The Application
An application is a request for insurance. Applications can be either written or oral. An oral application is one where an insured relates the details of the risk orally and the broker writes down the information and submits it to the insurer.
Brokers and agents are intermediaries and responsible for disclosing all material facts and making sure the doctrine of utmost good faith is upheld.
Oral vs. Written Applications
Legislation dictates written applications are necessary for accident, sickness and life. Automobile applications can be submitted orally but the insurance company must send a copy of the application to the insured for signature and return.
Not all classes of business require written applications, but many companies make it their policy to obtain them. Written applications are always preferable because:
- Sometimes the application forms part of the policy.
- To avoid honest misunderstandings.
- To help prevent fraud, estimated 2.3 billion dollars annually.
- To prove misrepresentation an insurer must; prove there is a misrepresentation and that it as made at the time of the application. Courts will always favour insureds.
Content of a general application:
Name of applicant, Address of applicant, Previous insurance history has applicant had insurance declined, cancelled or refused, Previous loss or claims history. Plus questions dealing the physical risk and any moral hazard.
Application information will be collected by the broker and submitted to the underwriter. The underwiter can either: accept rate and issue the policy, accept with conditions rate and issue the policy or reject the application.
Temporary Insurance
A binder is usually issued by the insurer while awaiting all the necessary information to issue the policy. It is an agreement to insure effective the date on the binder. Binders must have an expiry date.
A cover note is issued by the broker or agent to notify the insured what coverage is in effect, until the formal policy can be issued.
