1 : 1 - Introduction Flashcards
Understand the relationship between insurance and assets and liabilities
The risk transferred in the contract must be an insurable risk, ie, for a risk to be deemed insurable the
following conditions must be met:
- There must be an insurable interest in the thing or person being insured
- There must (potentially) be a large number of similar risks being insured.
- Any losses incurred must be accidental.
- The possible loss should not be
so great as to ruin the insurance company (reinsurance can be used to meet this requirement). - It must be possible to calculate the risk of a loss occurring.
There are two potential types of policy:
Liability and Asset
What is liability insurance?
Liability insurance is one part of the general insurance market which covers risk financing.
The intention is to protect the insured from the risks of being adversely affected by liabilities imposed by
lawsuits and similar claims.
Liability insurance is meant to give protection against third-party insurance claims
In the UK, there are two types of compulsory liability insurance required by legislation:
- Motor liability insurance
- Employers’ liability insurance
What is insurance written on an ‘occurrence’ basis?
The cover is provided for an event which occurred during the policy period. This means that a policy
that had finished may have to pay out for an event because it was the cause of the claim and it
happened in that policy period.
What is insurance written on an ‘claims made’ basis?
Covers any claim that is made during the
period of the policy regardless of when the actual event occurred. This means that if a claim has not
been made during the period of the policy, the policy liability will end.
In financial services, how is professional indemnity insurance generally written?
It is generally written on a claims made basis,
which means that if the firm stops trading and the policy ceases, customers will not be protected by
the policy
What is public liability insurance?
A business and its activities have the potential to injure third parties (members of the public, visitors) who may be physically injured or whose property may
be damaged.
What is product liability insurance?
In the UK, the Consumer Protection Act 1987 requires those manufacturing or supplying goods to carry some form of product liability insurance.
eg: Pharmaceuticals, asbestos, tobacco, mechanical and electrical products, chemicals and pesticides, etc
What is an asset?
Economic resources. Anything tangible (or intangible) that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.
What is asset insurance
&
How is it different to liability insurance?
Liability insurance can cover potential litigation whereas asset insurance is for replacement of the asset.
What is insurance?
Insurance is a financial product that facilitates risk transfer and is used as a form of financial protection
or reimbursement of losses.
