7. General Insurance Products Flashcards
Define indemnity
To reimburse losses
What types of insurance does GI involve?
All non-Life
Can you have multiple claims under a single GI contract?
Yes
What is the general terms for a GI contract?
1 year
What’s the difference between personal lines and commercial lines GI?
Personal lines contracts are sold to individuals
Commercials lines contracts are sold to businesses
What does it mean for a GI claim type to be long-tailed?
Takes a long time to be reported/settled
Give 5 causes of reporting delays
- Initial admin
- waiting for claimant condition to stabilise
- establishing liability
- establishing claim size
- court disputes
What is underwriting?
The process of understanding how risky a potential policyholder is
What does underwriting enable?
Deciding an appropriate premium for a given level of cover
What factors are used in the underwriting process to determine appropriate premium?
Rating factors
How does underwriting differ between personal and commercial lines?
Personal lines are usually via form whereas commercial lines are much more detailed
What’s the formula for GI profit?
Premium net of RI +
Investment return -
Claims Incurred net of RI -
Expenses -
Tax
What’s the formula for risk premium?
Expected claims freq *
Expected cost per claim
What are the 3 steps in setting GI premium?
- Calculate expected risk premium for a base case
- Use generalised linear modelling to fit a curve
- Add costs
Name 5 GI expenses
- RI
- commission
- profits
- investment management
- contingencies
What is provisioning?
Setting money aside to pay future liabilities
Name the 5 things GI provisioning must include (CCOIU)
- CHE
- Catastrophe reserve
- Outstanding reported claims
- IBNR
- Unexpired risk reserve for claims yet to happen under future cover
What is new business strain?
Worsening of financial position from writing new business which have higher costs associated
What are the 5 main risks to the provider under a GI contract?
- High frequency of long-tailed claims
- Heterogeneity of written risk
- Catastrophe exposure
- Data availability
- Volume of contracts
What is the main consideration of a GI investment strategy?
Matching assets with liabilities
What makes GI contracts difficult to match liabilities?
Most claims will be settled near the time of a claim so there will be inflation in claims incurred
What kind of assets do GI firms generally hold? (4 points)
- liquid assets like cash
- fixed interest bonds to meet fixed liabilities
- short-medium assets to match liability terms
- assets in domestic currency
What 2 constraints are there on GI investment strategy?
- Need to be tax efficient
- Regulation
How does investment strategy hedge inflation risk?
Using real assets
Name 7 KPIs which need monitoring (PRINCEL)
- Profitability
- RI performance
- Investment returns
- NB vs renewals
- Claims
- Expenses
- Lapses
Give 4 reasons for monitoring experience (PPCRI)
- Premium rating assumptions
- Capital requirements
- RI assessment
- Profitability assessment
Name the 4 types of GI products
- Liability
- Property Damage
- Financial Loss
- Fixed benefit
What is the aim of the GI benefit of non-fixed-benefit contracts?
To indemnify claimants
What does liability insurance indemnify against?
Indemnity where the insured is legally liable to compensate a 3rd party
What can void liability insurance?
Illegal negligence
Name 3 ways the indemnity of liability insurance may be restricted (i.e. the insurer won’t pay the full sum of liability)
- maximum sum per claim
- aggregate maximum sum per contract
- an excess where the first part of a claim is not paid
What is a reinstatement clause?
A clause detailing how long after a claim that the cover can resume
What are the 2 options when a reinstatement clause is triggered?
- additional premium to resume cover
- cancellation of policy
What does employer liability insurance indemnify against?
Indemnifies against liability to compensate employer for claims due to negligence
What kinds of perils does insurer liability insurance cover?
Exposure to harmful substances or working conditions
What does 3rd party motor insurance indemnify against?
Indemnifies motor vehicle owners against compensation payable in the event of BI, death or damage
What does public liability indemnify against?
Death or injury to a 3rd party in the event other than those covered by other liability insurance
What does product liability insurance indemnify against?
Indemnifies against BI or death to a 3rd party or damage to property from a product fault
What does property damage indemnify against?
Indemnity against ‘loss of’ or ‘damage to’ material property
What does it mean that contents cover is written on a new-for-old basis?
That new goods are provided to replace lost/damaged ones
What 5 perils does residential & commercial property damage insurance indemnify against? (LETSF)
- Lightning
- Explosion
- Theft
- Storm
- Flood
What does movable property damage insurance indemnify against?
Damage to property which is strictly defined in the insurance contract (e.g. builder tools)
What is the major peril of moveable property insurance?
Theft
What perils does marine/aviation property cover indemnify against? (PPEFJ)
- Perils of the sea
- Piracy
- Explosion
- Fire
- Jettison
What does pecuniary loss insurance indemnify against?
Protects against bad debt or other 3rd party failure
Define bad debt
Loans or outstanding balances owed that are no longer deemed recoverable and must be written off
Does pecuniary loss insurance cover mortgage indemnity?
Yes
What does mortgage indemnity cover protect against?
Default risk and risk of property sale not covering mortgage & interest costs for the lender
What does fidelity guarantee insurance indemnify against?
Protects against financial loss from dishonest employee actions such as fraud including the cost of establishing the size of loss
What does consequential loss insurance indemnify against?
Loss resulting from a business not being able to conduct business
What does cyber insurance indemnify against?
Pecuniary loss, fidelity guarantee & consequential loss relating to a cyber attack relating to:
- data theft
- extortion
- fraudulent transactions
What is the main concern with cyber insurance with the pace of advancements?
Pace of tech advancements makes cyber attacks more prevalent
Give 2 examples of fixed benefit GI products
Health insurance
Unemployment insurance
What does health insurance indemnify against?
Provides money for medical treatment
Health insurance is an umbrella term covering which 4 areas? (CILP)
- Critical illness
- Income protection
- Long-term care
- Private medical care
What generally is unemployment insurance duration?
no more than 1 year
