Ch 8: General insurance products

Question 1

Define indemnity, and give examples of where insurance does not fully indemnify the policyholder

Answer 1

Indemnity is compensation/reimbursement for a loss incurred. The idea is to return a policyholder to the same financial position they were in before the loss event.

Examples of non-indemnity insurance include:

• Fixed benefit insurance
• Insurance where there is an excess or a maximum claim
• “New-for-old” insurance

Question 2

Outline the seven features of liability insurance

Answer 2

1. Provides indemnity where the insured, due to some form of negligence, is legally liable to pay compensation to some third party
2. The legal fees associated with the claim are usually also covered
3. Illegal acts of negligence will invalidate the claim and no payment will be made by the insurer
4. There may be an upper limit and/or excess amount applied to the claim
5. On the occurrence of a claim the cover may be cancelled, or a reinstatement premium or higher premium might be required for the cover to continue
6. The claims are usually medium to long tailed and are likely to be real in nature
7. International or national laws apply, depending on the type of cover

Question 3

List the perils covered under personal accident insurance

Answer 3

Accidents resulting in loss of limb(s) or other specified injury

Question 4

List the perils covered under health insurance

Answer 4

Need for treatment in a hospital

Question 5

List the perils covered under unemployment insurance

Answer 5

Redundancy

Question 6

List the four generic groups of general insurance products

Answer 6

1. Liability
2. Property damage
3. Financial loss
4. Fixed benefit

Question 7

List the products covered under Liability Insurance

Answer 7

1. Employer’s
2. Motor third party
3. Public
4. Product
5. Professional indemnity

Question 8

List the products covered under Property Damage Insurance

Answer 8

1. Residential buildings
2. Commercial buildings
3. Movable products
4. Land vehicles
5. Marine craft
6. Aircraft

Question 9

List the products covered under Financial Loss Insurance

Answer 9

1. Pecuniary loss
2. Fidelity guarantee
3. Business interruption
4. Cyber security

Question 10

List the products covered under Fixed Benefit Insurance

Answer 10

1. Personal accident
2. Health
3. Unemployment

Question 11

List the perils covered by employer’s liability insurance

Answer 11

1. Accidents caused by negligent actions by the employer
2. Exposure to harmful substances
3. Exposure to harmful working conditions

Question 12

List the perils covered by motor third party liability insurance

Answer 12

1. Motor accidents caused by the insured

Question 13

List the perils covered by public liability insurance

Answer 13

Depends on the type of policy

Question 14

List the perils covered by product liability insurance

Answer 14

1. Faulty product design, manufacturing or packaging

2. Misleading or incorrect instructions

Question 15

List the perils covered by buildings insurance

Answer 15

1. Fire
2. Explosion
3. Lightning
4. Theft
5. Storm
6. Flood

Question 16

List the perils covered by contents insurance

Answer 16

1. Fire
2. Explosion
3. Lightning
4. Theft
5. Storm
6. Flood

THEFT is the major peril

Question 17

List the perils covered by marine hull cover

Answer 17

1. Perils of the sea
2. Fire
3. Explosion
4. Jettison
5. Piracy

Question 18

List the perils covered by pecuniary loss insurance

Answer 18

1. Bad debts

2. Third party failure

Question 19

List the perils covered by fidelity guarantee insurance

Answer 19

1. Dishonest employee actions
2. Fraud
3. Embezzlement

Question 20

List the perils covered by business interruption insurance

Answer 20

1. Being unable to conduct business

Question 21

4 Key features of General Insurance Contracts

Answer 21

1. Short term (typically one year contracts)
2. Multiple Claims
3. Claim amounts are UNKNOWN and VERY VOLATILE
4. Delays in reporting and settlement of claims

Question 22

Define a Rating Factor

Answer 22

A rating factor is a factor used to DETERMINE the PREMIUM rate for a policy. which is measurable in an objective way and relates to the likelihood and/or severity of the risk.

It, therefore, must be a risk factor itself or a proxy for a risk factor(s).

Question 23

List the different types of reserves/provisions for general insurance contracts

Answer 23

1. Outstanding reported claims reserve.
2. IBNR reserve.
3. Unexpired risk reserve.
4. Catastrophe reserve.
5. Claims handling expense reserve.

Question 24

8 Key risks under general insurance contracts

Answer 24

1. Claim frequency, amount, volatility and delays.
2. Accumulations of risk (geographical & by class of business) and catastrophes.
3. Investment risks.
4. Expenses higher than expected.
5. Poor persistency (high lapses, low renewals).
6. New business volumes too high or too low (too high = new business strain; too low = not enough business to spread overhead expenses across)
7. Credit risk (reinsurer or broker)
8. Operational risk (fraud, systems failure, regulatory changes)

Question 25

Risk Management Tools used by general insurer.

Answer 25

1. Reinsurance.
2. Underwriting.
3. Diversification across classes of business or geographically.
4. Monitoring experience (claims & expenses)