8. General insurance

Question 1

Features

Answer 1

• Short term
• Can be multiple claims
• Unknown and volatile claim amounts
• Can be delays in reporting and settling claims
• Split: Personal and commercial lines

Question 2

Short-tailed

Answer 2

Claims reported and settled quickly

Question 3

Long-tailed

Answer 3

Sizeable proportion of claims taking long time to be reported and/or settled

Question 4

Underwriting

Answer 4

Done by asking questions and …

… compiling rating factors to assess risks

Question 5

Risk premium

Answer 5

Expected claim frequency x expected cost per claim

Question 6

Calculating risk premium

Answer 6

• Use past data to fit distributions and find expected values
• Remove distorting features
• Project claims data

Question 7

Provisions

Answer 7

• Outstanding reported claims reserve
• IBNR
• Unexpired risk reserve
• Catastrophe reserve
• Claims handling expense reserve

Question 8

Key risks

Answer 8

• Claim frequency, amount and volatility
• Acc of risks, catastrophes and large number of claims
• Investment risks
• Poor persistency
• Credit risk
• Operational risk
• Underwriting risk
• New business strain

Question 9

Types of general insurance

Answer 9

Liability
Financial loss
Fixed benefits
Property damage

Question 10

Liability cover

Answer 10

Indemnity where insured is legally liable to compensate 3rd party due to negligence

Question 11

Types of liability cover

Answer 11

1. Employer’s liability
   Perils: accidents, injury/illness due to exposure to harmful substances/working conditions
2. Motor 3rd party
3. Public liability
   Perils: relating to policy type, e.g. dog bites/falling objects
4. Product liability
   Perils: depends on nature of product, e.g. faulty design, manufacture, packaging, incorrect/misleading instructions
5. Professional indemnity- results from negligence in provision of a service
   Perils: depend on profession, e.g. wrong diagnosis, error in operation, inappropriate legal advice or error in actuarial report

Question 12

Financial loss

Answer 12

Indemnity against financial losses arising from a peril covered by policy

Question 13

Types of financial loss cover

Answer 13

1. Pecuniary loss (including mortgage indemnity guarantee)- protects against bad debts/ failure of 3rd party
2. Fidelity guarantee- protects against losses caused by dishonest actions by employees
3. Business interruption
   Perils: fire, strikes etc.
4. Cyber insurance
   Cyber risks – hacking, phishing, worm attacks, viruses etc.

Question 14

Types of fixed benefits cover

Answer 14

1. Personal accident insurance
   Peril: any accident resulting in loss of limbs/other specified injury
2. Health insurance
   Peril: need for treatment in a hospital
3. Unemployment insurance
   Peril: redundancy

Question 15

Property damage

Answer 15

Indemnity is against loss of, or damage to own material property

Question 16

Types of propert damage cover

Answer 16

1. Residential and commercial building
   Perils: fire, explosion, lightning, storm, theft, flood, damage caused by measures to put out the fire
2. Movable property
   Perils: theft, fire, flood etc.
3. Motor property
   Perils: accidental/malicious damage to vehicle, fire, theft etc.
4. Marine and aviation
   Perils: of the sea, fire, explosion, jettison(abandon/discard), piracy, subsidence(sinking)
   - Hull: loss/damage
   - Cargo: contents
   - Freight: Money payable for shipment of cargo