General Aspects of Insurance

What is insurance?

Insurance is a way of buying peace of mind that if you suffer an unfortunate, unpredictable loss you will receive financial compensation from the insurer. This compensation is meant to put you back in the same financial position you enjoyed before the loss or make a specified benefit payment.

How does insurance work?

By collecting a sum of money (the premium) from each person wishing to have insurance (the policyholder), the insurer creates a fund from which he eventually pays the losses (claims) of those policyholders who suffer a loss. In this way the contributions of the many pay for the losses of the few.

The contribution or 'premium' you pay into the fund depends on:

• The size of the risk you want to cover since this will affect the size of the 'claim' or amount you will be entitled to take from the fund.
• The likelihood of a claim occurring, which is calculated on the basis of past experience and the expertise of the insurer.

Why do I need insurance?

There could be many examples of unexpected events that may cause you or your family to suffer a financial loss:

• An unexpected event could happen, such as a fire in your home. Your most valuable investment and possession could be destroyed.
• You may be on holiday and lose your baggage.
• You may meet with an accident that costs you your life. Your family will need the financial support that you previously gave them. In some cases, you may turn to state benefits for compensation but these are usually low; besides, you must make sure that you qualify for them.
• Aditionally, there are situations that impose a legal obligation to be insured, such as when driving a car or other motor vehicle.

Can every type of risk be insured?

Although there is almost no limit to the risks you can insure against, there are particular risks that are uninsurable because:

• They are speculative - such as trading or gambling risks;
• The resultant potential loss is too catastrophic, such as war and nuclear risks; or
• Insurance which would be against public policy - such as insurance to cover the costs of court fines.

How many types of insurance exist?

There are various types of insurance and different classifications. The following is only an overview:

General Business

This encompasses a wide variety of insurance covers that can be broken down in two main groups:

• Personal lines: These are insurance that protect you as an individual and your interests such as your car, your home, your holidays and your health.
• Commercial/Industrial lines: These are insurance to protect larger risks and business interests such as hotels, factories, construction projects, shops, small businesses etc.

These insurance policies usually provide cover for a period of one year and may then be renewed. However some are also short-term covers with a period of cover that is less than one year. An example is a holiday travel policy. In the case of commercial/industrial lines the policy may cover a period of time that is longer than a year such as an insurance protecting a construction risk.

Life Business

This term is used for all forms of insurance cover that is linked to a person's life. These include:

• Term insurance - protects your dependants in the event of your death during a specified short period of time. The sum assured is payable only if death occurs within the defined period.
• Whole Life - protection for your loved ones to ensure they receive a sum of money upon your death.
• Endowment - protection with an element of savings because it not only pays your dependants upon your death but it also pays you a sum of money if you survive to a certain age.
• Unit Linked - An investment policy with an element of insurance protection.

These policies offer cover for a continuous period of time and are not annually renewable. They are called long-term business.

The above list is by no means an exhaustive one and only includes the more common types of insurance policies.

Insurance in Gibraltar 

Is the business of insurance regulated in Gibraltar?

There are principally two main sets of legislation which regulate the business of insurance and insurance intermediaries' activities in Gibraltar. These are: The Insurance Companies Act 1987 and the Financial Services Act 1989 respectively. The Gibraltar Financial Services Commission (GFSC) is the authority in Gibraltar for ensuring that companies offering financial services in Gibraltar, including insurance business, are properly authorised and supervised.

What is the Gibraltar Financial Services Commission and what is its role?

The GFSC is a statutory body corporate and authority established to perform a number of functions in respect of financial services. The GFSC comprises several specialised teams which together provide a structure for the licensing and supervision of persons and companies engaged in different financial services activities. These activities include banking, insurance business, investment services and fiduciary services.

In conducting its affairs, the GFSC endeavours to meet all of the following regulatory objectives:

• To promote market confidence;
• The reduction of systemic risk;
• To promote public awareness;
• The protection of the reputation of Gibraltar;
• The protection of consumers and investors e.g. policyholders in the case of insurance companies; and
• The reduction of financial crime, including the funding of terrorism.

Whenever possible the GFSC will also publish a summary of how new regulatory requirements meet these statutory objectives. There are, however, cases where regulatory requirements must be imposed, for example in the case of EU Directives, where such considerations may not be practicable.

Who would be able to offer me an insurance policy in Gibraltar?

• Insurance Companies, also called Principals;
• Insurance intermediaries e.g. insurance brokers and agents.

What type of service should I expect from each insurance provider?

Insurance Company or Principal

This may be a local insurance company or a foreign insurance company that has a branch and/or an insurance agent in Gibraltar. You may buy insurance directly from such a company or through its agent or intermediary. An insurance company can only offer you the insurance policies it issues itself. It cannot offer you insurance policies of other companies.

Insurance Intermediaries

These are divided into two main types; those authorised to sell investment products and those that deal with general insurance.

Insurance Agent

An insurance agent represents a local and/or a foreign insurance company and will therefore only be able to provide you with the insurance policies of the insurance company that it represents.

In the event of a claim, the agent may handle your claim all the way through to settlement. He has the same duty of care towards you as the insurance company.

Insurance Broker

An insurance broker does not represent any insurance company and therefore can seek insurance cover for you with any insurance company or agent. They can therefore provide you with a variety of products available on the market for you to choose from. They may give you advice on the kind of cover you need for the particular risk you wish to insure, and should direct you to secure the insurance cover at the best terms available on the market.

In the event of a claim, the broker will assist you in completing a claim form and submitting the relevant claims documents to the insurer. They may assist you further in the handling of your claim and may then direct you to the insurance agent or the insurance company itself.

An insurance broker:

• Is bound by a Code of Conduct in having to comply with the Financial Services (Conduct of Business) Regulations 1991 (this also applies to insurance agents);
• Must disclose any connection they may have with the insurance company they are placing your business with, such as being a shareholder, director, partner or otherwise. They must disclose the connection to you at negotiation stage;
• Must disclose that they are placing your business under an arrangement they have with a particular insurance company. They must disclose this to you at negotiation stage.

Moreover, when placing your business with a foreign insurance company that is not authorised in Gibraltar, the broker must explain that:

• In the event of a claim, the absence of a local representative for this company could present you with certain difficulties;
• The law that will apply to your insurance policy may not be Gibraltar Law and you may not have the option to change it.

What types of insurance can I purchase from banks?

A bank may act as a sub-agent or broker for life and general insurance policies. In this instance the bank must clearly identify the insurance company it is representing. If the life policy is needed for the purpose of a loan or mortgage, for example, the bank must:

• Clearly explain the terms of cover and how much cover is required to provide security for the loan/mortgage requested and identify any cover being offered that exceeds such requirements; and
• Point out that other insurance companies offer similar policies that also satisfy the bank's requirements and that you are free to choose which one to purchase either directly or through any intermediary of your choice.

Are there foreign insurance companies operating in Gibraltar?

Yes, there are both foreign (from European Economic Area (EEA) states) and local insurance companies in Gibraltar. Foreign insurers must maintain 'a presence' in Gibraltar by means of a branch office or by appointing an insurance agent.

Passporting Rights

Gibraltar licensed insurers have always been able to cover risks in the UK. Additionally, on 11th June 1997, the Government of Gibraltar announced the UK Government's agreement that Gibraltar insurers were able to cover risks in other EEA states as well, without needing a separate licence in the other state to do so, given that Gibraltar is also part of the European Union. A number of Gibraltar insurers are presently providing cross border services in EEA states in accordance with European law. A list of these companies is available on our website at http://www.gfsc.gi/fsclists/insulist.aspx.

In fact, most of the newly established insurers do not actually provide insurance products to the local market, but are instead writing insurance business on a provision of services basis or a branch basis (the former being the most common option) into other EEA states. This is because the local market is simply too small.

Buying an Isurance Policy 

What are the main points I must remember prior to buying an insurance policy in Gibraltar?

• Make sure that any intermediary you approach has been licensed by the GFSC. Licences should always be in public view at the place of business;
• If dealing directly with an insurance company ensure that it is either licensed by the GFSC or can cover risks in Gibraltar;
• You must not be pressured into buying something you are not convinced of;
• You must have no doubt who your insurer is. It is not enough to know the agent or broker. Neither of these is your insurer (i.e. the company that will ultimately bear the risk and pay for your claim);
• You must receive all the necessary documents you need to decide on what insurance to purchase and to understand the cover;
• You must receive the formal policy document and any certificate required by law;
• You must have a receipt for monies paid from the person you handed the payment to.

How do you select an insurance company?

The insurance market is highly competitive. You will find that the premium charged by one company may differ from another. The same applies to service. It pays to shop around. If you do not know the names of insurance companies, agents or brokers in Gibraltar visit our website at www.gfsc.gi.

There are four main considerations you need to take into account when selecting your insurance company, all of which are important:

The Terms and Conditions of Cover

Although a lot of the terms and conditions imposed by insurers are standard, these may vary for specific risks depending on the company's particular experience for that risk. For example, the excess imposed or the discount scale offered may vary. Some insurers may cover certain aspects of the additional perils on a fire policy without charging a specific premium, others do not.

Price

There are many companies that sell insurance policies and prices vary greatly from one to another, so it really pays to shop around. Get at least two or three price quotes from companies, agents and brokers. You might also be able to get these from the Internet because some insurance companies have this facility on their website.

Service

Your insurance company and its representatives should answer your questions and handle your claims fairly, efficiently and quickly. You can get a feel for this by talking to other customers who have used a particular company or agent. Insurers differ in structure, size and the customer base that they target. Some may have developed special skills and efficiencies that others do not have; some may give higher standards of service than others; each is unique and so pricing can vary substantially. While it pays to compare prices, it is a good idea to compare service too.

Comfort

You should feel comfortable with your insurance policy, whether you buy it from an insurance company, agent or broker. Make sure that your insurance company will be easy to reach if you have a query regarding the policy or need to file a claim.

What are my duties when buying insurance?

• You have a duty to give evidence of your identity and in certain cases of long-term business, the insurer or insurance intermediary must keep a copy of your identity card;
• You have a duty to give the insurer or insurance intermediary correct and complete information that could influence the decision of the insurer to accept your risk or not and at what terms. This is called 'Duty of Disclosure';
• To answer all questions and complete the proposal form as accurately as possible and sign the proposal form. Make sure you understand the questions posed to you - if not, ask for clarification;
• If the proposal form was filled out for you, it is most important for you to check that answers were completed correctly. Make sure you understand the declaration that is normally at the end of the form, usually very close to where you sign off, and ensure that all answers comply with that declaration;
• If you have other important information which the insurer has not asked for, ask the insurer or insurance intermediary about it. If in doubt, always provide the insurer with full details.

This duty applies before the cover starts, during the term of the policy and at each renewal. Therefore any relevant, important changes to the risk insured at any of these times must be advised to the insurer.

Be aware that the insurer relies on the truthfulness and extent of your statements and if these are found to be incorrect (even if you did it unintentionally) the insurer may be entitled to reject your claim.

If the insurer has the correct complete details, they will be in a better position to guide you as to possible extensions of cover that are important for you and that you may not be aware of.

What are your rights when buying insurance?

The insurer or insurance intermediary must:

• Make sure that all information given to you is clear, fair and not misleading;
• Avoid any conflicts of interest they may have or if they cannot, they must explain the position fully to you. For example, an intermediary may have directors or shareholders who are also involved in the insurance company where they are placing your business. You should know of this;
• Clearly explain to you what the policy entitles you to and what it does not cover;
• Tell you when your policy will expire;
• Explain what to do if you need to make a claim;
• Explain what to do if you need to make a complaint;
• Give you full details of the costs of your insurance. These should include: (i) the premium; (ii) any fees or charges other than the premium (such as stamp duty or policy fee). These must not be included with the premium. They must appear separately on the invoice; (iii) the dates when you need to pay the premium, fees and charges and how you can pay them;
• Answer any additional questions you may have regarding the policy;
• Assist you in completing any questionnaires such as the proposal form;
• Provide you with copies of the documents you need to reach a decision such as a specimen of the policy or a summary of cover, information on projected bonuses, surrender values, maturity value or other sums payable under life insurance;
• Confirm to you the period of validity for any quotation offered. Insurers will normally state that the quotation is valid for a definite period of time. After that period, you have to ask for a new quotation as certain factors may have changed;
• Inform you of the right to cancel the cover and at what terms. When cancelling the cover, insurers may opt to charge you more than a pro-rata premium for the period of time that you were insured. There may be 'Short term period rates' which are the minimum premiums to be charged for periods of less than a year. You may ask your insurer or insurance intermediary to explain them to you;
• In the case of life insurance and unit-linked policies, provide you with the Statutory Notice (refer to page 15 for an explanation).

Before you buy your insurance policy you should have enough information to be able to understand it so that you can make an informed decision.

Once you agree to buy the insurance, the insurer or insurance intermediary must:

• Confirm your insurance cover;
• Provide you with all the documents you need (see next question - What documents are used in an insurance transaction?);
• Provide you with a receipt for your payment of the insurance premium, fees and charges;
• Handle any changes in cover you may request during the term of the policy;
• Inform you of any changes to the policy and provide written evidence of them;
• Handle your claims fairly and promptly;
• Handle your complaints fairly and promptly; and
• Protect any personal information you give them.

What documents are used in an insurance transaction?

The following is a non-exhaustive list of the most standard forms of documents used in most insurance transactions:

A Proposal Form

This document has a set of questions about you and the risk/s you want to cover. This is normally completed on all personal lines of business (such as home and motor insurance) and on life assurance before you buy the policy. Always sign the proposal form and keep a copy.

Note that for larger risks and particular classes of business like marine insurance, insurers do not normally use proposal forms but a document called a 'slip'. This is prepared by an insurance intermediary or by the insurer themselves following a survey of the vessel and/or a meeting with you.

A Certificate

This is a document that provides evidence of insurance, especially in the case of motor insurance, where it is required by law and may be requested by the police and licensing authorities. It is also used in travel insurance and in some marine cargo insurance as evidence for particular shipments which are covered under a block policy or open cover. It may also be used as evidence of cover for an individual who is insured under a group cover. This is a very important document and is not transferable to other persons.

A Cover Note

This is a document also used as evidence of cover when there is a time lapse between the start of the insurance cover and the issue of the policy document . This could arise because of normal administrative time constraints or because the insurer accepts to hold you covered provisionally in urgent situations until full details are assessed. This cover note is used in various classes of business and it serves as temporary evidence of insurance cover even if the insurer is giving provisional cover and may eventually decline the risk.

An Insurance Policy

This is the written evidence of the contract between you and your insurer. You must always receive a policy and keep it. Make sure it reflects the cover you wanted and the terms you accepted. Most policies today are user friendly and easy to read. The most popular form of policy is a scheduled policy which is made up of a set of standard clauses and a schedule which lists all the specific details of the risk in question. The clauses and schedule refer to one another and should be read together.

The main sections of a policy are often the following:

• A heading that usually identifies the name and address of the insurer;
• An introduction describing the parties to the contract;
• A clause stating when the policy cover will operate and what hazards are covered;
• A list of exclusions;
• A list of conditions which includes the way claims are to be made and how policies can be cancelled;
• A schedule which will list the details of the particular risk covered (including the period of cover);
• A signature clause which should always be signed by officials of the insurer.

In general you will receive a complete policy document only the first time you take out a policy. On renewal you will receive a renewal endorsement noting the new period of cover and any other necessary changes. Items not mentioned on the endorsement will remain at the same terms as the previous year.

A Summary of Cover

This is an informative document which provides a summary of the policy. It may be given to you to familiarise yourself with the cover before buying the policy. However, when you are insured under a block cover with many others you should always receive a Summary of Cover because the main policy is kept by somebody else. This would be the case when you place your householders' insurance under a loan scheme or travel insurance under a credit card scheme. In these cases the bank, as the insured, keeps the insurance policy and you are provided with the Summary of Cover. This document must clearly show who the insurer is and who to contact in the event of a claim.

An Endorsement

This is a document showing any agreed amendment to the standard terms of a policy. This may be issued at any time during the period of the policy. For example you may wish to increase the sum insured under your policy. Upon agreement with the insurer, an endorsement will be issued showing the amended sum insured, when such a change became effective and what additional premium, if any, is due.

A Claim Form

This is a form containing a set of questions to establish the circumstances and size of your loss. When you inform your insurer or insurance intermediary that you have suffered a loss you will be asked to complete such a form. Complete the form to the best of your knowledge. Make sure you sign the document and keep a copy.

A Discharge Form

This may be in the form of a letter and is also known as a satisfaction note. It is a statement that the insurer or insurance intermediary asks you to sign as evidence that the compensation you are receiving from them is in full and final settlement of the claim. If a payment is made to a third party, then the third party is asked to sign such a form.

A Statutory Notice

This document must be given to you when you are buying a life policy. The notice is not required in certain instances including when you buy term insurance, when you purchase long term cover as a company such as group life insurance or when you are not the life assured or the wife/husband or child of the life assured in the policy. You would have around 15 days from the receipt of the notice to reconsider the purchase of the insurance and if you so wish, to cancel the policy and request the return of any money paid in full.

If you have bought insurance, always make sure you have a document that you can use as evidence of the insurance cover.

This may be :

• A Certificate
• A Cover Note (remember this is only temporary cover)
• A Policy
• A Summary of Cover

Should I trust insurance adverts?

Adverts are there to give you brief information about the product which is being promoted. However, adverts may not always give you full information about the product. Detailed information about the product and whether it is suitable for your requirement can only be obtained from your insurer or insurance intermediary.

Here are some tips to help you when you read an advert for an insurance product:

• Make sure you understand who is placing the advert. It could be an insurance company, an agent or a broker. In each case other than the insurance company, make sure you know which insurer is providing the product advertised.
• If the advert is for an insurance policy with limits or sums insured expressed in a foreign currency or provides for payment of any benefits in a foreign currency, be aware that values may vary because of exchange rate fluctuations.
• Ask yourself: what is the insurance company promising me? There are benefits which the insurance policy has to provide - these are known as guaranteed or contractual benefits. But there are other benefits which the insurance policy may provide. These benefits are subject to change and any forecast of what you might get is based on calculations of the insurance company. Although the insurance company cannot provide you with unrealistic or misleading information, its calculations are based on forecasts - which may change at any time. They are therefore indicative and not guaranteed.
• You will probably find some adverts exclusively promoting the price of an insurance product (e.g "Your car insurance for only £400"). The price is only one aspect of an insurance product. Prices quoted in an advert are often tied to specific conditions. Make sure you understand what these are. Will a higher excess apply? Ensure that the cheaper rates do not translate into a poorer service. So, shop around. 

How can I be 'claim smart'?

Many consumers are usually preoccupied and confused when it comes to making an insurance claim. However, it is essential that claims are filed correctly to ensure that you receive all the payments due to you. Although the way you make a claim may differ according to the type of insurance cover you have, here are some suggestions to help you be 'claim smart' and to help you avoid or reduce problems in getting your claims paid.

1. Check your policy

   Make sure your insurance policy is in force and that you paid the premium.

2. Know your policy

   Understand what your policy says. Know what risks are covered and what is excluded. Before you make a claim, read through the policy and check the schedule. Remember that if there is an 'excess' it will be deducted from the claim because that is the part you pay yourself.

3. File claims as soon as possible

   Check the claims procedures under the conditions of the policy because you may be required to notify the insurer within a certain time limit. Make sure you call your insurer or insurance intermediary within this time limit or in the absence of a limit, as soon as possible. Do not let bills or receipts pile up.

4. Provide complete and correct information

   Be certain to give your insurer or insurance intermediary all the information they need. Incorrect or incomplete information will only cause a delay in processing your claim. You will, in most cases, be required to complete a claim form. You may ask your insurer or insurance intermediary to assist you if you so require. Keep a copy of the claim form.

5. Keep copies of all correspondence

   Whenever you communicate with your insurer or insurance intermediary, be sure to keep copies and records of all correspondence. Write down notes of any telephone conversations or verbal advices, including the date, full name and title of the person you spoke to and what was said.

6. Ask questions

   Make sure you understand the interpretation of the policy wording as given by the insurer or insurance intermediary. If there is any kind of disagreement with the insurer or insurance intermediary, ask for the relevant section of the policy that questions your right to claim or the amount claimed.

7. Do not rush into a settlement

   If your expectations are not met by the insurer's offer, question it and explain your dissatisfaction. It is not necessary to resort to aggressive and confrontational behaviour which may only antagonise the staff you are dealing with. An insurance company will be willing to explain its basis of settlement. After all, you are a customer they want to keep. If you are not satisfied, you may seek professional advice.

8. Understand what you are signing

   When the insurer compensates you for a loss, they will ask you to give an undertaking by signing a Discharge or Release Form or Satisfaction Letter. This means that you accept the settlement being offered to you as a full and final settlement.