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IFoA CP1 > 7. General Insurance Products > Flashcards

7. General Insurance Products Flashcards

1
Q

Define indemnity

A

To reimburse losses

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2
Q

What types of insurance does GI involve?

A

All non-Life

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3
Q

Can you have multiple claims under a single GI contract?

A

Yes

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4
Q

What is the general terms for a GI contract?

A

1 year

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5
Q

What’s the difference between personal lines and commercial lines GI?

A

Personal lines contracts are sold to individuals
Commercials lines contracts are sold to businesses

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6
Q

What does it mean for a GI claim type to be long-tailed?

A

Takes a long time to be reported/settled

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7
Q

Give 5 causes of reporting delays

A
  • Initial admin
  • waiting for claimant condition to stabilise
  • establishing liability
  • establishing claim size
  • court disputes
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8
Q

What is underwriting?

A

The process of understanding how risky a potential policyholder is

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9
Q

What does underwriting enable?

A

Deciding an appropriate premium for a given level of cover

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10
Q

What factors are used in the underwriting process to determine appropriate premium?

A

Rating factors

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11
Q

How does underwriting differ between personal and commercial lines?

A

Personal lines are usually via form whereas commercial lines are much more detailed

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12
Q

What’s the formula for GI profit?

A

Premium net of RI +
Investment return -
Claims Incurred net of RI -
Expenses -
Tax

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13
Q

What’s the formula for risk premium?

A

Expected claims freq *
Expected cost per claim

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14
Q

What are the 3 steps in setting GI premium?

A
  1. Calculate expected risk premium for a base case
  2. Use generalised linear modelling to fit a curve
  3. Add costs
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15
Q

Name 5 GI expenses

A
  1. RI
  2. commission
  3. profits
  4. investment management
  5. contingencies
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16
Q

What is provisioning?

A

Setting money aside to pay future liabilities

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17
Q

Name the 5 things GI provisioning must include (CCOIU)

A
  • CHE
  • Catastrophe reserve
  • Outstanding reported claims
  • IBNR
  • Unexpired risk reserve for claims yet to happen under future cover
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18
Q

What is new business strain?

A

Worsening of financial position from writing new business which have higher costs associated

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19
Q

What are the 5 main risks to the provider under a GI contract?

A
  • High frequency of long-tailed claims
  • Heterogeneity of written risk
  • Catastrophe exposure
  • Data availability
  • Volume of contracts
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20
Q

What is the main consideration of a GI investment strategy?

A

Matching assets with liabilities

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21
Q

What makes GI contracts difficult to match liabilities?

A

Most claims will be settled near the time of a claim so there will be inflation in claims incurred

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22
Q

What kind of assets do GI firms generally hold? (4 points)

A
  • liquid assets like cash
  • fixed interest bonds to meet fixed liabilities
  • short-medium assets to match liability terms
  • assets in domestic currency
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23
Q

What 2 constraints are there on GI investment strategy?

A
  • Need to be tax efficient
  • Regulation
24
Q

How does investment strategy hedge inflation risk?

A

Using real assets

25
Q

Name 7 KPIs which need monitoring (PRINCEL)

A
  • Profitability
  • RI performance
  • Investment returns
  • NB vs renewals
  • Claims
  • Expenses
  • Lapses
26
Q

Give 4 reasons for monitoring experience (PPCRI)

A
  • Premium rating assumptions
  • Capital requirements
  • RI assessment
  • Profitability assessment
27
Q

Name the 4 types of GI products

A
  • Liability
  • Property Damage
  • Financial Loss
  • Fixed benefit
28
Q

What is the aim of the GI benefit of non-fixed-benefit contracts?

A

To indemnify claimants

29
Q

What does liability insurance indemnify against?

A

Indemnity where the insured is legally liable to compensate a 3rd party

30
Q

What can void liability insurance?

A

Illegal negligence

31
Q

Name 3 ways the indemnity of liability insurance may be restricted (i.e. the insurer won’t pay the full sum of liability)

A
  • maximum sum per claim
  • aggregate maximum sum per contract
  • an excess where the first part of a claim is not paid
32
Q

What is a reinstatement clause?

A

A clause detailing how long after a claim that the cover can resume

33
Q

What are the 2 options when a reinstatement clause is triggered?

A
  • additional premium to resume cover
  • cancellation of policy
34
Q

What does employer liability insurance indemnify against?

A

Indemnifies against liability to compensate employer for claims due to negligence

35
Q

What kinds of perils does insurer liability insurance cover?

A

Exposure to harmful substances or working conditions

36
Q

What does 3rd party motor insurance indemnify against?

A

Indemnifies motor vehicle owners against compensation payable in the event of BI, death or damage

37
Q

What does public liability indemnify against?

A

Death or injury to a 3rd party in the event other than those covered by other liability insurance

38
Q

What does product liability insurance indemnify against?

A

Indemnifies against BI or death to a 3rd party or damage to property from a product fault

39
Q

What does property damage indemnify against?

A

Indemnity against ‘loss of’ or ‘damage to’ material property

40
Q

What does it mean that contents cover is written on a new-for-old basis?

A

That new goods are provided to replace lost/damaged ones

41
Q

What 5 perils does residential & commercial property damage insurance indemnify against? (LETSF)

A
  • Lightning
  • Explosion
  • Theft
  • Storm
  • Flood
42
Q

What does movable property damage insurance indemnify against?

A

Damage to property which is strictly defined in the insurance contract (e.g. builder tools)

43
Q

What is the major peril of moveable property insurance?

A

Theft

44
Q

What perils does marine/aviation property cover indemnify against? (PPEFJ)

A
  • Perils of the sea
  • Piracy
  • Explosion
  • Fire
  • Jettison
45
Q

What does pecuniary loss insurance indemnify against?

A

Protects against bad debt or other 3rd party failure

46
Q

Define bad debt

A

Loans or outstanding balances owed that are no longer deemed recoverable and must be written off

47
Q

Does pecuniary loss insurance cover mortgage indemnity?

A

Yes

48
Q

What does mortgage indemnity cover protect against?

A

Default risk and risk of property sale not covering mortgage & interest costs for the lender

49
Q

What does fidelity guarantee insurance indemnify against?

A

Protects against financial loss from dishonest employee actions such as fraud including the cost of establishing the size of loss

50
Q

What does consequential loss insurance indemnify against?

A

Loss resulting from a business not being able to conduct business

51
Q

What does cyber insurance indemnify against?

A

Pecuniary loss, fidelity guarantee & consequential loss relating to a cyber attack relating to:
- data theft
- extortion
- fraudulent transactions

52
Q

What is the main concern with cyber insurance with the pace of advancements?

A

Pace of tech advancements makes cyber attacks more prevalent

53
Q

Give 2 examples of fixed benefit GI products

A

Health insurance
Unemployment insurance

54
Q

What does health insurance indemnify against?

A

Provides money for medical treatment

55
Q

Health insurance is an umbrella term covering which 4 areas? (CILP)

A
  • Critical illness
  • Income protection
  • Long-term care
  • Private medical care
56
Q

What generally is unemployment insurance duration?

A

no more than 1 year

IFoA CP1 (9 decks)

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