CH:8 General insurance products

Question 1

What are the key features of general insurance contracts

Answer 1

• short term - insurance typically provided for a single year
• there can be multiple claims
• claim amounts are generally unknown and can be volatile
• there can be delays in reporting and settling claims

Question 2

What is the aim of General Insurance product benefits?

Answer 2

• Indemnify (compensate for losses that occurred. Follows principle of indemnity that puts the insured in the same position as before the risk occurred

Question 3

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

Answer 3

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 4

List the four generic groups of general insurance products

Answer 4

• Liability
• Property damage
• Financial loss
• Fixed benefit

Question 5

Give an overview of the investment strategy of Genreal Insurance products

(5)

Answer 5

• Liabilities can be varied or fixed
• Claim amounts are exposed to inflation (either wage or price)
• Short to medium-term assets, e.g., Hold cash (to meet varying) + bonds (to meet fixed)
• Hold in local and foreign currency
• Consider regulation on mix, amount and level of assets to hold

Question 6

What are the key risks of a General Insurance

(7)

Answer 6

• Claim frequency, volatility, amount
• Accumulation of risk (geographical + class) = catastrophe
• Investment risk
• Poor renewal rate (persistency)
• New business strain -> too high or too low (cannot spread expenses)
• Credit risk (failure of reinsurer)
• Operational risk

Question 7

Explain what is liability insurance

Answer 7

Provides indemnity due to negligence and has to pay to a third-party, usually also covers legal expenses.

Can be restricted by regulation on maximum or by excess

Question 8

Define 5 types of liability insurance

Answer 8

• Motor third-party liability: Indemnified the owner of a motor vehicle against compensation payable to third parties on death, personal injury or property damage (usually compulsory)
• Product liability: Indemnifies the insured against legal liability for the death, bodily injury to a third party, or property damage that results from a faulty product
• Professional indemnity: Indemnifies insured against legal liability resulting from negligence in the provision of a service (unsatisfactory medical treatment, or incorrect advice as an actuary)
• Employers liability: Indemnifies the insured against the legal liability to compensate an employee or their estate for accidental bodily injury, disease or death suffered owing to the negligence of the employer in the course of employment (usually compulsory)
• Public liability: Indemnifies the insured against the legal liability for death or bodily injury to a third party for damage to property belonging to a third party

Question 9

List the products covered under Property Damage Insurance

Answer 9

• Residential buildings
• Commercial buildings
• Movable products
• Land vehicles
• Marine craft
• Aircraft

Question 10

List the products covered under Financial Loss Insurance

Answer 10

• Pecuniary loss
• Fidelity guarantee
• Business interruption
• Cyber security

Question 11

What are the different type of reserves that must be established for a general insurer

Answer 11

• outstanding reported claim reserve
• incurred but not reported (IBNR)
• unexpired risk reserve (claims that have not yet happened)
• catastrophe reserve
• claims handling expense reserve