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Birds’ Modern Insurance Law

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John Birds analyzes insurance law fundamentals. Written in an accessible manner, the study covers insurance history, regulation, and types like life and liability.

Image courtesy of interviewee. February 1, 2024

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This video video discusses the concept and evolution of insurance, explaining it as a mechanism for managing risks associated with uncertain events. It defines insurance as a contract between the insured and the insurer, governed by contract law, which also includes specifics on who can offer insurance. The origins trace back to merchants in Italy and later in London, where they came together to share risks of maritime ventures.

Key points include the development of various insurance types such as marine, fire, life, and liability insurance, driven by historical events like the Great Fire of London. The establishment of Lloyd's of London as a prominent insurance marketplace is highlighted, explaining how underwriters negotiate and share risks.

This video video also covers the regulations governing insurance companies, emphasizing consumer protection and the evolution towards online transactions. It discusses contract construction, including challenges in interpreting terms, such as "flood" in insurance policies. It further addresses issues of causation in claims, as demonstrated by legal cases like the University of Exeter's bomb incident and business closures due to the COVID-19 pandemic.

Additionally, the text notes the necessity of insurance covers like motor and employer's liability insurance, highlighting protections for victims in motor accidents. It concludes with remarks on emerging risks linked to cybersecurity and climate change, suggesting that the insurance industry will face new challenges in the future, including autonomous vehicles.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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I would define insurance as somebody a, taking

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the risk of an uncertain event, that

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they have no control over.

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So, so you distinguish, I mean,

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you could say insurance is a risk is if you get a guarantee

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warranty or something from, from manufacturer

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that's not insurance.

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It's got to be somebody else that,

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take undertakes the risk.

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The law is, is the relationship between the person

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who is insuring the insured

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and the insurer who's giving the insurance.

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Um, so that's a contract of insurance

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and it's governed by contract law

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and the particular aspects of insurance

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that differ from sometimes from general contract law.

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Uh, so that's that. Yeah.

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And also you've got a body of law which says

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who can be insurers, what they have to go through.

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'cause that's closely regulated

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and has been for many, many years in this country.

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We had, it seems, it, it crept across, I mean,

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there are traces of it a long time ago, but,

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but it was in Italy that in Europe it seems that first

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of all, the concept of insurance was developed

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and it basically involved merchants

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agreeing in the, in amongst themselves to bear the risk

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for each other of the ships, the boats

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and the cargo on the boats being lost at sea.

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And that's what happened in London.

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Several, probably a good century or two after that actually.

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Uh, so, so the idea again was merchants got together

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with each other and sat down

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and said, right, we'll all pay something.

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So each, each of us is then covered.

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It then obviously was spotted as a potential business

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by others, who said, hold on a minute,

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we could get involved in this.

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We could join together or in some way

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and provide this protection for merchants.

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And these people, got together in a coffee house cafe

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in the city of London, owned by a man called Edward Lloyd,

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who probably never dreamt

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that his name would go down in history, not for his coffee

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or they may have been very good,

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but for the start

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of the institution we know as Lloyds of London.

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And then that, so that was predominantly marine risks

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that they were first on for quite a while.

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Then others, people's houses burned down

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or their, their property may be stolen.

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Uh, so we'll start to offer that.

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And the great fire of London, it seems 1666

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was an impetus for, fire insurance in particular.

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And then around a similar sort of time.

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Uh, others said, well, hold on a minute, people die

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and they leave dependents.

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Uh, they may have been lots

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of wealthy people may not have worried,

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but others middle class,

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developing middle class reps thought, hold on a minute,

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we could provide some cover for them when they die.

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Life insurance. Um,

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and that, so you, your property, basic sort

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of property insurance and life insurance as well

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as marine insurance were the key ones.

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But of course it spread rapidly, particularly at the time

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of the 19th century industrialization.

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So accident insurance

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and then increasingly providing protection against

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someone's liability

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because that was when there was the growth in the potential

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legal liability in the law of tort, for

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accidents caused on the railway

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or by horses bolting in the street or whatever it might be,

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and liability insurance.

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So that grew massively.

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Um, and it's carried on

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because I mean, you're still,

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there are new things which happen, which are discovered,

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I suppose particularly digital sorts of things now.

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Um, so, you know, almost anything, can some somehow

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or other potentially attenuate be insured?

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Well, in a simple case, someone,

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the potential insured makes an offer to the insurer, say

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probably by, well, typically they will fill in a form,

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answer some questions

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and the insurer says, yes, if you pay this much it's premium

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or only if, you, you have some special require,

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we have some special requirements.

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You've got to put safety measures in place

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that you haven't got.

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Or they may say no if they say yes and subject conditions

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and everybody's happy, then there's a contract,

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which is no really different from general contract

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particular things.

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Uh, these days, of course a lot of it is done online.

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So, so that has interesting questions.

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But when it comes to Lloyd's, it's still a bit different

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because at Lloyd's you've got the underwriters.

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The underwriters may be individuals,

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but increasingly these days they're actually

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corporate underwriters.

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But they e even a corporate underwriter,

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like a big insurance company will have underwriters.

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So what they, if you want to insure Lloyd's,

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you have to use what is called the Lloyd's broker,

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who himself, themselves may be instructed

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by your own personal broker.

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And the risk that you want to cover

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is put on a piece of paper.

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And it is sometimes done still,

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it seems from the case law quite informally in the sense

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that it's not a, it's it's just written down risk of this

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for this amount and so on and so on.

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That is taken by the Lloyds broker to underwriters

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that they think might be willing

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to accept a proportion of the risk.

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And so it goes, underwriter one say says, okay, yeah,

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this looks all right for a premium of so much,

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I will take 10% of the risk and so on and so on.

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So the broker goes round the market until hopefully

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they've got a hundred percent of the risk covered.

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The risk was 50 million pounds

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and they've managed to achieve that.

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And that's okay, but what happens if

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one or two underwriters

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or three underwriters, four hundreds say fine, okay,

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but you haven't got anywhere near a hundred percent.

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And the person who wants to be insured says,

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well, I don't want this.

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I only want a hundred percent. I don't want 50% or 70%.

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I want a hundred percent. And it rose in the case,

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a few years back now actually as to whether

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there was a contract with each individual underwriter.

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As soon as they said yes

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and signed scratched their name

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or whether it was complete only when there was the a hundred

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percent cover

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and the court of appeal said, well, the practice

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of the Lloyd's market has long been

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that an individual underwriter is bound by as soon

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as they have signed up for the scheme.

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And we are going to say that that is actually the law

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we are brought where they were adopting the practice in the

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Lloyd's market and saying that is the law.

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So the insured person has insurance.

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It may not be for a hundred percent,

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but each of the underwriters

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who has accepted the proposal they've made is bound

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and they are bound to that extent.

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I mean, potentially it could cause some misuse, I suppose.

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It doesn't seem to very often, obviously in

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that case it had.

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Um, but it doesn't seem normally to arise.

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I don't recall any about 1980s or something like that.

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I don't recall any later cases

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where there's been an issue like that.

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Somebody somewhere, if they're paid enough,

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will probably accept mostly the risks.

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Lloyd's itself doesn't ensure

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it's the individual underwriters, whether they're,

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human being, human underwriters

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or culprit underwriters

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that actually ensure Lloyds is simply the,

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the overall organization.

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It has regulatory powers and so on.

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Uh, but it does not ensure it's been regulated

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because obviously people who pay premiums for insurance,

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if the insurance goes outta business,

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they, they, they're stuck.

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And there were some notable instances over the years,

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where particularly a motor insurer back in the 1950s

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or sixties who went outta business overnight.

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Uh, so all those people

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who were driving their cars the following morning were

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driving uninsured 'cause they ceased business.

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Um, and they didn't necessarily know that, of course.

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And so over the years, more and more has been regulated.

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You have to be authorized by what is now the,

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the Prudential Regulatory

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Authority division of the Bank of England.

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And you are subject to their overall financial control,

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which has been heavily influenced by European law.

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And although we are no longer in the eu, the,

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the fundamental system will, will remain, do some tweaks,

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but it will remain.

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So the, who can be a director

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and manager of an insurance company,

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the money they must put up

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and have the, the solvency they must adhere to,

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are all regulated in that way very closely.

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And then the conduct of an insurer's business,

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how they treat the insureds, the policy holders

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is also regulated by the, financial conduct authority.

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So there's an awful lot of regulation of insurance.

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It's a common phenomenon.

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And I think experience shows that insurers, some insurers

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do, fail, still fail, though not as often as they used

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to be because of the way they're regulated now.

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Um, and you know, the likes of Oz

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and bigger commercial entities

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and so on deserve some protection really.

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I mean, it's to say with banks very similar sort

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of situation and so on.

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So I don't think we are now intermediaries well,

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because almost always you actually deal

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with an intermediary.

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Now the intermediary might be, a broker online

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or it might initially be compare the market or whatever.

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Um, you don't go into an insurance office

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to say, I want my house insured, please.

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You don't do that nowadays.

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You used to be able to, I can remember

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being able to do that.

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There was an office of an insurance company where I,

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the town I came from, and I remember my first car

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or something going into an office

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and filling in the form and so on.

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But it doesn't happen now, even if you do get insurance,

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say you get it with your mortgage

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through the mortgage lender, they're acting

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as an intermediary for the insurer online, somewhere

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behind Compare the market.

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There's probably other intermediaries.

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Um, and if you go through a broker,

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even if you go on in person through a broker, then again,

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they are intermediaries.

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So most, most insurance transactions aren't done in some

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to some extent or other through an intermediary, an agent.

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Uh, now in law, they might be your agent if you are the

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person wanting insurance.

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Um, that's, that's surprisingly the case in some sometimes,

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because you think, well, I'm, I'm doing this,

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I'm talking to this broker person

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and they're asking me all these questions,

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and I'm telling them the answers.

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So if I tell them everything, right,

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doesn't they know.

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So surely the insurers know, not necessarily,

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not necessarily 'cause they're your agent.

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So only people who are actually really employed

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by an insurer are actually insurers of agents

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of the insurer.

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Uh, so, so it's, I mean that's a nutshell,

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but I mean, it, it's, it's, it's, it's, it's,

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it's, it's very important.

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And they are also quite closely regulated these days as well

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by the financial conduct authority.

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In the days when they used to have,

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and they did use to have officers in a town or a city

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or whatever, then, then people would go in and, and,

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and deal with it like that.

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Those have shut down a bit like banks are doing now.

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Um, so in a sense, you've got to go through an intermediary.

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You don't now send people out.

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There used to be, of course, a system, often of people going

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to people's houses to signing them up for the amount that,

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you know, they used to pay an amount for every week or month

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or whatever for insurance, for life insurance.

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Um, that again, I don't think that happens anymore.

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I mean, construction is key

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because it is a contract, insurance policy is a contract,

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and it's going to have in it e lots

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of descriptions of what is covered, what is not covered,

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the terms on which things are covered and so on.

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And you need to be clear what those mean

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or sometimes it needs to be decided what those mean.

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Take I, if I can give an example, most people

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in their house insurance will have insurance,

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not just against fire, but against something like flood.

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So what does flood mean?

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Well, colloquially you could talk about, you know, my

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downstairs, bathroom,

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my downstairs kitchen, whatever flooded,

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Uh, because water got in through some burst somewhere

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or other, but is that a flood got,

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what does the word flood mean?

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And there've been actually slightly conflicting cases.

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Sometimes the courts have said, well, flood implies,

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water overflowing from heavy rain or something

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and getting into a property and causing damage.

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Whereas others have said, no, it is not necessarily that.

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It, it's if you, if colloquially, if you,

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if you something has, you know, your, your pipes have burst

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and overflowed into your house.

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So there's not been a heavy storm or anything like that.

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Um, one of these storms we get these days coming across

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more, it seems, simply a pipe burst.

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It may not have taken have been

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because the coal that may simply have burst

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and water's poured into your house, down your house

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and ruined whatever, it's

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that a flood in some cases would probably say yes.

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It's quite a difficult question,

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but it's a question of construction.

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And what does the court do?

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Well, it looks at, the court, it may look at the policy

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as the contract as a whole.

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It may work, it'll look at the individual word.

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It may use a, an Oxford dictionary definition of a word.

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Uh, if it's a legal word that's a word in law, like

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for example, theft.

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'cause the word theft is defined for as,

16:18.935 --> 16:20.075
as as a criminal offense.

16:20.695 --> 16:24.595
It may use the criminal definition of theft,

16:25.005 --> 16:27.115
which doesn't necessarily cover everything.

16:27.295 --> 16:29.635
Not necessarily everything which anybody

16:29.635 --> 16:30.715
might think of as theft.

16:31.375 --> 16:34.435
Uh, because colloquially I might think it's been, it's been,

16:34.745 --> 16:37.115
it's, you've been a, a victim of a thief,

16:37.255 --> 16:39.035
but in fact it might not be theft

16:39.065 --> 16:41.435
with reasons I will not go into.

16:41.675 --> 16:44.915
'cause I mean, I, I'm not a criminal lawyer, so I have

16:44.915 --> 16:47.075
to sort of be a bit careful when I get onto that.

16:47.895 --> 16:50.275
So, so the construction of a thing

16:50.405 --> 16:54.275
where now mostly these days as many people,

16:55.335 --> 16:57.635
the policies that are sold to individuals,

16:57.635 --> 17:01.675
individual consumers tend to be written in nice,

17:02.095 --> 17:03.555
fairly clear English.

17:04.855 --> 17:05.915
It wasn't always that.

17:06.775 --> 17:09.075
Um, it still, it can still be a question

17:09.075 --> 17:10.435
of construction might arise,

17:10.775 --> 17:11.795
but,

17:12.185 --> 17:15.035
it's much more likely in big commercial policies

17:15.275 --> 17:18.115
particularly, those

17:18.225 --> 17:20.515
that have been done still fairly informally,

17:20.515 --> 17:22.755
like you still are sometimes at Lloyds, pieces

17:22.855 --> 17:23.915
of paper are used.

17:24.295 --> 17:28.235
It may be emailed nowadays where, where details are put down

17:28.735 --> 17:30.475
and there may be some conflict.

17:30.635 --> 17:32.395
'cause you might have quite a lot of pieces of paper

17:32.455 --> 17:36.515
or emails and there might be some conflict

17:36.515 --> 17:38.195
between them or questions.

17:38.295 --> 17:39.875
And then you've got to say, well,

17:39.875 --> 17:41.835
what actually is the contract?

17:42.065 --> 17:46.695
What is it construed as? So construction is important.

17:47.215 --> 17:49.805
Causation can equally be important.

17:50.285 --> 17:51.845
Sometime it doesn't really matter

17:52.985 --> 17:55.965
if you insured your house against fire

17:56.545 --> 17:58.765
and it burns down,

17:59.475 --> 18:02.845
without your being involved in doing it as it were,

18:03.105 --> 18:05.765
or it was at least no more than negligent,

18:06.515 --> 18:08.965
then you're covered against fire loss.

18:09.305 --> 18:11.885
No, no problem. The loss is caused by fire,

18:13.325 --> 18:18.305
but sometimes, a loss may be caused by, by one

18:18.305 --> 18:21.145
of two things or even more.

18:22.165 --> 18:26.105
Um, and then you've got to find, which is what the law calls

18:27.265 --> 18:29.305
slightly strangely, the proximate cause,

18:29.305 --> 18:31.545
which really translates as the real cause.

18:32.685 --> 18:37.025
And that's quite interesting sometimes.

18:37.075 --> 18:40.585
There was a recent case, if I may, where the University

18:40.585 --> 18:43.305
of Exeter, when it was doing some building

18:43.315 --> 18:45.665
where Hamilton building worked on its site

18:46.085 --> 18:49.585
and they discovered an unexploded World War II bomb.

18:51.435 --> 18:54.015
The bomb had to be safely detonated

18:54.235 --> 18:56.135
as they always do if you find those things.

18:56.955 --> 19:00.215
So there was, the bomb was safely detonated,

19:00.555 --> 19:02.935
but obviously some damage was caused.

19:04.315 --> 19:08.255
And the university said, we are covered against,

19:08.355 --> 19:11.535
damage caused, in that situation,

19:12.685 --> 19:17.085
what the insurers said are that was one cause of the loss,

19:17.145 --> 19:19.685
the detonation of this unexploded bomb.

19:20.065 --> 19:24.305
But we don't cover you against war risks.

19:25.815 --> 19:27.555
The risks arising from war.

19:28.535 --> 19:32.715
So the question was, which was the real cause of the loss,

19:33.375 --> 19:36.275
the thing that happened for what now?

19:36.275 --> 19:38.355
60? Because it wasn't, it was fairly recent.

19:38.355 --> 19:41.595
It was in, probably happened in about 20 15, 16.

19:41.775 --> 19:46.555
So 50, 60 years after the bomb was dropped,

19:47.495 --> 19:51.075
or the destination which had happened within the last year

19:51.075 --> 19:52.635
or two, whenever, however long it

19:52.635 --> 19:53.715
took the case to get to court.

19:54.655 --> 19:58.555
And the court said the real course was the dropping

19:58.555 --> 20:00.755
of the bomb in the World War.

20:01.775 --> 20:04.435
So the insured was not, the university was not covered.

20:04.735 --> 20:06.835
So it's very important. And there were also issues

20:06.835 --> 20:10.995
that arose, in the pandemic where typically,

20:11.615 --> 20:14.275
hospitality businesses, pubs, restaurants

20:14.275 --> 20:17.995
and so on, had cover against business losses,

20:18.515 --> 20:21.955
business consequential loss from the closure of a business.

20:22.335 --> 20:24.115
And of course they were all forced to close.

20:25.335 --> 20:29.835
Um, and the question arose in that context of many causes

20:30.025 --> 20:33.195
because what typically they cover is in

20:33.195 --> 20:37.755
that situation is loss arising from, a disease,

20:37.995 --> 20:39.235
a notifiable disease

20:39.415 --> 20:43.555
or something like COVID-19 happening within a 20

20:43.695 --> 20:46.275
or 25 mile radius of the premises,

20:46.295 --> 20:47.925
of the bubble restaurant, whatever.

20:49.225 --> 20:51.045
Now, there were

20:51.045 --> 20:55.485
therefore lots of causes, multiple causes

20:55.945 --> 20:59.045
of the loss that they, with government decree

20:59.045 --> 21:01.285
that shot them down and that went all the way

21:01.285 --> 21:03.285
to Supreme Court who basically said, well, yeah,

21:03.285 --> 21:04.925
you can have multiple causes.

21:05.305 --> 21:07.125
If, if some of them are the real course,

21:07.435 --> 21:09.525
then you're covered to some extent.

21:09.545 --> 21:11.845
It, it is obviously very complicated, but,

21:12.025 --> 21:15.085
but it, it is sometimes very important, terribly important.

21:15.365 --> 21:16.805
I mean, because particularly motor

21:16.805 --> 21:18.605
insurance for obvious reasons.

21:18.965 --> 21:21.685
I mean, there are so many accidents on the road,

21:21.865 --> 21:24.845
not just involving injury or, or death,

21:24.945 --> 21:28.125
but also just damage to other vehicles and so on.

21:28.705 --> 21:32.485
And it's been compulsory now for what, since about 1934.

21:33.745 --> 21:38.525
Um, it used to be just against liability

21:38.705 --> 21:42.045
for, for injury or death to third parties.

21:42.865 --> 21:44.485
Uh, it's covered injury,

21:45.015 --> 21:47.365
compulsory aspect has covered damage to property

21:47.665 --> 21:48.965
for a good few years as well.

21:49.065 --> 21:50.285
Now,

21:51.105 --> 21:55.285
and what it's brought with it, the is, is a whole load

21:55.285 --> 21:58.445
of things added on, on top of the basic law of insurance,

21:58.505 --> 22:02.325
if you like, to e essentially to,

22:03.185 --> 22:07.085
to protect the victims of road accidents

22:08.305 --> 22:12.285
so that there are things that an insurer

22:12.945 --> 22:17.045
cannot rely, a motor insurer cannot rely on,

22:18.585 --> 22:21.525
as against the victim of a motor accident

22:21.555 --> 22:22.845
that they can rely on,

22:22.845 --> 22:25.045
could rely on against their own insured.

22:25.905 --> 22:28.285
Um, not everything mind you is protected,

22:28.505 --> 22:33.165
but say the insurance contract, motor insurance policy

22:33.745 --> 22:35.525
has a provision, a term

22:36.075 --> 22:38.525
that says you must maintain your vehicle in

22:38.525 --> 22:39.645
a roadworthy condition.

22:40.905 --> 22:43.925
And the, an accident happens involving that vehicle

22:44.185 --> 22:47.245
and the negligence of that, the driver of that vehicle

22:47.945 --> 22:50.525
and the insurer finds out it wasn't road worthy.

22:51.175 --> 22:52.605
Tires were, were worn,

22:52.785 --> 22:54.325
but it well beyond the legal limit,

22:54.545 --> 22:57.325
brakes weren't working properly or whatever.

22:58.065 --> 23:01.485
Um, as against the person they've insured, they can force,

23:01.485 --> 23:03.645
they thought, well, you've broken the terms of the contract,

23:03.745 --> 23:06.205
we are not gonna pay you as against the victim.

23:06.555 --> 23:11.015
They can't. So there's all that sort of protection given,

23:11.755 --> 23:15.855
backed up by, in the case of people who are uninsured

23:16.675 --> 23:20.775
or who can't be traced by the motor insurers bureau sort

23:20.775 --> 23:24.895
of organization, umbrella group owned by the motor insurers

23:25.205 --> 23:29.135
that will pay out, to victims of uninsured drivers,

23:29.245 --> 23:30.695
negligent uninsured drivers

23:31.155 --> 23:33.495
or indeed untraced drivers hit and run drivers.

23:34.475 --> 23:38.255
So there's a whole raft of law, that that that gives

23:38.285 --> 23:40.175
that, that sort of extra protection.

23:40.875 --> 23:44.255
Uh, in, in motor insurance in particular,

23:44.745 --> 23:48.045
There is similar but not as extensive protection

23:48.705 --> 23:52.165
in the insurance and employer must take out against

23:52.765 --> 23:55.165
personal against liability for injury

23:55.425 --> 23:56.645
or death,

23:56.705 --> 23:59.645
to an employee when they're working for the employer.

24:00.425 --> 24:02.005
Um, that's compulsory.

24:02.175 --> 24:06.005
There are some constraints on what insurers can do,

24:06.025 --> 24:08.565
but nothing like in the motor insurance field.

24:09.735 --> 24:13.495
I think it developments the, the things that

24:14.245 --> 24:19.015
like cyber risks, that haven't really

24:19.885 --> 24:24.295
been tested in the courts, I don't think yet.

24:24.395 --> 24:29.215
Not here anyway. There may be issues arising about that.

24:29.835 --> 24:34.295
Um, I I, I think, I think, I think actually

24:34.315 --> 24:35.975
as the climate changes more,

24:35.975 --> 24:39.295
there may be more difficulties about lots of people.

24:39.455 --> 24:42.175
I mean it's difficult for some to get flood insurance now.

24:42.295 --> 24:46.335
I know, but that's going to be a problem as well, I suspect.

24:46.835 --> 24:50.095
And it may give rise to, you know, like in,

24:50.505 --> 24:53.175
flood insurance, there is a government reinsurance scheme,

24:53.875 --> 24:55.535
back government,

24:55.535 --> 24:57.295
back your insurance scheme I should say.

24:57.835 --> 24:59.655
Um, and, and so on.

24:59.655 --> 25:02.335
And you may have to be looking at, at things of

25:02.335 --> 25:05.175
that sort more to cover those sorts of things.

25:05.425 --> 25:07.855
Autonomous vehicles, there is a body

25:07.875 --> 25:12.775
of law already about ensuring, ensuring that those,

25:13.315 --> 25:16.415
but that's going to be quite interesting as it develops.

25:16.535 --> 25:18.255
I mean, we haven't got them yet, of course,

25:18.555 --> 25:19.735
in this country anyway.

25:20.355 --> 25:23.175
Um, but there's gonna be some interesting issues about those

25:23.335 --> 25:23.855
I suspect.

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