5. General Insurance Flashcards
A prerequisite for a valid insurance contract
Insurable interest
How can imprecision in the wording of the contract lead to problems for the insurer:
- Liability for payments the company did not anticipate
- Possible litigation and legal battles
- Failure to make payments on claims could lead to bad publicity
Liability policy
Insurance against the risk that the insured becomes legally liable to pay compensation to a third party.
Why is an excess payable by the holder often specified:
- to discourage small claims
- to reduce the cost of reinsurance
What claims are usually excluded from liability insurance? (7)
claims due to:
- aviation other than as a passenger,
- suicide or self-inflicted injury
- existing disability
- the use of alcohol or drugs other than medically prescribed
- dangerous sporting activities
- civil unrest
- pregnancy
Length of tail
The length of time it takes for a claim to be reported and settled.
4 Main types of liability insurance
- Employers’ liability
- Public liability
- Product liability
- Professional indemnity
Employers’ liability insurance
Indemnifies the insured.
I.e. you as the employer, if you become legally liable to compensate an employee or their estate for bodily injury, disease or death suffered in the course of employment.
Public liability insurance
Indemnifies the insured against legal liability for bodily harm to a third party or for damage to property belonging to a third party.
Product liability insurance
All sellers could become liable for injury, illness, loss or damage caused by the provision of such goods. (Thus product liability insurance indemnifies the sellers, manufacturers, etc.)
Professional indemnity insurance
As a professional one is liable to give proper service and advice to one’s clients. Owing to negligence, one may be liable for losses to one’s clients.
Consequential loss cover
Protects the earnings capacity of a business following a property loss.
Personal accident policies
Insurances which stipulate the payment of specified fixed amounts in the event of you or your dependants suffering the loss of certain limbs or other specified ailments.
Motor vehicle insurance
Covers loss of your vehicle, damage to it and compensation to third parties arising out of your use of it.
Three main types of Marine insurance cover:
- Hull (the ship itself)
- Cargo (what is transported by the ship)
- Freight
Define the freight
The money paid for shipment of the cargo.
What risks are not commonly covered by a marine insurance policy
Indemnity for liability in respect of:
- Loss of life or personal injury resulting from accidents
- Liability for damage to harbours,
- The cost of removing wrecks
- Pollution
Common marine insurance exclusions:
- Unseaworthiness of vessels
- Unfitness of containers
- Illegal use
- Use outside geographical limits stated in the policy
- If piloted by someone not specified in the policy.
- War
- Strikes
- Malicious acts, including hijacking
- Acts involving nuclear means,
A comprehensive aviation policy covers:
- accidental damage to the aircraft hull
- legal liability for injury to persons or damage to property on the ground
- legal liability to passengers for personal injury or damage to their personal effects.
Aviation policy insurance exclusions:
In addition to the exclusions which apply to marine policies
- Whilst landing or taking off in places not conforming with the specifications of the manufacturer.
- If the number of passengers exceeds the maximum number stated in the policy.
Insurance company
A company which provides general insurance to both individuals and to companies.
Most are proprietary, some are mutuals.
Proprietary companies
Companies owned by shareholders
Mutuals
Companies owned by their policyholders
Composite
A company that has been authorised to write both life and general insurance business.
Captive insurance company
An insurer wholly owned by a non-insurance industrial or commercial enterprise set up with the primary purpose of insuring the parent.
Advantages of a captive: (6)
- Gaps in insurance cover can be filled
- Tax and other legislative advantages can be gained by setting up an offshore captive
- The parent company can treat premiums as a business expense.
- It gives the company the pros and cons of self-insurance
- If the parent is actually a group with many different subsidiaries then owning a captive may enable much larger risks to be borne by the group than individual subsidiaries could bear.
- An authorised captive is free to provide insurance to risks other than those of its parent.
Open market captives
An authorised captive that provides insurance to risks other than those of its parent.