WHAT ARE MATERIAL FACTS IN INSURANCE UNDERWRITING?

Material facts refer to every circumstance that would influence the judgment of a prudent insurer in considering whether to accept or reject the risk and if accepted, at what rate of a premium and under what terms and conditions. It is the information that can determine the coverage and the cost of the premium to be charged. 

Material facts are to be disclosed at the time of giving a proposal for insurance by the insured. Material facts are categorized in different ways such as:

• The facts that do not need to be disclosed:
• Facts of law
• Facts of public knowledge
• Facts that the insurer does not know. 

• The material facts that need to be disclosed:
• The changes to your business description
• Facts that would make the likely amount of loss greater than the normally expected, previous losses, and claims under other policies.

The material facts requiring disclosure from clients vary depending on the type of policy issued. 

• For fire insurance, some material facts include things like fire fighting equipment, fire detection measures, and the nature of the use of the building.
• For life insurance they include smoking and drinking habits, previous medical history, and age; for motor insurance, they include the type of car, details of the regular drivers, and the claim history of the car owner.
• For marine insurance (cargo insurance) they include things like mode of carriage and the terms of sale.
• For theft insurance, material facts include things like the nature and value of stock and the security precautions in place. 

All these facts help insurers decide on whether the risk is worth taking, and the amount of premium to charge.