CH 8 General Insurance Products Flashcards
Key Features
4
- Short term
- Multiple claims
- Volatile claim amounts
- Delay in reporting/settlement of claims
What is the difference between short-tailed and long-tailed products?
2
- Short-tailed: Claims are reported and settled quickly
- Long-tailed: Delays in reporting and settlement of claims
Underwriting
4
- Process used to determine level of risk
- Personal lines: Proposal form used to gather Rating factors
- Proxy for risk factors and are able to measure risk in objective way.
- eg how many acccidents? proxy for driving ability
* Commercial Lines: Sold to business
What is the aim of GI product benefits?
1
- Indemnify (compensate for losses that occurred. Follows principle of indemnity that puts the insured in the same position as before the risk occurred
What causes REPORTING and SETTLEMENT delays?
2,4
Reporting delays:
- Delays in events occurring and conditions emerging
- Delay in reporting to thinking initially claim might be small
Settlement delays
- Administration needed
- Establish that is claim is valid
- Who should pay (third party)
- Dispute and court settlements
How is GI profit calculated
Formula
\+ Premium income net of reinsurance paid \+ Investment income and gains - Expenses and commission - Tax = Profit
How are premiums set in GI products
8
- Start with the RISK PREMIUM
- Risk premium = Expected claim frequency * Expected claim cost
- Use past data to obtain ECF and ECC
- Remove distorting features (trends, once-off events)
- Project claims data forward
- Use GLM to derive rating factors
- Add commission, expense, investment income, profits to get office premium
- Adjust to competition to arrive at an actual premium
List 5 types of provisions GI products can set up
5
- Outstanding reported claims reserve (claims know about but not yet settled)
- Incurred but not reported.
- Unexpected risk reserve (future claims)
- Catastrophe reserve
- Claim handling expense reserve
Initial capital for NUB strain
Give an overview of the investment strategy of GI products (5)
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
What are the key risks of a GI
10
- 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
ICECAPP NOU
What experience can be monitored to improve GI performance?
7
- Expenses
- Lapses + renewals
- New business volume + mix
- Investment returns
- Reinsurance performance
- Profitability
- Claims
Liability insurance
1,3
- Provides indemnity where the insured, owing to some form of negligence, is legally liable to pay compensation to a 3rd party.
Benefit restricted by regulation:
* Max amount / claim
* Aggregate max / year
* Excess- reduce amount and freq of claims
Types of liability insurance
5
- 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)
- 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)
- 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
EMPPP
Property damage insurance
1,5
- Indemnify PH against loss/damage of property
Types of cover:
* Residential and commercial property (fire, damage to property, theft damage)
* Moveable property (contents cover, usually new for old, theft)
* Motor vehicle (car, accidental, theft)
* Marine craft (perils of sea, jettison, piracy, damage of ship and cargo)
* Aircraft (fire, theft, vandalism, damage during flight from storms or terrorism)
ARMMM
Financial loss insurance
4
- Pecuniary loss: Protects the insured against bad debts or failure of third party
- Fidelity guarantee insurance: Cover losses caused by dishonest actions by employees (fraud or embezzlement)
- Business interruption cover: Indemnifies the insured against losses made as a result of not being able to conduct business for various reasons specified in the contract, e.g., fire, strike
- Cyber security insurance: Hacking, phishing, viruses, stealing data or keeping data hostage
