IF5 Key Facts

Motor
insurance
products
IF5
2023
KEY
FACTS
Motor insurance
products
IF5: 2023 Key facts

This edition is based on the 2023 examination syllabus to be
examined from 1 January 2023 until 31 December 2023.
2 IF5/2023 Motor insurance products
© The Chartered Insurance Institute 2022

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Print edition ISBN: 978 1 80002 541 7
Electronic edition ISBN: 978 1 80002 542 4
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Contents
1: The market place 5
2: Scope of cover provided 33
3: Legal and regulatory considerations 59
4: The Certificate of Motor Insurance and the 113
construction of policies
5: Rating and underwriting 135
6: Claims procedures 169
The market place
1
Introduction
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.
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. Once capacity reduces substantially, then the
rates begin to improve (harden) and the cycle begins again.
Products
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.
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.
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.
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.
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’.
Other types of motor policy

Home fleets: Appeals to those risks where the number of
vehicles to be insured will exceed the number of drivers.
Motor trade: This can include repairers, MOT testing
stations, and car sales garages, but may also include auto
electricians, tyre fitters 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.
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.
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.
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.
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
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.
Motor insurance vendors and

suppliers
Insurance companies
Traditional insurance companies
These will still transact with high street intermediaries and
the like.
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.
Employees, who are often referred to as agents or operators,
are guided by the software through a series of question
prompts to ask customers.
In addition to making new business sales, call centres are

often used to support and develop the customer relationship.
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.
From a regulatory point of view, quotations are provided on a
'non-advised' basis, since only that particular insurance
company's products are considered.
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.
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.
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.
Lloyd’s motor syndicates

From November 2008, the restriction that only a Lloyd's
broker could place business at Lloyd's was removed.
Intermediaries
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.
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.
It is the ICOBS which outlines the standards for
intermediaries, and their conduct in relation to the sale and
provision of motor insurance products.
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.
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.
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.
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.
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.
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.
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.
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.
Motor Insurers’ Bureau (MIB)

The Road Traffic Act 1988, like its predecessors, makes
motor insurance compulsory for third party bodily injury and
property damage.
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.
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.
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.
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.
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.
The MIB does have the right to recover any sum it might pay
out from the driver concerned.
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 not required by law to cross borders within the EU and
some other countries.
Key points about the Green Card section of the MIB:
• Deals with accidents that occur overseas.
• It does not pay compensation.
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.
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 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.
The UK Information Centre (UKIC)

The UKIC is the UK's designated information centre, in
accordance with the EU Fourth Motor Insurance Directive.
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.
Motor Insurance Database (MID)

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 to maintain a
central information database which can provide details of the
insurer of every vehicle registered for road use.
The idea is that EU citizens would find it easier to pursue a
claim where the incident has occurred outside their country of
residence.
Insurers are only obliged to provide the MID with brief details
of the policy cover, policyholder details and insurer contact
information.
Responsibility for creating and maintaining the database in
the UK lies with the UKIC which is a subsidiary of the MIB.
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.
Driver and Vehicle Licensing

Agency (DVLA)
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 www.dft.gov.uk/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 incorrect
document may have been produced.
• To trace the registered keepers of vehicles involved in road

traffic accidents whom the insurer may want to pursue for
claims.
• To find out the exact specification of a vehicle.
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.
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.
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

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.
What does the process of making a Statutory Off Road

Notification (SORN) to the DVLA entail?
A declaration that the To declare the vehicle will not be used
vehicle is off the road or kept on a public road without vehicle
(with a twofold purpose) 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.
UK financial services regulatory

structure
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).
• Prudential Regulation Authority (PRA).
• Financial Policy Committee (FPC).
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.
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.
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 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 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.
• 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.
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.
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:
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.
Further information is available on the FCA website:

www.fca.org.uk/publication/finalised-guidance/fg21-1.pdf.
Principles for Business

Emphasis is placed on the PRA/FCA Principles for
Businesses, specifically:
• Principle 1: Integrity
• Principle 6: Customers’ interests
• Principle 7: Communications with clients
• Principle 8: Conflicts of interest
• Principle 9: Customers: relationships of trust
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 years.as 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.
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.
Scope of cover
2
provided
Types of cover
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.
What does basic RTA cover comprise?
• Legal liability to third parties for death or bodily injury to
any person and damage to third party property
• Emergency treatment payments under the Road Traffic Act
• Legal costs incurred in defending an action for damages
• Third party cover abroad
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.
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.
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.
Cover for certain legal costs exists in a third-party only policy,
but this may vary depending on the type of vehicle covered.
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.
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.
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.
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.
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'.
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.
Deception
A number of insurers have a policy exclusion relating to
deception.
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.
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 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.
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.
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.
What are two circumstances in which an insurer might

provide RTA cover?
• 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.
Policy wording – private car,

commercial vehicle and
motorcycle
The basic layout of a policy booklet will follow a similar
format, comprising the following:
• Preamble.
• Definitions.
• The various sections of the policy.
Private car loss and damage – main

cover
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.
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.
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.
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.
Accessories
An insurer will cover accessories and spare parts if lost,
stolen or damaged while in or on the insured vehicle.
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.
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.
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.
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 parts of the private car loss or

damage section
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Trailers
Trailer cover is often given as standard on commercial
vehicle policies.
‘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’.
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.
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.
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.
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.
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.
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, 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.
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.
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).
Who will be entitled to cover?
• Anyone entitled to drive under the terms of the policy
• Anyone who ‘uses’ the vehicle for social, domestic and
pleasure purposes
• Any person travelling in or getting into or out of the car
• The policyholder’s employer, if the car is used with the

policyholder’s permission, provided the use is 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.
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.
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.
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.
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.
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.
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.
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.
Other exclusions – Other exclusions (which in some
instances used to be confined to commercial type policies),
have often been incorporated into private car policies.
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.
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.
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.
Third party property damage limit

It should be noted that with commercial vehicle policies there
may be a third party property damage limit.
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.
Trailers
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.
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.
• Indemnity to any passenger.
• Airside risks.
• Wrongful delivery.
• Weight of load.
General exceptions
Pollution and contamination
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.
Defective products
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.
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.
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.
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.
Legal costs, emergency treatment and use abroad are dealt
with in the same way as for private car insurance.
Private car – foreign use

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.
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.
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.
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.
Personal accident benefits

This particular additional benefit is commonly referred to as
the personal accident insurance section and provides modest
personal accident benefits.
What will this normally cover?
• Death, loss of eyes or loss of limbs
• An insurer may pay in respect of injury caused in direct
connection with the insured car or the cover may extend to
travelling in any car
• As a ‘benefit’, there can be no contribution from any other
policy or compensation payment.
Further points to consider are as follows:
• 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.
Medical expenses
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.
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.
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 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.
Breakdown cover
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.
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 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.
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.
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.
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.
Legal and regulatory
3
considerations
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.
It should be remembered that the Road Traffic Act is

principally a piece of legislation relating to criminal law.
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.
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 inconsiderate driving
(s.20).
• Causing death by driving while unlicensed,
disqualified or uninsured (s.21).
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).
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.
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.
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.
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.
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.
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.
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.
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.
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’.
S.143 – Users of motor vehicles to be insured

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.
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 a vehicle left on the road outside a house and
(1960) 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. the owner of a vehicle travelling in it as a

Williams passenger while it is being driven by someone else
(1973) is deemed to be ‘using’ the vehicle within the
meaning of the Act.
Brown v. a passenger opening a vehicle door, which collided

Roberts with a pedestrian on the pavement. This was
(1965) deemed not to be using the vehicle, for there had
to be an element of control or managing the
vehicle.
‘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.
‘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.
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.
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 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: https://bit.ly/3BF00w4
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.
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.
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 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.
S.144 – Exceptions from requirement of third

party insurance
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.
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.
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 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.
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.
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.
S.146 – Requirements in respect of securities

Repealed by the Motor Vehicles (Compulsory Insurance)
(Miscellaneous Amendments) Regulations 2019.
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.
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.
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.
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.
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.
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
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.
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.
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.
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’.
This section reflects the provisions of the Transport
Act 1978.
S.151 – Duty of insurers to satisfy judgment

against persons insured against third-party
risks
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) state that the insurer must satisfy the

and (6) 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.
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
• 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 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.
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.
S.153 – Bankruptcy etc., of insured persons

not to affect claims by third parties
Section makes it clear that if the policyholder dies or becomes
153 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.
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.
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.
S.155 – Deposits
Repealed by the Motor Vehicles (Compulsory Insurance)
(Miscellaneous Amendments) Regulations 2019.
S.157 – Payment for hospital treatment of

traffic casualties
S.157 deals with the repayment of hospital treatment fees.
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.
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.
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.
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.
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.
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.
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.
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 Alternatively they may be

of damaged property 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 This does not mean that the third
blame for the accident, other party is not at all at fault: it is
than the third party possible that the third party is
themselves 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 Sometimes that is exactly what

is the one responsible for happens and that is the end of
compensating the victim the matter.
(there may be more than one
party responsible through
contributory negligence)
More often than not, the In the absence of indemnity from

negligent party has no an insurance policy where there
inclination to pay the victim is no money a court cannot force
and/or has no funds to do so payment from that negligent
personally party.
Section 143 of the Road Traffic It would be nice to think that

Act makes it a criminal offence most people would voluntarily
to use a motor vehicle on a take out motor insurance in any
road without effective event, but the Road Traffic Act
insurance being in place 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.
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.
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.
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.
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.
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.
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’
Use of vehicles outside the UK

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 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.
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.
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 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.
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.
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.
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.
The provisions of the Third Directive were incorporated into
the RTA 1988 through amendments stipulated in the Motor
Vehicles (Compulsory Insurance) Regulations 1992.
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.
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.
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 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.
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.
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.
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.
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.
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 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.
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.
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
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.
Other legislation affecting motor

insurance
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’.
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.
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).
The main changes affecting motoring offences in England
and Wales are:
• 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.
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.
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).
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.
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.
Road Traffic (New Drivers) Act 1995

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.
At subsequent renewals, any convictions would have to be
disclosed together with the penalties imposed.
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 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.
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
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.
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.
Third Parties (Rights Against

Insurers) Act 2010
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.
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 the ‘other’ party to an accident.
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.
Road Safety Act 2006

The Road Safety Act is the major piece of legislation devised
to achieve such targets, with 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.
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’.
Main definitions
Section 1 of the Act defines a consumer insurance contract
as being a contract of insurance between:
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.
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:
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.
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 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.
If the insurer gives notice to that effect to the consumer, the
consumer may terminate the contract by giving reasonable
notice to the insurer.
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.
Insurance Act 2015

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.
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 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).
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.
The remedies are set out in Schedule 1.
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
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.
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 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.
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.
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.
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.
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.
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.
Schedule 1 – Insurers’ remedies for

qualifying breaches
Schedule 1 sets out the remedies available for qualifying
breaches of the duty of fair 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.
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.
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:
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.
Their Automated Vehicles joint report was published in
January 2022.The 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).
• 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.
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.
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’.
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.
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).
The Certificate of
4
Motor Insurance and
the construction of
policies
Content and legal requirements
of the cover note and the
Certificate of Motor Insurance
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.
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).
‘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.
4: The Certificate of Motor Insurance and the construction of policies 115
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 • to provide the policyholder with the main details

has two main of the cover granted while the permanent
functions: 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.
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.
The regulations state that certificates, including cover notes,
must be kept secure and must be retained for a period of
twelve months.
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.
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
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.
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.
Construction of commercial and

private motor insurance policies
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:
• 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.
• 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.
Proposal forms and statement of facts

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), and
its year of make, date of purchase, engine size and value.
• 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.
• Driver's details – most insurers will insist upon full details
of each driver being supplied, seeking their names, dates
of birth, all occupations, type of licence (plus date test
passed), 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. Insurers may request
drivers' licence numbers (DLN) in order to obtain a history
of convictions from the DVLA via the 'My Licence' system.
• 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).
• 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 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.
• Vehicle.
• Driver.
• Cover, use and premium.
• Insurance information.
• Important notes.
Like the proposal form declaration, the notes may also make
reference to the MIAFTR, CUE and UKIC databases.
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.
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 – 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.
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 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
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.
Right to be • Individuals have the right to be informed

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 • Individuals have the right to have inaccurate

rectification 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'.
• The right is not absolute and only applies in
certain circumstances.
Right to restrict • Individuals have the right to request the

processing 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 • This allows individuals to obtain and reuse

portability 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 • An individual has the right not to be subject

to automated to a decision based solely on automated
decision making 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.
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.
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.
Preamble/Recital clause
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.
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.
General exclusions
Sometimes these clauses are interchangeable between
exclusions (exceptions) and conditions.
• 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.
• 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.
• A policy will not apply when any vehicle covered by it:
– 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.
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.
General conditions
• 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.
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.
• 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 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.
• All policies have a cancellation condition, although the
terms may vary. Among the various requirements, the
policyholder must confirm cancellation in writing. Provided
no 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.
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.
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.
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.
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.
Rating and
5
underwriting
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 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.
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.
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.
Ethical considerations
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).
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’.
Insurance Act 2015

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.
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’.
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.
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.
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.
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.
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.
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.
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.
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 most obvious consequence is that motor premiums for
women increased.
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 need to be given as to
the vast administrative difficulties for insurers caused by the
original change in the law.
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.
• 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.
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.
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.
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.
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;
• use to which the vehicle is put; and
• cover required.
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.
• Modifications.
• Theft risk.
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.
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.
• 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.
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.
Insurers may have to ask the following questions:
• Who is the main user (name and address)?
• What are the ages of all drivers?
• The occupation of all drivers needs to be ascertained.
• What are the licence details of all drivers?
• What is the accident and loss history of all drivers?
• Is there a conviction history?
• Do the drivers have any disabilities?
• What is the country of origin and length of residence
in the UK?
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.
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.
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.
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.
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.
Class 2 or class B
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.
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.
Motor trade use

This is a specialist area dealt with as a commercial risk.
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.
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.
Goods-carrying vehicles
This descriptive term is used to describe all the different
types of vehicles that are intended or designed to
carry goods.
use
policy cover drivers
How are
goods-carrying
vehicles rated?
type/size
of vehicle district
(plus trailers)
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
company number may be required.
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.
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.
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.
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.
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.
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.
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.
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.
Other factors
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.
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).
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.
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.
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.
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.
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.
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.
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 • The premium paid will often be substantial
main reasons why and the policyholder will seek value for
a fleet rating may money as a result.
be preferable from
• The range of covers offered in the fleet
a fleet operator’s
market may be greater than would be
(policyholder’s)
available elsewhere.
point 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.
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.
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.
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.
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.
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.
Vehicle damage and replacement: Damage to the vehicle

is another important consideration.
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 Passenger Carrying Vehicle (PCV)
licence.
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.
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.
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.
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.
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 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.
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’.
Future projections
Claims cost per vehicle
Once the claims cost per vehicle is established, it is possible
to compare it to the average premium per vehicle.
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.
Claims frequency
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.
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 in a risk management programme to address particular
problems (e.g. training of all or specific drivers or poor
maintenance regimes.)
Other possible risk management measures could be more
effective recording or undertaking of vehicle maintenance and
a clear policy on accident reporting.
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.
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.
Initial or starter discounts

Application of • those that have no driving record at all and
NCD can cannot, therefore, prove themselves; or
prejudice the
• those that have a good record, but under
following:
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.
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.
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 maximum. On loss of a fourth life, NCD
would reduce in line with the insurers published
'step-back' scale.
Guaranteed NCD is slightly different from protected NCD in
as much as it cannot be taken away, no matter how many
claims are made.
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.
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.
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 time when the
journey was made, and the types of roads used.
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.
‘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.
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.
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.
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.
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
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.
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.
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.
Renewal retention
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.
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.
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.
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.
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 High value High

policies vehicles performance
vehicles
• These will have • Higher value • This can result in

been issued in the vehicles may be an increased
main for vintage customised, and premium,
or ‘classic’ cars. this would especially if
There is usually a increase the value coupled with
need to re-agree still further. This another aspect of
a value for the could then place it the risk which is
forthcoming year in a rating group undesirable.
or perhaps every far above that Insurers may be
two years. The which was prepared to
insurer may wish originally maintain standard
to look at the risk envisaged. terms if the only
specifically or, Insurers may wish sub-standard
possibly, in to monitor the feature is the risk
comparison with experience of itself and no
others in the these risks incidents have
portfolio, insured individually. The occurred during
on a similar basis. value may, of the previous
course, have terms.
reduced over the
course of the
previous term and
this should be
taken into
account.
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.
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. These are
sometimes considered specialist risks, and only a few
insurers will offer terms.
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.
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.
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.
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.
Claims severity
This will really depend on the cost of each claim, or if it/they
are still outstanding, the reserve 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.
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.
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.
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.
• 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.
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
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.
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.
A schedule of vehicles or the number of vehicles of each type
which makes up the current fleet would also be provided.
Claims procedures
6
Principles of claims handling
applied to motor insurance
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
current insurers following submission of a claim.
The role of the • indemnify the policyholder in accordance with

claims the cover purchased and policy wording;
department
• ensure that only valid claims are paid;
is to:
• 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.
Principles applying to claims

In common with other types of insurance, there are a number
of general principles that apply to motor claims.
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.
Why have insurable interest? Really, there are two reasons,
and they are:
• To eliminate or at the very least reduce any moral
hazard.
• To avoid or discourage gambling.
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
personal accident benefits, are not subject to indemnity.
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.
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.
In common law, when will contribution arise?
• Two or more policies of indemnity exist.
• Each of them insures the peril which brings about the loss.
• Each policy insures the same interest in the subject matter.
• Each policy is liable for the loss. In other words, both or all
insurers would consider handling the claim.
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 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.
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.
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.
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.
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 longer use an accident report
form at all.
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.
Other clauses relevant to claims

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 exemption from obtaining MOT certificates to help
prevent the spread of the virus. Exemptions no longer apply.
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.
Further clauses pertinent to claims

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 • Should the policyholder or driver admit

liability 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, 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.
Accidental damage claims

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.
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.
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.
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 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.
Approved repairers will also normally collect, store and
redeliver the policyholder’s vehicle.
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.
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.
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.
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.
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.
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
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.
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.
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).
Often there may be particular features that the insurer will

scrutinise closely which could determine whether the insurer
chooses to investigate the alleged loss.
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.
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.
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.
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.
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.
Total loss claims

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.
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.
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.
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.
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.
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.
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.
• Not to prejudice any action which its own policyholder
may be taking in respect of their own uninsured
losses.
• To form an opinion on the effect of the claim on its
own policyholder’s NCD.
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 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 new 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.
Stage 2: Where liability is admitted, the claimant's solicitors
will obtain medical evidence.
• 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.
• 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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
Conducting the claim

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.
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.
‘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.
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.
Motor industry computer

databases
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.
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.
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.
Claims and Underwriting

Exchange (CUE)
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.
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.
All insurers who underwrite motor insurance in the UK must
be members of the MIB and must supply policy data to
the MID.
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.
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 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.
Financial Ombudsman Service

(FOS) and Financial Services
Compensation Scheme (FSCS)
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.
*(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 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.
You can view the figures here: www.financial-

ombudsman.org.uk/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.
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.
Financial Services Compensation

Scheme (FSCS)
The Financial Services Compensation Scheme (FSCS)
( www.fscs.org.uk) 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.
Chartered Insurance Institute
3rd Floor, 20 Fenchurch Street,
London EC3M 3BY
tel: +44 (0)20 8989 8464
[email protected]
www.cii.co.uk
Chartered Insurance Institute

@CIIGroup
© The Chartered Insurance Institute 2022
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Motor

IF5: 2023 Key facts

© The Chartered Insurance Institute 2022

often allow business use. Most of the vehicles insured are

Commercial type motor policies

• If the ‘mix’ of vehicles is varied, and includes private cars,

Commercial fleet policies

A further type of fleet policy is a ‘mini-fleet’ policy. This is a

Other types of motor policy

Purchase and supply options

An advantage of aggregators is that they are available 24

Motor insurance vendors and

Direct sell companies

In addition to making new business sales, call centres are

Lloyd’s motor syndicates

Direct sell intermediaries

many are on profit-share arrangements with the risk-carrying

There is now a trend among certain insurers to focus on

Insurers will often place a ceiling on the premium to be

Insurance law reform

It concluded by making recommendations for reform of the

Motor Insurers’ Bureau (MIB)

before that when it was realised that there were scenarios

Role of the MIB

Agreements with the Secretary of

of the Fifth EU Motor Directive in 2007, the excess has

Post-Brexit Green Card position

an EU or associated country. EU motorists needed to do

Position post-Brexit transition period (1 January 2021)

The UK Information Centre (UKIC)

Motor Insurance Database (MID)

The MIB Police Helpline

In order to combat this problem, the MIB launched the Police

Driver and Vehicle Licensing

• To trace the registered keepers of vehicles involved in road

surrender of the registration document, allows the DVLA to

Continuous Insurance Enforcement

What does the process of making a Statutory Off Road

To declare that the vehicle will not be

Those that used to tax a vehicle but did not continue

UK financial services regulatory

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

The rules indicate that a policyholder includes anyone who,

2. 14 days for any other contract of insurance or

Insurance Act 2015

Under the subsection 8.2 Motor vehicle liability insurers,

determined or the damages have not been fully

Fair treatment of customers

Further information is available on the FCA website:

Principles for Business

General insurance pricing practice (GIPP) rules

four outcomes with associated metrics against which firms

Insurance Distribution Directive (IDD)

The key provisions of the Directive are:

is a short, pre-contractual, non-personalised product

Third party only (TPO) cover

Third party fire and theft (TPF&T)

Third party fire and theft

Third party only

This shows that ‘comprehensive’ provides the greatest extent