless, the insurer is entitled to avoid the
contract and retain any premiums paid.
Other breaches
If the breach of the duty of fair presentation was not deliberate or reckless, the remedy is
based on what the insurer would have done if the insured had not made the qualifying
breach; that is, if the insured had made a fair presentation of the risk.
• If the insurer would have declined the risk altogether, the policy may be avoided , the
claim refused and the premiums returned.
• If the insurer would have included an exception clause or imposed an excess, such terms
may be applied retrospectively so that the claim would be treated as if the contract
included such exemption clause or excess.
• If the insurer would have charged a higher premium, the insurer is allowed to reduce the
claim in the same proportion that the premium paid bears to the premium which would
have been charged, had the insured made a fair presentation of the risk.
• If the insurer would have included an exception clause or excess and charged a higher
premium, the insurer may apply these terms to the contract and reduce the claim
proportionately.

E10 Automated and Electric Vehicles Act 2018 (AEVA)

In July 2018, the Automated and Electric Vehicles Act 2018 (AEVA) received Royal
Assent. The AEVA is the third name for legislation in this area. It was originally called the
‘Modern Transport Bill’ in the Queen’s Speech 2016, the title of which then morphed into the
‘Vehicle Technology and Aviation Bill’.That Bill made some progress through Parliament
during Spring 2017 but then lapsed due to the General Election in June. Its provisions on the
insurance arrangements for automated driving are largely re-adopted and clarified in
the AEVA.
The AEVA sets out the position in respect of autonomous and electric vehicles and the
infrastructure changes required for them to operate safely and effectively. Among other
things, the Act outlines how the compulsory motor insurance law framework will be changed
to accommodate driverless or autonomous vehicles. Sections 145, 161 and 161 Part VI of
the RTA will need to be amended, along with several sections of the Limitation Act 1980.
However, while the Act received Royal Assent in July 2018, the first commencement date for
its implementation and consequent amendments of the RTA only came into force from
April 2021 through the Automated and Electric Vehicles Act 2018 (Commencement No
1) Regulations 2021. From this date, Part 1 of the Act was officially brought into force,
although in practice it is not yet activated as the list of automated vehicles has not yet been
published by the Secretary of State
With regards to automated vehicles (AVs), the Act extends the idea of compulsory motor
insurance to include automatic driving. It conveys a clear statement from the Government
that there will be a ‘single insurer’ approach and that people injured by AVs will be protected
once the technology is approved for use on UK roads. This approach offers a single insurer
solution for policyholders, for insurers and perhaps – more importantly – for anyone injured
by an AV.
The existing legislation will be extended to ensure the protection not only of passengers and
other road users but also the driver, while the AV is in autonomous mode (i.e. when it is 'not
being controlled, and does not need to be monitored, by an individual'). Innocent victims of
 3/42 IF5/October 2022 Motor insurance products

collisions involving an autonomous vehicle will have a quick and easy route to
compensation.
There are still a number of exceptions to this position where the insurer is not liable to the
person in charge of the AV:
• Where the accident was caused by the person's negligence in allowing the AV to begin
driving itself when it was not appropriate to do so.
• When unauthorised software alterations have been made.
• Where the person has failed to install software updates which they knew (or ought to
Chapter 3

have known) were safety-critical.

In effect, the Act makes the motor insurer something of a proxy defendant for the vehicle
manufacturer, meaning that people can continue to claim against a motor insurer and will not
have to face making one or more potentially complex product liability claim(s) against the car
manufacturer. The regime will be completed by giving the insurer a new statutory right of
recovery against the manufacturer. This is clearly summarised in the Explanatory Notes
which accompany the Act:

'[Part 1] extends compulsory motor vehicle insurance to cover the use of automatic
vehicles in automatic mode, so that victims (including the 'driver') of an accident caused
by a fault in the automated vehicle itself will be covered by compulsory insurance in place
on the vehicle. The insurer would be initially liable to pay compensation to the innocent
victim, including the innocent driver who had handed control to the vehicle. The Insurer
then has the right to recover costs from the liable party under existing common and
product law.

In essence, Part 1 of the AEVA requires compulsory motor insurance to be extended such
that the motor insurer will be legally liable for damage caused by an automated vehicle
driving itself. The quid pro quo for this extended liability is that the motor insurer will be given
legal rights of recovery against any other person also liable.
The Government has structured the legal regime this way in order to achieve the following:
• To make sure that third parties injured by an automated vehicle driving itself can claim
against a motor insurer in the usual way (rather than, say, have to make a product
liability claim).
• To provide the disengaged driver of the automated vehicle with these same rights since
he or she has, in effect, the status of a passenger when the car is driving itself.
• To permit motor insurers subsequently to recover against vehicle manufacturers (and
software houses and the like) where they have paid claims in the first instance because
the vehicle was driving itself.
It is worth recalling that the new regime in the Act is to apply only when the AV is driving
itself. When it is being conventionally driven, existing arrangements will continue to apply
(i.e. that the motor insurer is liable for losses caused by the negligent use of a vehicle by an
insured person). Thus, the new requirement in the Act may be seen as an extension to the
compulsory cover required by s.145 of the Road Traffic Act 1988.
The Act also sets out the Government's position on the provision of electric vehicle charging
points, their minimum technical specification and the requirement that there is interchange
between charging networks.
Finally, the Act requires the Secretary of State to prepare, update and publish a list of all
vehicles designed, or adapted to be 'capable of safely driving themselves'. For the purposes
of the RTA, an 'automated vehicle' will be defined as a vehicle listed by the Secretary of
State under section 1 of the Automated and Electric Vehicles Act 2018.
The Government also implemented a three-year review of driving laws to ensure they can
support the next generation of self-driving vehicles. The review was undertaken by the Law
Commission of England and Wales and the Scottish Law Commission.
Chapter 3 Legal and regulatory considerations 3/43

Their Automated Vehicles joint report was published in January [Link] report makes a
wide range of recommendations concerning the regulation and safe use of automated
vehicles, including:
• a new Automated Vehicles Act to regulate vehicles with automated driving systems.
• a need for clear definitions of "self-driving" and "assisted driving" and the importance of
the correct use of the definitions by manufacturers in their sales and marketing material.
• the creation of a 'user-in-charge' (for vehicles with self-driving features whilst in self-
driving mode) and a 'no user-in-charge' (fully automated vehicles with no option for a
driver to take control).

Chapter 3
• the need for the government to develop a clear set of safety standards that must be met
before an autonomous vehicle can be authorised for use on UK roads.
• the creation of a new regulator to ensure compliance with safety standards and
regulations both pre-and post-authorisation.
• updates to offences, including the creation of a defence for accidents where the driver
has taken control following a transition demand but has not fallen below the standards
expected of a competent and careful driver.
• introducing a new legal duty to disclose AV accident data.
• encouraging insurers and vehicle manufacturers to agree an industry-wide protocol on
data disclosure and sharing.
Unfortunately, the report does not make any specific recommendations concerning insurers
rights to recover the cost of claims against liable parties where the vehicle was in self driving
mode at the time. It does, however, suggest that a review of product liability law would be
desirable.

E11 Use of vehicles for company business

The position of employees who died or suffered injury arising out of and in the course of
employment has already been referred to in relation to s.145(4)a of the Road Traffic Act.
Originally, the concept was that employee liability was covered by the Employers' Liability
(Compulsory Insurance) Act 1969, and such liabilities were outside the Road Traffic Act
1988. However, there were two important factors that influenced a change:
• While the 1969 Act did require employers’ liability insurance to be compulsory, there is no
‘safety net’. In other words, in the absence of any insurance, there is no organisation who
acted as compensator at the last resort (like the Motor Insurers Bureau acts in RTA
matters).
• Article 1 of the Third EU Motor Insurance Directive extended compulsory liability cover for
personal injury to all passengers, arising out of the use of the vehicle.
Bearing in mind the requirements of the Third Directive it was necessary for the English
legislative position to be revised and this resulted in the Motor Vehicles (Compulsory
Insurance) Regulations 1992.
This amended the 1988 RTA and, as a consequence, passenger liability included what had
previously been an employers’ liability risk, but then became a motor liability.
Passenger liability included not only a person being carried in or on a vehicle, but also those
entering a vehicle, or alighting. What was not clear was whether this situation related solely
to the passenger in the policyholder’s vehicle, or whether it extended to passengers in third
party vehicles.
Most, if not all employers’ liability insurance policies will exclude what is now the Road Traffic
Act liability, namely, a passenger liability that arises out of the use of a vehicle on a road.
Similarly, the motor policy will not cover what is perceived to be an employers’ liability risk.
But what about the employee driver? Unfortunately, the (revised) wording of s.145(4A) does
not specifically exclude the driver, but merely refers to ‘any person (including an employee)
a) carried in or upon a vehicle or b) entering or getting on to or alighting from a vehicle’.
 3/44 IF5/October 2022 Motor insurance products

Example 3.7
If a driver (in a single vehicle accident) should suffer injury as a result of, say, the vehicle
having defective brakes and leaving the road, then this would be a potential employers’
liability risk, as the employer may have failed to operate a safe place/safe system of work.
The EU Third Motor Directive also states that the driver in such circumstances is not
covered by the motor policy but is required to be covered by an employers’ liability policy.
What if the driver of a vehicle, while on the business of his employer, should injure another
employee (of the same business), who happens to be on the road at the time, either as a
pedestrian or another driver? The simplest method is to look at the cover offered under
Chapter 3

both the motor and employers’ liability policies.

A standard exclusion on employers’ liability policies would usually reiterate the position
above, and exclude RTA liabilities, where ‘such persons employed are carried in or on or
entering to or alighting from a vehicle in circumstances where compulsory insurance or
security is required under the Road Traffic Act 1988 or any subsequent legislation
amending revising or replacing such Act’.
In other words, the situation outlined does not fall to be considered under a motor policy,
but rather falls to be considered by the employer liability insurers, which does not appear
to be particularly logical. It seems that there are liabilities that arise out of the use of a
vehicle on a road, where it is the employers’ liability insurers who are required to consider
any potential claim.

E12 Continuous Insurance Enforcement

The latest public estimates are that around 1.5 million of all UK motorists drive uninsured.
These drivers apparently cost the UK about £500m annually, which adds up to an average
cost of an extra £30 per car insurance policy.
In 2019 the police seized around 137,000 uninsured vehicles. In 2020, largely due to the
reduced number of car journeys resulting from the COVID-19 pandemic, the figure was
93,000.
From April 2011, anyone keeping a vehicle which does not appear on both the DVLA and the
MID records will be contacted with notice advising them to declare the vehicle off road
(SORN) or to purchase appropriate insurance.
To help combat uninsured driving even further, the new law will result in:
• Fines and prosecutions.
• Clamping of uninsured vehicles that have not declared ‘off road’ (Statutory Off Road
Notification (SORN)).
• Records held by DVLA will be compared with those on the Motor Insurance
Database (MID).
From April 2011, if it appears from the database comparison that a vehicle has no insurance
or no SORN, a letter will be sent to the registered keeper. The letter will set out the choices
and next steps available, including:
• To declare the vehicle ‘off road’ (SORN) with the DVLA.
• To check with their insurance provider that the insurance policy details are correct and
appear on the MID.
• To purchase an appropriate motor insurance policy.
If the keeper takes no action, the keeper faces:
• a fixed penalty fine of £100;
• thereafter, a court prosecution and be fined up to £1,000; and
• having the vehicle clamped, seized and destroyed.
Chapter 3 Legal and regulatory considerations 3/45

Key points

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

Legal and regulatory considerations

• British motoring law is governed mainly by the Road Traffic Act 1988, as amended by
the Road Traffic Act 1991. Part VI of the 1988 Act makes it compulsory to have
effective insurance cover, and to ensure that innocent victims of road traffic accidents
do not go uncompensated.

Chapter 3
• A number of other statutes affect motor insurance, e.g. the Rehabilitation of Offenders
Act 1974 provides that certain types of offence can be regarded as ‘spent’ after certain
periods of time.
• The laws of EU Member States are harmonised via a series of EU Motor Directives
(five to date), with the purpose of facilitating freedom across borders.
• The Road Safety Act 2006 introduced a number of provisions aimed at improving
road safety.
• The Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) came
into force on 6 April 2013 and has amended the law on disclosure and
misrepresentation for consumers (but not commercial contracts of insurance).
• From April 2011, anyone keeping a vehicle which does not appear on the DVLA/MID
records is contacted to advise them to declare the vehicle off-road (SORN), or to
purchase insurance.
• The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into
effect on 10 March 2014 and amended the rehabilitation periods set out in the
Rehabilitation of Offenders Act 1974.
• Section 9 of the Deregulation Act amends the Road Traffic Acts in the context of issue
and surrender of motor insurance certificates.
• The Insurance Act 2015 came into effect in August 2016 and amends the law on
disclosure, misrepresentation and operation of warranties for non-consumer contracts
of insurance.
• The Automated and Electric Vehicles Act 2018 (AEVA) conveys a clear statement from
the Government that there will be a ‘single insurer’ approach to automated vehicles
(AVs) and that people injured by AVs will be protected once the technology is approved
for use on UK roads.
 3/46 IF5/October 2022 Motor insurance products

Question answers
3.1 Section 20.

3.2 b. Section 165.

3.3 a. Third party liabilities.

3.4 d. Fourth.

3.5 d. Only the two unspent convictions will be taken into account.
Chapter 3

3.6 b. His licence will be revoked.

 Chapter 3 Legal and regulatory considerations 3/47

Self test questions

1. Under Part V of the Road Traffic Act, what can only those on the Register of
Approved Instructors do in return for payment?
2. How is 'road' defined in s.192(1) of the 1988 Road Traffic Act?
3. What is the main effect of the Road Traffic (New Drivers) Act 1995?
4. Section 143 of the 1988 Act sets out the offences of driving without insurance and
permitting driving without insurance. What would be the position of an employee if

Chapter 3
their employer's vehicle was not insured?
5. How did the implementation of the Deregulation Act change the rules on returning
certificates of insurance following mid-term cancellation of the policy?
6. What conditions need to be met in order that a driver may accept a contribution
towards the running cost of a vehicle under a car-sharing arrangement?
7. According to the Automated and Electric Vehicles Act, what are three exceptions
where the insurer is not liable to the 'driver' of a vehicle in autonomous mode?
8. Who is a consumer as described in the Consumer Insurance (Disclosure and
Representations) Act 2012 (CIDRA)?
9. Where an insurer refuses to issue a motor insurance policy on the grounds of the
proposer's health, what information must be supplied to the Secretary of State?
10. The insurance for which type of vehicle is most likely to be subject to CIDRA?
a. Heavy goods vehicle. □
b. Private car. □
c. Public service vehicle (bus). □
d. Agricultural tractor. □
You will find the answers at the back of the book
 The Certificate of
4
Motor Insurance and the
construction of policies

Chapter 4
Contents Syllabus learning
outcomes
Introduction
A Content and legal requirements of the cover note and the Certificate 7.4
of Motor Insurance
B Policy schedule 7.5
C Construction of commercial and private motor insurance policies 7.1, 7.5
Key points
Question answers
Self test questions

Learning objectives
After studying this chapter, you should be able to:
• list the contents of Certificates of Motor Insurance and the purpose of temporary cover
notes;
• describe the contents of a policy schedule; and
• describe how motor insurance policies are constructed.
 4/2 IF5/October 2022 Motor insurance products

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

Certificate of Commercial vehicle Contract Limit of indemnity

Insurance policy
Policy booklet Proposal form Service information Statement of facts
Temporary
cover note

Within this chapter, we shall look at the prime documents that are issued by an insurer and
used to demonstrate that cover is in force – comprising the Certificate of Insurance, the
Chapter 4

cover note and the policy schedule.

It should be remembered that the above documents are to be read in conjunction with the
proposal form/statement of facts and the policy booklet in order to understand the
precise nature of the contract arranged.

A Content and legal requirements of the

cover note and the Certificate of Motor
Insurance
A1 Certificate of Insurance
The layout and content of a certificate of motor insurance is prescribed by the Motor Vehicle
(Third Party Risks) Regulations 1972.
The details contained on a certificate include:
• certificate number – usually the same as the policy number;
• details of the vehicle covered;
• name of the policyholder;
• effective date of the commencement of cover for the purposes of the RTA;
• date of expiry;
• persons or classes of persons entitled to drive;
• limitations as to use;
• a declaration – ‘I/We certify that the policy to which this certificate relates satisfies the
requirements of the relevant law in Great Britain, Northern Ireland, the Channel Islands
and the Isle of Man’; and
• the signature of the authorised insurer.
It should be noted that the certificate focuses upon the legal requirements under the RTA
and, in many ways, is more for the benefit of any third party and, perhaps, the police, than
the policyholder. It should be remembered that the certificate may not totally reflect the
precise cover afforded.
For example, it will not mention that the policy itself might, by endorsement, restrict the
driving to persons over the age of 25 who hold a full driving licence. As a result it may state
that ‘for full details of cover please see the policy booklet’.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/3

In accordance with the Motor Vehicles (Third Party Risks) Regulations 1972, two types of
certificate are permitted relating to ‘details of the vehicle concerned’:

Form A • Where the registration number is stated on the certificate (sometimes referred to as
a ‘specified certificate’).

Form B • Where the vehicle(s) are referred to but not specifically identified (sometimes
referred to as an ‘unspecified’ or blanket certificate).

For example, the form B certificate may cover:

any vehicle the property of the policyholder or hired to them under a hire purchase
or leasing agreement.
This is also known as a ‘blanket certificate’ and is often used for those larger commercial
risks where it would be administratively cumbersome and impractical to issue a ‘fresh’
certificate for every vehicle acquired by the insured.

Chapter 4
However, to ensure the provision of cover is not abused, it may be necessary for
(commercial) policyholders to notify their insurer of any proposed removal or addition of a
vehicle from their schedule. As a result of the EU Fourth Directive, insurers of commercial
risks (fleet and motor trade) are now required to notify the Motor Insurance Database within
14 days of details of any additions or deletions of vehicles. Often this responsibility is
delegated to either the intermediary or the policyholder.
The ABI has previously suggested the abolition of form B certificates, as they can create
confusion. Use of them has been reduced but not eradicated. They are generally used for
larger fleet-rated or motor trade type risks.
Since 30 April 2010, the Motor Vehicles (Electronic Communication of Certificates of
Insurance) Order 2010 has facilitated the electronic issue of certificates.
A1A ‘Driving other cars’ extension
Under the general heading of ‘Details of vehicle covered’, insurers will include details of any
‘driving other cars’ extension. The wording might be:
The policyholder may also drive any other private motor car not belonging to them
or hired to them under a hire purchase or leasing agreement.
However, in such circumstances, the cover is limited to third party only, under the
driver’s policy.
It is possible that the policy under which the vehicle is specifically insured will also cover the
driver in question as a named driver. If this is the case, the vehicle-specific policy will provide
cover for both the vehicle and the driver to the full extent of the policy.

A2 Temporary covering note

Neither a certificate nor a cover note can be backdated (S.175 of Road Traffic Act 1988).
This being a strict interpretation of the law, the effective date of commencement shown on
the certificate cannot pre-date the printing of the document. This is, of course, of little use
when, as is mostly the case, a person wants instant cover. This is where the temporary cover
note, or simply cover note, comes into play.

Cover note has two main • to provide the policyholder with the main details of the cover granted while the
functions: permanent documents including the policy itself are prepared; and
• to act as a temporary certificate of insurance which complies with the RTA.

Provided the permanent certificate is issued within the currency of the cover note, then the
commencement date on the certificate can be shown as the commencement date of the
cover note without breaking the law.
 4/4 IF5/October 2022 Motor insurance products

Contents of cover note

The cover note, in order to perform the above functions, will contain all of the information
shown above as being carried on a certificate and, in addition, will have:
• date and time of issue;
• date and time of commencement of cover (note that the issue time must be before the
commencement time);
• expiry date – usually expressed as a number of days, say, 30, after commencement
(note that in the absence of a specific time of expiry, construction rules will usually
state that it will expire at midnight on the final day);
• policyholder’s address;
• full details of the vehicle, including make, model, engine size and value;
• the main restrictions of cover, such as exclusion of young drivers, etc.;
• any additional aspects of cover such as personal accident;
Chapter 4

• the reason for issuing the cover note (e.g. new business, change of car);
• details of any premium paid or to be paid; and
• details of the issuing intermediary.

On the rare occasion that a cover note has to be prepared manually, it is usually produced
with the original, or top copy, plus three additional copies. The top copy is given to the
policyholder, one copy is sent to the insurer for action, another is retained on the
intermediary’s file and the final one is retained in the book for audit purposes.
It is now quite common for cover notes to be produced, fully completed, by computer
systems. Where this is done by an intermediary, the cover note detail can, if necessary, be
sent to the insurer electronically.
The regulations state that certificates, including cover notes, must be kept secure and must
be retained for a period of twelve months.

Reinforce
When a motor insurance policy is arranged (and subject to the risk being acceptable), the
normal process is for a cover note to be issued to the policyholder. Invariably this will be
issued by an intermediary, or insurer if it is one that deals directly with the public. The
cover note will then be despatched to the policyholder, and as indicated is a ‘temporary’
form of cover, until the certificate of insurance is issued. One or two insurers endeavour
not to utilise cover notes, but will issue certificates only.

Question 4.1
What does the ‘driving other cars’ extension permit?
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/5

B Policy schedule

premium policy
number

cover
provided What period of
will a policy insurance
schedule
normally
contain?
make of
vehicle(s) plus
details of any name/address

Chapter 4
trailers that are and occupation
to be insured date of of the
signature of policyholder
proposal and
declaration

Depending on the number of vehicles insured, and the type of policy issued, the registration
numbers may also be included.
In addition, there may be:
• information on whether vehicles are owned by or hired to the policyholder;
• any warranties relating to the use of the vehicle;
• where appropriate, the policyholder’s estimated value of the vehicle(s) including
accessories;
• the insurer’s codings of any endorsements applicable (the endorsement wordings
themselves will often be found in the policy booklet).
A number of insurers now issue a ‘standard’ schedule which lists all possible covers (both
standard and optional) and sections of the policy and indicates (by codes) the cover and the
policy sections which do not apply.
The schedule is basically a guide to the pertinent aspects of the cover granted under the
terms of the policy.

C Construction of commercial and private

motor insurance policies
C1 Contract of insurance
The contract of motor insurance is made up of a number of documents; each of which is
dependent on the others. Those documents are:

Refer to
See Appendix 4.1 on RevisionMate for an example of a certificate of insurance

• The proposal form or statement of facts – this contains the information provided by the
policyholder and upon which the policy is underwritten and consequently accepted, rated
and the premium calculated. Normally, a policyholder will be required to indicate in some
manner that the information recorded is correct to the best of their knowledge. Often this
may be signified by a signature but, if it is a statement of facts, then the policyholder may
be sent a copy incorporating a declaration instructing the policyholder to alter any
information that may have been recorded incorrectly and inform the insurer or
intermediary. In the absence of a response, it is assumed that the information is correct.
 4/6 IF5/October 2022 Motor insurance products

• The certificate of insurance

• The policy booklet, itself, together with any endorsements.
• The schedule – being the document that customises the policy booklet to provide an
outline of the cover given.
We now consider the basic structure of a motor insurance policy and the layout of policy
schedules.
C1A Proposal forms and statement of facts
In order for an insurer to decide whether to accept or decline a particular risk they normally
require all the relevant information in one ‘hit’. The traditional way of collecting all such
details is by means of a proposal form, issued by the insurers, and completed by the
‘proposer’. If the risk is deemed to be acceptable, then the proposer becomes the
policyholder, and the policy is incepted with the appropriate premium paid.
As underwriting systems have become more and more sophisticated, insurers have been
able to base their assessment on the tiniest detail. This is referred to as ‘lifestyle
Chapter 4

underwriting’. Depending on the methods used by a particular insurer, the proposal form may
be available in a hard copy format, a series of call centre screens or online where the
insurance business is arranged through a website.
A proposal form comprises various sections, and the information collected is then used to
assess and rate the risk. A typical proposal form will have the following sections:
• The proposer – personal details of the proposer will be sought, including the proposer’s
full name and address, their gender, title, date of birth, and marital status. Additionally, the
proposer’s occupation, including particulars of any part time occupation will be sought
and, perhaps, the nature of the employer’s business. They may also be asked how long
they have been resident in the country. Following a ruling from the European Court of
Justice, gender is no longer a permitted rating factor for new business and this has been
the case since the end of December 2012 but can still be collected.
• Vehicle – the make, model and registration number of the vehicle will be requested, plus
confirmation of whether the car is left hand drive (which may indicate an import), details of
any modifications and its year of make, date of purchase, engine size and value.
Bearing in mind that the rating of the risk will be based on where the vehicle is normally
kept, then the proposer will be asked to verify that the normal parking location is the
home address. Additionally, and again because of the rating factor, the insurer will wish to
know whether the vehicle is normally left on a private driveway, in a private garage, on
the road outside the insurer's property, or somewhere else. The more secure the vehicle
location when it is left, the less chance there is of theft or vandalism damage. Separate
questions may be asked relating to overnight parking and daytime parking.
Some insurers may take into account the estimated annual mileage completed by the
vehicle in their premium calculation and may wish to establish the milometer reading at
the time of inception of the policy. This may be obtained via a proposal question or by
reference to an MOT database containing the mileage reading when each MOT was
undertaken. In the event of a claim, the insurer may then be able to monitor the position,
following an examination of the vehicle by an engineer. The reading recorded at the time
may then be compared to the one given at inception.
Insurers will often feel more comfortable with the risk, and sometimes provide a premium
discount, where the protection features are exceed the manufacturer’s standard security
systems. For instance, there may be questions seeking details of whether the vehicle has
an alarm or immobiliser, and perhaps a tracking device fitted.
In order to ascertain if the proposer is likely to be the main user of the vehicle, the insurer
may ask if he or she owns or has the use or part-use of any other vehicle. The insurer will
also wish to be satisfied that the vehicle has not been altered from the manufacturer’s
standard specification, or that any enhancements will not have affected the performance,
safety or value of the vehicle. This can be a difficult area as the current owner of the
vehicle may be unaware of modifications undertaken by previous owners or it may not be
immediately obvious whether any alterations from the standard vehicle were optional
accessories offered by the manufacturer or dealer at the point of original purchase.
There will invariably be a set of questions that specifically relate to the ownership of the
vehicle, and whether the proposer is, in fact, the registered keeper. These will often
include confirmation of previous insurers, and, perhaps, specific confirmation of the
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/7

number of years no claim discount bonus (NCD) that the proposer has acquired and
whether they wish to protect their NCD (if eligible).
• History – the proposer will be asked a series of questions that attempt to paint a picture
of his or her own driving and insurance history. This will include questions about the type
of driving licence they hold, how long they have held it, and incorporate questions
seeking details of motor convictions sustained by anyone nominated to drive the
insured vehicle.
It will normally limit such a request to those convictions sustained within the last five
years, thereby meeting the requirements of the Rehabilitation of Offenders Act 1974
(amended by the Legal Aid, Sentencing and Punishment of Offenders Act 2012
(LASPO)), the Management of Offenders (Scotland) Act 2019 or the Rehabilitation of
Offenders (Amendment) Order (Northern Ireland) 2022 . Insurers are increasingly
requiring drivers to provide a print out of their driving licence record via the DVLA's 'View
Driving Licence' service to reduce the risk of misrepresentation or non-disclosure.
Alternatively, insurers may request the proposer's licence number in order to obtain a
history of convictions from the DVLA via the 'My Licence' system.

Chapter 4
There may also be questions relating to the general, non-motoring conviction record of
those nominated to drive, plus particulars sought of anyone suffering from a disease,
medical condition or disability which may affect their driving ability, e.g. heart disorder,
diabetes, fits etc. If the answer to this particular question is ‘yes’, then they will be asked
whether they are in receipt of any medication and, if so, the nature of the treatment. The
insurer must be mindful of the ramifications of the Disability Discrimination Act 1995
now the Equality Act 2010, and accompanying regulations. Partly as a consequence of
this, it is now more common for insurers to ask whether a proposer has a disability or
condition that requires notification to the DVLA, then confirmation that DVLA have been
informed will be required along with details of any restrictions that the licensing authorities
may have imposed. Any driving restrictions imposed by the insurers should mirror (and be
no greater than) those imposed by the licensing authorities. This approach avoids the
insurer having to undertake their own medical underwriting.
Additionally, they will also be asked if the proposer or the nominated drivers have ever
had a policy cancelled, declined or refused. Furthermore, particulars of any accident or
loss, whether non-fault or otherwise, sustained within the previous five years will be
requested. This question will normally ask for details of any accident or loss, not only
those which resulted in a claim being made.
There will sometimes be an extra space on the proposal form, where the additional
information can be inserted, and this portion will be used in conjunction with the driver
details section (see below). Alternatively, the proposer will be asked to provide the
information on a separate sheet.
• Driver’s details – most insurers will insist upon the same information about each
additional drivers as was collected about the proposer, i.e. their names, dates of birth, all
occupations, type of licence (plus date test passed), details of any disabilities and years
of continuous residence in the UK. The insurers will also wish to be satisfied as to who is
the main user of the vehicle to be insured. Motor and non-motor convictions will be
required and insurers may request drivers’ licence numbers (DLN) in order to make use
of the 'My Licence' system. Each driver's accident and loss history will also be required.
On a practical level, individual driver’s information will normally only be sought on private
car policies, and smaller commercial vehicle risks. For larger commercial vehicle risks,
the number and turnover of drivers makes it unrealistic to capture full details for every
driver. Consequently, it is normal practice to issue 'open driving' policies for these
types of risks.
• Cover – within the proposal form, the proposer may be required to choose the type of
cover required and any optional extensions. Additionally, verification of the use of the
vehicle will be sought (e.g. is it required for social, domestic and pleasure purposes only,
or will some form of business use be required).
The proposer may also be asked to nominate an amount of voluntary excess to be
applied, in addition to any compulsory or standard excesses. This will help reduce the
premium, and the larger the excess chosen, the greater the reduction in the premium
charged.
It may be that the cover part of the form is for completion by the broker, especially in
relation to the ‘use’ aspect.
 4/8 IF5/October 2022 Motor insurance products

• Declaration – the last section on the proposal form is the declaration section. This is the
part that the proposer must specifically sign and date. It is, of course, possible that a
broker or agent will assist in the completion of the proposal form, and may even enter the
details on the proposal form, on behalf of the proposer, but the signature and date must
be in the proposer’s own handwriting.
The declaration will incorporate various warnings, including one that relates to the
Data Protection Act 2018 (DPA 2018) and the General Data Protection Regulation
(GDPR) (see sections Data Protection Act 2018 (DPA 2018) on page 4/9 and General
Data Protection Regulation (GDPR) on page 4/10), indicating the use of the information
supplied. Additionally there will be MIAFTR and CUE warnings, and, perhaps, notification
that the policy details will be added to the Motor Insurance Database (MID). Finally, there
will be a reminder that the proposer should disclose any information that is likely to affect
the insurer in their assessment or acceptance. If there is any doubt, then the proposer is
reminded that he or she should err on the side of caution and reveal the details.

Refer to
Chapter 4

Databases and notification are covered in chapters 1 and 6

Any warning given in a consumer insurance contract that the proposer must reveal factors
that may affect the insurer in the assessment of a risk are of no effect, unless there has been
a specific question concerning the fact, posed by the insurer.
The alternative to a proposal form is a statement of facts. This is issued after particulars of
a risk have been presented to an insurer and is a record of the information that was advised
to the insurer, plus facts that may be assumed regarding the risk. It is issued once the
insurer has agreed to accept the risk, and the premium has been calculated. It may also
include a summary of the cover being provided, plus the claims procedure to be followed, in
the event of an accident.
The fundamental difference is that the proposal form is completed by the proposer, and asks
for details of the risk which the insurer then decides whether or not is acceptable and
therefore the premium to be charged. The statement of facts is issued by the insurer after
the risk has been assessed and is a reiteration of the risk information captured either over
the telephone or on online. Statement of facts can be used for both private car and
commercial risks and may often be used specifically for electronic data interface (EDI) risks.
The various headings on a statement of facts may be:
• Policyholder – this will confirm the name and address of the risk, plus the nature of their
business (if a company) or their occupation (if an individual policyholder).
• Vehicle – details such as the make, model, engine size, year of first registration,
registration mark itself, value and the garaging postcode are supplied.
• Drivers – the identity and date of birth of the drivers will be supplied and, perhaps,
confirmation of their driving history.
• Cover, use and premium – it may be that the statement of facts will include an outline of
the cover available, stating the date and time on which the cover commences, and the
type of cover afforded under the policy. For example, it may state that:
Cover is on a comprehensive basis, the premium amount being £487, including
Premium Tax at the standard rate. Cover will commence at 00.01 hrs on the
19/10/2020. The policy will expire at midnight on the 18/10/2021.
The vehicle is used for social, domestic and pleasure purposes, and for your
business or trade purposes. The cover excludes use for hire or reward, racing,
pace making, speed testing, reliability trials and competitions.
• Insurance information – as a reiteration of the information previously agreed, and to
protect the insurer’s position, the insurer may repeat certain pertinent points, that are
either specifically collected from the policyholder, or deduced from the details supplied.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/9

For example:
Insurance has been provided on the basis that:
– You have never been declined motor insurance or had a policy cancelled.
– No driver has sustained a motoring conviction within the last 5 years.
– No driver has any prosecutions pending.
– The main driver of the vehicle has held a full UK licence for at least
12 months.
– The vehicle has not been altered from the manufacturer’s standard
specification.
– The vehicle is registered in the UK and has not been imported.
• Important notes. – the statement of facts will invariably contain a warning, along the
lines of the declaration found on the proposal form. An example is given below, and the
notes will advise the policyholder to:

Chapter 4
Check all the information contained within the Statement of Facts immediately,
and tell us or your insurance adviser if any details are incorrect.
Failure to provide, to the best of your knowledge, full and accurate answers to
all our questions could result in the policy becoming voidable, in which case we
would not be liable to pay the claim.
Your policy guide, giving full details of your cover, and the contract with us is
held on the website [Link]. You may also obtain a copy of
the policy document from your insurance adviser. Please read this carefully to
ensure that the cover meets your needs. If anything is unclear, then please
contact us immediately.
Like the proposal form declaration, the notes may also make reference to the MIAFTR, CUE
and MID databases.

Question 4.2
What could be described as a guide to the pertinent aspects of the cover granted
under the terms of the policy?

C1B Data Protection Act 2018 (DPA 2018)

The DPA 2018 came into effect in the UK in May 2018, to coincide with the implementation
of the EU GDPR. Since Brexit, the key principles, rights and obligations remain the same.
However, there are implications for the rules on transfers of personal data between the UK
and EEA countries.

Be aware
DPA 2018 has been amended to reflect the UK GDPR and remains the legislation
governing data protection in the UK.

Main elements of the DPA 2018:

• Ensuring that sensitive health, social care and education data can continue to be
processed, to ensure confidentiality in health and safeguarding situations.
• Restricting the rights to access and delete data where there are legitimate grounds for
doing so (e.g. for national security purposes).
• Setting the age from which parental consent is not needed to process data online.
• Providing the ICO with enhanced powers to regulate and enforce data protection laws.
– For the most serious data breaches, it can levy fines of up to £17.5 million or 4% of
annual global turnover.
– The ICO can bring criminal proceedings against a data controller or processor if they
have altered records following an SAR with the intent to prevent disclosure.
 4/10 IF5/October 2022 Motor insurance products

C1C General Data Protection Regulation (GDPR)

Who does the UK GDPR apply to?
The UK GDPR applies to data controllers and processors in the United Kingdom, including
Northern Ireland. Prior to its introduction, the European Union (EU) GDPR applied.
The UK GDPR places legal obligations on processors. For instance, firms are required to
maintain records of personal data and processing activities, and a firm has significant legal
liability if it is responsible for a breach.
Controllers are not relieved of their obligations where a processor is involved. The UK GDPR
places obligations on controllers to ensure their contracts with processors comply with the
regulations.
What information does the UK GDPR apply to?
It applies to personal data of an identified living individual. However, the definition of
personal data reflects changes in technology and in the way in which information is
collected. It makes it clear that information such as an online identifier – e.g. an IP address –
Chapter 4

can be personal data.

It also applies to both automated personal data and to manual filing systems where personal
data is accessible according to specific criteria. This is similar to the EU GDPR but wider
than the definitions in the previous UK data protection legislation. It could include
chronologically ordered sets of manual records containing personal data. Personal data that
has been anonymised – e.g. key-coded – can fall within the scope of the UK GDPR
depending on how difficult it is to attribute such data to a particular individual.
Sensitive personal data
The UK GDPR refers to sensitive personal data as 'special categories of personal data'.
These categories include:
• race;
• ethnic origin;
• politics;
• religion;
• trade union membership;
• genetics;
• biometrics (where used for ID purposes);
• health;
• sex life; or
• sexual orientation.
Principles
Under the UK GDPR, the data protection principles set out the main responsibilities for
organisations. The most significant addition is an emphasis on accountability. The UK GDPR
requires firms to show how they comply with the principles – for example, by documenting
the decisions they take about a processing activity.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/11

Consider this…
Data Protection Principles under the UK GDPR
The following principles apply to all personal data:
1. Lawfulness, fairness and transparency: data should be processed lawfully; data should
be handled in ways people would expect giving consideration to the effect of
processing the data on the individuals concerned; and there should be full compliance
with the obligations of the 'right to be informed'.
2. Purpose limitation: data should only be collected for specified, explicit and legitimate
purposes and not further processed in a manner that is incompatible with those
purposes.
3. Data minimisation: data should be adequate, relevant and limited to what is necessary
in relation to the purposes for which it is processed.
4. Accuracy: data should be accurate and, where necessary, kept up to date.
5. Storage limitation: kept in a form which permits identification of data subjects for no

Chapter 4
longer than is necessary for the purposes for which the personal data is processed.
6. Integrity and confidentiality: data should be processed in a manner that ensures
appropriate security of the personal data, including protection against unauthorised or
unlawful processing and against accidental loss, destruction or damage, using
appropriate technical or organisational measures.

Lawful processing
For processing to be lawful under the UK GDPR, firms need to identify a lawful basis before
they can process personal data and document it. This is significant because this lawful basis
has an effect on an individual's rights. The six lawful bases for processing data are:
1. Consent
Consent must be a freely given, specific, informed, and unambiguous indication of the
individual's wishes. There must be some form of positive opt-in; consent cannot be
inferred from silence, pre-ticked boxes or inactivity, and firms need to make it simple for
people to withdraw consent. Consent must also be separate from other terms and
conditions and be verifiable. Where a firm relies on someone's consent, the individual
generally has stronger rights, for example to have their data deleted.
2. Contract
The processing is necessary for a contract a firm has with the individual, or because they
have asked the firm to take specific steps before entering a contract.
3. Legal obligation
The processing is necessary for a firm to comply with the law (not including contractual
obligations).
4. Vital interests
The processing is necessary to protect an individual's life.
5. Public task
The processing is necessary for a firm to perform a task in the public interest or for its
official functions, and the task or function has a clear basis in law.
6. Legitimate interests
The processing is necessary for a firm's legitimate interests or the legitimate interests of a
third party, unless there is a good reason to protect the individual's personal data which
overrides those legitimate interests.
Rights
The UK GDPR contains similar rights to the EU GDPR, creates some new rights for
individuals and strengthens some of those that existed under previous data protection
legislation.
 4/12 IF5/October 2022 Motor insurance products

Right to be informed • Individuals have the right to be informed about the collection and use of
their personal data.
• This must be provided to individuals at the time the personal data is
collected from them.

Right of access • Individuals have the right to find out if an organisation is using or storing
their personal data.
• They can exercise this right by submitting a subject access request
(SAR) to the organisation concerned.
• A company should respond to an SAR within one month; it can take an
additional two months in certain circumstances.

Right to rectification • Individuals have the right to have inaccurate personal data rectified or
completed if it is incomplete.
• An individual can make a request for rectification verbally or in writing.

Right to erasure • Individuals have the right to have their personal data erased, also known as
'the right to be forgotten'.
Chapter 4

• The right is not absolute and only applies in certain circumstances.

Right to restrict processing • Individuals have the right to request the restriction or suppression of their
personal data.
• This is not an absolute right and only applies in certain circumstances.
• When processing is restricted, an organisation is permitted to store the
personal data, but not use it.

Right to data portability • This allows individuals to obtain and reuse their personal data for their own
purposes across different services.

Right to object • This gives individuals the right to object to the processing of their personal
data in certain circumstances.
• Individuals have an absolute right to stop their data being used for direct
marketing.

Rights in relation to • An individual has the right not to be subject to a decision based solely on
automated decision making automated processing.
and profiling
• Processing is 'automated' where it is carried out without human intervention
and where it produces legal effects or significantly affects the individual.

Accountability and governance

Accountability is one of the data protection principles under the UK GDPR. Firms are
expected to put into place comprehensive but proportionate governance measures. Good
practice tools such as privacy impact assessments and privacy by design are now legally
required in certain circumstances. Practically, this is likely to mean more policies and
procedures for organisations, although many will already have good governance measures
in place.
Breach notification
The UK GDPR introduces a duty on all organisations to report certain types of data breach to
the ICO, and in some cases to the individuals affected.
Transfers of personal data to third countries or international organisations
To ensure that the level of protection of individuals afforded by the UK GDPR is not
undermined, restrictions have been imposed on the transfer of personal data outside the EU,
to third countries or international organisations.
The UK GDPR still applies directly to firms operating in the EEA post-Brexit, and to any
organisations in Europe that send data to firms in the UK. These UK transfer rules broadly
mirror the EU GDPR rules, but the UK has the independence to keep the framework
under review.

C2 Policy booklet structure

Although the content and general wording of motor policies differ depending on the type of
vehicle covered (e.g. private car, goods-carrying and passenger vehicles), the basic
structure generally stays the same.
Where we have included phrases in bold, then that denotes that the words/phrases etc. are
a direct quote from a policy.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/13

The parts of the policy would typically be as follows, although not necessarily in the
same order:
• Preamble/Recital clause.
• Definitions.
• Loss or damage.
• Liability to others.
• Foreign use.
• Additional benefits.
• General exclusions.
• General conditions.
• Service information.
• Schedule.
C2A Preamble/Recital clause

Chapter 4
This will normally set out the basis of the contract – which would usually be one of indemnity.
It will remind the policyholder that the proposal, certificate and schedule all form part of the
contract and should be read together with the policy booklet.
The basic territorial limits – usually Great Britain, Northern Ireland, the Isle of Man and the
Channel Islands – are specified and the law applicable to the contract will be stipulated –
usually English law.
C2B Definitions
Certain terms used within a motor policy have a specific and legal meaning. Wherever
possible, insurers will ensure that this coincides with the common meaning but, to dispel any
doubt, often-used terms such as 'You', 'Us', 'Your Vehicle' are defined.
They have the same meaning whenever they are used in the policy booklet.
C2C Operative clause – loss or damage
Reference should be made to the relevant parts of chapter 2. In some policy booklets, loss
or damage will include Fire and Theft, while in others, Fire and Theft may have its own
operative clause.
C2D Operative clause – liability to others
Reference should be made to the relevant parts of chapter 2.
It should be remembered that the operative clause basically outlines the cover offered under
the section in question.
C2E General exclusions
Sometimes these clauses are interchangeable between exclusions (exceptions) and
conditions.
In this chapter, we will be concerned only with those exclusions that are common to all, or
most, motor insurance contracts. As is applicable to all types of policy, the operation of a
general exclusion will enable the insurer to repudiate all liability under the policy, irrespective
of the section of the policy concerned, but it should not be forgotten that this will not defeat a
Road Traffic Act (RTA) liability. If an insurer would have been entitled to repudiate the claim
due to the operation of an exclusion but has to pay it as a result of the RTA, then the insurer
has a right to pursue recovery from the policyholder.
• A policy will not apply when any vehicle covered by it:
– is being driven by or is in the charge of any person not permitted to do so by your
certificate of motor insurance;
– is being used other than for the purposes specified in your certificate of motor
insurance.
 4/14 IF5/October 2022 Motor insurance products

These exclusions tie the policy to the terms within the certificate, with particular reference to
the people entitled to drive and the use to which the vehicle may be put.
• Again, a policy will not apply when any vehicle covered by it:
– is being driven with your consent by any person who to your knowledge has never
held a licence permitting them to drive your car or is disqualified from holding or
obtaining one.
There is a similar exclusion within the liability to others section but there it does not
qualify the exclusion with the words ‘with your consent’. However, the policyholder has to
have knowledge of the lack of an effective licence.
In practical terms, this means that, in the event of an unlicensed person driving, then the
liability section will be ineffective in all cases whereas the loss or damage section will only
fail if the policyholder had knowledge. Among other things, this ensures that the
policyholder will still be indemnified in respect of theft even if the thief was unlicensed.
• A policy will not apply when any vehicle covered by it:
Chapter 4

– is towing for reward a caravan, trailer or disabled mechanically propelled vehicle; or

– is towing more than one caravan, trailer or disabled mechanically propelled vehicle at
any one time.
This is the generally used towing exclusion but differences often occur between contracts.
It excludes cover where the caravan is being towed for reward or where there is more
than one caravan.
• All policies will not provide cover for any consequence of war, invasion, act of foreign
enemy, hostilities etc., although they will provide cover insofar as they are required to do
so to meet the requirements of the Road Traffic Acts. The Government makes special
arrangements in the event of war.
• Under the loss of damage section, a policy will not cover any accident, loss or damage
caused by:
– earthquake; or
– riot or civil commotion if it occurs outside Great Britain, the Isle of Man or the Channel
Islands.
Riot is covered under the liability section. In respect of loss or damage, riot is covered
throughout the UK excluding Northern Ireland.
• A policy does not provide cover for any loss or destruction of or damage to any property,
or resulting loss, expense or consequential loss. It will also exclude any liability, no matter
how it arises, due to:
– ionising radiation or contamination by radioactivity from irradiated nuclear fuel or from
any nuclear waste from the combustion of nuclear fuel; or
– the radioactive toxic explosive or other hazardous properties of any explosive nuclear
assembly or nuclear component of it.
The Government has made provision for nuclear risks and they are, therefore, excluded
in their entirety from motor insurance policies.

Airside cover Generally, a policy will not operate when a car is airside, although some
commercial policyholders wish to have airside cover, and there may be
specific policies that cater for the type of risk that operates ‘airside’. Airside
means the side of the airport etc., from which the aircraft can land and
take off.

Pollution/contamination A policy will exclude liability for death of or bodily injury to any person or
damage to property directly or indirectly caused by pollution or
contamination unless it is directly caused by a sudden identifiable
unintended and unexpected incident which occurs in its entirety at a specific
time and place during the period of insurance.

Cover will be provided where it meets the requirements of the Road Traffic Acts.
Pollution risks are covered if caused by a single identifiable incident. Pollution is often
gradual in its operation and its consequences may not become evident for many years.
This type of long tail risk is not suitable for motor insurance.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/15

• An insurer will not pay any claim and all cover under the policy is forfeited:
if you or anyone acting for you makes a claim under the policy knowing the
claim to be false or fraudulently inflated in any respect or if any loss or damage
or injury is caused by your wilful act or with your connivance.
Insurances, in general, cover fortuitous risks. This exclusion deals with all manner of
fraudulent and deliberate acts and reiterates the insurers’ rights at common law.
If the phrase in the policy booklet states that ‘…and all cover under the policy is forfeited’,
then this could mean that previous ‘honest’ claims should be repaid to the insurer. However,
this is subject to the provisions of the Insurance Act, which preclude an insurer from seeking
repayments of legitimate claims paid previously.
A policy does not cover loss and damage arising from theft while the ignition keys of
your car have been left in or on the car. Most insurers now extend this wording to include
keyless electronic ignition devices and may also specifically exclude scenarios where the
vehicle engine can be left running without the ignition device actually being in the vehicle.

Chapter 4
Perhaps the position has been clarified to a certain extent at least with the Court of Appeal
decision in Hayward v. Norwich Union (2001). The claim arose as a result of the theft of Mr
Hayward’s Porsche from a garage forecourt. After filling with petrol, the above policyholder
left the keys in the ignition and also failed to remove the control unit, located under the
driver’s seat. Moreover, the doors were also unlocked.
This was, in fact, the normal practice of Mr Hayward, but he had complete faith in the
vehicle’s immobiliser system, which he engaged.
However, on this occasion, Mr Hayward was paying at the kiosk for the petrol, having parked
no more than 25 yards away, when a thief entered his car who was able to disengage the
immobiliser, although this aspect was never fully explained or clarified.
The thief sped off, despite attempts by Mr Hayward to prevent him from doing so.
It was held on appeal that the key had been left in the vehicle – the purpose of the clause
was to encourage policyholders to take elementary precautions in relation to the keys, in
order to reduce the chance of a theft – and the policyholder was not in a position where he
could prevent the thief taking the car.
Insurance policies are to be given their ordinary and natural meaning (i.e. what meaning
would the reasonable person place on the words). The words used in the actual exclusion
(which are the same as those used in the specimen clause provided) were deemed to
be clear.
In addition to leaving keys in the ignition, it is also common to exclude theft cover if the
windows, sunroof or convertible roof are not fully closed and all the doors and the boot/
hatchback locked.

Question 4.3
What are the usual basic territorial limits listed in the preamble to the policy?

C2F General conditions

In this chapter, we will be concerned only with those conditions that are common to all or
most motor insurance contracts.
• All policies will have a condition requiring the policyholder (or their personal
representatives) to notify the insurer of any incident which could lead to a claim under the
policy. They will also be obliged to forward any correspondence etc. that may be received
in connection with that incident without first replying to it. Moreover, if they become aware
of any hearing (e.g. prosecution, inquest etc.) then the insurer must be informed as soon
as reasonably possible.
This is called the notification condition. Insurers need to have knowledge of all aspects of
all claims at the earliest opportunity. This is to enable the insurer to be able to protect its
and the policyholder’s position by investigating any claim and responding to
correspondence etc., informing interested parties of its position in the matter.
 4/16 IF5/October 2022 Motor insurance products

However, there is normally a condition which requires:

the policyholder, or anyone claiming cover under the terms of the policy NOT to
make any admission of liability, offer or promise to pay, etc. in respect of the
incident.
Policyholders may weaken the insurer’s position with regard to any third party claim if any
form of admission is made.
Insurers will, generally, only decline indemnity if any admission has, in fact, prejudiced
their position. They will, however, look sympathetically at any situation where an
admission of liability was extracted from the policyholder under duress.
• There is a subrogation condition which, basically, states that, if it wishes, the insurer
may take over and deal with the defence or settlement of any claim, and it may also
pursue recovery. As a result, it will be necessary for anyone claiming cover under the
terms of the policy to provide any assistance or information that is required.
This allows the insurer to pursue recovery at the outset of the claim, and not have to wait
Chapter 4

until it has paid the claim. Normally, subrogation allows the insurer to seek reimbursement
of its outlay only when it has paid for the cost of repairs etc.
• Another policy condition normally found states that:
If at the time a claim is made under this policy any other policy exists that would
cover the claim we will pay only our share of the claim except as otherwise
stated in this policy.
This is known as the contribution condition and really amends the common law position, by
allowing insurers to pay only their share of the claim leaving the insured to seek the balance
from other insurer(s). At common law, the insured could claim in full off one insurer, leaving
that insurer to seek a recovery from other insurers.
Such conditions can vary, but if two different policies have the same sort of condition, then
they will invariably cancel each other out, leaving two or more policies to contribute
proportionately, subject to excesses or limits of indemnity.
If the condition was taken literally, and two insurance policies both had a condition similar to
the above, then theoretically neither policy would operate. Equity does not allow this to
happen, as to do so would deprive a policyholder of cover. Where the two policies both cover
the claim to the same extent, and both have the ‘contribution’ (or non-contribution) condition,
then the principles of equity say that both policies will cover the claim on a 50-50 basis. In
reality, this will normally result in one insurer dealing with the matter, and then seeking the
appropriate contribution from the other insurer.
• Policyholders are required to protect the vehicle and its contents and keep it in a
roadworthy condition. Often the insurer will state that if they request it then the
policyholder must give access to examine your vehicle at any reasonable time.
If the vehicle is unroadworthy, contractually, insurers have the right to repudiate the claim
in its entirety. However, as a matter of policy and, for personal insurances, with the terms
of the Consumer Rights Act 2015, insurers will only repudiate if the unroadworthy
condition contributed to the accident or loss. For example, a tyre with a tread depth below
the legal limit is unlikely to be relevant in dry conditions or where the insured vehicle was
stationary. This aspect is now incorporated within the Insurance: Conduct of Business
Sourcebook created by the Financial Conduct Authority, by stating that an insurer must
not unreasonably reject or refuse a claim made by a retail customer where there has
been a breach of warranty or condition, unless the circumstances of the claim are
connected with the breach.
Again, this will not affect an insurer’s responsibilities under the RTA for any third party
damage or injury and, in such circumstances, it would have a right of recovery from the
policyholder and/or driver.
In Amey Properties Ltd v. Cornhill Insurance plc (1995) it was held that this positive
obligation to maintain the vehicle in good repair or in an efficient and roadworthy condition
enabled the insurers to repudiate a claim if they were able to prove that the policyholder
had been negligent in such a regard.
Another condition with a similar purpose which now appears in many types of motor
insurance policy is the requirement that the vehicle has a valid MOT certificate, where this
is a legal obligation.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/17

Be aware
The Consumer Rights Act 2015
The provisions contained within the Unfair Terms in Consumer Contracts Regulations
1999 continue to apply to contracts entered into prior to 1 October 2015. However, from
1 October 2015, the Consumer Rights Act 2015 and the Alternative Dispute Resolution
Directive came into force.
Essentially these legislative changes seek to provide consumers with better information
and a greater degree of protection by addressing inter alia matters formerly covered by
the Unfair Terms in Consumer Contracts Regulations 1999 and other areas affecting
consumers.
Refer to [Link]/ukpga/2015/15/contents/enacted for more information.

• All policies have a cancellation condition, although the terms may vary. Among the
various requirements, the policyholder must confirm cancellation in writing. Provided no

Chapter 4
claim has been made under the policy during the current term, the insurer will refund part
of the premium. A cancellation fee may also be deducted if this is clearly specified in the
condition.
The insurer or an authorised agent will normally be able to cancel this policy by giving the
policyholder seven days’ notice by letter. They will send notice of cancellation to the last
known address of the policyholder and provide a reason for why the policy is cancelled,
following which they will refund a proportionate amount of the premium.
• If a claim is accepted for loss or damage from the policyholder but the amount to be paid
cannot be agreed, or there is a dispute regarding indemnity then ‘the matter will be
passed to an arbitrator. The arbitrator will be appointed in accordance with the law
in force at the time. The arbitrator must have made a decision before legal action
can be taken against the company.’
This is the arbitration condition. Most insurers will arrange for a referral to the Financial
Ombudsman Service if the amount to be paid under the loss or damage section of the
policy is in dispute or if the insurer wishes to decline indemnity due to a breach of the
policy conditions and such a decision is disputed by the policyholder.
• The following is a direct quote from a particular insurer’s policy. Its intention is to protect
an insurer who is not obliged to pay a claim under the terms of the policy but,
nonetheless, has had to meet a claim under legislation. The legislation referred to is, of
course, the Road Traffic Act 1988 (RTA 1988):
If the law of any country in which you are covered by the policy obliges us to
settle a claim which otherwise we would not have paid we reserve the right to
recover the amount paid from you or from the person who incurred the liability.
For an insurer to have an obligation under the RTA and, therefore, before this condition
can take effect, there has to be an unsatisfied court judgment. Taking a third party claim
all the way to court simply to bring this policy condition into play would be an
expensive folly.
In order to maintain control, the insurers will normally seek a signed ‘consent and
indemnity’ form from the policyholder, enabling it to deal with the third party claim and
then to seek reimbursement from the policyholder even though a judgment may not have
been obtained.
It should be noted that the policy condition can only be applied to those bound in some
way to the policy contract. Usually, this will be restricted to the policyholder. As stated
previously, there will be a right of recovery. In reality, it may be difficult to extract money
from the policyholder or anyone else who may have been in breach of the condition.

Question 4.4
Beyond meeting the requirements of the Road Traffic Acts, why do policies not
provide cover for any consequences of war?
 4/18 IF5/October 2022 Motor insurance products

C2G Commercial vehicle policies – additional conditions

Aside from those conditions which are generally found in all types of motor policies, there are
a few conditions which tend to be found in all types of commercial vehicle policies but not
in private car policies. These are as follows:
Change of or additional vehicle
The policyholder shall notify to the insurer details of any additional or replacement vehicle
immediately on acquisition, and any failure to do so will result in the insurer not meeting any
claim for loss or damage or any third party claim, arising out of the incident.
The policyholder shall:
a) pay to the insurer any additional premium which may be due as a result of the
acquisition of such vehicle; and
b) notify the insurer of the disposal of the vehicle, in order to qualify for any refund
of premium which may be allowable.
Chapter 4

This condition may vary from one insurer to the next and could depend on the type or types
of certificate issued. This has become more important, following the introduction of the Motor
Insurance Database.

Other change of risk

Here, the policyholder shall notify the insurer immediately of any material change in the
risk including but not limited to:
• drivers of the vehicle;
• convictions;
• conversion or modification of the vehicle;
• the business address from which the vehicle operates; and
• use of the vehicle.
The policy will not apply in respect of such changes unless agreed by the insurer.

Some insurers will insert the above as a condition, to impose upon the policyholder the
continuing duty of disclosure, indicating that all possible material changes to the risk
should be notified to the insurer as soon as practicable.
Limit of indemnity exceeded
In connection with any claim or series of claims arising out of any one event in respect of
damage to third party property the company may at any time pay to the insured the
amount of the indemnity provided by this policy (after deduction of any sum or sums,
already paid as compensation) or any less amount for which such claim(s) can be
settled and from the date such payment is made. The insurer will then cease to have any
interest in the matter and will have no further liability other than for costs and expenses
incurred with the written consent of the company prior to the date of such payment.
Another heading for the condition may be the ‘discharge from liability’ condition.
There is the remote possibility that a commercial vehicle could be involved in an accident
where considerable damage is caused to a third party property (or properties), resulting in a
number of claims. The cost of all these claims may exceed the limit of indemnity which may
be as low as £1.2m but would, typically, be between £5m and £20m.
As a result of this condition, the insurer can meet the policyholder’s claim first and thereafter
the (various) third party claims can be considered. As an alternative the insurer can,
effectively, pay to the insured the residue of the indemnity limit (after deducting the amounts
already paid) and leave the insured to settle the third party claims.
In practice, the property damage indemnity limit is generally sufficient and is rarely
exceeded. Some insurers, therefore, omit this particular condition.
The above conditions will often be common to both goods-carrying and small van type
commercial vehicle policies, although a few (e.g. change of or additional vehicle, limit of
indemnity exceeded) are unlikely to appear in the latter type of policies, simply because they
will not be relevant.
Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/19

Question 4.5
What is the position if a car was stolen with the ignition key left inside?

C2H Service information

This section of the policy is used in order to provide details of what to do if assistance is
required for changes in the policy and/or making a claim, and is often found towards the end
of the policy booklet. Important addresses and telephone numbers will also be provided.
One such number might be that of a legal advice line. This free service tends to be restricted
to private car and motorcycle policies and provides 24-hour access to professional legal
advice on any issue connected with motor vehicles. Legal support and/or representation is
not provided but part of the advice provided might well be to point out where this may be
obtained. Legal expenses insurance which provides cover against the risk of making or
defending a legal action may be available as part of the core product but, more often, is
available as an optional additional cover often referred to as uninsured loss recovery.

Chapter 4
Details will also be given as to the insurer’s complaints procedure including details of the
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 FOS seeks to resolve
disputes by achieving fair and reasonable outcomes. Its decisions are not necessarily
influenced by the law or by any previous decisions.
From 1 April 2019, the definition of an 'eligible complainant' was extended to include some
small and medium-sized enterprises (SMEs) as well as consumers, micro-enterprises and
small charities. SMEs with a turnover under £6.5m and employing less than 50 people are
now entitled to take cases to the FOS.
The FOS is funded by a general levy paid by all firms and case fees payable by the firm to
which the complaint relates.
 4/20 IF5/October 2022 Motor insurance products

Key points

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

The certificate of motor insurance and the construction of policies

• Where persons require instant cover, when it may not be possible to provide the
certificate, it has been the practice to issue a cover note to act as a temporary
certificate of insurance to comply with the Road Traffic Act.
• A policy schedule usually contains policy number; period of insurance; policyholder’s
name, address and occupation; date of signature of proposal and declaration;
premium; cover provided; and make of vehicle plus any details of any trailers.
• The contract comprises the proposal form or statement of insurance, certificate of
insurance, policy booklet and policy schedule.
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Chapter 4 The Certificate of Motor Insurance and the construction of policies 4/21

Question answers
4.1 This permits the policyholder to drive any other private motor car not belonging to
them or hired to them under a hire purchase or leasing agreement.

4.2 The policy schedule.

4.3 Great Britain, Northern Ireland, the Isle of Man and the Channel Islands.

4.4 The Government makes special arrangements when there is a war.

4.5 The loss/damage would not be covered as the policy would exclude this.

Chapter 4
 4/22 IF5/October 2022 Motor insurance products

Self test questions

1. List six of the parts which will normally be contained in a policy booklet.
2. If a vehicle is unroadworthy then insurers have the right to repudiate the claim in its
entirety, but what are the only circumstances in which they would do this?
3. What are the main functions of a temporary covering note?
4. What is the purpose of the notification condition in a policy?
5. Why is pollution excluded for motor policies unless it is caused by a sudden,
identifiable, unintended and unexpected incident?
6. Why do insurers insert a condition into the motor policy that, in the event of a claim,
the policyholder, or anyone claiming cover under the terms of the policy, should not
make any admission of liability, offer or promise etc., in respect of the incident?
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You will find the answers at the back of the book

 Rating and underwriting
5
Contents Syllabus learning
outcomes
Introduction
A General principles of rating and underwriting 7.2, 8.1, 9.1
B Rating and underwriting considerations specific to private car 7.3, 8.1
insurance
C Rating and underwriting considerations for commercial motor 7.3
insurances
D Fleet risks 7.3

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E Risk management 7.2
F No claim discount and other driving incentives 7.6
G Renewal of cover 7.7, 7.8, 7.9
H Private car renewal procedure 7.7
I Commercial vehicle renewal procedure 7.7
Key points
Question answers
Self test questions

Learning objectives
After studying this chapter, you should be able to:
• explain the considerations taken into account in rating and underwriting for private and
commercial motor insurance;
• describe the main features of motor fleet rating;
• state the main purpose of risk management;
• describe the use of no claim discounts (NCDs); and
• describe the system for renewal of private and commercial motor insurance.
 5/2 IF5/October 2022 Motor insurance products

Introduction
Key terms
This chapter features explanations of the following ideas:

Combined operating Ethical Fixed costs Fleet risk

ratio considerations
Garaging Goods-carrying No claim discount Pay-as-you-drive
vehicles (NCD)
Rating Renewal Risk management Variable costs
Vehicle classification

A General principles of rating and

underwriting
An insurer has to strike a fine balance to calculate a premium that is pitched at a level that
produces a profit. If it is calculated at too low a figure, then it will produce a loss, and if below
the market rate, becomes an attractive proposition resulting in a flood of business, insuring
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at the same low rate. Alternatively, a higher rate than is warranted will lead to potentially
profitable business going to a cheaper competitor.
Rating is based upon experience. Firstly, there is the experience of the market as a whole
and, secondly, and perhaps more importantly, the experience of the particular insurer.
Data that is held electronically is conducive to sophisticated analysis and, as a result,
insurers now employ actuaries to calculate rates using sophisticated modelling techniques.
They and liaise with the underwriting department, or may even be part of it.
A motor insurance premium is made up of a number of elements:
• Firstly, there is the amount that is required to pay claims – expressed in percentage
terms. This is known as the ‘claims ratio’.
• On top of this, an allowance has to be made for both fixed costs and variable costs.
• Fixed costs are the cost of renting the insurers building and other facilities, together with
the cost of employing senior specialists in the various departments, e.g. underwriting,
actuarial, claims etc. There are also the operating costs of the company such as staffing,
IT equipment etc. which have to be paid irrespective of the number of policies sold.
Advertising costs also represent a substantial outlay, particularly for ‘direct’ writers.
Variable costs are, for example, the costs of dealing with each individual claim or proposal,
plus other administrative tasks, all of which can vary depending upon the complexity, issues
involved, risk proposed etc. The main variable cost is that of agent commission and is a
relatively straightforward calculation.
The combined effect of claims costs plus commission plus fixed and variable expenses is
sometimes known as the combined operating ratio. Ideally, the combined ratio should be low
enough to provide an underwriting profit.
It is worth remembering that the concept of insurance is that the losses of the few who suffer
misfortune are met by the contributions of the many who are exposed to similar risk of loss
and liability. An insurer brings together a large number of individual risks into a common pool
or fund.
However, the underwriter has to realise that each insurable risk presents a different risk to
the central pool. Therefore, a prudent insurer must exercise selection of risks and charge
each potential policyholder a ‘fair’ premium which represents the degree of risk they bring to
the pool. For example, a driver with a poor claims record and several motoring convictions
should expect to pay more than a claim free driver with a clean driving licence.
Chapter 5 Rating and underwriting 5/3

A1 Ethical considerations
A1A Consumer insurance contracts
The main aim of the Consumer Insurance (Disclosure and Representations) Act 2012 is
to increase the level of fairness accorded to consumers by relieving them of the duty to
volunteer all material facts to an insurer (whether requested or not).
It was argued that as consumers may not be able to appreciate the materiality or importance
of certain facts to an underwriter, it was unfair that their cover would be prejudiced, should a
consumer unwittingly fail to provide an insurer with all the facts that an underwriter may
deem material relating to a proposed risk.
Thus, the Act has had the effect of removing the duty of utmost good faith under consumer
insurance contracts during pre-contractual negotiations and replacing it with a lesser duty ‘to
take reasonable care not to make a misrepresentation to the insurer’.
A1B Insurance Act 2015
Students should refer to Insurance Act 2015 on page 3/37 which outlines the main provisions
of the Insurance Act 2015, key features of which are discussed below.
The Insurance Act seeks to extend to non-consumer contracts the reforms made previously
to consumer contracts of insurance by the terms of the Consumer Insurance (Disclosure and
Representations) Act 2012.

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The Act makes wide-ranging reforms to the law relating to non-consumer insurance
contracts which make it harder for insurers to repudiate claims as a result of technical
breaches by the insured.
The duty to volunteer information is retained (unlike the position for consumer insurances).
A commercial proposer has to make a fair presentation of the risk, including putting an
insurer ‘on notice’.
Duty to make a fair presentation of the risk.
The Act modifies the duty of utmost good faith that underlies insurance contracts by
introducing the new duty of ‘fair presentation’.
This means that proposers must either:
1. disclose to insurers ‘every material circumstance’ which the insured knows or ought to
know; or
2. provide the insurer with ‘sufficient information’ to put a prudent insurer on notice that it
needs to make further enquiries into those ‘material circumstances’.
The Act also sets out what the insurer knows or ought to know.
These changes mark a shift in English insurance law and require insurers to take a more
active approach to assessing the risks they underwrite rather than a passive role in relying
on the insured and its broker to provide all relevant information.
Remedies for non-disclosure
Prior to the implementation of the Insurance Act, an insurer was entitled to avoid the whole
contract, if the proposer had failed to disclose all material information. The undisclosed
information need not relate to a loss; instead, the insurer simply had to show that it was
unknown to the insurer and was material to the risk.
The Insurance Act still preserves the insurer’s right to avoid a policy where fraud is involved.
However, apart from fraud, an insurer will only be entitled to avoid a policy entirely where the
breach of duty of fair presentation is ‘deliberate or reckless’ and where the insurer can show
that it would not have entered into the contract had it known the information or would only
have done so on different terms.
Where the breach of duty has been deliberate or reckless the insurer may also retain any
premium paid. Where the breach is neither reckless nor deliberate, the remedies provided in
the Act are less severe. They are intended to be proportionate and to reflect what the insurer
would have done if they had known of the undisclosed information before entering into the
contract.
Therefore, an insurer will only be able to avoid a policy entirely where it can show that it
would not have written the policy at all. In such circumstances, the insurer will have to obtain
 5/4 IF5/October 2022 Motor insurance products

a court declaration under s.152 of the Road Traffic Act, and return any premiums paid. The
provisions of s.152 will now only apply to such a basis for avoidance of the contract and no
longer refer to any non-disclosure.
Where the insurer would have accepted the risk, albeit subject to additional terms,
exclusions or excesses, then the contract is treated as having been entered into on
those terms.
Warranties
Case law (Bank of Nova Scotia v. Hellenic Mutual War Risks Association (1989) has
established that a breach of warranty automatically terminates cover from the date of the
breach and effectively cancels the insurance. This is regardless of whether the breach was
material or related to the loss.
Furthermore, subsequent remedying of the breach still rendered the policy terminated from
the date of the breach, unless or until the insurers convey that they are not relying on the
breach.

Be aware
In the context of commercial motor insurance this judgment meant that prior to the
Insurance Act, a haulier who failed to comply with a warranty that their vehicle be securely
locked and immobilised when left unattended, would effectively have no cover under their
insurance, even after returning to their vehicle.
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The Insurance Act, however, seeks to make the effect of a breach of warranty less severe in
four key areas, as described below.
Breach of warranty
Under the Act, a breach of warranty will simply suspend (rather than completely terminate)
the insurer’s liability under the contract until such time as the breach is remedied.
The insurer has no liability for any claim under the policy while cover is suspended, but once
the breach is remedied, full cover under the policy is resumed.
In the above example of the haulier breaching the warranty while the vehicle was left
unattended, there would be no cover under the policy while the warranty is being breached,
since cover is suspended. However, on return to the vehicle full cover automatically
resumes.
Basis of contract clauses
The Act also prohibits ‘basis of the contract’ clauses, (as is already the practice for consumer
contracts) and it will not be possible for business insurers to contract out of this change.
Irrelevant warranties
The Act establishes that insurers should not be entitled to avoid a claim where the insured’s
breach did not relate to the loss.
Similar considerations will also apply to conditions precedent or exclusion clauses provided
they relate to a particular type of loss or at a particular location or time.
Where an insured does not comply with a warranty or other term which relates to a particular
type of loss, or the risk of loss at a particular location or time, the insurer may not rely on
non-compliance with that contractual term by the insured, if the insured is able to show that
non-compliance with the term was not relevant to the loss and could not have increased the
risk of loss which actually occurred.
In the haulage example above, we have established that cover is effectively suspended
while the policy warranty is being breached. However, insurers are not allowed to avoid
liability under the contract where the actual loss sustained is unrelated to the breach of
warranty.
Therefore, had the vehicle be badly damaged by a falling tree during a severe gale while left
unsecured and unattended, the insurers cannot rely on the breach of security warranty to
avoid the claim.
Fraud
If a fraudulent claim is made, the Act allows the insurer to treat an insurance contract as
terminated from the time of the fraudulent act.
Chapter 5 Rating and underwriting 5/5

Following termination:
• the insurer will remain liable for any prior legitimate claims arising before the
fraudulent act;
• the fraudulent claim and all subsequent legitimate claims will be invalid;
• the insurer may recover any payments in respect of the fraudulent claim(s); and
• the insurer will be entitled to retain any premium paid.
The Act does not seek to define what a fraudulent claim is, so there is no distinction between
someone who presents a completely fraudulent claim (i.e. for an event which never
happened) and someone who suffered a genuine loss but has used fraudulent devices to
increase the prospect of payment or inflate the value of the claim.
The Act does, however, make a distinction between a ‘fraudulent claim’ and a ‘fraudulent
act’, the latter being the behaviour that makes the claim fraudulent.
This is an important distinction since the insurer is entitled to terminate the cover from the
date of the ‘fraudulent act’, (not discovery of it) and this may be at a different (earlier) time
from when the fraudulent claim is submitted.
In contrast to many policy fraud conditions which state that in the event of fraud ‘all benefit of
the policy is forfeited’ which then allows insurers to recover past claim payments, even if
legitimate, the Act makes it clear that legitimate claims occurring prior to the fraudulent act
continue to be payable, and so no such right of recovery in respect of previous legitimate

Chapter 5
claims is permitted.
Overview
The Act came into effect on 12 August 2016 making a number of significant changes to the
existing law, it:
• transferred some of the responsibility of disclosure from the insured by imposing a duty of
enquiry on the insurer;
• introduced proportionate remedies for non-disclosure;
• allowed the insured the opportunity to remedy a breach of warranty by resuming
compliance; and
• allowed the insured to challenge an insurer’s defence of breach of warranty by showing
that the breach could not have increased the risk of the loss occurring.
While the Act does allow the parties to opt out of most of these rules, any opt-out must
satisfy the transparency requirements and may therefore be challenged on these grounds.
At the underwriting stage, the changes encourage both the insurer and the insured to ask
more questions of each other and increase the responsibility on brokers when
arranging cover.

A2 Gender and other considerations

In March 2011 it was announced that insurance companies can no longer charge different
premiums for men and women, following a European Court of Justice ruling, after a
challenge by a Belgian consumer group, Test-Achats.
Although generally women are regarded as a lower motor insurance risk than men, the
decision means that women can no longer be charged lower car insurance premiums than
men. The change came into effect in December 2012.
The European Court of Justice stated that taking the gender of the insured individual into
account constituted discrimination, notwithstanding that motor insurers generally reward
lower risk drivers like young females. In fact, the British Insurance Brokers’ Association
(BIBA) had estimated that the cost of the average car claim by an 18-year-old man was
£4,400, while that for an 18-year old woman was £2,700.
The most obvious consequence is that motor premiums for women increased.
The European Court of Justice ruling only applies to new contracts entered into or renwed
after 21 December 2012.
However, leaving the EU could open up the potential for the Government reverse this, as the
UK may choose to no longer follow this decision. The likelihood of reverting to the pre-2012
situation is still an unknown. Although insurers have favoured removal, consideration would
 5/6 IF5/October 2022 Motor insurance products

need to be given as to the vast administrative difficulties for insurers caused by the original
change in the law.
Some insurers are seeking to redress the situation by the use of in-car technology, the
benefits of which are aimed mainly, but not exclusively, at young drivers as they generally
pay the highest premiums.
It involves having a small self-contained ‘telematics’ unit about the size of a smart phone
fitted to the vehicle to monitor the driving habits of the motorist.
The technology within the unit itself is not new, having been previously successfully used in
commercial vehicles and formula 1 racing cars, and basically comprises:
• a GPS unit which captures where and when the car is driven;
• a high frequency motion sensor which captures how the car is driven; and
• a SIM card to transmit data to a central data collection site.
Once fitted, the device will collect data under four broad categories: speed, traffic
anticipation (braking), landscape following (cornering) and where and when the vehicle
is used.
By reviewing data recorded on the device, assessment of driving skills and, therefore,
potential to cause an accident, can be made irrespective of gender.
Good drivers are likely to see their premiums fall following a review of their driving habits.
However, those seen to be exceeding speed limits, cornering sharply, braking heavily or
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driving a lot at night are likely to see their premiums rise instead. These reviews take place
at regular intervals during the course of the policy term, typically every three months.
Future premium levels are influenced by the data recorded by the device, irrespective of
gender, and as such this approach is likely to be favoured by young male drivers, although it
is argued that anyone who suffers from particularly high insurance premiums may benefit
from fitting this device.
The concept lends itself particularly well to ‘pay as you drive’ policies issued by some
insurers, under which careful drivers may see premium savings within two or three months of
their policy start date.
The reduction in miles driven by many motorists during the COVID-19 pandemic raised both
the profile and attractiveness of these types of products. As the demand for such products
has increased, more insurers have developed and introduced 'pay as you drive' options. As
technology develops, it is now also possible for the telematics data to be captured via a
mobile phone or device plugged into the vehicle's onboard diagnostics (OBD) port. This
reduces or removes the cost of the telematics device itself and avoids the need for the
device to be professionally fitted. This further reduces the cost and the delay between
purchase of the policy and the commencement of the supply of data to the insurer. It may
also allow the transfer of the device to a replacement vehicle following a vehicle substitution.

Question 5.1
Which group of private motorists is most likely to benefit from having a telematics box
installed and taking out pay-as-you-drive policies?
a. Civil servants. □
b. Semi-professionals. □
c. Self-employed. □
d. Young drivers. □
Chapter 5 Rating and underwriting 5/7

B Rating and underwriting considerations

specific to private car insurance
Rating is the process undertaken by insurers to determine the amount (premium) to be
charged for any given risk. The rating of private car insurance is becoming ever more
complicated. The easy option would be to band risks together to form a general rate.
However, the closer an underwriter can get to the pure rate for any given individual risk,
the better.
Nowadays, with private car insurance, just about every aspect of each risk will be separately
rated to produce one overall rate. We shall merely focus on the more common rating factors
and their effects.
It should, of course, be remembered that the premium will also be determined by the cover
given, i.e. third party only, third party fire and theft, or comprehensive.

Be aware
The following tend to be the main rating factors for private car insurance:
• vehicle;
• proposer and other drivers;
• geographical area of use and/or garaging;

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• use to which the vehicle is put; and
• cover required.

There is a move to lifestyle underwriting – this is where rating is conducted on each facet of
the proposer’s risk, including their perceived risk.
Software systems enable the vast majority of private car quotes to be completed by proposer
information being fed into an underwriting and rating system or engine, and this will
invariably take into account the lifestyle elements of the risk, in order to gain a complete
underwriting ‘picture’.

Question 5.2
What is the combined effect of claims cost plus commission plus expenses
known as?

B1 Vehicle to be insured
The main features that differentiate vehicles for the purposes of rating are:
• Cost of repairs.
• Value.
• Performance.
• Level of security.
Other factors which may be taken into consideration include:
• Type of vehicle. Some vehicles may be more attractive to the younger driver who have
more claims than the more mature driver, e.g. a relatively inexpensive hatchback or
coupe with good acceleration and high top speed, Such vehicles are commonly referred
to a ‘hot hatches’.
• Modifications. These are changes made to the vehicle which make it different to the
manufacturers’ standard specification. They may include any optional extras purchased
with the vehicle or which have been fitted at a later date. Changes most likely to affect
vehicle rating are those which:
– improve performance (e.g. lowered suspension or engine tweaks);
– make repairs more expensive or the vehicle more vulnerable to damage (e.g. special
paintwork or glass fibre/plastic body panels); and
– make it more attractive to theft of or from the vehicle (e.g. expensive sound system or
non-standard alloy wheels).
 5/8 IF5/October 2022 Motor insurance products

• Theft risk. Some vehicles (e.g. 4 × 4s and executive vehicles) may be more attractive to
theft than others. Due to the improvement in vehicle security many vehicles are taken
with the keys which have been previously taken from the vehicle owners’ home, handbag
etc. Technological developments have resulted in the emergence of 'keyless' thefts, or
hacking, where the signal between the key's transmitter and the vehicle is either
intercepted, boosted and scanned, enabling the thief to replicate the key code, or
interrupted, which leaves the vehicle unlocked and vulnerable to theft.
B1A Vehicle classification
New vehicles coming onto the market are given an advisory rating by a Group Rating Panel
(GRP). This comprises of members of The Association of British Insurers (ABI) and Lloyds
Market Association (LMA).
They meet on a monthly basis and provide advisory group ratings in a range of 1 (lowest) to
50 (highest) taking into account:
• Cost of repairs (parts and labour).
• Vehicle performance.
• Vehicle value.
• Vehicle security.
Fuel type/power source is becoming a more important factor. While there were always some
differences between the rating of petrol and diesel fuelled cars, the advent of electrically
Chapter 5

powered cars and hybrids makes this factor more relevant.

The GRP relies upon information supplied both by the vehicle manufacturer and the
insurance industries Motor Insurance Repair and Research Centre in Thatcham, Berkshire.
The ratings are purely advisory. Insurers can choose to follow them or use their own rating
structure.
Over a period of time each insurer will build up their own database of experience of each
vehicle model, taking into account such things as the number and type of claims the insurer
has dealt with for the vehicle model and their costs. Based upon this data an insurer may
adjust the rating of a vehicle at any time.
B1B Other features of the vehicle and additional risk data
• The age of the vehicle. As vehicles become older, their value decreases. This,
effectively, places a cap on the likely insurance payouts at the vehicle’s total loss value.
They may also be cheaper to repair due to a more straightforward construction and the
use of less sophisticated materials and repair techniques. However, as vehicles get
increasingly older, parts may become more difficult to source. Older vehicles also have
less sophisticated security systems making theft easier.
At the other end of the spectrum some cars increase in value as years go by – those of
the ‘cherished’ or ‘classic’ type. The type of policy for such a risk tends to be a specialist
‘agreed value’ policy. In the event of the vehicle being stolen and not recovered or
damaged beyond economical repair the claim settlement would be based upon this
‘agreed value’.
Such policies can be relatively inexpensive, but they often restrict the annual mileage
covered.
• Value of vehicle. Although it is a factor used to rate a vehicle, the value does not greatly
influence the premium. There may, however, be good reason to charge extra premium for
the very highest of values, for example under third party, fire and theft covers where the
main risk may be that of theft.
• Security devices. Insurers are willing to grant premium discounts for security devices, for
example a vehicle tracking system, which is fitted in addition to any security device which
comes as standard with the vehicle. For high value vehicles or those seen as a particular
theft risk insurers may insist upon certain levels of security before granting theft cover or
indeed any cover at all.
Often, there is a condition in the policy to the effect that theft claims will only be handled if
the tracking device was operational at the time of the theft and a maintenance contract in
in force.
Chapter 5 Rating and underwriting 5/9

B2 The proposer and other drivers

In private car insurance, it would normally be the owner of the vehicle who arranges the
insurance cover in their name. Almost certainly, the proposer will wish to be insured to drive
and, in most circumstances, will be the main person to use the car. Nonetheless, details of
all persons likely to drive are required and the most onerous features of each will be used for
rating purposes.
The greater the number of persons having use of the car, the higher the risk. It generally
follows that owner-only driving represents the lesser risk. Most private car policies restrict the
number of drivers to a maximum of three or four named individuals.
Insurers may have to ask the following questions:

Who is the main user Used for identification and communication purposes, but is usually the person upon
(name and address)? whom the premium will be based.

What are the ages of all There may well be loadings for younger drivers. Alternatively, if the vehicle attracts a
drivers? higher rating group, young drivers may be excluded. Insurers may also be aware of
the effects of insuring the older driver, e.g. those over, say, the age of 75.

The occupation of all There are some occupations that are of a greater or lesser risk, e.g. professional
drivers needs to be sportsmen and entertainers may pose a greater risk of expensive passenger claims
ascertained. from their work colleagues. Teachers and civil servants, on the other hand, are
generally seen as low risks.

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What are the licence Who holds a full licence and who is a provisional licence holder? Those who have
details of all drivers? held a full licence for a considerable length of time may be regarded as
experienced. However, if someone has held a provisional licence for a lengthy
period, then this begs the question – ‘How many tests have they taken, and failed?’
Statistics will show that a driver is more likely to have an accident in the period
immediately after passing the driving test than at any other time. If a driver holds a
non-UK foreign licence, this may indicate a lack of familiarity with UK road
conditions and rules.

What is the accident and Insurers typically ask for details of all accidents or losses within the last 3 – 5 years.
loss history of all drivers? Where a proposer or other driver has more than an expected number of claims
within this time then this may result in the premium being loaded or the driver being
declined altogether.

Is there a conviction Insurers typically ask for details of motor convictions or fixed penalty offences within
history? the last 3-5 years. Only those convictions that are not ‘spent’ under the
Rehabilitation of Offenders Act 1974 (recently amended by the Legal Aid,
Sentencing and Punishment of Offenders Act 2012 (LASPO), Management of
Offenders (Scotland) Act 2019 or the Rehabilitation of Offenders (Amendment)
Order (Northern Ireland) 2022) need to be disclosed and they are the only ones
upon which insurers may act. One ‘minor’ offence, e.g. speeding, may be
acceptable but, beyond that, insurers might consider premium loadings. There is no
standard approach. Where convictions are disclosed, insurers will also request
details of the points and fine that were imposed and the length of any ban. These all
give the insurer an indication of the seriousness of the offence.
Some insurers may enquire whether a driver has had to attend a speed awareness
course as an alternative to a speeding conviction and points on their licence.
Excess alcohol convictions often attract stringent terms or make the driver or
possibly the entire risk unacceptable.
In addition to seeking particulars of motoring convictions, insurers may ask a
question regarding any non-motoring criminal convictions, sometimes focusing the
question on convictions relating to theft, dishonesty and fraud. Each case will be
treated on its merits but an insurer may well decide to decline cover where an
unspent criminal conviction is disclosed.
It should be remembered that insurers also seek details of any pending
prosecutions.

Do the drivers have any Most disabilities can be catered for provided full disclosure, where appropriate, has
disabilities? been made to the DVLA, the individual has subsequently been issued with or
allowed to retain a driving licence and any necessary adaptations to the car have
been arranged. When considering disabled persons, underwriters need to have
regard to the provisions of the Disability Discrimination Act 1995 and now the
Equality Act 2010.

What is the country of A non-familiarity with UK roads and driving customs may represent a greater
origin and length of insurance risk, as may an inability to interpret road signs.
residence in the UK?
 5/10 IF5/October 2022 Motor insurance products

B3 Geographical area of use and/or garaging

Insurers' premiums will take into consideration the postcode of the address where the vehicle
is usually kept overnight.
In addition to the outward postcode, e.g. PO6, insurers may also go down to sector, e.g. PO6
2… or even full postcode level. Typically, premiums will be higher for those risks based in
urban areas as opposed to those in rural locations.
The risk of theft is higher in urban areas as is the number of accidents and frequency of
claims. The latter is due in part to the greater number of vehicles on the roads in urban areas
with a relatively high frequency of ‘minor’ accidents due to traffic congestion. There may also
be a shortage of off-road parking leading to more ‘hit while parked’, malicious damage and
theft claims.
Premiums will be based upon the postcode of where the vehicle is kept overnight. If this is
different to the risk address insurers will wish to know why and may require things such as
additional security if the vehicle is left at an unattended property.
It may also be an indication of underwriting fraud, e.g. a proposer has indicated that the
vehicle is being kept at a lower rated postcode to obtain a lower premium. To prevent this the
premium may be based upon the higher rated of the given postal address or garaging
address if the two are different.
Where the vehicle is kept overnight will also affect the premium. Insurers may increase the
Chapter 5

premium if the vehicle is left on a road or other public place, or reduce it if the vehicle is kept
on a driveway or in a locked garage.

B4 Use of the vehicle

The more a vehicle is used, the more chance it has of being involved in an incident and, of
course, the more chance there is of it straying from a lower-rated to a higher-rated area. To
try to assess and rate this part of the private car risk properly, insurers ask for details of the
use to which the car will be put. In the main the questions revolve around use for work (or
even travelling to work) and, generally, there are four categories of use.
B4A Social, domestic and pleasure (SDP) use
This may encompass use to travel to the permanent place of work of the policyholder, their
spouse/civil partner or another named driver and will attract the lowest premium.
Alternatively, SDP including commuting may be offered as a separate use category for a
slightly higher premium. Use in connection with the motor trade, racing, commercial
travelling and hire and reward are excluded in both cases.
Commuting is normally restricted to travel to/from a single place of work and will include
travel to/from a railway, tram or bus station as part of the driver's daily commute. Where a
driver may drive to different premises, business use will generally be required.
Some insurers consider excluding commuting if the occupation is one that they would regard
as not requiring commuting the risk as being adversely affected. Such a restricted use would
be ideal where all the drivers are either retired or students.
B4B Class 1 or class A
This will allow use by the policyholder in person for their business or profession or that of
their employer. This would include those who have to travel to different locations throughout
the country with the resultant increased risk.
Where the policy allows both the policyholder and spouse or civil partner to drive, then some
insurers will grant Class 1 (joint Class 1) to both drivers.
Use in connection with the motor trade, racing, and hire and reward are excluded. Some
policies may also specifically exclude commercial travelling but others may not, particularly
as there is no recognised definition of what is 'commercial travelling'.
B4C Class 2 or class B
This is similar to Class 1 but also allows other named drivers to use the vehicle for business.
This type of cover would suit a small business owned by the policyholder where the
policyholder's vehicles are driven by different employees. Where a large number of drivers
Chapter 5 Rating and underwriting 5/11

may require use of the vehicle, e.g. if it is pool car, the risk may be insured as a commercial
vehicle on an 'any driver' basis.
Use in connection with the motor trade, racing, and hire and reward are excluded. As with
Class 1, some policies may also specifically exclude commercial travelling but others
may not.
B4D Class 3 or class C
This is used where a particular occupation or business requires the widest possible use. The
basic cover remains the same as Class 2 but commercial travelling and motor trade are no
longer excluded. Class 3 will, therefore, cater for, among others, company representatives,
self-employed commercial travellers and mobile mechanics.
Use for racing as well as hire and reward are still excluded although it should be noted that
motor trade is not.
As ‘commercial travelling’ (or ‘cold calling’) is now an extremely rare business activity, a
number of insurers now combine Class 2 and Class 3 use and will rate the vehicle on the
‘wider’ use.
B4E Motor trade use
This is a specialist area dealt with as a commercial risk. In order to avoid incidental motor
trade cover, where a motor policy is issued to an individual who is employed within the motor
trade, the insurer will invariably exclude the driving other cars extension.

Chapter 5
B4F Use for hire and reward
Typically, a 'minicab', private hire car or taxi. This aspect is also a specialist area which may
be handled in either the private car or commercial vehicle arena.
Another way in which the extent of use can be calculated and rated is to ascertain and/or
restrict the number of miles travelled in the policy period. The policyholder will be invited to
choose an annual mileage band and will need to disclose the reading of the odometer/
mileometer at the commencement of the policy and at subsequent renewals.

Question 5.3
What use does class 1 or class A allow for the policyholder?

C Rating and underwriting considerations for

commercial motor insurances
The phrase 'commercial vehicle' is a wide term that incorporates a number of different
classes of vehicle insurance.
Logically therefore, each different type of commercial vehicle insurance will be rated and
assessed differently by underwriters.

C1 Goods-carrying vehicles
This descriptive term is used to describe all the different types of vehicles that are intended
or designed to carry goods.
They range from the largest articulated lorries (being 38 tonne gross laden weight or larger)
down to small goods-carrying delivery vans (5 cwt size).
Such goods-carrying vehicles are assessed by either their carrying capacity or their plated
weight. The goods themselves will not be covered under a motor policy, the appropriate
cover being obtained under a goods-in-transit policy.
Machinery that is an integral part of the vehicle e.g. a crane, is regarded as being part of the
vehicle for insurance purposes. However, where such a vehicle is being used as a tool of
trade and no RTA liability arises, then any third party death, injury or property damage claim
will need to be covered under a public liability policy. An example of this would be a digger,
permanently fixed to a vehicle, being used to dig trenches on private land to which the RTA
does not apply.
 5/12 IF5/October 2022 Motor insurance products

use

policy cover drivers

How are
goods-carrying
vehicles rated?

type/size
of vehicle district
(plus trailers)

C1A Name and occupation/business

The name of the firm or business may be indicative of the type of activities undertaken, and
the company may be registered as a limited company, in which case, the registered
Chapter 5

company number may be required.

If the proposer is VAT registered, then this means that they will be able to recover the VAT
element of any repair cost and the insurer will not be liable for this amount of the repair
invoice.
Obviously, the occupation or business of the proposer will be very important from a rating
perspective, as this will be an indication of the type of use that may be required, which will be
clarified by the answers to further questions on the proposal form.
There will also be a need to establish the type of goods that are likely to be conveyed by the
policyholder’s own vehicles. The insurer’s concern will be that the goods may be in some
way ‘dangerous’ – toxic, explosive, hazardous etc. or of particularly high value and,
therefore, attractive to thieves. If the policyholder is a general haulier, then considerable
prudence will have to be exercised by the underwriter as a wide variety of goods may be
carried.
C1B Use
To determine exposure in this area of rating, there are two principal aspects to be
considered:
• whether the vehicle is to be used purely for carrying the owner’s own goods or will be
utilised on a hire or reward basis; and
• the physical area (i.e. radius) within which the vehicle will be driven.
For goods-carrying vehicles, the insurers used to operate three rating tables in relation to
vehicle use, with the lowest rating class being where the vehicle was used for the carriage of
the operator’s own property. An example would be where a retail store offers delivery of their
own goods.
The second or intermediate category of use was a ‘mixed’ class of carriage of own goods,
plus carriage for hire and reward within a limited radius (say, 100 miles of the depot where
the vehicle is usually garaged).
The highest-rated category of use was in respect of the haulage contractor – clearly, with
unlimited mileage for the carriage of other people’s goods the exposure and therefore, the
risk is greatest. Not only were the vehicles likely to travel extensively, possibly in the UK and
abroad, they would often be of the larger type to maximise the profit for the operator;
consequently, such risks commanded the highest rates.
Nowadays, the second category is not particularly common – insurers will tend to rate
goods-carrying vehicle policies either on the basis that a risk carries its own goods, or
vehicles are used for hire and reward, irrespective of radius.
Chapter 5 Rating and underwriting 5/13

C1C District
In a similar way to private car, it is the district in which the vehicle is normally garaged that is
the principal feature. Additional premiums may be charged where it is evident that long-
distance haulage work is to be undertaken and, therefore, the vehicle may be exposed
overnight anywhere in the country.
As with the private car policies, the larger conurbations will be the highest-rated areas, rural
areas being rated lower.
Often, insurers used to work on three main districts for rating area. There were three
districts, classified as follows:

District A All districts outside B and C.

District B Large conurbations such as Bristol, Birmingham, Sheffield, South Lancashire and
outer London.

District C Central London area, Glasgow and Northern Ireland.

The majority of insurers used to charge reduced rates for vehicles in the Channel Isles and
for those islands surrounding mainland Great Britain.
The current position is that commercial vehicle policies are now rated on the postcode of
the overnight garaging address, in the same way as private cars, which may not always be
the risk address of the policyholder.

Chapter 5
C1D Type/size of vehicle
Insurers now use a table of rates based on the weight definition of the vehicle. Originally, this
was the carrying capacity of the vehicle but now any vehicle with a carrying capacity of 2
tonnes or more (i.e. a plated weight over 3.5 tonnes) requires an operator’s licence, issued
by the Traffic Commissioner. Such a licence is required irrespective of whether the goods
carried belong to the operator or other people for hire and reward.
The larger the vehicle, the greater the potential cost of repairs. Moreover, the larger the
vehicle’s plated weight, the greater the severity of an accident is likely to be.
An insurer’s rates tend to be based on the vehicle’s plated weight, the lowest being a plated
weight of up to 3.5 tonnes. While the rates will invariably be in bands of weight, there will
obviously be a maximum rate/weight for each insurer, although they may be prepared to
quote for those vehicle weights above the highest band. There are certain types of vehicle
where individual underwriting will be required, for example, refrigerated lorries and fuel or
chemical tankers.
C1E Cover
Standard comprehensive, third party fire and theft and third party policies are provided. RTA
cover is another possibility but is rarely offered. It should also be remembered that under the
Road Traffic Act 1988, the statutory minimum cover includes third party property damage
up to £1.2m.
RTA cover used to be offered by an insurer because of a poor accident/driving record or
perhaps a poor conviction history but even then, it is rarely considered. Nowadays, an
insurer will tend to load the premium for a risk which has a driver (or drivers) with a poor
claims or conviction record. RTA cover, if offered by an insurer, may be considered if the
vehicles insured with a particular risk are to be utilised for a 'one off' event, which is perhaps
outside the usual scope of cover.
While RTA is rarely applied for seriously substandard risks, the insurer might well insist on
Third Party Only cover as a maximum for some cases.
Under all cover levels, the liability to third parties for death or injury is unlimited to satisfy the
requirements of the RTA. However, the third party property damage limit (typically £20m for
motor cars) is substantially lower for commercial vehicle policies.
This is because large commercial vehicles are capable of inflicting considerable damage on
impact with buildings and other structures and could carry explosive, toxic or other
dangerous substances capable of causing extensive damage or loss.
 5/14 IF5/October 2022 Motor insurance products

The policy will start by imposing a limit of, say, £5m or £2m or a limit even as low as the RTA
minimum of £1.2m. This can be increased upon request for additional premium thereby
enabling the insurer to assess and limit its liability to the individual risk. The limit is for one
event or occurrence and the insurer could therefore be required to meet several claims up to
the limit during one period of insurance.
Logically, comprehensive cover attracts the highest premium, whereas RTA cover should
command the lowest.
C1F Drivers
As a rating factor, details of drivers can only really be utilised where the number of drivers is
low. Details of each driver’s age, driving experience, conviction history and accident history
can then be secured.
With the larger fleet-type risks, it is not possible to rate on individual drivers because they will
be constantly changing. Those that do rate on such a factor would wish to satisfy themselves
that the driver record is acceptable. If they do not have a satisfactory record, then a large
accidental damage excess may be imposed.
If any drivers have serious motoring convictions or health conditions, these will need to be
disclosed and individually underwritten.
Insurers may also be tempted to discount the premium where the policyholder agrees to an
endorsement excluding drivers under a certain age (often 21 or 25 years).
Chapter 5

Risk management is now an important feature of commercial risks, especially fleet risks.
This often requires aspects like driver training, regular licence checks, plus sometimes the
completion of driving licence mandates, vehicle checks and a well managed vehicle
maintenance regime etc.

C2 Other factors
There are a few other factors which may be taken into account.
C2A Value of the vehicle
It is possible that the value of the vehicle will be a factor where the cover chosen on a goods-
carrying policy is comprehensive or third party fire and theft.
The variety of options available for charges above the stated amount may vary widely, but
may be a percentage of the value or a fixed amount per £X of value or part thereof.
C2B Age of the vehicle
The age of the vehicle may be another factor, especially where the cover selected is on a
comprehensive basis. Again, the 'age bands' will vary for different insurers but, clearly, the
younger the vehicle, the less likelihood of mechanical breakdown (and potential large third
party claims as a result).
A policyholder who is able to update their fleet of vehicles regularly suggests not only a
successful and perhaps prestigious client, but also a higher risk awareness on the part of
that particular policyholder.
C2C Claims experience
If the insured is well-established, then the insurer will wish to know the claims experience for
at least the three years prior to the inception of the policy together with full details of any
particularly large claims.
C2D Financial checks
Moreover, irrespective of the age of the firm, most insurers will now undertake financial
‘health checks’ by seeking database and other information on the company’s financial status
since its formation, to ensure that the risk is financially sound. This information may also be
checked prior to the renewal date of the policy.
C2E Convictions
Conviction experience (both motoring and non-motoring) may be considered, especially as it
may be indicative of a lack of professionalism or inadequate vetting.
Chapter 5 Rating and underwriting 5/15

C2F Long-distance travel

Long-distance haulage is not the most popular risk. In particular, haulage through the more
volatile parts of Europe and, perhaps, in the Middle East may only be available in a
specialised market. Certainly, there may be few insurers who would be willing to consider
comprehensive cover while the vehicle is in a high-risk part of the world.
C2G No claim discount
No claim discount has been a feature of goods-carrying vehicle insurance for a while and
was originally on a three-year scale of 10%, 15% and 20%. Insurers now tend to be more
flexible in both the number of years allowed and the percentages allowed. At least up to 40%
no claim discount is now offered by some insurers on these types of risks.
C2H Occupations
Insurers may more closely consider the occupation of the proposer, as claims experience
can vary according to usage. A few insurers are now providing discounts for vans used in
certain occupations where low road exposure supersedes previous mileage discounts, which
have now been phased out. In addition, there may be age of vehicle discounts as well.
Typically, delivery and courier risks where speed of delivery is important will generally be
viewed as poorer risks.
There is a move away from the established method of rating vans and small trucks
according to their weight and/or carrying capacity.

Chapter 5
The ABI has now devised a standardised vehicle grouping structure for light commercial
vehicles (LCVs), the aim being to bring the smaller commercial vehicles into line with more
sophisticated rating rating processes normally associated with private cars. This was
originally launched at the beginning of 2000, and takes into account repair costs and
security. The impetus for such a change was the increases in claims costs, and the level of
thefts of LCVs.

D Fleet risks
The premium calculations for fleet risks are totally different from other types of risks. Some
insurers adopt commercial vehicle policy wordings, others have developed separate policies
for these risks.

What are the three main reasons • The premium paid will often be substantial and the policyholder will seek
why a fleet rating may be value for money as a result.
preferable from a fleet
• The range of covers offered in the fleet market may be greater than
operator’s (policyholder’s) point
would be available elsewhere.
of view?
• A good claims history (indicative of good risk management) should, in
the insured’s view, be reflected in the premium charged and, as we shall
see, claims experience is the predominant rating factor.

Where such risks are placed by brokers or intermediaries, favourable premium terms and
cover can often be negotiated with insurers, particularly for the larger fleets, which generate
a significant premium income for insurers.
Insurers will differ in their definitions of ‘fleets’, but basically it will be an option where a
policyholder has a certain number of vehicles, and normally different types. The minimum
number will depend on each insurer, although one or two insurers would consider offering
fleet rating, even if the number of vehicles to be insured was as low as two or three. To
ensure consistency, a number of insurers have created a central fleet underwriting
department, to which will be attached a number of specialised fleet underwriters.
Insuring vehicles under a ‘fleet’ will often appeal to those businesses who have a variety of
different vehicles. At the ‘smaller’ end of the fleet market there may be, for example, a
builder’s merchants, with a couple of private cars (for directors), plus, a couple of vans for
simple, local deliveries, and perhaps two or three flatbed or curtain-sided lorries for the larger
collections and deliveries. The fleet risk may also incorporate forklift trucks used in the
warehouse and yard.
 5/16 IF5/October 2022 Motor insurance products

At the other end of the scale, you could have a major retailer with numerous cars, vans,
HGVs, forklift trucks, and perhaps even company motorcycles, all insured under the one fleet
policy.

D1 Types of fleets
Broadly speaking, there are three categories of fleets, these being small, medium and large
fleets. The size of the fleet will be dependent on the number and type of vehicles insured.
It may be possible, with the smaller fleets, to use a standard scale of rates and then,
perhaps, discount the premium if the claims experience is better than average, or load it if it
is worse than average. These are sometimes referred to as schedule risks.
One incident may badly distort the figures, and this factor should be acknowledged in the
calculations. Such a situation can also arise with the medium-size fleets. How such claims
are dealt with when analysing the claims experience will vary depending on the size and type
of the fleet, the size and nature of the specific loss and on whether the insurer considers the
loss to be a 'one-off' event or indicative of the type of loss to be expected under that type of
risk. The full value of the claim may be included, the claim may be 'smoothed', i.e. a
proportion of the cost (e.g. 25%) or a maximum amount (e.g. £100,000) may be included, or
the loss may be excluded altogether from the calculation.
Details of the experience will be required, together with the basis of cover. Usually a ‘book
premium’ is established and a discount given, i.e. a percentage reduction for each vehicle,
designed to reflect above-average features. If the risk is particularly poor, the 'book premium'
Chapter 5

may be loaded.
As the insurer would wish to know how the average (or flat) rate compares with the normal
book premiums, most insurers will establish a book premium for each vehicle, and then
divide the total by the number of vehicles in a particular fleet to establish an ‘average book
premium’. As a result, the insurer should be able to judge the performance of the fleet in
comparison to its ordinary motor portfolio.
With large fleets, the size of risk can vary enormously, and may well involve thousands of
vehicles; these could be rated on their own claims experience.
For the small/medium fleets, comparing average book premiums from year to year helps
gauge exposure and ensures consistency in approach. This ‘luxury’ is only enjoyed by the
existing insurer as any potential insurer would have insufficient historic information. However,
if a fleet does change insurers at renewal, then the new insurer would seek details of
experience from the holding insurer.
Some of the smaller risks may be rated on a fleet basis, but the claims experience may be
adversely distorted, where there are a couple of costly claims.
However, a commercial vehicle risk which is ‘no claim discount’ (i.e. individual vehicle) rated
would not be vulnerable to a distorted claims experience as the cost of individual claims is
not taken into account. Only the premium on vehicles which had had claims during the year
would increase because of the reduction in the level of no claim discount at renewal.

D2 Variations for buses, coaches and minibuses

The underwriting and rating of buses and coaches varies considerably, depending on the
radius and purpose of use and the size and seating capacity of the vehicle.
Type and radius of use: The risk will vary considerably, depending upon the type of work
and whether local or long distance journeys are undertaken.
Insurers will have regard to whether a firm’s activities include long distance charter work and,
if so, will differentiate between use limited solely to the UK and continental journeys.
Coaches used for motorway express travel would be treated differently from vehicles not
subject to time critical journeys. These longer journeys contrast to risks where use is limited
to, for example, regular contracts for schools and local authorities. Coaches chartered by
professional sporting clubs and overseas visitors present a particularly onerous passenger
risk and special arrangements might be called for.
Seating capacity and passenger risk: Some insurers might apply separate criteria to
vehicles with say, more than 17 seats including the driver, with vehicles of lower capacity
(12–16 seats) subject to alternative criteria.
Chapter 5 Rating and underwriting 5/17

Practice can vary. The larger buses and coaches, with seating capacity of typically 40, 50 or
more present a high risk both in terms of value of the vehicle and, more importantly, the
passenger risk. The nature of the organisation, the period for which it has been established,
its financial stability and the standards of its risk controls, particularly in respect of vetting
and monitoring of drivers and vehicle maintenance, are crucial in terms of insurance risk
assessment for such a large exposure.
A large, well established operation with substantial garaging and servicing facilities, together
with dedicated risk management and contingency for driver replacement and replacement
vehicles is a very different proposition to a small operator with perhaps only one or two older
vehicles who is under pressure to keep them on the road and working and perhaps relying to
some extent on part-time drivers who may drive after having already done a day's work
elsewhere.
Vehicle damage and replacement: Damage to the vehicle is another important
consideration.
The purchase price of a large coach can typically exceed £150,000 and a replacement
windscreen for a conventional coach alone can cost in excess of £1,500. Coaches carrying
supporters of certain sports clubs can be vulnerable to targeted vandalism by rival club
followers.
Acceptance terms: An underwriter might restrict acceptance to risks established for a
minimum of, say, three years and coaches no older than eight years, together with evidence
of satisfactory maintenance facilities, with confirmation that all drivers hold the requisite

Chapter 5
Passenger Carrying Vehicle (PCV) licence.
Special terms might apply for those drivers with more than a specified number of previous
accidents and convictions. It is a prudent underwriting measure to restrict driving to regular
employees, ensure there are sufficient drivers and reasonable work schedules, with more
than one driver per vehicle on continental tours. The extent of foreign use would be
established and the risk rated accordingly.
Small buses and coaches: Small buses (those with between 12–16 seats) are popular with
social clubs and charitable organisations, which often have limited funds.
There is, therefore, a potential hazard associated with the risk of inadequate servicing,
perhaps undertaken by volunteers, a risk reflected in the introduction of the Minibus
(Conditions of Fitness, Equipment and Use) Regulations 1978, together with the
possibility of young drivers being required, drivers being unfamiliar with driving vehicles of
that size, and the risk of fatigue when the non-professional driver undertakes long journeys.
A driving restriction to persons between 25 and 65 might, therefore, feature in an insurer’s
acceptance criteria. Rating might be based on cover, rating district, value of vehicle and a
premium per seat, with separate rates for coaches used for hire and reward and those not so
used, together with those used in accordance with a minibus permit.

D3 Rating: the information required

One could, perhaps, successfully argue that fleet business does require a ‘pure’ underwriting
process, bearing in mind the quantitative techniques employed.
It is the existing insurer that has the best knowledge of the fleet experience, as it will have
been able to establish the average book premium for, possibly, an extensive period of time.
The experience held by the existing insurer for the three years prior to the quotation is the
generally accepted period disclosable to prospective insurers in a standardised claims
experience form. However, the experience for the latest year will not be complete at the time
the experience form is being circulated and may only represent eight or ten months. An
allowance for 'incurred but not reported' (IBNR) claims in the current year will need to be
included when assessing the claims experience.
Since 1978, the market has agreed that holding insurers would make the experience
available to a policyholder, or their approved intermediary, in an agreed format.
If the claims experience is provided by the broker, the prospective insurer may provide a
provisional quote, but reserve the right to withdraw cover and cancel the policy if the holding
insurer fails to confirm the experience.
 5/18 IF5/October 2022 Motor insurance products

Alternatively, if it is found that the holding insurer’s experience does not correspond with that
previously provided by the broker, then the prospective insurer has the right to amend its
quotation. Some insurers will not provide a quote without a confirmed claims experience.
D3A Contingent liability and occasional business use
Contingent liability: Rating is usually based on a simple formula, related to the number of
employees authorised to use vehicles on the employer's business (excluding those owned
by or provided by the employer) and a rate per capita (i.e. per employee) is used. The
calculation is not ordinarily subject to a no claim discount (NCD) or a fleet discount but may
be included in the overall premium for a large fleet. The premium may be adjusted at the end
of each period of insurance according to the maximum number of employees declared at any
one time during the period.
An alternative rating method is to base the rate per capita on the number of vehicles owned
by employees which they are authorised to use on company business.

Refer to
The nature of the contingent liability risk is covered in chapter 2

Occasional business use: This cover is available to cover only the occasional business
user. The policy is restricted strictly to the business of the employer and no social, domestic
and pleasure use is permitted. It is not a contingent cover, but a primary cover that replaces
Chapter 5

the need for the employees to insure their cars for business use. Consequently, a certificate
of motor insurance is issued.
Unlike the contingent liability policy, which indemnifies the policyholder (employer) but not
the employee, the OBU policy indemnifies the policyholder or, at their request, their
employee. Rating is fairly basic, based per capita (on the number of employees) and the
type of cover required; comprehensive or third party.
Unlike with contingent cover, the insurer is providing primary cover for unspecified vehicles
and it is usual to make enquiries as to the age range of the employee base and, where
appropriate, seek details of adverse features such as serious convictions. Insurers may also
seek to establish the annual mileage covered by the vehicles to be covered and exclude
those which exceed a stated business mileage limit (e.g. 1,000 miles per annum) to establish
the level of exposure. Vehicles regularly used for business purposes should be insured by
the employee in their own name, with business use included, or insured by the employer
under their own fleet policy, noting the interest of the employee as owner. As with contingent
liability, OBU is often included in fleet policies or available as an extension but can be
provided separately.

D4 Claims history
The factual information required is the total number of claims and this may then be further
distinguished by amounts paid and outstanding reserves. The insurers may wish to ensure
that the reserves are as accurate as possible. Payments/reserves will then be separated as
either ‘own damage’ or ‘third party’ payments, although the latter may be further broken
down between ‘third party property damage’ and ‘third party personal injury’.
The level of 'own damage' excess applied each year will also be set out in the experience
form to enable the potential adjustment of prior year 'own damage' claims to the level of
excess now being requested.
This will produce a total of four columns (two paid and two outstanding) for the year in
question. This process will be completed for three or, perhaps, even five years of experience.
• A prospective insurer would seek to identify trends in the claims experience.
• This experience will obviously vary, depending on the number of large third party losses.

D5 Future projections
D5A Claims cost per vehicle
Once the claims cost per vehicle is established, it is possible to compare it to the average
premium per vehicle.
Chapter 5 Rating and underwriting 5/19

claims total paid and outstanding

Claims cost per vehicle =
number of vehicle years
The vehicle year is the exposure of one vehicle for a full policy year. In other words, if a
particular vehicle is insured for the full policy period of one year, then that is one vehicle year.

Example 5.1
When an insurer reviews a fleet policy for a particular policy period, they may discover, for
example, that a total claims amount of £193,000 and vehicle years of 232 produces a
claims cost per vehicle year of £831.90.
Clearly, inflation may affect this amount and while inflation adjustments can apply to the
whole of the claims figures, it may be more accurate to link own-damage claims to an
index relating to repairing vehicles, plus vehicle costs, wages etc., (within, say, the motor
trade sector).
If inflation is running at 3.5% per annum, then, in the above example, the projected claims
cost per vehicle year for the coming year will be increased to £861.02.

Again, with information technology, it is possible to create and develop a sophisticated level
of projection.
D5B Claims frequency

Chapter 5
Fleet underwriters would like to predict how many claims there are likely to be, plus their
average cost and then relate this to the number of vehicles.
Referring to the above example, if there are 58 claims represented by the £193,000 figure,
then there is a claims frequency of 25% (i.e. one in four vehicles has had a claim as the
vehicle years is 232), and the average cost per claim is £3,327.58 which when increased by
inflation of 3.5% produces a projected average claims cost of £3,444.05. If we apply the 0.25
claims frequency figure to the projected claims cost of £3,444.05, then this gives a total of
£861.01 per vehicle year.
The above method helps to establish trends and, hopefully, reliable trends, which enable
underwriters to project the likely total claims costs of a particular motor fleet in the coming
year, given increases or decreases in the fleet size.

E Risk management
This is increasingly becoming an important factor when assessing and rating commercial
risks generally. Understandably, risk management is often actively encouraged by insurers,
and a number now produce booklets and information to explain how best commercial
policyholders can improve their methods of working. Brokers or intermediaries may also offer
risk management services to their clients to differentiate them from their competitors.
For an insurer, the principal objective is to reduce the overall claims costs by more than any
premium discounts (plus miscellaneous costs). The additional benefit is that risk
management services can be used to attract new business and aid renewal retention.
For a policyholder, there is a likelihood of reduced premium, plus their business interruption
would be minimised (as fewer or less severe claims will mean vehicles would be off the road
less). Better risk management also protects the assets of the policyholder (i.e. the
employees), and avoids adverse company publicity.
Insurers can use partnerships with specialist risk management providers to improve their risk
management techniques. Perhaps the greatest benefit is a decrease in the number of people
actually dying or suffering personal injuries.
Insurers can adopt different methods to assess the risk management procedures put in place
by a particular policyholder. For example, the claims data held by the insurer may be
assessed, although the policyholder, themselves, may also be able to collate their own
statistics in order to assess their own risk performance. Additionally, the insurer may be able
to undertake a risk survey and audit to produce an accurate and ongoing risk profile.
Once an insurer is in possession of meaningful statistics, then it can look for specific reasons
behind the claims trends. Liaison with the policyholder or their representative can then result
 5/20 IF5/October 2022 Motor insurance products

in a risk management programme to address particular problems (e.g. training of all or

specific drivers or poor maintenance regimes.)
Policyholders may be encouraged to introduce a policy on driver training; but there are
inherent problems with this particular risk management option as driver turnover can often be
high and there may be a number of drivers who are contracted on an agency basis.
Other possible risk management measures could be more effective recording or undertaking
of vehicle maintenance and a clear policy on accident reporting.
The Health and Safety Executive, in conjunction with the Department of Transport, have
published a booklet titled ‘Driving at Work: Managing work related safety’, which provides
guidance on how to manage work related road safety, and also how to evaluate risks,
focusing on three crucial elements, being the driver, the vehicle, and the journey.

F No claim discount and other driving

incentives
No claim discount (NCD) is principally a feature of private car insurance although it can be –
and is – used in commercial motor for risks that are not rated upon their own performance.
Essentially, NCD is a ‘reward’ granted to policyholders who have not made a claim upon
their policy during the preceding period of insurance, normally twelve months.
Chapter 5

Arguably, application of NCD has no statistical justification. If statistics show that the average
driver has, say, an accident or claim every two years, then a policyholder who has remained
free of incident for a year is statistically more, rather than less, likely to have an incident in
the year during which they will be paying a smaller premium.
Originally, NCD was introduced to encourage loyalty to an insurer. As it is cheaper for an
insurer to renew a policy than to take on a new one, it is worth offering a loyalty bonus in an
effort to secure renewal of better risks. However, nearly all insurers are willing to accept
other insurers’ proof of claim-free years driving which will then be applied to their own NCD
scale making the loyalty incentive redundant.
Under modern NCD scales, a claim-free policyholder can earn up to 75% or more discount
in increasing steps over a period of, say, four to five years.
Again, in the early days of NCD, the discount earned was lost in its entirety following a single
'at fault' claim under the policy. Nowadays, it is usual to have a so-called reversionary scale
which sees the NCD ‘step back’ by, say, two years for each 'at fault' claim made along with
the option to protect the level of discount earned in the event of future claims.
Although the mobility and size of NCD scales has rather obliterated its original purpose, it
does still act as a sort of ‘excess’ for any given claim. In other words, a policyholder is
unlikely to claim for an incident that will cost less than the consequent loss of NCD.

F1 Initial or starter discounts

Application of NCD can • those that have no driving record at all and cannot, therefore, prove
prejudice the following: themselves; or
• those that have a good record, but under someone else’s policy.

Both categories can be catered for by the application of an ‘initial’ or ‘starter’ discount. The
amount of such discount varies from insurer to insurer, as will the action taken after the first
year of claim-free history. One example would be a 25% starter discount moving onto the
first rung of the NCD scale at 30% or possibly 50% after the first year, if claim free.
Some insurers will give a new car owner a discount equivalent to the number of years of
proved claim-free and regular driving under someone else’s policy. This is particularly true for
company car drivers who revert to owning a car of their own or offspring who have been
regular drivers of a parent's vehicle.
No claim discounts can only be used on one policy at a time. If a proposer buys an additional
vehicle any NCD being earned on an existing vehicle cannot also be applied to the
additional one.
Chapter 5 Rating and underwriting 5/21

Some insurers however offer a ‘second car introductory’ discount whereby, subject to certain
criteria being met, they will allow a discount on the second vehicle up to the level of that
being earned already on the first vehicle.
A few insurers have now introduced what is called the accelerated NCD. This is where a
policyholder can qualify for a full year’s NCD after six months, provided that the policyholder
then arranges a further full year’s policy. This was initially introduced in order to encourage
policyholders to change their renewal date to one in a month which is less busy (from an
insurer’s perspective, certain months in the year may be busier for renewals than others,
typically March and September when new registration marks are released).
It is often used as a marketing tool for new/young drivers: for example, new drivers may be
offered an initial six-month policy after which time, if no claims have been made, a 30%
discount is offered on a year’s renewal. This could effectively bring down premiums for the
first 18 months by about a third. Drivers who can get through the first year-and-a-half without
a claim are then rewarded with a 45% discount when they come to renew.

F2 Protected or guaranteed discounts

In the early 1980s, one insurer looked to retain more private car renewals by offering to
'protect' NCD once it had reached its maximum. For an additional premium, the policyholder
was allowed so many – usually two – claims in a given period of time – usually five years –
without loss of NCD. Upon the loss of the third 'life' the policyholder would revert to the
normal scale and could not re-join the scheme until the NCD had been rebuilt to

Chapter 5
maximum. On loss of a fourth life, NCD would reduce in line with the insurers published
'step-back' scale.
Undoubtedly, this gave the insurer a head start, but within a very short period this offer also
became both common throughout the market and mobile, with other insurers willing to
protect NCD earned with a rival company.
Guaranteed NCD is slightly different from protected NCD in as much as it cannot be taken
away, no matter how many claims are made.
However, the insurer's protection lies in the fact that renewal is not guaranteed and,
therefore, a particularly bad record will be penalised by onerous terms or declinature to
renew. In the main, guaranteed discounts are only applied to certain schemes and, in effect,
the policies are 'flat' rated, i.e. there is only one rate for a particular type of risk without any
prospect of earning or losing discounts.

F3 Standard, Protected and Guaranteed Discounts –

summary
As indicated, NCD is accumulated over a number of years, and is a ‘discount’ from the
‘gross’ premium. That is, the gross premium is the amount that would be charged, if there
were no discount available. The standard NCD is that which is accumulated over a period of
around four or five years, until the policy holder reaches a maximum, up to 75%.
Once a policyholder reaches the maximum discount (and the corresponding claims free
years), then they may be eligible for a protected discount. This means that the discount is
‘frozen’ at the maximum, provided that there are, say, no more than two claims that would
otherwise reduce the future level of NCD (i.e. 'at fault' claims) within a five year period. If the
insurer would be able to recover their outlay following a claim (i.e. a 'non-fault' claim), then
this will not count as one of the two claims. However, it must be remembered that while the
level (%) of NCD may be protected, the premium actually charged is not and may increase
(or decrease) at renewal due to other factors such as inflation, claims loadings, etc.
Finally, there is the guaranteed discount, where the insurer provides an unqualified
agreement to maintain a particular policyholder’s no claim discount position, irrespective of
the claims that may subsequently be submitted. However, the insurer can protect his or her
position by declining to renew or, perhaps, increasing the premium substantially where it
feels that the premium charged is not commensurate with the risk if the policyholder’s claims
record deteriorates.
 5/22 IF5/October 2022 Motor insurance products

Question 5.4
Louis has a standard four years' no claims discount of 60% from his insurer. He
advises the insurer of a claim he is responsible for.
A. How will this affect his no claim discount when he comes to renew his policy?
B. What protection would he have had, if his no claim discount had been protected?

F4 Pay-as-you-drive policies
In October 2006, one particular insurer was the first to offer a 'pay-as-you-drive' policy aimed
at first-time drivers and those who drive fewer than 8,000 miles a year.
A black box was installed in the car and the driver charged according to when the journey
was made and the type of road used. By avoiding peak times and using motorways the
policyholder paid less, while young drivers were charged extra to drive after 11pm – when
accidents are more likely to happen.
Since the concept was launched, there have been other insurers who have entered this
niche market, and the original idea of paying for miles travelled has been further developed.
This type of policy allows insurers to accurately assess the risk: the installation of a telematic
device to record data enables both the insurer and the policyholder to monitor not only the
amount of miles covered in any set period, but also the distance travelled in a singe trip, the
Chapter 5

time when the journey was made, and the types of roads used.
Moreover, the data collected can also potentially be used to record the vehicle's speed
during the course of a journey, plus levels of braking, acceleration and cornering. This allows
the policyholder (perhaps with the help of the insurer) to identify areas where they can
improve their driving behaviour. This type of insurance has been labelled 'Pay-how-you-
drive'. The insurer may also be able to offer incentives in the form of a good driving score, to
encourage and reward better driving and improved road safety which lowers their insurance
premium. It also helps to build a relationship between the insurer and the insured, which may
generate a greater level of loyalty and the likelihood that an insured who has earned a good
driving score will renew with the same insurer.
Telematics is also a useful means of capturing relevant evidence before and at point of
impact where there is an accident and this can be used to improve the speed and accuracy
of the claims-handling process, particularly when used alongside a forward-facing dashboard
camera. It not only provides data on the movement of the vehicle but also force of impact,
location and time of the accident. The technology can, therefore, reduce the scope for
disputes over liability and improve ways to identify first-party and third-party fraud.
Other value-added benefits can include warnings to the driver when speed limits are being
exceeded and warnings when the vehicle is approaching known hazards.
Telematics is seen as a possible solution to the increasing restrictions placed on insurers by
changes in legislation. It could, for example, negate the relevance of rating by age and
gender, together with the possible need to disclose type of usage, anticipated mileage and
some other traditional rating factors which are currently subject to possible innocent or
fraudulent misrepresentation by the proposer.
Many motor insurers now offer this type of policy and the technology is continuing to
develop. For instance, some schemes allow the insurer to monitor how, where and when the
vehicle is being driven via a mobile phone app or a device which plugs into the vehicle's
onboard diagnostic (OBD) portal. This avoids the cost and inconvenience of having to have a
telematics box fitted to the initial vehicle insured and any subsequent substitutions of
vehicles which may take place.
‘Pay-as-you-drive’, pay-how-you-drive and telematics are now considered mainstream. They
are often included as part of an insurer’s range of products and are likely to significantly
influence the future of motor insurance.
It was estimated that there are now in excess of one million motor insurance policies in force
that have telematics data reflected in the insurance premium calculation. The majority of
these insure a driver under 25, with over 25% of young drivers now insured under a
telematics-based product.
Chapter 5 Rating and underwriting 5/23

The growing acceptance and popularity of telematics motor insurance products continue to
attract new entrants into the motor insurance market from the InsureTech field. They are
adopting a ‘test and learn’ approach to explore what more can be obtained from telematics
data and how it can be used in increasingly innovative ways in motor insurance underwriting
and pricing.
Usage-Based Insurance (UBI)
This is a further development of the 'Pay as you drive' concept and uses the latest telematics
technology to allow drivers who only drive occasionally to pay only for the time the vehicle is
being used. Many cars spend over 90% of their time parked up. Rather than being calculated
monthly or quarterly, the premium can be calculated by the day or even the hour. This is also
referred to as 'on demand' insurance.
The insurance can be activated by ringing a call centre or via a mobile app. The driver pays
either a rate per mile the car is actually driven, similar to the 'pay as you drive' model, or for
the time the vehicle is in use. Both these figures can be calculated from the telematics data
sent from the vehicle and used to raise a charge at the end of each trip. Alternatively, the
charge may be raised monthly, based on the mileage covered in the previous month.
An annual flat charge is still applied to cover the time while the vehicle is not in use but
requires insurance to remain legal and provide cover against fire, theft or malicious damage.
In April 2013 the ABI, in association with BIBA, published a consumer fact sheet explaining
how ‘Pay-as-you-drive’ works, together with a good practice guide for providers of this
insurance. The purpose of the guidance is to outline what insurers should seek to achieve to

Chapter 5
help ensure customers understand and trust telematics-based insurance.
It covers two main areas:
• Actions for managing and handling the personal data recorded by the telematics device.
• Actions for managing telematics-based policies to ensure customers are treated fairly and
to minimise customer dissatisfaction.
The consumer fact sheet, 'Telematics Motor Insurance' and the good practice guide for
insurers, 'Selling Telematics Motor Insurance Policies' were last updated in November 2020.
Connected vehicles
Any vehicle with a telematics box or linked mobile app is a connected vehicle. However,
vehicles which do not have a telematics device installed may still be connected. Many
modern infotainment systems and satnavs are connected in that they can receive updates
and upgrades over the internet via wi-fi. The connections are often embedded in new
vehicles and send diagnostics and vehicle management information to both the
manufacturer/dealer and the vehicle owner.
Systems which will automatically call the emergency services in the event of an accident are
also becoming more common. Generically known as eCall, the system has been mandatory
on new cars since April 2018 and alerts the emergency services to the exact location of the
disabled vehicle anywhere in Europe. Even if none of the occupants are able to speak, the
Event Data Recorder system will send information about the vehicle's location and other key
data such as whether the airbags have deployed.
Some vehicles also have the ability to not only send and receive diagnostic information but
to receive software 'patches' which upgrade the performance of the vehicle 'over the air'.
Unless controlled, this could significantly impact the ability of insurers to accurately rate risks
as the performance of the vehicle may be capable of being changed after it has left the
dealers. Such changes would be considered as a modification requiring immediate
notification to the insurer and a review of the risk.

F5 ADAS and automated vehicles

Advanced Driver Assistance Systems (ADAS) are electronic systems that monitor the
environment around the car and give varying levels of assistance, ranging from audible
warnings to direct intervention, to ensure the safety of the occupants. Examples of ADAS
systems include lane departure warning, Autonomous Emergency Braking, cameras, park
assist, adaptive cruise control and traffic sign recognition.
The increasing use of ADAS technology in cars, vans and heavy goods vehicles is likely to
have a dramatic impact on the nature of motor claims in the future. Systems that prevent
 5/24 IF5/October 2022 Motor insurance products

cars from crashing, significantly mitigate the speed of impact by slowing the vehicle down or
warn the driver of an impending collision have already been shown to reduce accident
frequencies and total claims costs for both damage and injury claims. However, due to the
cost of the technology and where it is placed (often in vulnerable areas at the front or rear of
the vehicle), if the vehicle is involved in a collision, the cost of repair tends to be significantly
higher than for a non-ADAS equipped vehicle. Furthermore, incidents which do not actually
damage the ADAS technology may still result in increased repair costs as the ADAS
technology will need to be checked and, potentially, recalibrated to ensure it remains fully
functional.
As the level and sophistication of ADAS technology increases, the lower the level of
engagement required of the driver and the closer we will come to the point when cars will
become fully autonomous.

Refer to
Automated and Electric Vehicles Act 2018 (AEVA) on page 3/41

Question 5.5
Why might it be difficult for commercial policyholders to provide effective driver
training?
Chapter 5

G Renewal of cover
Renewal is regarded by insurers as an important process. It is less costly to renew a policy
than arrange cover on a new one. Risks that are worth keeping may be subject to various
renewal retention schemes.

Change to FCA rules on renewal transparency for retail general

insurances
From April 2017, new regulatory rules were introduced by the FCA which affect personal
insurances. These require insurers and intermediaries selling retail general insurance
products to:
• disclose last year’s premium on renewal invitations (accounting for mid-term
adjustments where relevant);
• include text to encourage consumers to check their cover and shop around for the best
deal at each renewal; and
• identify consumers who have renewed with them four consecutive times, and give
these consumers an additional prescribed message encouraging them to shop around.
These changes resulted from an FCA consultation into concerns about levels of consumer
engagement, their treatment by firms at renewal, and the ensuing lack of competition. 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. As a result, due to inertia, consumers often defaulted to renew products that were
not good value or had become unsuitable for their needs.
Following a subsequent general insurance pricing market study, the FCA announced their
decision to ban the practice of offering lower premiums to new customers, which penalises
those who renew with the same insurer for many years. This practice, known as dual
pricing or price walking, has received much criticism in the press in recent [Link] it is
considered to be unfair to existing, loyal customers. The new rules, which form part of the
general insurance pricing practice (GIPP) rules (or FCA pricing fairness) apply to all motor
and home policies taken out by consumers and were effective from January 2022. After
this date, insurers must offer an existing customer a renewal premium that is no higher
than the new business premium they would pay for the equivalent cover with the same
insurer through the same channel.
Chapter 5 Rating and underwriting 5/25

Example 5.2
When an insurance contract is renewed, a new contract is created, and usually on the
same, or a similar basis, to the previous one.
Basically, the insurer will send out a renewal invitation shortly before the renewal date.
This will be an offer by the insurer to renew, at a proposed premium amount, and based
on the information on which the previous policy was based.
Renewal is an opportunity for both parties to indicate any potential changes to the
contract. If the risk has changed, then provided the insurer has made it clear what
changes in information the policyholder must make the insurer aware of, the onus falls on
the policyholder to notify the insurer of any changes. Fundamental changes to the contract
should be notified to the insurer immediately. For instance, if the policyholder sustains a
drink-drive conviction mid-term, and the policy has named drivers, then details of the
conviction and drink-driving ban should be immediately advised to the insurer.
There may be (minor) changes to the policyholder’s situation that are given to the insurer
at renewal time. Clearly the basis on which the (previous) contract was originally created
has changed, and notification of the changes constitutes a counter offer, which the insurer
can either decline or accept. If they decide to accept, then it may be on different terms and
premium.

G1 Renewal retention

Chapter 5
This is the percentage of cases is renewed rather than lapsed, and it is a very important
measure of the success of an account. Over the years, numerous renewal retention
schemes have been devised.
One of the earliest renewal retention devices was the introduction of no claim discount,
which was followed some years later by protected and guaranteed bonuses.

Direct debit These are often used as the onus rests with the policyholder to cancel the payments.
payments Assuming the payment is made on or before the expiry of cover, the insurer will issue the
renewal certificate of insurance. Mandates may also be used for deductions from credit
cards, either monthly or annually, but a new mandate will invariably be required when a
new renewal period starts.

Monthly policies These are rare, but often use the same methods as above.

Long-term These are used mainly for commercial motor policies. They are contracts for, say, three
contracts years with penalties incorporated for early termination, and the terms may hinge on the
claims loss ratios at the end of each policy period.

G2 Renewal system
Renewal will normally be on standard terms and will be generated by a computer system.
Each insurer will have developed a list of criteria that will be used to determine the extent to
which renewal will be offered on ‘standard’ terms.
What changes a risk to make it less attractive to the insurer? Often it will be convictions
sustained by the policyholder (or any driver covered under the policy), and/or the incidence
and nature of claims that have occurred during the policy period. For example, two fault
claims may affect the perception of the risk, especially if one or other involves personal
injury. It is also possible that a policyholder may wish to add a young driver or one who may
have an unfavourable claims and/or conviction history.
Of course, a risk that was originally taken with reluctance may improve with time, e.g.
convictions may become spent under the Rehabilitation of Offenders Act 1974, recently
amended by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
Alternatively, a driver with a previously poor claims record may have remained claim free in
recent years.
The renewal system that we will consider is that which applies to private car risks. Some of
the considerations do not apply to commercial motor risks. These are mentioned where there
is a significant difference. It is always the case that fleet rated risks are considered
individually at renewal.
 5/26 IF5/October 2022 Motor insurance products

Features that may require special consideration at renewal are:

• Changes to the risk since the previous renewal date, e.g. claims or convictions notified or,
perhaps, an additional driver.
• Aspects of the risk that have been present for at least one year and which had previously
attracted special term but which may now warrant a return to normal terms.
Every insurer will have risks in each of these categories. We will now consider the different
aspects and the underwriter’s likely approach.
G2A Vehicle type and/or value
Most vehicles will be handled according to the car group rating system. However, certain
types and categories will need to be considered at renewal.

Agreed value policies High value vehicles High performance vehicles

• These will have been issued in • Higher value vehicles may be • This can result in an increased
the main for vintage or ‘classic’ customised, and this would premium, especially if coupled
cars. There is usually a need to increase the value still further. with another aspect of the risk
re-agree a value for the This could then place it in a which is undesirable. Insurers
forthcoming year or perhaps rating group far above that may be prepared to maintain
every two years. The insurer which was originally envisaged. standard terms if the only sub-
may wish to look at the risk Insurers may wish to monitor standard feature is the risk itself
specifically or, possibly, in the experience of these risks and no incidents have occurred
comparison with others in the individually. The value may, of during the previous terms.
Chapter 5

portfolio, insured on a course, have reduced over the

similar basis. course of the previous term and
this should be taken into
account.

G2B Age of driver

Insurers are concerned to monitor risks at both ends of the age scale. The actual numbers
used will vary. Because of the incidence of accidents involving young drivers, they are
treated with a certain amount of circumspection initially, particularly if they have only recently
passed their driving test. As time goes by, the risk will improve so that the market (or a sector
of it) will be offering more favourable terms.
Very young drivers may use forklift trucks and certain agricultural vehicles, especially on the
insured’s own premises, because of the absence of any licensing requirements. Even a
minor claim may give cause for concern.
With older drivers (say, over 70 or 75), an insurer would still wish to be satisfied that all who
use the car are in reasonable health and have retained their driving licences. It is possible
that an insurer may ask for a medical certificate from their doctor, particularly if there have
been claims which may indicate poor vision, slow reaction speeds or evidence of confusion
on the part of the driver involved.
G2C Occupation
There are some occupations that are deemed undesirable, but the change may have
occurred mid-term, or the risk taken to gain other (desirable) business. Examples would be
members of the armed forces, professional entertainers, betting shop proprietors, etc. These
are sometimes considered specialist risks, and only a few insurers will offer terms.
G2D Convictions
There are really only two types – those that cannot now be taken into account and those that
still remain to be considered.
Convictions that are now ‘spent’ under the terms of the Rehabilitation of Offenders Act 1974
(as updated by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO)),
the Management of Offenders (Scotland) Act 2019 or the Rehabilitation of Offenders
(Amendment) Order (Northern Ireland) 2022) cannot be taken into account. If an insurer
wishes to continue to apply special terms it will have to justify this on the basis of some other
feature of the risk.
Some convictions will have been known at the outset of the policy and these may have
resulted in terms being applied. With each successive renewal, the terms will have to be
reviewed and possibly reduced. Over time, the conviction will become spent, and at that
Chapter 5 Rating and underwriting 5/27

point it cannot be considered as a rating feature and any loading or terms associated with,
removed.
If they occur during the current or previous period of insurance, then they should be notified
by the policyholder to the insurer if the renewal invitation instructs them to do this. The
insurer will then take the appropriate underwriting action.
On occasions, an insurer will first become aware of a conviction at the time that an accident
report form is completed. If it should have been disclosed at the last renewal, or prior to that,
then it may affect the insurer’s perception of the risk. If the renewal is normally generated by
computer, then the insurer will need to ensure that this is overridden and the risk manually
reviewed by the underwriter.
G2E Claims experience
Every insurer’s statistics will show a frequency of losses that is considered ‘normal’ for a
particular class of business, e.g. private car or vehicles of special construction.
G2F Claims frequency
With a normal frequency of losses in the sector of the portfolio, there will be those cases that
need to be considered separately, e.g. more than one fault claim in any one year. Policies
that fall outside defined norms should be specially considered.
G2G Claims severity
This will really depend on the cost of each claim, or if it/they are still outstanding, the reserve

Chapter 5
placed on each. For both frequency and severity, it would be possible to programme the
insurer’s computer to take automatic action in given circumstances.
G2H Health factors and disabilities
Consideration of a medical condition may depend on whether the condition is progressive.
The DVLA does list those conditions that they require to know about in their leaflet (D100),
and it is these which are often used by insurers as the basis for a review.

H Private car renewal procedure

Motor insurance is complicated by the fact that the Road Traffic Act elements of a private
motor policy must be evidenced by a current certificate of motor insurance (s.147 of the RTA
1988). It follows that renewal cannot be backdated any more than cover notes and
certificates themselves.
Normally, the premium will be paid in good time. However, any late payment will result in the
insurer being unable to issue a certificate dated from renewal as this would amount to
backdating unless the renewal invitation included a temporary covering note providing RTA
cover for a short period (e.g. 3 or 5 days) beyond the renewal date. This may be included to
allow for any delays in the processing of renewal payments.
In these circumstances, depending upon how long after renewal date payment was made,
an insurer may have two options:
• continue with the existing policy but issue a certificate dated from the day of issue; or
• issue a new policy and certificate from the date payment is received.
In either case the insured is without cover for the period between the renewal date of their
policy and the time payment is made.

H1 Other features
Three other features of motor insurance renewal procedures need to be considered:
• The renewal invitation issued by the insurers will indicate the degree of NCD entitlement
achieved by the insured and, should the latter wish to place their business with another
insurer, they will need their existing insurer’s official renewal invitation to serve as proof of
the entitlement. Often insurers will indicate on their renewal documents simply the
number of claim-free years plus the net premium.
• Each renewal of motor insurance is a new contract and, therefore, the duty of disclosure
will apply to any material circumstance of which the insurer is unaware.
 5/28 IF5/October 2022 Motor insurance products

This means that, subject to the provisions of the Consumer Insurance (Disclosure and
Representations) Act 2012 (see Legal and regulatory considerations on page 3/1), and
provided the policyholder has been clearly asked for the information, full details must be
given of convictions or accidents which have occurred to any of the regular drivers of the
vehicles and, in addition, specific details must be given if a young person has begun to
drive the vehicle.
• There is a potential difficulty with a named driver on a particular policy and the
accumulation of any NCD. Some insurers will provide that (named) driver with a discount,
should he or she wish to take out a policy in their own name, providing that the named
driver’s policy remains with the original vehicle insurers. One insurer will provide an NCD
for every year that a named driver has remained claim-free. However, it is not necessarily
guaranteed that the NCD will be transferable to another insurer.

Question 5.6
What effect does late payment of a private motorist’s renewal premium have on the
insurer’s ability to release the original certificate of insurance, dated from renewal?

I Commercial vehicle renewal procedure

For policies covering single commercial vehicles the renewal procedure may well mirror that
for private car, apart from the provisions of the Consumer Insurance (Disclosure and
Chapter 5

Representations) Act 2012, which do not apply to commercial insurance contracts. Instead, it
is the Insurance Act 2015 which is the governing legislation applicable to commercial
insurances.
Similarly, for small fleets where each vehicle is ‘book rated’ and individual certificates issued
for each vehicle, the renewal procedure may be the same as that for private motor.
Many insurers would review even their smaller fleet-rated risks individually at each renewal.
However, for larger fleets where rating is based on the individual fleet’s past performance,
insurers will certainly wish to carry out a full review and to rate the risk for the following
period of insurance.
For large fleets, the renewal process may start some months prior to the renewal date. This
enables the underwriter to gather information about claims reported during the past year
together with any deterioration or improvement in claims reported in prior years and which
have not yet been settled. The claims history will also be provided to the broker who, on
behalf of their client, may seek alternative quotes from the market.
Many of the claims will still be open and heavy reliance will be placed on the outstanding
reserves. For this reason, the claims team may be required to re-visit the reserves to make
sure that they provide a true and up-to-date picture. Not to do so could lead to an incorrect
premium. The practice of some insurers to use ‘formula’ or average claims costing to
produce estimates may produce difficulties for a competing insurer. This method of claims
assessment relies upon the fact that every outstanding claim will appear in the insurer’s
books at the same figure for the particular category. This may not be a true reflection of the
necessary reserve, which is what is required to evaluate the risk.
All of this activity places a heavy administrative burden upon the holding insurer and,
therefore, renewal retention becomes even more important.
Motor fleet ratings generally tend to involve a great deal of negotiation at renewal, and
discounts may be given from the calculated rate if the holding insurer wishes to retain the
business.
It should be remembered that since 1978, the insurance market has agreed that the holding
insurer of any particular fleet would provide information in a prescribed format to other
insurers interested in the risk.
The fleet claims experience form will provide basic information including the following:
Chapter 5 Rating and underwriting 5/29

Refer to
A specimen of the fleet claims experience form is provided in Appendix 5.1 on
RevisionMate

• Name, address and occupation of the policyholder.

• Three years claims experience, including vehicle years, total number of claims, plus
claims paid and claims outstanding figures.
• A breakdown of the claims paid and outstanding figures, but this is not particularly
detailed, split between AD (Accidental Damage), F&T (Fire and Theft) and TP (Third
Party). The totals for such figures will also be given.
• A synopsis of the previous year.
• Brief details of the cover provided for each of the three years, including the excess levels
applied each year.
• The date to which the experience is compiled.
• The event date of the last claim included.
A schedule of vehicles or the number of vehicles of each type which makes up the current
fleet would also be provided.

Chapter 5
 5/30 IF5/October 2022 Motor insurance products

Key points

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

Rating and underwriting

• Consumer insurance contracts are governed by the provisions of the Consumer

Insurance (Disclosure and Representations) Act 2012 which places upon the
consumer a duty to take reasonable care not to make a misrepresentation to
the insurer.
• Since August 2016 commercial contracts have been governed by the provisions of the
Insurance Act 2015 which require the customer to make a fair presentation of the risk
to insurers.
• Part 8 of ICOBS regulates claims handling. Other than for fraud, insurers must not
unreasonably reject a claim on grounds of non-disclosure of a material fact (as
described prior to the Insurance Act 2015 taking effect in August 2016) which the
policyholder could not reasonably be expected to have disclosed; or non-negligent
misrepresentation of a fact material to the risk; or breach of warranty or condition.
• The main rating factors for private cars are: vehicle; proposer and other drivers;
geographical area of use/garaging; use to which the vehicle is put; and cover required.
• For goods-carrying vehicles, the most important rating factors are: use; district; type/
size of vehicle (plus trailers); policy cover; and drivers.
Chapter 5

• Fleets vary in size and may comprise a variety of vehicles. Claims history and claims
frequency are important rating factors. Usually a book premium is established and a
discount given or loading applied.
• No claim discount (NCD) features mainly in car insurance but can also be used for
commercial vehicles. Usually NCD has to be earned over time, based on freedom from
claims but initial or starter discounts may be available for those with no driving record
or a good record with another insurer or employer.
• A protected discount allows the policyholder a specified number of claims within a
given time period without loss of NCD.
• A guaranteed discount cannot be taken away regardless of how many claims are
made, although renewal is not guaranteed.
• Renewal is important to insurers and costs less than arranging new covers. It requires
a new contract so, subject to the Consumer Insurance (Disclosure and
Representations) Act 2012, the duty of disclosure applies to any new facts of which the
insurer is not aware, e.g. recent speeding convictions.
• Although renewal is normally on standard terms, insurers take account of claims
history and may also want to check information received previously, e.g. whether an
elderly driver remains in reasonable health.
• Commercial motor renewal is not unlike that for private cars. For small fleets where
vehicles are book rated, renewal may also be like that for private cars.
• For large fleets, renewal may start months before the renewal date as there may be
much information to gather and evaluate before a premium is arrived at.
Chapter 5 Rating and underwriting 5/31

Question answers
5.1 d. Young drivers.

5.2 Combined operating ratio.

5.3 This allows use by the policyholder in person for their business or profession or that
of their employer, including travel throughout the country.

5.4 A. Louis's no claim entitlement will step back two years and a reduced discount,
typically 40%, will apply at renewal.
B. Had Louis chosen a protected no claim discount, his level of premium discount
would not be reduced by this one claim. The protection allows for up to two 'at fault'
claims to be submitted within a five-year period before the protection is lost and
NCD entitlement reverts back to a standard basis.

5.5 Driver turnover can be high and many drivers will be contracted on an
agency basis.

5.6 The original certificate of insurance cannot be issued, as this would effectively be
back-dating cover and goes against the Road Traffic Acts. In the absence of a
temporary covering note being included with the renewal invitation, a new certificate
of insurance, dated from the date of premium receipt, must be prepared and issued.

Chapter 5
 5/32 IF5/October 2022 Motor insurance products

Self test questions

1. What are the usual main rating factors for goods-carrying vehicles?
2. List five areas in which an insurer may need to ask questions in respect of the
proposer and any other drivers for private car insurance.
3. What is the main purpose of the no claim discount (NCD)?
4. When renewing a policy, what features might the insurer need to give special
attention to?
5. Why is the area in which a car is used or garaged an important factor in motor
insurance rating?
6. What is the main aim of the Consumer Insurance (Disclosure and Representations)
Act 2012?
7. A private car policyholder has advised his insurer that he is changing his address
from a rural village location to a city-centre location and has been told that his
premium will increase significantly. Why is this?
a. Greater potential for litigation. □
b. Higher labour costs. □
Chapter 5

c. Higher parts costs. □

d. Increased traffic density. □
8. For which group of motorists would the class of use 'social, domestic and pleasure'
be most suitable?
a. Couriers. □
b. Mobile mechanics. □
c. Private hire taxi proprietors. □
d. Retired persons. □
9. What information must a private car insurance policyholder disclose to their insurer
at renewal concerning the following changes?
a. Change of employer's address. □
b. Use of new mobile phone. □
c. Fitting of non-standard alloy wheels to car. 1 □
d. Reduced estimate of anticipated annual mileage. □
You will find the answers at the back of the book

In1 addition, answer D also counts as a correct answer. Although it is not a requirement to disclose a reduction in annual
mileage, it may be in the insured's interest to do so as it may result in a reduced premium. An increased estimate of
anticipated annual mileage would have to be disclosed.
 Claims procedures
6
Contents Syllabus learning
outcomes
Introduction
A Principles of claims handling applied to motor insurance 9.2, 9.3, 9.4, 9.5, 9.8, 10.1
B Contributory negligence 9.2
C Motor industry computer databases 9.6, 9.7
D Financial Ombudsman Service (FOS) and Financial Services 9.8
Compensation Scheme (FSCS)
Key points
Question answers
Self test questions

Learning objectives

Chapter 6
After studying this chapter, you should be able to:
• describe how motor claims handling is conducted and the types of claim that may arise;
• explain the relevance of contributory negligence as an issue in the context of claims;
• describe the way in which motor industry databases are used to combat fraudulent claims;
and
• explain the purpose and work of the Financial Ombudsman Service.
 6/2 IF5/October 2022 Motor insurance products

Introduction

Key terms
This chapter features explanations of the following ideas:

Accidental damage Claims and Contribution Contributory

Underwriting negligence
Exchange (CUE)
Financial Fraud Indemnity Insurable interest
Ombudsman
Service (FOS)
Insurance Fraud Market value Notification Reasonable care
Bureau (IFB)
Subrogation Total loss claims ‘Without prejudice’

A Principles of claims handling applied to

motor insurance
It is when the policyholder needs to make a claim that the value of the cover and the claims
service is put to the test. It is, therefore, no surprise that the claims department has been
described as the shop window of an insurance company and the claims handling process
'the moment of truth'.
While motor insurance, particularly private car, is sold largely by price, the claims handling
service can and does affect a policyholder’s decision as to whether they renew with their
Chapter 6

current insurers following submission of a claim.

Obtaining renewal of profitable existing business is crucial for a successful motor insurance
account.

The role of the claims • indemnify the policyholder in accordance with the cover purchased and policy
department is to: wording;
• ensure that only valid claims are paid;
• provide a fast, fair and efficient claims service;
• deal with third party claims while protecting the policyholder’s interests; and
• protect the fund of premiums against overpayment, fraud and expenses incurred
due to inefficient claims handling processes.

The claims department must balance the necessity to provide a high quality service with the
requirement to be satisfied that the claim(s) presented are valid. Once their validity is proven,
then the next stage is to quantify quickly and accurately each claim.

A1 Principles applying to claims

In common with other types of insurance, there are a number of general principles that apply
to motor claims.
A1A Insurable interest
In order that any person can benefit from an insurance policy, they must show that they have
an insurable interest in the subject matter. In other words, they must be able to
demonstrate that the subject matter exists and that they will benefit from its continued
existence and will suffer financially by its loss.
It is the vehicle that forms the subject matter of the insurance policy and anyone claiming
indemnity must be able to demonstrate such insurable interest exists.
Chapter 6 Claims procedures 6/3

For example:
• Anyone who is driving or using a motor vehicle has an interest in any liabilities incurred
due to their use of it.
• The owner of a motor vehicle has a financial interest in the vehicle itself.
• A person hiring or leasing a vehicle may, by the terms of the hiring or leasing agreement,
be liable for loss or damage sustained.
Why have insurable interest? Really, there are two reasons, and they are:
• To eliminate or at the very least reduce any moral hazard. If someone does not have
an insurable interest, then they may be less careful about the subject matter of the motor
policy (i.e. the vehicle), and could possibly cause a loss in order to receive payment from
the insurer.
• To avoid or discourage gambling. Until the concept of insurable interest became a
legal requirement (for non-life policies, this was as a result of the Marine Insurance Act
1906), it was possible for policyholders to arrange insurance policies on anyone or
anything, pay the premium, and subsequently secure a large payment in the event of the
person assured dying or, alternatively, the property, often ships or their cargo, being
destroyed.
Prior to the 1906 Act, wagers were enforceable. Newspapers at the time would carry odds
on the chances of survival of famous people, thus fuelling the idea of gambling. However,
ultimately, this approach became unacceptable.
A1B Indemnity
Motor policies are, essentially, policies of indemnity. Subject to policy limits, exclusions etc.,
the policyholder should be placed in the same position after a loss as they enjoyed
immediately prior to it. This principle of indemnity is usually mentioned in the operative
clause of the policy and may, in addition, be the subject of a definition. ‘Benefits’, including

Chapter 6
personal accident benefits, are not subject to indemnity.

Example 6.1
A classic example of the operation of the principle of indemnity is when an insured vehicle
is rendered beyond economical repair, following an accident. Assuming that the
policyholder has comprehensive cover, the insurers will endeavour to return the
policyholder to the position they were in prior to the accident.
Payment to the policyholder will mean taking into account the age, condition, and mileage
of the insured vehicle in order to calculate its value, and this will form the basis of a
settlement offer made to the policyholder (and/or the finance company, if they still have a
financial interest). Invariably, reference to different car guides will be made, to calculate as
accurate a value as can be determined, by reference to the above.

It is possible that the policy includes a ‘New Car Benefit’, and if the policyholder and their
vehicle meet the relevant criteria, then the insurer will replace the damaged vehicle with a
new one. However, it must be stressed that the facility to provide a replacement car is a
benefit, which means that it is not bound by the indemnity principle.
A1C Contribution
There are really two meanings. One is the situation where there are two or more insurances
which will, effectively, cover part or all of the loss – they will each contribute to the loss on a
proportionate basis to ensure that the policyholder receives and indemnity but does not gain
more than an indemnity.
 6/4 IF5/October 2022 Motor insurance products

In common law, when will contribution arise?

Two or more policies of indemnity exist.

Each of them insures the peril which With motor policies, the standard wording that relates to the
brings about the loss. policyholder’s own vehicle is ‘loss or damage’, this covers
‘accidental damage’ (or A/D), fire and theft.

Each policy insures the same interest in To look at a non-motor situation, tenants and landlords have
the subject matter. different interests in a property, and if each takes out a policy,
covering their own interest, then there will not be dual insurance.

Each policy is liable for the loss. In other However, if one or more insurers has grounds for avoiding the
words, both or all insurers would policy then they would not be required to contribute to the claim and
consider handling the claim. the burden of providing an indemnity would rest with the remaining
insurer(s).

The subject matter which is damaged or lost must be common to both policies.
As we have seen, motor policies contain either contribution or non-contribution clauses, and
sometimes both. Where there are two policies with the same clause, then the loss will be
shared.
However, where the policyholder is driving someone else’s car under the ‘driving other cars’
(DOC) section, there may also be cover available to them under the policy covering the car
itself. There is a market agreement to deal with such situations whereby it is agreed that
where contribution would otherwise be called for, the insurer of the vehicle will pay the whole
claim and the provider of the DOC cover would not be called upon to contribute.
Contribution can only follow indemnity and, therefore, does not apply to any benefits such as
personal accident benefits.
The other use of the term ‘contribution’ relates to betterment. This occurs where, for
instance, the condition of the insured vehicle is better after the loss and subsequent repair
Chapter 6

than it was prior to it. It often applies to batteries, exhausts, tyres, etc. and is sometimes
used in relation to repaired or replaced body parts that might have suffered from corrosion.
It ensures compliance with the principle of indemnity, in that the vehicle should not be
returned to the policyholder in a better condition than it was prior to the accident.
Sometimes an improvement (or betterment) is inevitable if a new panel replaces a corroded
one, and the insurer could, theoretically, ask for a contribution to ensure that the principle is
strictly applied. In such instances it may be necessary to calculate the estimated life span of
a particular part. However, there is a general view that betterment should not be sought
unless the value of the vehicle is increased by the fitting of such a part or parts.
Following repair, invoices, less the policyholder’s contributions, including any deduction for
excess, are passed to insurers for payment. If the insured is VAT registered, the insured will
also be responsible for paying the VAT element of the repair rather than the insurer.
This particular principle has largely fallen into disuse with a number of insurers, mainly
because customer expectation has heightened to such an extent that it can appear to be
mean-spirited to ask for contributions, coupled with the fact that very few cars are of such an
age or poor condition that contributions can be justified.
A1D Subrogation
Subrogation is another consequence of indemnity and can be summarised as the right of an
insurer to take over the insured's right of recovery of payment from a third party responsible
for the loss. If the insured could claim indemnity from an insurer and then also acquire further
payment from a negligent third party then this would result in a profit to the insured and
mean that the principle of indemnity had not been met.
Payment that can be claimed is limited to the amount paid out under the policy. The insurer
cannot recover from a third party before it has actually settled its own insured’s claim and
could, thus, be at great disadvantage by not having complete control of proceedings from the
date of the loss through, say, any delay or by some other action by the insured.
To overcome such disadvantage, policies will invariably include a condition enabling the
insurer to pursue subrogation before the claim is paid, thus, in effect, enabling the insurer to
stand in the shoes of the insured in exercising any rights that the insured has in respect of
recovery from a negligent party.
Chapter 6 Claims procedures 6/5

A1E Notification
This is another pertinent issue. Insurers must be made aware of any incident, which might
lead to a claim, in order to minimise the potential effects.

Refer to
Notification is also covered in General conditions on page 4/15

Because of the changes to the rules that govern court procedure, especially to the situation
prior to proceedings, prompt notification is even more important. As a result of these
procedural changes, a few insurers have amended their notification condition to reflect the
position.
While setting a specific time limit within which a claim must be notified, e.g. within 24 hours
of the incident, is generally considered to be an unfair contract term, notification conditions
often state 'as soon as reasonably possible' to avoid any delay in the details of the loss being
shared with the insurer or their representative.

Question 6.1
What must a person demonstrate to show they have insurable interest?

A2 Claims notification methods

An accident report form used to be the main method by which claims were notified but,
nowadays, the majority of incidents are advised to insurers over the telephone or online, via
the insurers' website. Telephone claims notification, sometimes referred to as FNOL - First
Notification of Loss, works better for insurers that deal direct with the policyholder. However,
where an intermediary is involved, they too are asked to use this method. Some insurers no

Chapter 6
longer use an accident report form at all.
When a claim is notified by telephone, the tele-claims operative may request information in a
sequence and will enter the details straight onto a computer. Once all the information is
received, the operative can then begin to provide assistance and advice in the progress of
the claim. This may include access to recommended repairers and provision of a courtesy
car and, if everything is in order, repair work may start immediately.
Following capture of the information over the telephone or a website, the computer-held
information can be used to produce a fully or partially completed accident report form
which can be posted direct to the policyholder. Alternatively, some insurers will provide a
statement of insurance, as a result of the collation of the material. Often the insurer will
send the form/statement to the policyholder for completion or verification, on the basis that if
they do not respond then the information collated at the time of initial notification is treated as
being correct.
The main purposes of obtaining an accident report form (or statement of insurance) are to:
• provide the policyholder with a convenient medium through which to advise claims
details;
• ensure that all the information that is generally felt to be pertinent to claims handling is
obtained early and accurately;
• enable ‘validation’ of the claim, i.e. that it is properly covered under the policy, that
indemnity can be provided and to what extent;
• assist in dealing with the claim quickly and efficiently;
• provide the policyholder’s current details in order to validate and update contact and
underwriting records;
• check to ensure that the information disclosed at inception, renewal or at the time of the
mid-term change was accurate and full; and
• assist in dealing with liability issues.
 6/6 IF5/October 2022 Motor insurance products

The main headings contained within the form are as follows.

Policy details These details identify the policy record and confirm whether it has recently been
incepted or renewed.

Policyholder details These details are mainly required to authenticate the caller, establish that the
correct policy has been identified and that the information already held on record is
correct. The question relating to VAT is to determine whether the policyholder is
liable for any VAT element of the claim, in view of their status.

Driver It needs to be ascertained which driver was involved, that the driver is covered
under the terms of the policy and that they had the permission of the policyholder to
drive. Lack of permission may indicate no cover or might lead to enquiries relating
to theft or unlawful taking. In a similar way, it needs to be established that the
insurer’s records are up to date and accurate and that there are no non-disclosures
etc., which may result in the claim being repudiated or payment reduced.
The driver rather than the policyholder may be the actual owner of the vehicle. If this
is the case, then a youngster may be trying to get cheaper insurance through a
parent (this is known as fronting). Whether there are any non-disclosures in the
information provided by the proposer has to be considered in the context of the
Consumer Insurance (Disclosure and Representation) Act 2012 or the Insurance
Act 2015. See Insurance Act 2015 on page 5/3.

Vehicle Is all of this information the same as in the computer-held records and is the vehicle
the one currently on cover? Is there any evidence of modifications not previously
disclosed?

Use The use of a vehicle will be restricted by the policy wording and it is, therefore,
necessary to determine the exact use at the time of the incident e.g. was the driver
going shopping - SDP use, or driving to their normal place of work - commuting. For
commercial vehicle, additional questions may be asked to determine whether the
journey is covered, in particular, details of goods being carried etc.

Damage to own vehicle The description of the damage must be consistent with the accident circumstances.
It may also give a first indication of whether an engineer’s inspection may be
Chapter 6

required.

Details of accident The date has to fall within the policy period. The principal reason for this section is
to determine liability. Where available, photographs or sketches of the scene will be
requested.

Other parties involved This will help in a subsequent investigation and may give the insurer information to
assess initially the extent of the loss – for reserving purposes. There may also be a
subsection which seeks details of the injuries both to the passengers in the insured
vehicle and to other road users. Again, this will assist with reserving, and could also
precipitate investigations.

Witnesses or police If particulars are inserted of any individuals who may have seen the occurrence
involvement then this information could, ultimately, help with the determination of responsibility
for the occurrence. In many cases, particularly where the accident has resulted in
injury, the police will have attended the scene. The insurer will require details of any
police involvement, including crime reference numbers issued.

Declaration and This declares that the information supplied is true to the best of knowledge and
signatures belief and provides for the signature of the policyholder and possibly the driver
involved.
It also contains a reminder of the subrogation and co-operation conditions in the
policy and a warning with regard to the use of the Motor Insurance Anti-Fraud and
Theft Register (MIAFTR) and the Claims and Underwriting Exchange (CUE) in
order to satisfy the data protection requirements.

A3 Other clauses relevant to claims

A3A Reasonable care
A term of the motor policy will call for the policyholder to take all reasonable steps to protect
the vehicle from loss or damage and to keep it in a roadworthy condition. This has been
interpreted as saying that insurers would have to prove a high level of 'reckless disregard' for
the safety of the property before they can apply the policy condition in order to repudiate a
claim. A condition that, where required, a vehicle has a valid MOT certificate is easier to
apply and rely on.
In some cases, the MOT condition was temporarily waived during the COVID-19 pandemic.
Vehicle owners with MOTs due between March and August 2020 were granted a 6 month
Chapter 6 Claims procedures 6/7

exemption from obtaining MOT certificates to help prevent the spread of the virus.
Exemptions no longer apply.
In the light of the ICOBS rules, it should be remembered that rejection of a claim is
unreasonable for breach of warranty or condition, unless the circumstances of the claim are
connected to the breach (ICOBS 8.1.2).
A3B Fraud clause
In common law, any policy tainted with fraud is ‘void’. A policy that is void in law is treated as
though it never existed.
If a claim is in any way fraudulent – which will include gross exaggeration – or supported with
the use of forged documents, then the insurer would be within its rights to refuse indemnity
for that claim in its entirety and to treat the policy as though it did not exist for the future.
Often there is a policy condition which confirms the precise position, but it is only a warning
as fraud makes the policy ineffective. The policyholder would not have any right to reclaim
premiums paid.

A4 Further clauses pertinent to claims

Although, clearly, the majority of the policy wording can and does have a bearing upon the
handling of claims, the following are of particular importance.

Co-operation • Once an incident is reported, insurers will need the co-operation of the
policyholder and/or driver, who should provide every assistance.

Admission of liability • Should the policyholder or driver admit blame to a third party claimant then
the position of the insurer may be prejudiced. The policy calls for no such
admission to be made.

Arbitration • The policy calls for any dispute over quantum, i.e. the amount of the claim,

Chapter 6
to be referred to an arbitrator before any legal action can be taken against
the insurer. In private car policies, the arbitration is seldom invoked, bearing
in mind that most disputes are resolved and, if necessary, the Ombudsman
can be involved.

A5 Accidental damage claims

As previously stated, the reputation of an insurer can stand or fall on its claim handling
service. Nowadays, policyholders expect prompt repair of their vehicles, especially if they are
of the prestigious type.
There is no fundamental difference in the approach to accidental damage claims,
irrespective of whether the policy covers a private car, commercial vehicle or motorcycle.
Obviously, claims for accident damage to the policyholder’s vehicle can only proceed if the
cover granted is on a comprehensive basis.
In order to meet what is now the generally expected service standards of policyholders, once
a report of a particular incident is received by an insurer then, provided the information is
sufficient to proceed with the matter, the insurer should immediately consider the
authorisation of repairs by one of the approved repairers or, at the very least, arrange an
examination of the vehicle by one of its nominated engineers.
We shall now look at the processes involved in such circumstances, focusing on the aspects
of the claim that may need to be scrutinised by the engineer plus the resources and options
available to both the insurer and the policyholder, which may help with the repair process. It
should be noted that if the cost of repair is low, then the insurer may decide not to instruct an
engineer but merely authorise repair, assuming that all aspects of the claim are acceptable.
Alternatively, the insurer may instruct the bodyshop to send through images of the damage
from which the insurer can assess the likely extent of the repair.
Vehicle repair – Often the decision of whether an engineer is instructed will be triggered by
the estimated cost of repairs, including the cost of parts.
This will vary from insurer to insurer and may be as low as £500. The age of the vehicle will
also be taken into account. For example, a £500 repair claim on a car that is only worth £750
could mean that it is potentially beyond economic repair, after taking into account the value
of the salvage.
 6/8 IF5/October 2022 Motor insurance products

Assuming that the car is repairable, then the policyholder can choose their own repairer; and
if they have a very strong desire in this direction, it is seldom wise to try to make them
change their mind. However, most insurers have now formed panels of repairers and they
will endeavour to place work with them.
Furthermore, if the policyholder insists on using a non-approved repairer, the insurer may
apply an additional excess on top of any compulsory, voluntary or age/experience-related
excess that would otherwise apply.
Insurers will normally have formed relationships with those repairers who are prepared to
offer a reasonable hourly rate in exchange for guaranteed work. They are often referred to
as approved panel or recommended repairers. The benefits for both parties are a close
working relationship, agreed prices, standards and labour charges, guaranteed workshop
availability, guaranteed courtesy cars and a steady flow of work for the repairer.
An insurer must have such repairers dotted around the country, in order to ensure sufficient
coverage for an insurer’s portfolio and so minimise the cost of moving damaged vehicles
significant distances to approved repairers and returning them to policyholders once repairs
have been completed.
They also must have the necessary equipment, including the latest computer diagnostic
technology, and must be able to work on all standard makes and models in such a way as to
maintain, as far as possible, the effectiveness of manufacturers’ warranties. This now
includes electric and hybrid vehicles which need very careful handling due to the high
voltage power cables which must be isolated before any examination or repair activity takes
place. The ability to work on, test and recalibrate ADAS equipment is also now becoming a
necessity.
Such repairers have to be customer-focused, and willing to submit to quality standards and
inspections. They may also be a member of one of the recognised vehicle repairer
organisations, such as the Vehicle Builders’ and Repairers’ Association (VBRA), which will
Chapter 6

clearly enhance their reputation.

The labour rate is agreed by the insurer with the repairer and is quoted per hour and the
repairer will wish to keep a low hourly rate to maximise its insurer client potential to ensure a
constant supply of work.
It is often the case that the profit a repairer makes is, principally, based on the profit element
of parts and, in particular, paint. Therefore, the prices charged must be controlled carefully,
normally by the use of manufacturers’ price lists. Repairers can and do negotiate discounts
from such prices and much will depend upon volume purchases.
An advantage of an approved repairer arrangement is that the garage can be trusted to start
work immediately, without the need for an engineer’s inspection or based on photographs of
the damage sent to the insurer’s engineer. This will reduce the time the customer is without
their vehicle, sometimes referred to as the 'key-to-key' time. It is possible that an engineer
may, at some time during the repair process, inspect the vehicle and, perhaps, agree the
cost of the work at a revised figure.
The need for an engineer to see the vehicle can be reduced even further by agreeing that
repairers will use one of the numerous computerised estimating systems now on the
market. What it cannot do, however, is agree whether or not a particular part needs replacing
in the first place. The ideal match is a combination of computer-calculated standard times
and estimated times, with hourly rated labour plus parts and paint prices.
Approved repairers will also normally collect, store and redeliver the policyholder’s vehicle.
Chapter 6 Claims procedures 6/9

Be aware
A recent innovation has been the use of remote video assessment. Video images of the
extent of the damage to a vehicle are transmitted back to the in-house engineer of the
insurer. It is an expensive option, requiring sophisticated computer and video equipment
but, theoretically, it does enable an engineer to assess the nature and cost of the repair
work, plus the appropriate labour work necessary to complete the repair, without actually
leaving the office. Improvements to the quality of the pictures produced have enhanced
the attraction of this facility.
During the COVID pandemic, the use of remote video inspection became a necessity to
minimise face to face contact whilst allowing repairs to be authorised and undertaken that
may otherwise have taken months to be completed due to the restrictions. Having
acquired and become familiar with the necessary technology both at the repairers and the
insurers, this method of inspection has become standard practice for may claims.

Courtesy cars – Most reasonable-sized repairers now offer some form of alternative
transport while they have a customer’s vehicle in for repair, and these are commonly known
as courtesy cars. Most insurers insist upon the availability of courtesy cars from their panel
of approved repairers and, indeed, then use this fact in their publicity material. However, the
age, size and condition of the courtesy car available from a repairer may be variable and not
always provide the impression of quality that the insurer wants to portray in relation to their
claims service.
Because of customer expectations, there is considerable pressure on repairers to provide
courtesy cars of a similar size and status to the vehicle being repaired, but each repairer
would then have to retain a considerable number of them. A number of insurers have
recognised the cost factor and have agreed a separate charge for courtesy cars. Some
insurers have gone as far as arranging their own source of rental vehicles in order to provide
enhanced courtesy vehicles which meet customer needs for an equivalent vehicle (e.g. an

Chapter 6
automatic gearbox or seven seats) and may even be able to source electric vehicles or
suitably modified vehicles to accommodate a driver's disability. Most insurers will accept the
insurance cover on courtesy/rental cars as a temporary additional vehicle under the
customer’s existing policy, usually free of charge. Depending on an insurers policy wording,
in the event that it is not possible to provide a suitable courtesy car, the insurer may provide
a monetary amount in lieu of providing a vehicle, which the customer can put toward the cost
of taxi fares or other alternate travel arrangements, to remain mobile whilst their vehicle is
being repaired.
In order to reduce the cost of claims, insurers will often offer to arrange the repair of third-
party vehicles damaged in collisions with insured vehicles, where the insurers' customer is
clearly at fault. They will also offer 'free' courtesy cars to the owners of these vehicles. This
approach allows the insurer to control costs and avoids the risk of being faced with an
inflated bill for repairs and hire car charges from a dubious claim management company.
In situations where the insured is not at fault for the accident, the insurer will include the cost
of providing the courtesy vehicle in the amount being claimed from the 'at fault' third party's
insurer.
Non-proprietary parts – As a rough guide, the cost of parts forms about half of the average
repair bill. Insurers are often looking to reduce the cost of repairs, bearing in mind the extent
of the premium paid and the fact that it is nigh on impossible to produce a straight
underwriting profit.
The use of second-hand (or sometimes referred to as 'green parts') or alternatively
sourced parts (i.e. non-OEM parts - parts not made by or on behalf of the vehicle
manufacturer) in vehicle repair has been a feature in many countries for a number of years
and is seen as being environmentally friendly. This is now becoming more common in
the UK.
Every year thousands of vehicles which have been written off or reached the end of their life
are broken for spare parts. A few vehicle recyclers have taken the process very seriously
with parts removed, tested, bar-coded, catalogued, shrink-wrapped and displayed. The
parts, which are often in better condition than the ones they replace, are sold at a fraction of
the price of new ones. Their use is becoming more common in vehicle repairs, particularly
non-structural parts such as body panels and trim and where the vehicle is out of warranty.
 6/10 IF5/October 2022 Motor insurance products

Vehicle recovery and storage – The reasonable cost of removing the vehicle from the
scene of an accident to the nearest competent repairer is covered under a motor insurance
policy. They will pay the storage and recovery costs for the vehicle and then return it after
repair to the policyholder’s permanent address in the UK.
At times this can be quite costly, especially if the original accident is some distance away
from the policyholder’s home address or even in another country. Insurers may consider
asking the policyholder to contribute to storage costs if the policyholder is deemed to have
unreasonably delayed notification of the claim to the insurer, thus preventing the insurer
arranging transfer to free storage at an approved repairer.
Repairers, especially approved garages, are able and willing to absorb such costs in return
for securing the opportunity to undertake the repair. However, if the vehicle is a total loss
then not only will they expect some payment for the recovery but they will also make a
charge for storage until the vehicle is moved.
Where insurers have contracts with salvage companies, the salvage company will normally
hold the vehicle free of charge, on the basis that they will be allowed to retain the salvage
once settlement has been negotiated with the policyholder.
After repair, the vehicle owner is often happy to collect the vehicle from the garage,
especially if a courtesy car is to be given back.
At the time that the policyholder collects their car following repair, they will be asked to sign
what is normally termed a collection or satisfaction note, and a repair invoice will be
despatched to the insurer. The object of the note is to obtain the policyholder’s acceptance
that the vehicle has been returned in a satisfactory state and that they have checked and
approved the repair. This would not prevent the insured returning the vehicle later if they find
any fault that had not been noticed following a cursory inspection at the repairers. Any
disputes as to the standard of repairs may have to be resolved with the assistance of the
insurer’s engineer.
Chapter 6

Upon collection of the vehicle, the policyholder will be required to pay any agreed
contributions such as an excess or, if VAT registered, the VAT element direct to the repairer.

What contributions might a policyholder be asked to pay?

any contribution any private excesses as VAT where the

for betterment work carried out shown in the policyholder is
at the same policy registered and
time as the can reclaim that
main repair proportion from
HM Revenue &
Customs

Question 6.2
Which document would a policyholder usually be asked to sign when collecting a car,
following repair work?
a. Customer feedback response. □
b. Repair invoice. □
c. Satisfaction note. □
d. Vehicle registration document. □
Chapter 6 Claims procedures 6/11

A5A Role of the engineer

The cost of repairs authorised by an insurer is generally overseen by a team of engineers.
Engineers are usually recruited from garage employees and have invariably worked for a
number of years as body repairers and/or estimators in the motor trade. On this basis, they
will be ideally suited to working as an engineer for an insurance company.
They may either be employed in-house by the insurer or, alternatively, they can be working
for independent engineers and paid on a fee per case basis. The use of engineers for any
particular repair is very much up to the strategy of the particular insurer.
Engineers will agree the method and cost of each repair with garage estimators and can
provide repair authority on behalf of the insurers. They will then be available for consultation
should something change during the course of repair and will ‘sign off’ the final invoice.
The costs calculated by engineers will determine whether or not any particular repair is
worthwhile, taking into account the overall value of the damaged car. If the repair is not
economically viable then the engineer will declare the vehicle an insurance write-off. They
will then go on to calculate the pre-loss value of the vehicle and, in some cases, will agree
this with the vehicle owner.

Question 6.3
How else might second-hand parts be otherwise described?

Question 6.4
Michael has arranged comprehensive cover for his car, as well as separate roadside
assistance cover with a national breakdown recovery organisation. While on holiday
he is involved in a collision, which leaves his car severely damaged, and his insurer
has requested that the car be transported to its approved repairer for inspection and

Chapter 6
repair.
Who would be responsible for the additional costs of transporting the car from the
crash site to the authorised repairer and, subsequently, the return of the repaired car
from the authorised repairer to the policyholder’s address?
a. Authorised repairer. □
b. Breakdown recovery organisation. □
c. Motor insurer. □
d. Policyholder. □
A6 Theft claims
Theft claims are subject to different considerations to general accidental damage claims.
There is a tendency for many vehicles, reported as stolen, to be recovered within a matter of
days or weeks of the theft. If the vehicle is recovered in a damaged state, the insurer will
proceed with the settlement of the claim in the usual way and either arrange repair or write
off the vehicle. If the vehicle remains unrecovered there may be some doubt as to the pre-
theft condition of the vehicle.
It is always necessary for the theft to be reported to the police (by the terms of the policy).
This step may give some credence to the belief that the loss is genuine and, in some
instances, will provide a brief but true account of the loss circumstances as people are less
likely to lie to the police than to an insurance company. Insurers may be concerned that theft
claims may not be genuine or, alternatively, the policyholder may not have satisfactorily
explained the circumstances of the loss.
Often there may be particular features that the insurer will scrutinise closely which could
determine whether the insurer chooses to investigate the alleged loss.
 6/12 IF5/October 2022 Motor insurance products

These may include one or more of the following:

• A theft loss shortly after inception of the policy or addition of the vehicle, especially where
the cover is only third party, fire and theft.
• Where the MOT Certificate expires shortly after the loss, or there is no MOT Certificate in
force at the time.
• If the person in charge of the vehicle immediately prior to the loss is not covered under
the terms of the policy, or there is some other problem with the policy itself.
• Where the precise location of all the vehicle's keys at the time of the loss are not known,
raising the possibility that the keys had either been left in the vehicle (possibly
deliberately), or alternatively misplaced, facilitating easier access to the car.
• The safety features of the vehicle, including locks, alarms and immobiliser, if it is
suggested the vehicle was taken without the keys.
Investigations could then involve the instruction of assessors by the insurer. These may be
either employees of the company or, alternatively, independent consultants. Their role is to
undertake enquiries to establish whether the version of events as supplied by the
policyholder is authentic, and to discover any evidence that may verify or contradict the loss
circumstances.
Again, the role of the engineer can be crucial in this respect, especially if the vehicle is
recovered in a damaged state. They may be asked to check if there is any sign of forced
entry. If, for example, one or more of the door locks has been damaged, then this certainly
supports the case for the theft being genuine.
The next area that the engineer will need to check is whether there is evidence that the
steering or ignition lock is damaged, from which it can be inferred that attempts have been
made to start the vehicle without the benefit of a key. This may give credence to the view
that a genuine theft has occurred.
Chapter 6

Virtually all modern cars manufactured after 2000 have improved security features and these
are increasing in complexity as indeed the capabilities of those interested in stealing cars
also improves. Vehicles are given ‘theft of’ and ‘theft from’ security ratings by Thatcham
which examines individual vehicle models and effectively attempts to overcome the vehicle
security using techniques and equipment known to be employed by vehicle thieves.
Common features include:
• Deadlocks – these are extremely difficult to overcome without use of a true key.
• Anti-tilt/motion sensitive alarms – these will activate if the vehicle is lifted onto a transport
vehicle.
• Engine immobiliser – generally these incorporate a regularly changing numeric code
transmitted from the key to the car. These can be overcome but require sophisticated
equipment and generally more time than a prospective criminal might want to spend on a
vehicle.
• Tracking devices which alert either the owner or a secure operating centre if the vehicle is
moved without the owner's permission or knowledge.
• If the vehicle has keyless entry or keyless start functionality, protective features which
prevent the key being copied or the signal between the key and the car scanned or
interrupted.
Conversely, if, following the alleged theft and recovery, there is no evidence of door lock
damage, coupled with the absence of ignition barrel damage, plus no sign of any crude
attempt at starting the car, then this raises the possibility that a key has been used to take
the car or the car was never stolen in the first place.
There being no evidence of forced entry/ignition tampering, then the insurer will be placed on
enquiry as to whether there has been a genuine theft, or that someone close to the
policyholder has left the keys in or on the vehicle.
This is especially true if the insured vehicle is not fitted with keyless entry/start. If this
scenario arises, then the insurer will instigate interviews of the policyholder and the person
last in charge of the vehicle, if different.
Chapter 6 Claims procedures 6/13

If the insurer is satisfied that the claim is to be handled, and the vehicle has not been
recovered, then it will normally wait a set period before treating the vehicle as having been
stolen ‘permanently’. The period for such a wait has reduced over the years.
At one time it was as long as eight weeks but, nowadays, most insurers will leave four or at
the very most six weeks, before declaring the vehicle as permanently stolen and dealing with
the claim. One of the conditions of the settlement will be that if the vehicle is subsequently
recovered it will either be treated as salvage belonging to the insurers or the claims money
will be re-paid in full and the vehicle revert to the insured’s ownership. This latter option is
hardly ever used in practice unless the vehicle is particularly rare or of sentimental value to
the owner and it is the owner's wish to retain ownership.

Question 6.5
Which of these headings would you not expect to find in an accident report form?
a. Admission of liability. □
b. Use. □
c. Policy details. □
d. Witnesses. □
A7 Fire claims
Like theft claims, this type of claim may also be prone to fraud. On occasions, a claimant will
report that their vehicle allegedly was burnt out following an theft. While this would still be
treated as a theft claim, it is the cause of the fire (and the motives for the same) which is
most important here.

Chapter 6
The motives for such a claim may be various – the vehicle may not have been in particularly
good condition, and may even have recently failed an MOT test. It may even be that the
make and model of the car is undesirable (due, perhaps, to its age, condition etc.) and, for
the policyholder, submitting a spurious fire claim is preferable to being left with a car which
would fetch little if sold on the open market. Outstanding finance or excessive mileage on a
lease car due to be returned which might require an excess usage payment from the
policyholder may also be considered relevant in any investigation. Finally, the vehicle may
have been set alight to cover up damage caused by an earlier, unreported accident or more
serious criminal activity.
Fire claims comprise a relatively small proportion of the total claims portfolio of an insurer
and of course, some fire claims are perfectly genuine, although it is often the older car that is
prone to such a loss, due to the parts becoming worn out and, in particular, electrical wires
becoming frayed or worn or inflammable liquids leaking from pipes onto hot surfaces. As
explained previously, the actual item or part that breaks down will be excluded.

Example 6.2
Let’s look at an example to illustrate this.
Insurers receive a claim under a private car insurance for fire damage to an old vehicle
and the vehicle is recovered in a remote location.
Following the creation of a claim file, the claims handler gains access to the underwriting
records and discovers that the policy has only recently been incepted, with cover having
been arranged on a third party fire and theft basis.
Because of the proximity of inception of the policy to the loss, the claims handler has been
placed on enquiry. They therefore arrange for an engineer to examine the vehicle, and at
the same time instructs an enquiry agent to take a full statement from the policyholder.
The engineer confirms that as a result of the fire, the vehicle has been rendered beyond
economical repair and there is no discernible evidence of an electrical or fuel fault.
 6/14 IF5/October 2022 Motor insurance products

Following an interview of the policyholder, it is discovered that:

• they have recently separated from their spouse;
• the vehicle was not previously insured; and
• the insured appears to have financial difficulties.
Subsequently, the claims handler undertakes database enquiries and establishes that the
claimant has outstanding county court judgments.
Cumulatively, we have a potential motive (the policyholder’s financial situation), coupled
with the possibility that the insurers may believe that the fire is less than genuine.
What does the insurer do next? While they may feel that they have been presented with a
fraudulent claim, this may be difficult to prove. It will be relevant to understand how the
vehicle came to be at the remote location – has there been an alleged theft, and if so,
were keys used and what was the vehicle security level?
It will also be important to review whether the policyholder has disclosed all material
circumstances in response to the insurer's questions at the time of inception and
investigate whether they have submitted any fraudulent documents in support of the claim.
This may reveal that the policyholder has been fraudulent in submission of a claim, or has
had a previous, undisclosed fire claim. This then enables the insurer to consider voidance
of the policy and refusal of the claim.
Ultimately, it is for the policyholder to establish the circumstances surrounding the loss
and the likely cause of damage and an insurer may be entitled to maintain the position
that, taking account of available technical evidence, the policyholder has not provided a
satisfactory explanation of the circumstances and loss.

A8 Total loss claims

Chapter 6

Of course, with all types of own damage vehicle claims (accidental damage, fire and theft)
there is always the possibility that the policyholder’s own vehicle will be deemed to be
beyond economical repair or unrecovered following theft.
A total loss claim is when the cost of repairing the vehicle exceeds the pre-accident value
of the vehicle (taking into the account the salvage value). With the exception of 'agreed
value' policies which may apply to classic vehicles, motor policies state that the most that an
insurer will pay is the market value of the vehicle at the time of the loss or damage other
than is specific circumstances where the 'new replacement car' option may apply.
Various terms are used for this situation but they amount to much the same – ‘write-off’,
‘beyond economical repair,’ ‘total loss’.

A9 Market value
Bearing in mind the principle of indemnity – i.e. to put the policyholder back in the same
financial position that they enjoyed prior to the loss – then the true measure must, surely, be
the amount that it would cost to replace the vehicle with one of the same make, model and
age, in the same condition and with similar mileage.
This begs the question – is it the amount that will be paid if purchased from a private seller,
or the (higher) cost of buying a vehicle from a car dealer? The Financial Ombudsman
Service has considered this dilemma and tends to favour the latter option.
To assist with the calculation of market value, reference is made to various motor guides
such as Glass’s, Parker’s, CAP’s etc. These guides will show the average prices for which
vehicles are bought and sold within the motor trade – the former is the trade price and the
latter, the retail amount that the vehicle may be expected to fetch if sold. There may also be
different figures to reflect varying conditions of a particular car, plus an adjustment for below
or above average mileage.
If a claim is being settled on a total loss basis, then the insurer will invariably retain the
salvage (if the vehicle is recovered) and will sell it to offset its outlay. Some vehicles will be
successfully passed through the trade, repaired and put back on the road in a safe condition.
However, motor vehicle salvage is, unfortunately, the subject of fraud on occasions. The
identity of broken or crushed vehicles may be taken and used on stolen vehicles. This is
Chapter 6 Claims procedures 6/15

known as ‘ringing’. Alternatively, vehicles may be cheaply and incompetently repaired before
being sold on with the history hidden or salvage may be re-used to make fraudulent
insurance accident or theft claims. It is for these reasons that the insurance industry, in
conjunction with salvage buyers and government departments, has sought to tightly control
the disposal of salvage.
All salvage is categorised A, B, S or N in accordance with the Code of Practice for the
Categorisation of Motor Vehicle Salvage issued by the ABI. Categories A and B are the most
extensively damaged and must not be returned to road use.
Category A salvage must be scrapped and Category B salvage must be either scrapped or
broken up and useable parts re-cycled. Categories S (structural) and N (non-structural)
relate to more minor damage which could be repairable by a competent garage but would be
uneconomical given the overall value of the vehicle.
All category A and B vehicles must be reported to the DVLA and it will enforce rules that will
ensure no further registration of a vehicle. The DVLA can and does arrange for a random
inspection of vehicles that have previously been advised as being insurance write-offs.
To further safeguard against fraud, insurers register, through the MIB, all total losses and
thefts on an industry computer database known as the Motor Insurance Anti-Fraud & Theft
Register (MIAFTR). Subsequent insurers can check the register if a further total loss or theft
claim arises on the same vehicle.
Under the terms of the standard motor policy, any cash settlement following a total loss will
be paid to a finance company whose interest has been noted as having an outstanding hire
purchase or lease agreement on the vehicle. If this was not done, the finance company
might be able to claim the value of the vehicle from the insurer under the common law
doctrine of conversion. If the outstanding finance is less than the claim settlement, any
residual amount will be paid to the policyholder. However, if the outstanding finance is more
than the claim settlement, the policyholder will be responsible for compensating the finance

Chapter 6
company for any shortfall.
Insurers will need to establish whether there is finance on the vehicle at the time of the
incident leading to the claim by asking questions of the policyholder, but a check can also be
made with Hire Purchase Information Ltd (HPI) (now Solera) – now automatically done when
a vehicle is registered on MIAFTR – which holds a computer database of the vast majority of
finance agreements.
Salvage companies buy vehicles based upon the probable profit margin from resale either as
a whole repairable vehicle (category S or N) or as parts (category B). Most insurers have
contracts with one or more major salvage dealers and the salvage value realised will vary
according to the vehicle and extent of damage.
The recent arrival of electric vehicles (EVs) has added a further level of complexity to
salvage arrangements. If an EV is written off, the battery is classed as hazardous waste and
requires special treatment. Batteries can theoretically be recycled or reused but this
technology is still in its infancy.

A10 Third party property damage claims

Accidents involving more than one vehicle will often require investigation into the question of
liability, especially where there may be discrepancies between accounts of the accident
given by the parties involved.
The insurer will, wherever possible, seek statements from independent witnesses. There is
often a relevant section on the accident report form or the statement of insurance for such
details to be supplied or the details will be requested during telephone notification. Further
clarification may be achieved by an examination of the scene of the accident, resulting in
locus plans and photographs of the same.
Additionally, it may be worthwhile gaining an engineer’s report pertaining to the damage
sustained to the policyholder’s vehicle. The outcome of any police investigation and any
resultant criminal charges pursued against any of the parties involved will also be taken into
account.
 6/16 IF5/October 2022 Motor insurance products

With any third party claim, there are two dominant issues:
• Who was at fault, and to what extent, referred to usually as liability.
• The amount of any third party claim, sometimes called quantum.
Accidents tend to be categorised either as a fault accident, where the policyholder was
wholly or partially responsible; or non fault, where the policyholder was completely
exonerated of any blame.
The latter type of incident would be, for example, where the policyholder’s vehicle is struck in
the rear as a result of the vehicle behind not stopping quickly enough or where the
policyholder's vehicle was parked at the time it was struck.
With a ‘concertina’-type accident (where a number of vehicles are in a line and there has
been a sequence of collisions), it will be prudent to determine the precise sequence of
impacts. In multi-vehicle accidents, insurers will usually encourage each policyholder insured
comprehensively to claim under their own policy and then the question of liability will be
resolved between the insurers. In doing that, an insurer will be concerned to do two things:

Not to prejudice any action which its own These may be the policy excess, the cost of hiring a vehicle
policyholder may be taking in respect of while theirs is being repaired, compensation for injuries etc.
their own uninsured losses

To form an opinion on the effect of the claim If its policyholder successfully recovers their uninsured losses in
on its own policyholder’s no claim full, insurers will not allow the claim to prejudice NCD.
discount (NCD)

If a third party claim has been submitted and it is clear that the policyholder will be in some
way responsible, then the at-fault policyholder’s insurer will endeavour to establish the extent
of its policyholder’s responsibility, often represented by a percentage. It will, thereafter, use
this to calculate the extent of its third party liability, once the total amount of the third party
claim has been agreed.
Chapter 6

A11 RTA personal injury claims

From April 2010 a new system was introduced for the handling of RTA personal injury claims
with a value of between £1,000 and £10,000 (subsequently increased to £25,000 from
31 July 2013). This is generally referred to as the Ministry of Justice Reforms (for low value
RTA personal injury claims).
The process does not apply to claims where there is not any personal injury or cases that
would ordinarily be dealt with under the Small Claims Track.
The aim is to ensure that straightforward claims, where liability is admitted by the
defendant’s insurer, are settled more quickly and that associated legal costs are kept to a
minimum. The system is underpinned by an electronic portal which makes it easier for
claimant solicitors and defendant insurers to comply with the restricted timescales that apply
to eligible claims.
There are three stages to the process:
Stage 1: The claimant’s solicitor sends a Claim Notification Form (‘CNF’) to the defendant’s
insurers electronically. The CNF seeks details of the claimant’s representatives, plus those of
the defendant. Specifically, the form requires a number of particulars about the claimant,
including personal details, plus for example seatbelt status, the cost of any vehicle repairs,
allegations of negligence etc. The defendant’s insurers then have 15 working days to
respond (admit liability, or admit liability but allege contributory negligence, or deny liability
altogether). If the defendant’s insurer fails to respond within 15 days or disputes liability, the
claim falls out of this process.
Chapter 6 Claims procedures 6/17

As liability investigations are time critical, it means that an insurer must potentially undertake
some if not all of the following:
• Review an existing stance on liability.
• Interview the policyholder, the driver (if different), witnesses.
• Check any (internally created) fraud indicators.
• Complete the appropriate Compensation Recovery Unit forms, advising the CRU that
there may be compensation payable.
• Take into account any possible counter claim; is the driver/policyholder pursuing a claim
for uninsured losses?
• Manage customers’ expectations.
Additionally and in order for the insurer to comply with the stringent timescales, policyholders
must report incidents at the earliest opportunity. If liability is admitted a fixed fee is payable to
the solicitor at this stage.
Stage 2: Where liability is admitted, the claimant’s solicitors will obtain medical evidence. On
receipt of the medical report and before it is sent to the defendant’s insurer, it will be checked
by the claimant for factual errors. They send the insurer either an interim payment request or
a settlement pack. This standard form enables the solicitor to present a proposed/desired
settlement figure to the defendant’s insurer. The insurer has 15 business days from receipt of
the settlement pack to consider and either accept the claimant’s offer or make a counter
offer. If this offer is rejected there is a further 20 days for the two parties to negotiate. If a
negotiated settlement can be agreed, then insurers have 10 days to pay the damages and
fixed costs plus disbursements. Medical evidence is gathered between Stages 1 and 2, for
which there is no fixed time period.
• For RTA claims which are valued between £1,000 and £10,000, Stage 1 generates costs
of £200 and stage 2 produces costs of £300.

Chapter 6
• Where the claim value is £10,000 and £25,000, Stage 1 generates costs of £200, with
stage 2 costs of £600. All costs are fixed.
Stage 3: If a settlement cannot be agreed, an application is made for the claim to be
assessed by the court (either a written or oral hearing). Costs are paid by the losing party
according to a fixed scale, depending on whether the hearing is a paper hearing (written
submissions only) or an oral hearing.
The electronic portal referred to above can be accessed by one of two methods. One is a
web browser connected to a central web server facilitating the use of online forms, which are
transferred to insurers and compensators on completion. The second option is via
‘application to application’ interfaces with the web server from a claimant’s lawyers internal
claims management systems. For both sides to the dispute, a stringently applied diary
system is crucial, and if the case ‘drops out’ of the process, because the criteria (or at the
very least one of them) is/are not met, then it cannot be reinstated into the process. As the
timescales are so tight, then the use of various websites for information becomes
paramount.
In England and Wales, where a claim for injury is clearly expected to exceed £25,000 in
value, it will be dealt with in line with the Civil Procedure Rules (CPR) and insurers will have
a period of 90 days from the submission of the claim, in which to investigate and respond on
liability. The litigation route is the traditional method.
In 2015 proposals were put forward by the Government to increase the value of personal
injury claims to be dealt with under the Small Claims Track from £1,000 to £5,000. This
would remove a large proportion of motor related claims from the above process. Plans to
ban the recovery of general damages for soft tissue injuries (e.g. whiplash) and replace them
by the provision of rehabilitation services, e.g. physiotherapy were also proposed but
subsequently replaced by the proposal to introduce a tariff for whiplash injuries lasting up to
2 years. The aim of the reforms was to reduce the cost of compensation and reduce the
number of fraudulent claims with a consequent reduction in motor insurance premiums.
These changes were originally contained in the Prison and Courts Bill but were dropped in
the run up to the 2017 General Election. They were subsequently reintroduced as part of the
Civil Liability Bill, which received Royal Assent on 20 December 2018 and became the Civil
Liability Act 2018. The reforms came into force on 31 May 2021. The whiplash reforms and
the increase in the Small Claims Track were implemented at the same time
 6/18 IF5/October 2022 Motor insurance products

Scotland and Northern Ireland have separate legal jurisdictions with their own procedural
rules, requirements, assessment of damages and costs structures.

A12 Fraudulent claims

According to research conducted by the ABI, the cost of detected fraudulent motor claims in
2020 was £602m, with each claim costing an average of £11,000. While a huge figure, this
may represent only 50% of the total cost of fraudulent motor claims.
Most insurance policies now contain a specific fraud condition, which states that all benefit
under the policy will be forfeited if a fraudulent claim is made and that all policy cover will end
immediately.
A few examples of
fraudulent claims are:

Where the policyholder If the policyholder has Where a policyholder If a loss has occurred,
deliberately destroys suffered no loss at all, has utilised fraudulent but the policyholder
their own property (e.g. but submits a claim to devices, in order to deliberately conceals the
by fire). the insurer indicating advance the claim. Such fact that they are in
that they have. This devices should be a) breach of a condition of
could be as a result of intended to improve the warranty, which would
an alleged fire, theft, or policyholder chances of have entitled the insurer
‘accident’. success; b) objectively to have raised a
regarded as improving defence. While the claim
their chances; and c) itself may not be
directly pertinent to fraudulent, the failure to
the claim. provide information
pertinent to the policy
may be.

Refer to
For more information on fraud conditions see General exclusions on page 4/13
Chapter 6

Insurers can be subjected to fraudulent claims in various guises which might include
organised staged accidents or 'crash for cash' claims, where some or all of the parties
involved have colluded for the purposes of submitting insurance claims or ‘manufacturing’ an
incident which did not actually occur and any damage to the vehicles is old and not
sustained in the alleged accident. They may also encounter fraud where after a genuine
accident a claimant grossly exaggerates or invents symptoms to gain an increased award of
damages.

Refer to
See Motor industry computer databases on page 6/20 for more on Anti-Fraud databases

With any suspected fraud, insurers must act swiftly to accumulate all relevant evidence, and
complete investigations at the earliest opportunity. Database information can be extremely
useful in this regard, and aside from CUE, there are now a couple of bespoke insurance
industry websites, namely the Insurance Fraud Investigators Group (IFIG) and the
Insurance Fraud Bureau (IFB), which assist with the detection and elimination of fraud.

B Contributory negligence
The present law on contributory negligence was established by the Law Reform
(Contributory Negligence) Act 1945 which, basically, states that a person's damages will
be reduced by an amount which is 'just and equitable', having regard to that person's extent
of responsibility for the occurrence. This normally means that the amount of the reduction will
be commensurate with the extent of their responsibility.
In other words, if a third party is deemed to have been 20% contributory negligent and their
claim is agreed at £10,000, then they will receive £8,000.
Very often the speed of both vehicles will have to be considered, although excessive speed
per se is not necessarily evidence of contributory negligence. The manner of the driving of
the parties plus their reaction time will be taken into account, together with the road/weather
conditions, road layout, signage and markings and the relative road positions and
rights of way.
Chapter 6 Claims procedures 6/19

It does not necessarily follow that the driver of a vehicle on the main road is blameless when
a third party emerges from a minor road. If the vehicle on the main road gives a misleading
signal, then that driver’s level of contributory negligence will be increased.
In many circumstances there will be no independent witnesses and unless technical
evidence such as an engineer’s report provides assistance, the pragmatic solution may have
to be a 50/50 settlement. The increasing use of telematics devices and dashcams in vehicles
can make establishing the true circumstances of an incident and any contributory negligence
much easier.
The question of the contributory negligence of passengers can be of importance, especially
when a seat belt is not utilised. In the case of Froom v. Butcher (1975), it was held that a
third party who failed to wear a seat belt was guilty of contributory negligence and his
damages were reduced. It is necessary for the defendant to show not only the failure to wear
but also that the failure contributed towards the injury.
Failure to wear a seatbelt is an acceptable contributory negligence argument under the RTA
personal injury protocol.
The rule is in line with that imposed towards cyclists and motor cyclists who fail to wear
crash helmets where damages may be reduced if evidence can be produced to show that
the injury would not have occurred or would have been less severe if a safety helmet had
been worn.
In Smith v. Finch (2009), it was held, in principle, that failure to wear a cycle helmet may
result in the cyclist being held to be partly responsible for their injuries even though it is not a
legal requirement for cyclists to wear a protective helmet.
Damages may also be reduced where an injured party has knowingly travelled as a
passenger in a car driven by someone under the influence of alcohol or drugs.

B1 Conducting the claim

Chapter 6
Generally speaking, there are a number of practical aspects to claims investigation,
negotiation and settlement. The insurer may require more detailed evidence of the location
of the incident, not simply the rough plan that will have been drawn by the policyholder on
the accident report form. Depending on the seriousness of the third party's injuries and
hence the potential claims cost, specific accident investigation and accident reconstruction
reports may be commissioned to assist with liability decisions.
Whenever there is a claim for personal injury, a medical report will be required and
dependent on the jurisdiction and level of injury, multiple reports may be obtained by one or
both sides across various medical disciplines from orthopaedics to neurology and psychiatry
in more serious cases.
Reports may be required in relation to capability to return to pre-accident employment or
retraining if a full recovery from injuries is not achieved. Loss of potential future earnings can
be a significant element of the claim value. In the most serious injury cases, there may be a
requirement to investigate the cost and need for adapted housing and even provision of
permanent nursing care and assistance.

B2 Admission or denial of liability

All motor policies contain a condition that the insured must make no admission of liability
without the consent of the insurers.
If the matter is the subject of court proceedings then an admission cannot be made without
seeking the specific consent of the policyholder as, apart from anything else, this may leave
the individual concerned open to possible criminal prosecution. Equally, it would be unwise
to make a categorical denial of liability before completing enquiries into the incident as this
could precipitate the issue of legal proceedings. If a repudiation of liability is the decided
course of action, this must be after careful consideration of all the evidence. All
communications should be conducted ‘without prejudice’.
Following the Civil Procedure Rules, introduced on 26 April 1999, there is now a greater
requirement on defendant insurers to complete their liability investigations as early as
possible. In fact, the Pre-Action Protocols, incorporated in the above Rules, also encourage
a greater openness on the part of both sides and negotiated settlements, if this is at all
possible.
 6/20 IF5/October 2022 Motor insurance products

As a result of the Compensation Act 2006, s.2 states that ‘an apology, an offer of treatment
or other redress, shall not in itself amount to an admission of negligence or breach of
statutory duty’. This means that saying ‘sorry’ after an accident cannot be construed as an
admission of liability. Similarly, to offer treatment will not amount to accepting fault.

B3 ‘Without prejudice’
The expression ‘without prejudice’ means that any action taken or any opinion given is not to
be construed as an admission of liability. Correspondence marked ‘without prejudice’ cannot
be produced as evidence in legal proceedings and neither can interviews that are held on
this understanding. This means that negotiations may be undertaken freely. Care should be
taken in the use of ‘without prejudice’ on correspondence as some courts take a sceptical
view where it is added to all correspondence issued.
However, the courts now require a greater openness between the parties, representatives
who should, therefore, demonstrate that they have not encouraged unnecessary enquiries
into liability, quantum etc. On this basis, there may be less of a need for the protection of
‘without prejudice’ although it can still be a useful tool when making settlement offers. The
House of Lords in the case of Ofulue v. Bossert (2009) recognised the need of the parties
to be able to speak freely about the issues in a dispute, without the fear that such issues
would be relied upon in court.

B4 Out of court settlement

In practice, many claims are settled without resorting to a court decision. An insurer will be
keen to do this in order to avoid both legal costs and administration. In normal
circumstances, under the Limitation Act 1980 an injured party will have three years from
the date of accident in which to pursue a claim. To avoid a claim being time-barred litigation
will have to be commenced before the three year anniversary. Those claims involving
serious injuries must often be deferred until a reliable prognosis can be obtained and
litigation will be started to provide procedural protection beyond the three year time bar.
Chapter 6

Question 6.6
What do you understand by the term ‘ringing’?

C Motor industry computer databases

C1 Motor Insurance Anti-Fraud and
Theft Register (MIAFTR)
In 1987, due to the alarming rise in fraudulent motor claims, UK insurers – through the
medium of the ABI – established the Motor Insurance Anti-Fraud and Theft Register
(MIAFTR). The purpose of the register was to record all motor vehicles that had been the
subject of a total loss claim or had been stolen and not recovered. Third party as well as
insured losses are recorded and are available to all companies, as well as to Lloyd’s.
Insurers placing information on the register relating to a new claim are advised if the vehicle,
claimant or the claimant’s address had been recorded previously. Investigation can then be
undertaken with the previous insurer to ensure that no fraud had been perpetrated. As a by-
product, previous claims – although not leading to fraud – may not have been disclosed at
inception, thus leading to the possibility of avoidance of the policy.
One of the earliest and biggest frauds detected through MIAFTR occurred during its first year
of operation, when it was found that an individual purchased a piece of salvage before
insuring it with a number of different insurers. Having fabricated claims details and lodged
numerous claims, a number of insurance engineers each declared the vehicle beyond repair.
Had MIAFTR not alerted the companies of the link then the individual would have
successfully made several total loss claims. It is also likely at that time that he would have
been able to settle and still retain the salvage, allowing him to repeat the scam on many
more occasions.
Chapter 6 Claims procedures 6/21

A number of years ago, MIAFTR was linked to the Hire Purchase Information (HPI)
database. Upon registering new information, this had two effects. Firstly, an automatic check
was made to establish whether or not a finance arrangement was current on the vehicle.
Secondly, the vehicle was held on HPI’s ‘Condition Alert’ register, which could be accessed
by members of the motor trade if the vehicle was later offered to them for sale.
A person retaining or later buying an insurance write-off, and having repaired it satisfactorily,
could arrange for it to be removed from the Equifax register (but not from MIAFTR) following
inspection by a professional engineer.
The register was subsequently updated in 2004 (now known as MIAFTR2) to enable
registrations and searches to be carried out online, providing real-time information, which
helps to shorten the window of opportunity for potential frauds and speeds up any
investigation.
Like the original register, MIAFTR2 has a link established with the Police National Computer
(PNC). When a theft is registered, a ‘match’ should occur showing the fact that the theft has
been recorded with the police along with the police reference.
New registrations can also be validated against the statutory vehicle record maintained by
the Driver and Vehicle Licensing Agency (DVLA). This means that any discrepancy in a
vehicle’s description or identity can be revealed at an early stage. MIAFTR also now
provides registering insurers with a valuable audit trail and management information, which
assists insurers in refining and improving their claims processes.
The MIB is the data controller for, and operates, the MIAFTR.

C2 Claims and Underwriting Exchange (CUE)

Although MIAFTR went a long way towards defeating fraud it only dealt with written-off or
stolen vehicles. Later, therefore, the ABI, decided to establish a series of registers known as
CUE. It was intended that the database would contain information on all claims from different

Chapter 6
classes of insurance. Think of the MIAFTR register, add in all motor claims (excluding
windscreens), then add all household claims and potentially all travel claims.
Home cover started in September 1994 and motor followed in November 1995. A number of
years of historical data were loaded in both cases. When new claims are added, a match
report is issued if a previous claim is detected for the individual or the risk address. This
leads to a much greater chance of detecting both fraud and non-disclosure of previous
claims than relying simply on MIAFTR.
A number of insurers have decided to use CUE at point of quote, thus defeating non-
disclosure of claims and, possibly, fraud even before cover is granted. This, however, works
best for direct writers who can carry out the search immediately, rather than waiting until
documents have been received via a broker.
There are currently approximately 60 UK insurers subscribing to CUE with more than 32
million claims records registered. CUE has another facility – CUE PI (the PI stands for
‘personal injury’), which includes compensation claims made against individuals and
businesses arising from injury or individual illness.
The MIB is also the data controller for, and operator of, CUE.

C3 Motor Insurance Database

The original concept of a database of vehicle registration numbers linked to insurance details
would, it was felt, not only combat the unacceptably high level of uninsured motoring, but
would also ensure compliance with the EU Fourth Directive.
The database is called the Motor Insurance Database (MID) and is operated by the MIB. It
provides a list of all the vehicles normally based in the UK, plus the names and addresses of
the registered keepers, together with the corresponding registration plates.
Additionally, the database incorporates particulars of each insurance policy that relates to a
vehicle, including the name of the policyholder, the policy number, plus full details of the
insurers. Furthermore, it also includes particulars of those vehicles which are used on a road
or other public place, but are not required to be the subject of insurance, in accordance with
s. 144 of the RTA 1988.
 6/22 IF5/October 2022 Motor insurance products

All insurers who underwrite motor insurance in the UK must be members of the MIB and
must supply policy data to the MID.
The database went live in September 2001 and provides the police with an ideal tool to
check on uninsured motoring, although it is clearly incumbent on insurers to ensure that the
database is kept up to date, as far as practicable.
Strict 'Time to Supply' targets are imposed by the MIB. For vehicles insured individually, 95%
of all data must be loaded to the MID within a maximum of seven days of the change (e.g.
vehicle cover ceasing, policy being cancelled). For other vehicles, e.g. those insured under
fleet or motor trade policies, in 95% of cases, policy details must be supplied within 14 days
and specific details of vehicles must be supplied within 21 days.

C4 CIFAS
Although not an organisation created by the insurance industry, it is one of which a number
of insurers are members. CIFAS (Credit Industry Fraud Avoidance System) was established
in 1988 by major lenders in the UK consumer credit industry.
Basically, it is a not-for-profit membership association solely dedicated to the prevention of
financial crime. Founder retail credit members of CIFAS agreed to exchange information to
prevent fraud.
CIFAS provides a range of fraud prevention services to its members, including a fraud
avoidance system used by the majority of the UK’s financial services companies.
It will also lobby the Government, the media and the business community, and provides best
practice guidance, training and networking opportunities for its members.

C5 The Insurance Fraud Bureau (IFB) and the Insurance

Fraud Investigators Group (IFIG)
In July 2006, the Insurance Fraud Bureau (IFB) was launched. The IFB looks for evidence of
Chapter 6

organised fraud on industry databases and has developed a cross-industry intelligence and
co-ordinates investigations between insurers, the police and other agencies. It also runs a
confidential Cheatline where people can report suspected insurance frauds.
The IFB will analyse data from industry databases including the Claims and Underwriting
Exchange, the Motor Insurance Anti-Fraud and Theft Register and the Motor Insurance
Database.
The IFB is led by an operational steering group of insurance fraud risk managers from
various insurers and is based in London. It states that it supports the wider insurance
industry and the ABI’s anti-fraud strategies.
Additionally, there is IFIG, which stands for the Insurance Fraud Investigators Group. This is
an organisation ‘dedicated to the detection and prevention of Insurance Fraud.’ It is a non-
profit making organisation created to tackle the growing problem of Insurance Fraud
in the UK.
Its members include insurers, lawyers, loss adjusters and various investigation agencies, the
common purpose being that they all committed to preventing insurance fraud. IFIG has close
ties with other anti-fraud organisations, and law enforcement agencies.
Their website facilitates the reporting of any insurance fraud that has occurred or may occur
within the UK.
Chapter 6 Claims procedures 6/23

D Financial Ombudsman Service (FOS)

and Financial Services Compensation
Scheme (FSCS)
D1 Financial Ombudsman Service (FOS)
The Financial Ombudsman Service (FOS) is a free, independent and impartial service that
deals with unresolved disputes. 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. This
procedure must include a notification to the complainant that they have the right to take the
complaint to the FOS if they are not satisfied with the firm’s final answer.
The FOS only deals with disputes from eligible complainants. 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*;
• charities with an annual income of less than £6.5m;
• trustees of trusts with a net asset value of less than £5m;
• small businesses with an annual turnover of less than £6.5m and fewer than 50
employees or a balance sheet total of less than £5m; or
• guarantors.

Chapter 6
*(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. Any legal proceedings that are under way must be withdrawn
prior to the complainant approaching the FOS as the FOS will not become embroiled in legal
proceedings.
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.
Once these have expired, the organisation or intermediary can object to the FOS taking on
the complaint on the grounds that it is ‘time-barred’. The FOS is able to consider complaints
outside these time limits in exceptional circumstances, such as cases involving
pension transfers and opt-outs. It can also review cases outside the time limits if the
organisation agrees.
The FOS can require the parties to the complaint to produce any necessary information or
documents and failure to do so can be treated as contempt of court. All authorised firms
must cooperate with the FOS. The FOS must investigate the complaint and aim to answer
the complaint within three months. It may give the parties an opportunity to make
representations and then hold a hearing. Most disputes handled by the FOS are resolved
through mediation or informal adjudication by a caseworker or adjudicator. 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. The aim is to ensure that
customers are treated fairly and that the law is not used as an excuse to avoid paying fair
 6/24 IF5/October 2022 Motor insurance products

claims. However, the FOS does aim to be consistent in the way it deals with particular types
of complaints.
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 monetary award the FOS can require a firm to make to
a complainant is:
– £375,000 for complaints referred to the FOS on or after 1 April 2022 about acts or
omissions by firms on or after 1 April 2019; and
– £170,000 for complaints referred to the FOS on or after 1 April 2022 about acts or
omissions by firms before 1 April 2019.
The FOS may recommend a higher figure, if appropriate, but this will not be binding on
the firm. Lower figures exist for complaints arising from earlier dates.

On the Web
You can view the figures here: [Link]/consumers/expect/
compensation.

• A 'directions award', telling the firm what actions it needs to take to put things right for its
customer. This could include, for example, directing the business to:
– pay an insurance claim that had earlier been rejected;
– calculate and pay redress according to an approach or formula set by the regulator;
and/or
– apologise personally to the customer.
Chapter 6

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.
If the complainant accepts the decision it is binding on the respondent. If the complainant
rejects the decision it is not binding and they are free to pursue the matter in court. If the
complainant does not respond to the FOS’s decision letter it is treated as a rejection and the
respondent is not bound by the decision.
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.

D2 Financial Services Compensation Scheme (FSCS)

The Financial Services Compensation Scheme (FSCS) ( [Link]) is a 'one-stop
compensation shop', providing compensation for customers of deposit-taking companies,
investment firms and insurance companies.
The FSCS covers claims against firms where they are unable, or likely to be unable, to pay
claims against them. The scheme was set up mainly to assist private individuals, although
small businesses are also covered. It covers compulsory, general and long-term insurance
and is triggered if an insurance company goes out of business or into liquidation.
Subject to eligibility criteria, compensation is paid as follows:
• Non compulsory insurance: 90% of the claim with no upper limit.
• Compulsory insurance e.g. third party motor insurance: 100% of the claim with no
upper limit.
If the FSCS judges that a firm is in default, FSCS must pay compensation to all eligible
claimants affected by the default. It should be noted that the FSCS is funded by a levy on
authorised financial services firms.
Chapter 6 Claims procedures 6/25

Key points

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

Claims procedures

• Insurance contracts are policies of indemnity and place policyholders in the same
position after a loss as they were immediately before it.
• When making a claim, an insured must demonstrate insurable interest.
• Prompt notification of the insurer is essential in the event of any incident which might
lead to a claim.
• The FOS only deals with disputes from a:
– 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.
• The Financial Services Compensation Scheme (FSCS) offers protection to
policyholders in respect of unpaid claims where an insurer goes out of business or into
liquidation.

Chapter 6
 6/26 IF5/October 2022 Motor insurance products

Question answers
6.1 That the subject matter exists, that they will benefit from its continued existence and
that they will suffer financially by its loss.

6.2 c. Satisfaction note.

6.3 Alternatively sourced parts or 'green parts'.

6.4 c. Motor insurer.

6.5 a. Admission of liability.

6.6 Taking the identity of broken or crushed vehicles and using them on stolen vehicles.
Chapter 6
 Chapter 6 Claims procedures 6/27

Self test questions

1. What is the role of the claims department?
2. 'Contribution' can have two meanings. What are these?
3. What does 'without prejudice' mean?
4. What is the maximum award which can be made by the FOS?
5. What is the insurer's position in the case of a fraudulent claim?
You will find the answers at the back of the book

Chapter 6
 Appendix 1
Appendix 1
Road Traffic Act
learning aid
RTA Section Description Text reference

Part I Principal road safety provisions – offences described 3A1

Part II Construction and use of vehicles and equipment 3A2

Part III Licensing of drivers – permitted ages and classes of vehicle 3A3

Part IV Licensing of drivers of large goods vehicles and passenger-carrying 3A4

vehicles

Part V Driving instruction 3A5

Part VI Third party liabilities 3A7

Part VII Miscellaneous and general 3A6

PART VI

Section 143 The offences of driving without insurance or permitting no insurance 3A7A

Section 144(1) The alternative of a deposit 3A7B

Section 144(2) Bodies exempt from insurance requirements 3A7B

Section 145 Insurers must be authorised and be members of the MIB. Policies must 3A7C
operate throughout the EU

Section 146 Regulations regarding securities as an alternative to insurance 3A7D

Section 147 Delivery and surrender of certificates of insurance 3A7E

Section 148 Unenforceable policy conditions 3A7F

Section 149 Unenforceable agreements regarding ‘no liability’ 3A7G

Section 150 Private car drivers can collect contributions for carrying passengers 3A7H

Section 151 Duty of insurers to pay judgments 3A7I

Section 152 Insurers exempt from payment where: 3A7J

• seven days’ notice not given;

• policy ‘properly’ cancelled
Declaration obtained stating policy void.

Section 153 Persons dying or becoming bankrupt do not lose rights under the Act 3A7K

Section 154 Duty to give details of insurance 3A7L

Section 155 Distribution of deposits 3A7M

Section 157 Payment of hospital treatment fees 3A7N

Section 158 Payment of emergency treatment fees 3A7O

PART VII

Section 165 Production of certificates to police 3A6

Section 170 Requirement to stop and report accidents 3A6

Section 171 Duty to produce a certificate to the police to determine if vehicle was 3A6
being driven with or without insurance

Section 174 Offence of withholding material information to gain documents 3A6

Section 185 Various definitions 3A6

Section 192 Also contains definitions 3A6

Section 194 Expressions defined in the Act 3A6

 Appendix 2

Appendix 2
Part VI of the Road Traffic
Act 1988

Notes:
Those parts shown in italics are subsequent changes to the original 1988 Act.
For details of the legislation enabling the changes refer to th
Information website [Link]

Part VI Third-party liabilities

Compulsory insurance against third-party risks
Section 143 – Users of motor vehicles to be insured against third-party risks.
(1) Subject to the provisions of this Part of this Act –
(a) a person must not use a motor vehicle on a road or other public place unless
there is in force in relation to the use of the vehicle by that person such a policy of
insurance in respect of third party risks as complies with the requirements of this
Part of this Act, and
(b) a person must not cause or permit any other person to use a motor vehicle on
a road or other public place unless there is in force in relation to the use of the
vehicle by that other person such a policy of insurance in respect of third party
risks as complies with the requirements of this Part of this Act.
(2) If a person acts in contravention of subsection (1) above he is guilty of an offence.
(3) A person charged with using a motor vehicle in contravention of this section shall not
be convicted if he proves –
(a) that the vehicle did not belong to him and was not in his possession under a
contract of hiring or of loan,
(b) that he was using the vehicle in the course of his employment, and
(c) that he neither knew nor had reason to believe that there was not in force in
relation to the vehicle such a policy of insurance as is mentioned in subsection (1)
above.
(4) This Part of this Act does not apply to invalid carriages.
Section 144 – Exceptions from requirement of third-party insurance.
(1) (1A) (1B)
(2) Section 143 does not apply –
(a) to a vehicle owned –

1
 A2/2 IF5/October 2022 Motor insurance products

(i) by the council of a county or county district in England and Wales the Broads
Appendix 2

Authority, the Common Council of the City of London, the council of a London
borough, a National Park authority, the Inner London Education Authority,

and Rescue Services Act 2004, the London Fire and Emergency Planning
Authority, or a joint authority established by Part 4 of the Local Government
Act 1985, an economic prosperity board established under section 88 of the
Local Democracy, Economic Development and Construction Act 2009 or a
combined authority established under section 103 of that Act,
(ii) by a council constituted under section 2 of the Local Government etc.
(Scotland) Act 1994 in Scotland, or the Scottish Fire and Rescue Service, or
(iii) by a joint board or committee in England or Wales, or joint committee
in Scotland, which is so constituted as to include among its members
representatives of any such council,
at a time when the vehicle is being driven under the owner’s control,
(b) to a vehicle owned by a local policing body, a police authority or the Receiver
for the Metropolitan Police district, at a time when it is being driven under the
owner’s control, or to a vehicle at a time when it is being driven for police purposes
by or under the direction of a constable, by a member of a police and crime
commissioner’s staff (within the meaning of Part 1 of the Police Reform and

Policing and Crime (within the meaning of that Part of that Act), by a member of
the civilian staff of a police force (within the meaning of that Part of that Act), by a
member of the civilian staff of the metropolitan police force (within the meaning of
that Part of that Act), by a person employed by the Common Council of the City of
London in its capacity as a police authority, by a police volunteer designated under
section 38 of the Police Reform Act 2002, or by a person employed by a police
authority, or
(c) to a vehicle at a time when it is being driven on a journey to or from any place
undertaken for salvage purposes pursuant to Part IX of the Merchant Shipping Act
1995,
(d)
(da)
National Health Service and Community Care Act 1990 or by a Local Health Board
established under section 11 of the National Health Service (Wales) Act 2006, at a
time when the vehicle is being driven under the owner’s control,
(db) to an ambulance owned by a National Health Service trust established under
section 25 of the National Health Service Act 2006, section 18 of the National
Health Service (Wales) Act 2006 or the National Health Service (Scotland) Act
1978, at a time when a vehicle is being driven under the owner’s control,
(dc) to an ambulance owned by an NHS foundation trust, at a time when the vehicle is
being driven under the owner’s control,

2
Appendix 2 Part VI of the Road Traffic Act 1988 A2/3

(e) to a vehicle which is made available by the Secretary of State or the Welsh

Appendix 2
Ministers to any person, body or local authority in pursuance of section 12 or 80
of the National Health Service Act 2006, or section 10 or 38 of the National Health
Service (Wales) Act 2006 at a time when it is being used in accordance with the
terms on which it is so made available,
(f) to a vehicle which is made available by the Secretary of State to any local
authority, education authority or voluntary organisation in Scotland in pursuance of
section 15 or 16 of the National Health Service (Scotland) Act 1978 at a time when
it is being used in accordance with the terms on which it is so made available.
(g) to a vehicle owned by the Care Quality Commission, at a time when the vehicle is
being driven under the owner’s control
144A Offence of keeping vehicle which does not meet insurance requirements
(1) If a motor vehicle registered under the Vehicle Excise and Registration Act 1994
does not meet the insurance requirements, the person in whose name the vehicle is
registered is guilty of an offence.
(2) For the purposes of this section a vehicle meets the insurance requirements if—
(a) it is covered by a such a policy of insurance as complies with the requirements of
this Part of this Act, and
(b)
(3)

policy.
(4) The second condition is that the vehicle is covered by the policy because—
(a) the policy covers any vehicle, or any vehicle of a particular description, the owner

relates to it, and

(b) the vehicle is owned by that person.
(5) For the purposes of this section a vehicle is covered by a policy of insurance if the
policy of insurance is in force in relation to the use of the vehicle.
144B Exceptions to section 144A offence
(1) A person (‘the registered keeper’) in whose name a vehicle which does not meet the
insurance requirements is registered at any particular time (‘the relevant time’) does
not commit an offence under section 144A of this Act at that time if any of the following

(2)
(a) in subsection (1) of section 144 of this Act, or
(b) in paragraph (a), (b), (da), (db), (dc) or (g) of subsection (2) of that section,
(whether or not at the relevant time it is being driven as described in that provision).

3
 A2/4 IF5/October 2022 Motor insurance products

(3) The second condition is that at the relevant time the vehicle is owned with the intention
Appendix 2

that it should be used as described in paragraph (c), (d), (e) or (f) of section 144(2) of
this Act.
(4) The third condition is that the registered keeper—
(a) is not at the relevant time the person keeping the vehicle, and
(b) if previously he was the person keeping the vehicle, he has by the relevant time
complied with any requirements under subsection (7)(a) below that he is required
to have complied with by the relevant or any earlier time.
(5) The fourth condition is that—
(a) the registered keeper is at the relevant time the person keeping the
vehicle,
(b) at the relevant time the vehicle is not used on a road or other public
place, and
(c) the registered keeper has by the relevant time complied with any requirements
under subsection (7)(a) below that he is required to have complied with by the
relevant or any earlier time.
(6)
(a) the vehicle has been stolen before the relevant time,
(b) the vehicle has not been recovered by the relevant time, and
(c) any requirements under subsection (7)(b) below that, in connection with the theft,
are required to have been complied with by the relevant or any earlier time have
been complied with by the relevant time.
(6A) The sixth condition is that—
(a) the registered keeper is at the relevant time the person keeping the vehicle,
(b) neither a licence nor a nil licence under the Vehicle Excise and Registration Act
1994 was in force for the vehicle on 31st January 1998,
(c) neither a licence nor a nil licence has been taken out for the vehicle for a period
starting after that date, and,
(d) the vehicle has not been used or kept on a public road after that date.
(7) Regulations may make provision—
(a) for the purposes of subsection (4)(b) and (5)(c) above, requiring a person in
whose name a vehicle is registered to furnish such particulars and make such
declarations as may be prescribed, and to do so at such times and in such manner
as may be prescribed, and
(b) for the purposes of subsection (6)(c) above, as to the persons to whom, the times

(8) Regulations may make provision amending this section for the purpose of providing for
further exceptions to section 144A of this Act (or varying or revoking any such further
exceptions).

4
Appendix 2 Part VI of the Road Traffic Act 1988 A2/5

(9) A person accused of an offence under section 144A of this Act is not entitled to the

Appendix 2
is so adduced it is for the prosecution to prove beyond reasonable doubt that the
exception does not apply.
144C Fixed penalty notices
(1) Where on any occasion the Secretary of State has reason to believe that a person has
committed an offence under section 144A of this Act, the Secretary of State may give
the person a notice offering him the opportunity of discharging any liability to conviction

(2) Where a person is given a notice under this section in respect of an offence under
section 144A of this Act—
(a) no proceedings may be instituted for that offence before the end of the period of
21 days following the date of the notice, and
(b)
of that period.
(3) A notice under this section must give such particulars of the circumstances alleged
to constitute the offence as are necessary for giving reasonable information of the
offence.
(4) A notice under this section must also state—
(a) the period during which, by virtue of subsection (2) above, proceedings will not be
taken for the offence,
(b)
(c)
be paid.
(5)
be made by pre-paying and posting a letter containing the amount of the penalty (in
cash or otherwise) to the person mentioned in subsection (4)(c) above at the address
so mentioned.
(6) Where a letter is sent in accordance with subsection (5) above payment is to be
regarded as having been made at the time at which that letter would be delivered in
the ordinary course of post.
(7) Regulations may make provision as to any matter incidental to the operation of this
section, and in particular—
(a) as to the form of a notice under this section,
(b) as to the information to be provided in such a notice by virtue of this
section, and
(c) as to any further information to be provided in a such notice.
(8) , £100.
(9) Regulations may substitute a different amount for the amount for the time being

5
 A2/6 IF5/October 2022 Motor insurance products

(10)
Appendix 2

as having been paid if a lesser amount is paid before the end of a prescribed period.
(11)
(a) purports to be signed by or on behalf of the Secretary of State, and
(b)

144D Section 144A offence: supplementary

(1) Schedule 2A makes provision about the immobilisation of vehicles as regards which it
appears that an offence under section 144A of this Act is being committed and about
their removal and disposal.
(2) A person authorised by the Secretary of State for the purposes of this subsection
may on behalf of the Secretary of State conduct and appear in any proceedings by or
against the Secretary of State in connection with the enforcement of an offence under
section 144A of this Act or under regulations made under section 160 of this Act by
virtue of Schedule 2A to this Act—
(a) in England and Wales, in a magistrates’ court, and
(b) in Scotland, in any court other than the High Court of Justiciary or the
Court of Session.
Section 145 – Requirements in respect of policies of insurance.
(1) In order to comply with the requirements of this Part of this Act, a policy of insurance
must satisfy the following conditions.
(2) The policy must be issued by an authorised insurer.
(3) Subject to subsection (4) below, the policy –
(a)
in the policy in respect of any liability which may be incurred by him or them
in respect of the death of or bodily injury to any person or damage to property
caused by, or arising out of, the use of the vehicle on a road or other public place
in Great Britain, and
(aa) must, in the case of a vehicle normally based in the territory of another
member State, insure him or them in respect of any civil liability which may
be incurred by him or them as a result of an event related to the use of the
vehicle in Great Britain if, –
(i) according to the law of that territory, he or they would be required to be
insured in respect of a civil liability which would arise under that law as
a result of that event if the place where the vehicle was used when the
event occurred were in that territory, and
(ii) the cover required by that law would be higher than that required by
paragraph (a) above, and

6
Appendix 2 Part VI of the Road Traffic Act 1988 A2/7

(b) must in the case of a vehicle normally based in Great Britain, insure him

Appendix 2
or them in respect of any liability which may be incurred by him or them in
respect of the use of the vehicle and of any trailer, whether or not coupled,
in the territory other than Great Britain and Gibraltar of each of the member
States of the European Union according to
(i) the law on compulsory insurance against civil liability in respect of the
use of vehicles of the State in whose territory the event giving rise to the
liability occurred; or
(ii) if it would give higher cover, the law which would be applicable under this
Part of this Act if the place where the vehicle was used when that event
occurred were in Great Britain; and
(c) must also insure him or them in respect of any liability which may be incurred
by him or them under the provisions of this Part of this Act relating to payment
for emergency treatment.
(4) The policy shall not, by virtue of subsection (3)(a) above, be required –
(a) to cover liability in respect of the death, arising out of and in the course of his
employment, of a person in the employment of a person insured by the policy or
of bodily injury sustained by such a person arising out of and in the course of his
employment, or
(b) to provide insurance of more than £1,200,000 in respect of all such liabilities as
may be incurred in respect of damage to property caused by, or arising out of, any
one accident involving the vehicle, or
(c) to cover liability in respect of damage to the vehicle, or
(d) to cover liability in respect of damage to goods carried for hire or reward in or on
the vehicle or in or on any trailer (whether or not coupled) drawn by the vehicle, or
(e) to cover any liability of a person in respect of damage to property in his custody or
under his control, or
(f) to cover any contractual liability.
(4A)In the case of a person –
(a) carried in or upon a vehicle, or
(b) entering or getting on to, or alighting from, a vehicle,
the provisions of paragraph (a) of subsection (4) above do not apply
unless cover in respect of the liability referred to in that paragraph
is in fact provided pursuant to a requirement of the Employers’ Liability
(Compulsory Insurance) Act 1969.
(5) ‘Authorised insurer’ has the same meaning as in section 95.
(6) If any person or body of persons ceases to be a member of the Motor Insurers’
Bureau, that person or body shall not by virtue of that cease to be treated as an
authorised insurer for the purposes of this Part of this Act –
(a) in relation to any policy issued by the insurer before ceasing to be such a member,
or
7
 A2/8 IF5/October 2022 Motor insurance products

(b) in relation to any obligation (whether arising before or after the insurer ceased
Appendix 2

to be such a member) which the insurer may be called upon to meet under or
in consequence of any such policy or under section 157 of this Act by virtue of
making a payment in pursuance of such an obligation.
Section 146 – Requirements in respect of securities. [repealed]

(1) An insurer issuing a policy of insurance for the purposes of this Part of this Act must
deliver

particulars of any conditions subject to which the policy is issued and of any other
matters as may be prescribed.
(1A)
having been delivered to the person by whom the policy is effected if—
(a) it is transmitted electronically by the insurer to the person in accordance with
subsection (1B) below, or
(b) it is made available by the insurer to the person on a website in accordance with
subsection (1C) below.
(1B)
with this subsection if—
(a)
electronic transmission for the purposes of subsection (1) above, and
(b)
the person for this purpose.
(1C)
accordance with this subsection if—
(a)
being made available on a website for the purposes of subsection (1) above,
(b)
copy of it on a website, and
(c)
of—
(i)
(ii) the address of the website,
(iii) the
(iv)

(b) above as having been delivered by an insurer to a person, the insurer must ensure

the expiry of the last day on which the policy to which it relates has effect.

8
Appendix 2 Part VI of the Road Traffic Act 1988 A2/9

(1E)

Appendix 2
continuously accessible to a person on a website, despite its being temporarily
inaccessible to him on the website, if the insurer has taken all reasonable steps to
make it continuously accessible to him on the website (including steps to remedy any
temporary inaccessibility).
(2) [repealed]
(3) Different forms and different particulars may be prescribed for the purposes of
subsection (1) or (2) above in relation to different cases or circumstances.
Section 148 – Avoidance of certain exceptions to policies.
(1) Where a policy is issued for the purposes of this Part of this Act, so much of the policy
as purports to restrict –
(a) the insurance of the persons insured by the policy,
(b) [repealed]
by reference to any of the matters mentioned in subsection (2) below shall, as respects
such liabilities as are required to be covered by a policy under section 145 of this Act,
be of no effect.
(2) Those matters are –
(a) the age or physical or mental condition of persons driving the vehicle,
(b) the condition of the vehicle,
(c) the number of persons that the vehicle carries,
(d) the weight or physical characteristics of the goods that the vehicle carries,
(e) the time at which or the areas within which the vehicle is used,
(f) the horsepower or cylinder capacity or value of the vehicle,
(g) the carrying on the vehicle of any particular apparatus, or
(h)
Vehicle Excise and
Registration Act 1994.
(3) Nothing in subsection (1) above requires an insurer to pay any sum in respect of the
liability of any person otherwise than in or towards the discharge of that liability.
(4) Any sum paid by an insurer in or towards the discharge of any liability of any person
which is covered by the policy by virtue only of subsection (1) above is recoverable by
the insurer from that person.
(5) A condition in a policy issued for the purposes of this Part of this Act providing –
(a) that no liability shall arise under the policy or security, or
(b) that any liability so arising shall cease,

happening of the event giving rise to a claim under the policy, shall be of no effect in
connection with such liabilities as are required to be covered by a policy under section
145 of this Act.

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 A2/10 IF5/October 2022 Motor insurance products

(6) Nothing in subsection (5) above shall be taken to render void any provision in a policy
Appendix 2

requiring the person insured to pay to the insurer any sums which the latter may have
become liable to pay under the policy and which have been applied to the satisfaction
of the claims of third parties.
(7) Notwithstanding anything in any enactment, a person issuing a policy of insurance
under section 145 of this Act shall be liable to indemnify the persons or classes of

cover in the case of those persons or classes of persons.

Section 149 – Avoidance of certain agreements as to liability towards passengers.
(1) This section applies where a person uses a motor vehicle in circumstances such that
under section 143 of this Act there is required to be in force in relation to his use of it
such a policy of insurance as complies with the requirements of this Part of this Act.
(2) If any other person is carried in or upon the vehicle while the user is so using it, any
antecedent agreement or understanding between them (whether intended to be legally
binding or not) shall be of no effect so far as it purports or might be held –
(a) to negative or restrict any such liability of the user in respect of persons carried
in or upon the vehicle as is required by section 145 of this Act to be covered by a
policy of insurance, or
(b) to impose any conditions with respect to the enforcement of any such liability of
the user.
(3) The fact that a person so carried has willingly accepted as his the risk of negligence on
the part of the user shall not be treated as negativing any such liability of the user.
(4) For the purposes of this section –
(a) references to a person being carried in or upon a vehicle include references to a
person entering or getting on to, or alighting from, the vehicle, and
(b) the reference to an antecedent agreement is to one made at any time before the
liability arose.
Section 150 – Insurance or security in respect of private use of vehicle to cover use
under car-sharing arrangements.
(1) To the extent that a policy issued for the purposes of this Part of this Act
(a) restricts the insurance of the persons insured by the policy to use of the vehicle

non-commercial character, or
(b) excludes from that insurance –
(i) use of the vehicle for hire or reward, or
(ii) business or commercial use of the vehicle, or
(iii) use
character,

10
Appendix 2 Part VI of the Road Traffic Act 1988 A2/11

then, for the purposes of that policy so far as it relates to such liabilities as are required

Appendix 2
to be covered by a policy under section 145 of this Act, the use of a vehicle on a
journey in the course of which one or more passengers are carried at separate fares

falling within that restriction or as not falling within that exclusion (as the case may be).
(2) The conditions referred to in subsection (1) above are
(a) the vehicle is not adapted to carry more than eight passengers and is not a motor
cycle,
(b) the fare or aggregate of the fares paid in respect of the journey does not exceed
the amount of the running costs of the vehicle for the journey (which for the
purposes of this paragraph shall be taken to include an appropriate amount in
respect of depreciation and general wear), and
(c) the arrangements for the payment of fares by the passenger or passengers
carried at separate fares were made before the journey began.
(3) Subsections (1) and (2) above apply however the restrictions or exclusions described
in subsection (1) are framed or worded.
(4) In subsections (1) and (2) above ‘fare’ and ‘separate fares’ have the same meaning as
in section 1(4) of the Public Passenger Vehicles Act 1981.
Section 151 – Duty of insurers to satisfy judgment against persons insured.
(1) This section applies where, after a policy is issued for the purposes of this Part of this
Act, a judgment to which this subsection applies is obtained.
(2) Subsection (1) above applies to judgments relating to a liability with respect to any
matter where liability with respect to that matter is required to be covered by a policy of
insurance under section 145 of this Act and either –
(a) it is a liability covered by the terms of the policy and the judgment is obtained
against any person who is insured by the policy, or
(b) it is a liability, other than an excluded liability, which would be so covered if the
policy insured all persons, and the judgment is obtained against any person other
than one who is insured by the policy.
(3) In deciding for the purposes of subsection (2) above whether a liability is or would
be covered by the terms of a policy, so much of the policy as purports to restrict the
insurance of the persons insured by the policy or by reference to the holding by the
driver of the vehicle of a licence authorising him to drive it shall be treated as of no
effect.
(4) In subsection (2)(b) above ‘excluded liability’ means a liability in respect of the death
of, or bodily injury to, or damage to the property of any person who, at the time of
the use which gave rise to the liability, was allowing himself to be carried in or upon
the vehicle and knew or had reason to believe that the vehicle had been stolen or
unlawfully taken, not being a person who –
(a) did not know and had no reason to believe that the vehicle had been stolen or
unlawfully taken until after the commencement of his journey, and

11
 A2/12 IF5/October 2022 Motor insurance products

(b) could not reasonably have been expected to have alighted from the vehicle.
Appendix 2

In this subsection the reference to a person being carried in or upon a vehicle includes
a reference to a person entering or getting on to, or alighting from, the vehicle.
(5) Notwithstanding that the insurer may be entitled to avoid or cancel, or may have
avoided or cancelled, the policy, he must, subject to the provisions of this section, pay

(a) as regards liability in respect of death or bodily injury, any sum payable under the
judgment in respect of the liability, together with any sum which, by virtue of any
enactment relating to interest on judgments, is payable in respect of interest on
that sum,
(b) as regards liability in respect of damage to property, any sum required to be paid
under subsection (6) below, and
(c) any amount payable in respect of costs.
(6) This subsection requires –
(a) where the total of any amounts paid, payable or likely to be payable under the
policy in respect of damage to property caused by, or arising out of, the accident in
question does not exceed £1,200,000 the payment of any sum payable under the
judgment in respect of the liability, together with any sum which, by virtue of any
enactment relating to interest on judgments, is payable in respect of interest on
that sum,
(b) where that total exceeds £1,200,000, the payment of either –
(i) such proportion of any sum payable under the judgment in respect of the
liability as £1,200,000 bears to that total, together with the same proportion of
any sum which, by virtue of any enactment relating to interest on judgments,
is payable in respect of interest on that sum, or
(ii) the difference between the total of any amounts already paid under the policy
in respect of such damage and £1,200,000, together with such proportion of
any sum which, by virtue of any enactment relating to interest on judgments,
is payable in respect of interest on any sum payable under the judgment in
respect of the liability as the difference bears to that sum,
whichever is the less, unless not less than £1,200,000 has already been paid under
the policy in respect of such damage (in which case nothing is payable).
(7) Where an insurer becomes liable under this section to pay an amount in respect of a
liability of a person who is insured by a policy, he is entitled to recover from that person
(a) that amount, in a case where he became liable to pay it by virtue only of
subsection (3) above, or
(b) in a case where that amount exceeds the amount for which he would, apart from
the provisions of this section, be liable under the policy in respect of that liability,
the excess.

12
Appendix 2 Part VI of the Road Traffic Act 1988 A2/13

(8) Where an insurer becomes liable under this section to pay an amount in respect of a

Appendix 2
liability of a person who is not insured by a policy, he is entitled to recover the amount
from that person or from any person who –
(a) is insured by the policy by the terms of which the liability would be covered if the
policy insured all persons and
(b) caused or permitted the use of the vehicle which gave rise to the liability.
(9) In this section –
(a) [repealed]
(b) [repealed]
(c) ‘liability covered by the terms of the policy’ means a liability which is covered by
the policy or which would be so covered but for the fact that the insurer is entitled
to avoid or cancel, or has avoided or cancelled, the policy.
(10) In the application of this section to Scotland, the words ‘by virtue of any enactment
relating to interest on judgments’ in subsections (5) and (6) (in each place where they
appear) shall be omitted.
Section 152 – Exceptions to section 151.
(1) No sum is payable by an insurer under section 151 of this Act –
(a) in respect of any judgment unless, before or within seven days after the
commencement of the proceedings in which the judgment was given, the insurer
had notice of the bringing of the proceedings, or
(b) in respect of any judgment so long as execution on the judgment is stayed
pending an appeal, or
(c) in connection with any liability if, before the happening of the event which was the
cause of the death or bodily injury or damage to property giving rise to the liability,
the policy was cancelled by mutual consent or by virtue of any provision contained
in it
(2) No sum is payable by an insurer under section 151 of this Act in connection with any
liability if, before the happening of the event which was the cause of the death or
bodily injury or damage to property giving rise to the liability, the insurer has obtained a
declaration –
(a) that, apart from any provision contained in the policy, he is entitled to avoid the
policy under either of the relevant insurance enactments, on the ground that it was
obtained –
(i) by the non-disclosure of a material fact, or
(ii) by a representation of fact which was false in some material
particular, or
(b) if he has avoided the policy under either of the relevant insurance enactments, on
that ground that he was entitled so to do apart from any provision contained in the
policy.

13
Appendix 2 A2/14 IF5/October 2022 Motor insurance products

the judgment of a prudent insurer in determining whether he will take the risk and, if
so, at what premium and on what conditions.
(3)
(4)
(5) In this section, ‘relevant insurance enactment’ means the Consumer Insurance
(Disclosure and Representations) Act 2012 or Part 2 of the Insurance Act 2015.
Section 153 – Bankruptcy, etc., of insured persons not to affect claims by third
parties.
(1) Where, after a person has effected a policy of insurance for the purposes of this Part of
this Act, an event which results in that person being a relevant person for the purposes
of the Third Parties (Rights against Insurers) Act 2010 happens, the happening of the
event shall, notwithstanding anything in that Act, not affect any such liability of that
person as is required to be covered by a policy of insurance under section 145 of this
Act.
(2)
(3) Nothing in subsection (1) above affects any rights conferred by the Third Parties
(Rights against Insurers) Act 2010 on the person to whom the liability was incurred,
being rights so conferred against the person by whom the policy was issued.
Section 154 – Duty to give information as to insurance where claim made.
(1) A person against whom a claim is made in respect of any such liability as is required to
be covered by a policy of insurance under section 145 of this Act must, on demand, by
or on behalf of the person making the claim –
(a) state whether or not, in respect of that liability –
(i) he was insured by a policy having effect for the purposes of this Part of this
Act, or
(ii) he would have been so insured if the insurer had not avoided or cancelled the
policy, and
(b) if he was or would have been so insured
(i) give

section 147 of this Act, or

(ii) the following
particulars, that is to say, the registration mark or other identifying particulars
of the vehicle concerned, the number or other identifying particulars of the
insurance policy issued in respect of the vehicle, the name of the insurer and
the period of the insurance cover.
(2) If without reasonable excuse, a person fails to comply with the provisions of subsection
(1) above, or wilfully makes a false statement in reply to any such demand as is
referred to in that subsection, he is guilty of an offence.

14
Appendix 2 Part VI of the Road Traffic Act 1988 A2/15

Section 155 – Deposits. [repealed]

Appendix 2
Section 156 – Power to require evidence of insurance on application for vehicle
excise licence.
Provision may be made by regulations under section 57 of the Vehicle Excise and
Registration Act 1994 for requiring a person applying for a licence under that Act in respect
of a motor vehicle to produce such evidence as may be prescribed that either –
(a) on the date when the licence comes into operation there will be in force the necessary
policy of insurance in relation to the use of the vehicle by the applicant or by other
persons on his order or with his permission, or
(b) the vehicle is a vehicle to which section 143 of this Act does not apply at a time when it
is being driven under the owner’s control.
ales]
(1) Subject to subsection (2) below, where –
(a) a payment, other than a payment under section 158 of this Act, is made (whether
or not with an admission of liability) in respect of the death of, or bodily injury to,
any person arising out of the use of a motor vehicle on a road or in a place to
which the public have a right of access [England and Wales] or in some other
public place [Scotland], and
(b) the payment is made by an authorised insurer, the payment being made under or
in consequence of a policy issued under section 145 of this Act, and
(c) the person who has so died or been bodily injured has to the knowledge of the
insurer or owner, as the case may be, received treatment at a hospital, whether as
an in-patient or as an out-patient, in respect of the injury so arising.
The insurer or owner must pay the expenses reasonably incurred by the hospital
in affording the treatment, after deducting from the expenses any moneys actually

under any contributory scheme.

(2) The amount to be paid shall not exceed £2,949.00 for each person treated as an in-
patient or £295.00 for each person treated as an out-patient.
(3) For the purposes of this section ‘expenses reasonably incurred’ means –
(a) in relation to a person who receives treatment at a hospital as an in-patient, an
amount for each date he is maintained in the hospital representing the average
daily cost, for each in-patient, of the maintenance of the hospital and the staff of
the hospital and the maintenance and treatment of the in-patients in the hospital,
and
(b) in relation to a person who receives treatment at a hospital as an out-patient,
reasonable expenses actually incurred.

15
Appendix 2 A2/16 IF5/October 2022 Motor insurance products

Wales]
(1) Subsection (2) below applies where –
(a) medical or surgical treatment or examination is immediately required as a result of
bodily injury (including fatal injury) to a person caused by, or arising out of, the use
of a motor vehicle on a road [England and Wales] or in some other public place
[Scotland], and
(b) the treatment or examination so required (in this Part of this Act referred to as

(2) The person who was using the vehicle at the time of the event out of which the bodily
injury arose must, on a claim being made in accordance with the provisions of section
159 of this Act, pay to the practitioner (or, where emergency treatment is effected by

(a) a fee of £21.30 in respect of each person in whose case the emergency treatment
is effected by him, and
(b) a sum, in respect of any distance in excess of two miles which he must cover in
order –
(i) to proceed from the place from which he is summoned to the place where the
emergency treatment is carried out by him, and
(ii)
equal to 41 pence for every complete mile and additional part of a mile of
that distance.
(3)
(1) and (2) above with respect to payment of a fee shall, so far as applicable, but
subject (as regards the recipient of a payment) to the provisions of section 159 of this
Act, have effect with the substitution of references to the hospital for references to a

(4) Liability incurred under this section by the person using a vehicle shall, where the
event out of which it arose was caused by the wrongful act of another person, be
treated for the purposes of any claim to recover damage by reason of that wrongful act
as damage sustained by the person using the vehicle.

16
 i

Chapter 1
self-test answers
1 A policyholder and their spouse or domestic partner.
2 They can accept business from both Lloyd's and non-Lloyd's brokers on the condition
that the non-Lloyd's broker meets the same minimum standards required of a Lloyd's
broker.
3 Reduced handling costs and broker commissions.
4 To make it easier for firms to trade across borders, to strengthen policyholder
protection and to provide a level playing field.
5 An insurance write-off occurs when the cost of repairs to a vehicle is greater than its
pre-accident value. The insurer passes details of the write-off to the DVLA on form
V23 and this information, together with the surrender of the registration document,
allows the DVLA to control the registration of vehicles that might not be roadworthy.
6 Private car insurance is a price-sensitive commodity and high-street brokers have
difficulty competing on price and often are not able to offer the convenience of 24-hour
service, which is otherwise available on the internet.
ii IF5/October 2022 Motor insurance products

Chapter 2
self-test answers
1 Generally speaking cover will be the same. If it is temporarily detached, then it should
remain within 'close proximity' of the vehicle (although some insurers will use the term
'within the vicinity'). In these circumstances the cover for the trailer will usually be the
same as that provided for the towing vehicle.
2 Any five from the following:
• Loss of use.
• Depreciation.
• Wear and tear.
• Mechanical or electrical breakdown.
• Electronic, computer or computer software failures or breakdowns.
• Damage to tyres from braking or by road punctures, cuts or bursts.
• Loss/damage caused by pressure waves resulting from aircraft travelling at sonic
or supersonic speeds.
• Reduction in market value following any repair of the vehicle, whether as a result of
a claim under the terms of the policy or not.
• Loss/damage to telephone or communication equipment of any kind.
• Loss/damage as a result of a deliberate act by the insured person.
• Loss of the vehicle by deception by someone who claims to be a buying or selling
agent.
• Loss/damage to the unoccupied car if the keys are left in or on the car.
3 Insurers will pay for the cost of a replacement windscreen and windows from any
accidental cause and this will include the cost of repairing the damage to the
bodywork that may result directly from the glass breakage. There is normally a
separate, lower excess applicable to glass claims and the submission of a claim will
not normally affect the policyholder's no claim discount (NCD) situation. Glass
generally includes a glass sunroof but not a panoramic roof. Rear screens in
convertibles which are not made of glass would be excluded.
If it is possible to repair the damage (as opposed to replacing the glass) then the
excess will not normally apply or will be significantly lower.
4 • Repair the damage; or
• replace what is lost or damaged beyond economic repair; or
• pay in cash the amount of loss or damage.
5 This is the amount that it would cost to replace a vehicle with a vehicle of similar
make, model, condition and mileage. The figure does not take into account any loan
amount or financial arrangement.
6 Comprehensive.
 iii

Chapter 3
self-test answers
1 Provide driving tuition.
2 'Any highway and any other road to which the public has access and includes bridges
over which a road passes.'
3 Any person who accumulates six points on their licence within two years of passing
the driving test automatically has their licence revoked and they will need to apply for
a provisional licence again. This means that they will need to take a further driving test
before they can drive unaccompanied.
4 The employee would escape prosecution if they were driving their employer's vehicle
and did not know or had no reason to believe that there was no insurance.
5 Prior to the Deregulation Act, Section 147 (iv) of the Road Traffic Act required
policyholders to return their certificate of insurance to the insurers, where a policy was
cancelled mid-term, and it was a criminal offence to fail to do so. Section 9 of the
Deregulation Act removed this requirement, as any mid-term cancellation is now
recorded on the MID, and it is no longer an offence to withhold return of the certificate.
6 In order to accept a contribution:
• the vehicle must not be capable of carrying more than eight passengers and it
must not be a motorcycle;
• the fare paid or the aggregate fares paid by the passenger(s) must not exceed the
total running costs for the vehicle for that journey;
• the amount of each fare must be agreed before the commencement of the journey.
7 The insurer is not liable to the person in charge of the AV:
• where the accident was caused by the person's negligence in allowing the AV to
begin driving itself when it was not appropriate to do so;
• when unauthorised software alterations have been made; or
• where the person has failed to install software updates which they knew (or ought
to have known) were safety-critical.
8 An individual who enters into the contract wholly or mainly for purposes unrelated to
the individual's trade, business or profession.
9 The proposer's name, address, sex and date of birth.
10 b. Private car.
iv IF5/October 2022 Motor insurance products

Chapter 4
self-test answers
1 Any six from the following:
• The preamble/Recital Clause.
• Definitions.
• Loss or damage.
• Liability to others.
• Foreign use.
• Additional benefits.
• General exclusions.
• General conditions.
• Service information.
• Schedule.
2 If the unroadworthy condition contributed to an accident or loss.
3 • To provide the policyholder with the main details of the cover granted while the
permanent documents, including the policy, itself, are prepared.
• To act as a temporary certificate of insurance which complies with the Road Traffic
Act.
4 The notification condition requires the policyholder (or personal representatives) to
notify the insurer of any incident which could lead to a claim under the policy. They
must also forward any correspondence they receive in connection with that incident
without first replying to it and also let the insurer know of any hearing that they
become aware of, such as a prosecution or inquest.
So that the insurer can protect its position and that of the policyholder, the condition
enables it to have knowledge of all aspects of all claims at the earliest opportunity.
5 Often, pollution occurs gradually and it may be a number of years before its
consequences come to light. Such a long tail risk is not suitable for motor insurance.
6 Policyholders may weaken the insurer's position regarding any third-party claim if any
form of admission of liability is made. Insurers will, generally, only decline indemnity if
any admission has, in fact, prejudiced their position.
 v

Chapter 5
self-test answers
1 • Use.
• District.
• Type/size of vehicles (plus trailers).
• Policy cover.
• Drivers.
2 Any five from the following:
• Who the main user is.
• Occupation.
• Licence details.
• Accident and loss history.
• Any conviction history.
• Any disabilities of drivers.
• Country of origin and length of residence in the UK.
3 Essentially, the no claim discount is a 'reward' granted to policyholders who have not
made an 'at fault' claim under their policy during the preceding period of insurance,
normally twelve months. Originally, the no claim discount was introduced in order to
encourage loyalty. As it is cheaper for the insurer to renew a policy than to acquire a
new one, then it is worth offering a loyalty discount in an effort to secure renewal.
4 The risk may have changed since the last renewal date. Convictions may have been
notified in the last year and there may now be an additional, possibly young, driver.
There may also now be higher claims frequency or higher claims costs. There might
also be aspects of the risk that have been present for at least one year and which
have previously attracted special terms and these will also need to be looked at. Any
convictions which are now rehabilitated must be ignored and any loading associated
with them removed.
5 Areas of heavy population provide a greater chance of collision, not always being the
policyholder's fault, as when a parked car is hit by another vehicle which then drives
off. A quieter location, thus, provides a lesser risk. The risk of theft also varies from
one place to another and this is a particularly relevant issue in respect of where the
vehicle is kept overnight, e.g. whether in a locked garage or not.
Relating such events to particular areas such as postal codes provides insurers with a
good means of determining rating by such areas.
6 To ensure consumers are treated fairly by relieving them of the duty to volunteer all
material facts to an insurer, whether the subject of a specific question or not.
7 d. Increased traffic density.
8 d. Retired persons.
9 c. Fitting of non-standard alloy wheels to car. 1

1 In addition, answer D also counts as a correct answer. Although it is not a requirement to disclose a reduction in annual
mileage, it may be in the insured's interest to do so as it may result in a reduced premium. An increased estimate of
anticipated annual mileage would have to be disclosed.
vi IF5/October 2022 Motor insurance products

Chapter 6
self-test answers
1 The role of the claims department is to:
• indemnify the policyholder in accordance with the cover purchased;
• ensure that only valid claims are paid;
• provide a fast, fair and efficient claims service;
• deal with third party claims while protecting the policyholder's interests;
• protect the fund of premiums against overpayment, fraud and expenses incurred
due to inefficient claims handling processes.
2 'Contribution' can mean:
• the situation where there are two or more insurance policies covering all or part of
a loss, in which case, each will contribute to the loss on a proportionate basis, thus
ensuring that the policyholder does not gain more than an indemnity; or
• in relation to betterment, the situation where, say, the condition of the insured
vehicle is better after the loss and repair than it was prior to it.
3 This means that anything written and marked 'without prejudice' cannot be produced
as evidence in legal proceedings, nor anything said during interviews held on a
'without prejudice basis'. This can be helpful in negotiations, enabling these to be
undertaken freely.
4 £375,00, plus interest, costs and interest on costs.
5 If a claim is in any way fraudulent (including gross exaggeration) or supported with
forged documents then the insurer may refuse indemnity for that claim and treat the
policy as if it did not exist for the future. The policyholder would have no right to
reclaim premiums paid.
 vii

Cases
A W
Amey Properties Ltd v. Cornhill Insurance Wake v. Page and Another (2000), 3A7J
Plc (1995), 4C2F Wylie v. Wake (2001), 3A7J

B
Bank of Nova Scotia v. Hellenic Mutual War
Risks Association (1989), 5A1B
Brown v. Roberts (1965), 3A7A

C
Cameron v. Hussain (2017), 1D2
Cobb v. Williams (1973), 3A7A

D
Damijan Vnuk v. Zavarovalnica Triglav (2014),
3A7A
Dobson v. General Accident (1989), 2A3B
Dodson v. Dodson (2001), 2B7

E
Elliot v. Grey (1960), 3A7A

F
Froom v. Butcher (1975), 6B

H
Hayward v. Norwich Union (2001), 4C2E

L
Lewis v. Tindale, MIB and the Secretary of
State for Transport (2018), 3A7A

M
May v. DPP (2005), 3A7A
Monk v. Warbey (1935), 3A7A

O
Ofulue v. Bossert (2009), 6B3

P
Power v. Provincial Insurance Plc (1997),
3E1A

S
Smith v. Finch (2009), 6B

T
Tattersall v. Drysdale (1935), 2B7, 3A7F
viii IF5/October 2022 Motor insurance products
 ix

Legislation
A Insurance Distribution Directive 2016/97/EC,
1F3
Alternative Dispute Resolution Directive Insurance Mediation Directive 2002/92/EC,
2013/11/EC, 4C2F 1F3
Automated and Electric Vehicles Act 2018,
3E10, 5F5
Automated and Electric Vehicles Act 2018
L
(Commencement No.1) Regulations 2021, Latent Damage Act 1986, 3E2
3E10 Law Enforcement Directive 2016/680/EC,
4C1B
C Law Reform (Contributory Negligence) Act
1945, 6B
Civil Liability Act 2018, 2C, 6A11 Law Reform (Miscellaneous Provisions) Act
Civil Procedure Rules 1998, 3A7J 1934, 2B7
Codifying Directive 2009/24/EC, 3C1F Legal Aid, Sentencing and Punishment of
Compensation Act 2006, 6B2 Offenders Act 2012, 3E1A, 4C1A, 5B2,
Consumer Insurance (Disclosure and 5G2D
Representations) Act 2012, 1C2D, 3E8, Legal Aid, Sentencing and Punishment of
3E9A, 3E9B, 3E9C, 3E9F, 5A1A, 5A1B, Offenders Act 2012 and the Management
5H1, 5I of Offenders (Scotland) Act 2019 , 5G2
Consumer Rights Act 2015, 4C2F Limitation Act 1980, 6B4
Contracts (Rights of Third Parties) Act 1999, Limitation Acts 1939–80, 3E2
3E6
M
D
Management of Offenders (Scotland) Act
Data Protection Act 2018, 4C1A, 4C1B 2019, 3E1A, 4C1A, 5B2, 5G2, 5G2D
Deregulation Act 2015, 3A7E, 3A7F, 3A7I, Marine Insurance Act 1906, 3E9B, 6A1A
3A7J Minibus (Conditions of Fitness, Equipment
Disability Discrimination Act 1995, 3E4, and Use) Regulations 1978, 5D2
3E4A, 4C1A, 5B2 Motor Vehicle (Compulsory Insurance)
Disability Discrimination Act 2005, 3E4 Regulations 2000, 3A6, 3A7A
Motor Vehicle (Third Party Risks)
Regulations 1972, 4A1
E Motor Vehicles (Compulsory Insurance)
Employers’ Liability (Compulsory Insurance) (Amendment) (EU Exit) Regulations 2019,
Act 1969, 3A7C, 3E11 3C1D
Equality Act 2010, 3E4A, 4C1A, 5B2 Motor Vehicles (Compulsory Insurance)
EU General Data Protection Regulation (EU (Information Centre and Compensation
GDPR), 4C1B Body) Regulations 2003, 3C1E
EU Motor Directives, 3A, 3C1 Motor Vehicles (Compulsory Insurance) Act
European Communities (Rights Against 2022, 3A7A
Insurers) Regulations 2002, 3C1E Motor Vehicles (Compulsory Insurance)
Regulations 1992, 3C1C, 3E11
Motor Vehicles (Compulsory Insurance)
F Regulations 2007, 3C1E
Motor Vehicles (Electronic Communication of
Financial Services and Markets Act 2000,
Certificates of Insurance) Order 2010, 4A1
1C2A, 3E8C
Motor Vehicles (International Motor
Insurance Card) (Amendment) Regulations
G 2020, 3D1
Motor Vehicles (Third Party Risks)
General Data Protection Regulation, 4C1A, (Amendment) Regulations 2001, 3C1D
4C1C

P
H
Personal Injuries (NHS Charges) (Amounts)
Health and Social Care (Community Health Regulations 2007, 3A7N
and Standards) Act 2003, 3A7O Prescription and Limitation (Scotland) Act
1973, 3E2
I
Insurance Act 2015, 1C2D, 1F1, 3E8, 3E9,
3E9B, 5A1B, 5I, 6A2
x IF5/October 2022 Motor insurance products

R
Rehabilitation of Offenders (Amendment)
Order (Northern Ireland) 2022, 3E1A,
4C1A, 5B2, 5G2D
Rehabilitation of Offenders Act 1974, 3E1,
3E1A, 4C1A, 5B2, 5G2, 5G2D
Road Safety Act 2006, 1E, 3A, 3A1, 3E7
Road Traffic (New Drivers) Act 1995, 3E3
Road Traffic (NHS Charges) Act 1999, 3A7N,
3A7O
Road Traffic Act 1930 (RTA 1930), 3A7A
Road Traffic Act 1972 (RTA 1972), 3C1A
Road Traffic Act 1988, 1A1, 1D, 2A1, 3A, 3B,
4A2, 4C2F, 5C1E, 5H
Road Traffic Act 1991 (RTA 1991), 1A1, 3A,
3A1, 3A7A
Road Traffic Offenders Act 1988, 3E7

T
Terrorism Act 2000, 2B7A
Theft Act 1968, 2A3A
Third Parties (Rights Against Insurers) Act
1930, 3A7K, 3E5
Third Parties (Rights Against Insurers) Act
2010, 3A7K, 3E5
Trailer Registration Regulations 2018, 2B4A
Transport Act 1978, 3A7H

U
Unfair Terms in Consumer Contracts
Regulations 1999, 4C2F

V
Vehicles Excise and Registration Act 1994,
3A7F
 xi

Index
A commercial (continued)
insurance policies, 4C
accessories, 2B1A type motor policies, 1A3
accident report form, 6A2 commercial car
accidental damage claims, 6A5 renewal procedure, 5I
additional risk data, 5B1B commercial motor
agents, 3E8A, 3E8C rating considerations, 5C
aggregators, 1B underwriting considerations, 5C
agreed value policies, 5G2A commercial vehicle
airside damage, 2B4
cover, 4C2E liability to others, 2B8, 2B8A
risks, 2B8A loss, 2B4
alternatively sourced parts, 6A5 policies, 4C2G
Automated and Electric Vehicles Act 2018 policy wording, 2B
(AEVA), 3E10 companies
direct sell, 1C1B
insurance, 1C1
B internet, 1C1C
bankruptcy, 3A7K traditional insurance, 1C1A
benefit comprehensive, 2B3F
new car, 2B3E policies, 2A4
personal accident, 2B11A conditions, 2B7A, 4C2F
breaches, 3E9B consumer insurance contracts, 5A1A
breakage of glass, 2B3C contamination, 2B8B, 4C2E
breakdown cover, 2D contingent liability, 2B6, 5D3A
buses, 2B4B, 5D2 Continuous Insurance Enforcement, 1E, 3E12
business, 5C1A contracting out, 3E9F
contracts
consumer insurance, 5A1A
C contribution, 6A1C
contributory negligence, 6B
call centres, 1C1B
convictions, 3E1A, 5C2E, 5G2D
car
Council of Bureaux, 3D
delivery, 2B3D
courtesy cars, 6A5
recovery, 2B3D
cover, 5C1E
cause, 3A7A
breakdown, 2D
certificate of insurance, 4A1, 4C1
Road Traffic Act (RTA), 2A1
issue, 3A7E
third party only (TPO), 2A2
surrender, 3A7E
types of, 2A
CIFAS, 6C4
cover note
Civil Procedure Rules, 3A7J
content and legal requirements, 4A
claims, 6A4
temporary, 4A2
accidental damage, 6A5
conducting, 6B1
cost per vehicle, 5D5A D
experience, 5C2C, 5G2E
fire, 6A7 damage, 2B1
fraudulent, 6A12 motorcycle, 2B5
frequency, 5D5B, 5G2F deception, 2A3B
handling, 6A defective products, 2B8B
history, 5D4 deposits, 3A7M
notification methods, 6A2 direct sell
other clauses, 6A3 companies, 1C1B
principles, 6A1 intermediaries, 1C2B
RTA personal injury, 6A11 disabilities, 5G2H
severity, 5G2G Disability Discrimination Act 2005 (DDA 2005),
theft, 6A6 3E4
third party property damage, 6A10 disclosure, 3E8A
total loss, 6A8 discount
Claims and Underwriting Exchange (CUE), guaranteed, 5F2
6C2 initial, 5F1
clothing, 2B3F no-claims discount, 5F
coaches, 2B4B, 5D2 protected, 5F2
Codifying Directive, 3C1F starter, 5F1
commercial district, 5C1C
fleet policies, 1A3A driver, 5C1F
xii IF5/October 2022 Motor insurance products

driver insurance (continued)

(continue law reform, 1C2D
d) motor, 1C
age of, 5G2B traditional companies, 1C1A
licence, 2B7A Insurance Fraud Bureau, 6C5
Driver and Vehicle Licensing Agency (DVLA), Insurance Fraud Investigators Group, 6C5
1E Insurance: Conduct of Business Sourcebook
driving (ICOBS), 1F1
other cars, 2B7, 4A1A insured
other vehicles, 2B8 vehicle, 2B7A
insurers
duty of, 3A7I
E intermediaries, 1C2
eligible complainants, 6D1 direct sell, 1C2B
employers’ liability risks, 2B7A types of, 1C2A
endorsements, 2B7A International Certificate of Insurance, 3D1
engineer, 6A5A
equipment, 2B3B L
ethical considerations, 5A1
EU referendum, 3A7A liability, 3A7N
exceptions, 2B7A, 4C2E admission, 6B2
security, 3A7B denial, 6B2
third party insurance, 3A7B towards passengers, 3A7G
excesses, 2B1B Lloyd’s motor syndicates, 1C1D
exclusions, 2B2, 2B7A loading, 2B8A
long-distance travel, 5C2F
loss, 2B1
F motorcycle, 2B5
fair presentation, 3E9A
fair treatment of customers, 1F2 M
Financial Conduct Authority (FCA), 1F1
Financial Ombudsman Service (FOS), 6D1 market value, 2B3A, 6A9
Financial Policy Committee (FPC), 1F1 material circumstances, 3A7J, 3E3, 3E9A,
Financial Services Compensation Scheme 5A1B
(FSCS), 6D2 material facts, 3E8, 5A1A
fire, 2A3C medical expenses, 2B11B
claims, 6A7 minibuses, 5D2
fleet misrepresentations, 3E8A, 3E8B
risks, 5D motor
types of, 5D1 industry computer databases, 6C
fraud, 5A1B insurance, 1C
clause, 6A3B certificate, 4A
fraudulent claims, 3E9E, 6A12 claims handling, 6A
legislation, 3E
policies, 4C
G policies, 1A4
garaging, 5B3 vehicle, 3A7A
gender, 5A2 Motor Insurance Anti-Fraud and Theft Register
geographical area of use, 5B3 (MIAFTR), 6C1
good faith, 3E9F Motor Insurance Database (MID), 1D5, 6C3
goods-carrying vehicles, 5C1 Motor Insurers’ Bureau (MIB), 1D, 1D1
green card, 2B10 Police Helpline, 1D6
Green Card, 1D3, 3D1 motorcycle
operation of, 3D2 liability to others, 2B9
system, 3D loss, 2B5
See also International Certificate of Insurance policies, 1A2
policy wording, 2B

H
N
hospital treatment, 3A7N
new car benefit, 2B3E
no-claims discount, 5C2G, 5F
I non-proprietary parts, 6A5
notification, 6A1E
indemnity, 2B8A, 6A1B
methods, 6A2
insurable interest, 6A1A
insurance
companies, 1C1
contract of, 4C1
 xiii

O remedies (continued)
for qualifying breaches, 3E9G
occasional business use, 2B6, 5D3A fraudulent claims, 3E9E
occupation, 5C1A, 5C2H, 5G2C renewal
operative clause, 4C2C, 4C2D of cover, 5G
options retention, 5G1
purchase, 1B system, 5G2
supply, 1B renewal procedure
out of court settlement, 6B4 commercial car, 5I
private car, 5H
repair, 6A5
P representations, 3E8A
patient fees, 3A7N requirements
pay-as-you-drive policies, 5F4 policies of insurance, 3A7C
permit, 3A7A securities, 3A7D
personal effects, 2B3F risk management, 5E
policies road, 3A7A
agreed value, 5G2A Road Traffic Act (RTA)
commercial, 4C cover, 2A1
commercial fleet, 1A3A personal injury claims, 6A11
commercial type motor, 1A3
commercial vehicle, 4C2G S
comprehensive, 2A4
motor, 1A4 schedule, 4C1
motorcycle, 1A2 Secretary of State, 1D2
pay-as-you-drive, 5F4 security devices, 5B1B
private car, 1A1 service information, 4C2H
private motor, 4C Statement of Facts, 4C1A
policy statement of insurance, 6A2
booklet, 4C1 Statutory Off Road Notification (SORN), 1E
legal expenses, 2C storage, 6A5
schedule, 4B subrogation, 4C2F, 6A1D
wording, 2B supply options, 1B
Policy
booklet structure, 4C2
pollution, 2B8B, 4C2E
T
private car temporary cover note, 4A2
additional benefits, 2B11 terrorism, 2B7A, 2B8B
breakage of glass, 2B3C theft, 2A3A
foreign use, 2B10 claims, 6A6
liability to others, 2B7 third party
loss and damage, 2B1 fire and theft (TPF&T), 2A3
policies, 1A1 liabilities, 3A7
policy wording, 2B only (TPO) cover, 2A2
rating considerations, 5B property damage claims, 6A10
renewal procedure, 5H property damage limit, 2B8
underwriting considerations, 5B tool of trade, 2B8B
products, 1A, 1C2C total loss claims, 6A8
property, 2B7A trade plate, 2B8B
proposal forms, 4C1A trailers, 2B4A, 2B8
proposer, 5B2
Prudential Regulation Authority (PRA), 1F1
purchase options, 1B U
UK financial services, 1F
Q UK Information Centre (UKIC), 1D3, 1D4
underwriting, 5A
qualifying Uninsured Drivers’ Agreement, 1D2
breaches, 3E9B, 3E9G uninsured loss recovery, 2C
misrepresentations, 3E8A, 3E8B unloading, 2B8A
Untraced Drivers’ Agreement, 1D2
R use, 5C1B
for hire and reward, 5B4F
rating, 5A, 5D3 geographical area, 5B3
reasonable care, 3E8A, 6A3A motor trade, 5B4E
recovery of the vehicle, 5B4
car, 2B3D social, domestic and pleasure, 5B4A
regulatory structure, 1F
rehabilitation periods, 3E1A
remedies
xiv IF5/October 2022 Motor insurance products

V
vehicle
age of, 5C2B
classification, 5B1A
insured, 5B1
motor, 3A7A
other features, 5B1B
private use of, 3A7H
recovery, 6A5
repair, 6A5
type, 5G2A
type/size, 5C1D
use of, 5B4
value, 5G2A
value of, 5C2A
vehicles
automated, 3E10
electric, 3E10
goods-carrying, 5C1
high performance, 5G2A
high value, 5G2A
use of, 3E11
use of outside UK, 3C

W
warranties, 3E8A, 3E9C
breach of, 5A1B
irrelevant, 5A1B
weight of load, 2B8A
without prejudice, 6B3
wrongful delivery, 2B8A
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