Ch8: General insurance Flashcards
Key features of general insurance (4)
- Short-term
- Can be multiple claims
- Claim amounts generally unknown and can be very volatile
- Can be delays in reporting and settling claims
Reasons for settlement delays (5)
- Initial administrative processing
- Establishing whether insurer is liable
- Waiting for a condition to stabilise
- Establishing how much should be paid
- Possible disputes and court settlements
Underwriting in general insurance description
- Process to decide how risky an applicant for insurance is and what premium should be charged
- Work involved varies greatly from one class to another
- Tougher for commercial than personal line - requires more detailed reports
Rating factor definition
- 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
- Is a risk factor or a proxy for a risk factor
Why is greater level of underwriting needed for commercial lines than personal lines
- Nature of risks are more heterogeneous and therefore a greater level of uncertainty is involved\
- Larger sums at risk are involved which justify a greater degree of underwriting expense
General insurance types of reserves (5)
- Outstanding reported claims reserve (know about; not yet settled)
- Incurred but not reported (IBNR) (claims that have incurred but the insurer does not yet know about - largest)
- Unexpired risk reserve (For claims that have not yet happened in a future period of cover)
- Catastrophe reserve
- Claims handling expense reserve
Features of general insurance business which would contribute to its riskiness (7)
Between classes of general insurance
- Short-tailed or long-tailed
- Sum insured or likely amount
- Likely claim frequency
- Claims volatility
- Exposure to accumulations of risk (geographical, portfolio or catastrophe)
- Volume of contracts sold - availability of data and predictability of future assumptions
- Availanility and take up of reinsurance for that class of business
Key risks under general insurance contracts (8)
- Claim frequency, amount, volatility and delays
- Accumulations of risk (geographical; by class of business) and catastrophes
- Investment risks (poor or volatile returns, falls in asset values, default risk)
- Expenses higher than expected
- Poor persistency - higher lapses and lower renewals than expected
- New business (too high: new business strain; too low: can’t spread expenses)
- Credit risk (failure of counterparty - reinsurer or broker)
- Operational risks (fraud, systems failure, regulatory changes)
Reasons for monitoring experience (9)
- Assist with financial planning and strategy
- Provide management information
- Set assumptions for premium rating
- Help with marketing new products
- Set assumptions for provisioning and to monitor run-off of claims against expectations
- Assess profitability of business and the key components of profitability
- Assess reinsurance requirements and monitor adequacy of reinsurance
- Determine appropriate investment strategy
- Determine capital requirements
Types of general insurance products (4)
- Liability
- Property damage
- Financial loss
- Fixed benefits
Insured perils may include: (9)
- Fire
- Adverse weather conditions - storm,hurricane…
- Earthquake
- Subsidence
- Impact from vehicles, falling trees
- Explosion
- Damage caused by burst pipes
- Crinimal damage
- Other perils - war damage
Liability insurance description
- Provides indemnity where the insured, owing to some form of negligence, is legally liable to pay compensation to a third party.
- Any legal expenses relating to such liability are usually also covered
- An illegal act of negligence will often invalidate the cover
- Basic benefit is an amount to indemnify the policyholder fully against a financial loss, however may be restricted by:
* Max amount per claim or per event
* Aggregate maximum per year
* Excess, when the first part of any claim is not paid - Payment of benefits my result in cancellation of cover or the need for a further premium, subject to details in reinstatement clause
Reasons for having an excess (4)
- Reduced the amount of each claim
- Reduces number of claims (all claims less than excess are eliminated)
- Results in expense savings from the removed smaller claims
- Encourages policyholders to be more careful and helps to prevent claims
Main types of liability insurance
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 negligence of the employer, in the course of employment
* Perils include: Accidents, exposure to harmful substances or harmful working conditions
Motor third party liability
* Indemnifies the owner of a motor vehicle against compensation payable third parties for death, personal injury or damage to their property.
* Compulsory in most countries - with or without upper limit on amount of compensation
* Cover may or may not be limited to that required by legislation
Public liability
* Insured is indemnified against legal liability for the death of or bodily injury to a third party or damage to property belonging to a third party, other than those liabilities covered by other liability insurance
* Insured perils wil relate to the type of policy
Product liability
* Indemnifies the insured against legal liability for the death of, or bodily injury to, a third party or for damage to property belonging to a third party, which results from a product fault
* Perils depend greatly on the nature of the product being produced, but include: faulty design, faulty manufacture, faulty packaging and incorrect or misleading instructions.
Professional indemnity
* Insured is indemnified against legal liability resulting from negligence in the provision of a service e.g. unsatisfactory medical treatment or incorrect advice from an actuary, solicitor etc.
* Perils depend on the profession of the insured
Property damage insurance types (6)
- Residential building
- Moveable property (contents of a house)
- Commercial building
- Land vehicles
- Marine craft
- Aircraft
