chap 7 - prog design and operation Flashcards
‘admitted’ and ‘non admitted’ policies
non admitted example- american local policy, claimant in america. master policy is issued in england- claim not payable from this policy. the master insurer would need to have a local office in america so that it could issue a locally admitted policy.
Marine is an exception - ‘worldwide’ cover- marine accepts any non admitted covers to avoid legal issues
admitted = can pay claims and or defend an insured in a particular country. LOCATION of the indemnity that matters not the country of issue! (issues in gib, claim in germany under fos- can pay out = admitted)
non admitted- above germany policy issued by non eu insurer- in non admitted policies insurer can only indemnify in the country where the master policy was issued. to solve this the master insurer needs a local office in that country so that a local admitted policy can be issued.
common practice is to issue locally issued policies wherever possible.
kvarner v staatsscretarius - case where insurers have made significant move to ensure local policies are issued as part of a global program are ‘admitted’ with all taxes paid
-‘s there are COSTS for locally admitted policies to be issued
kidnap and ransom policies are written on a non admitted basis
designing a program- there is no ‘right method’ however it involves an understanding of:
- clients business and its markets
- clients exposure, loss experience &risk profile (freq sev etc)
- the clients ability and appetite to retain risk & sol ii requirements
- how the client values services surrounding ins contracts- risk management, claims handling
- clients org / management style
the key issues in program design
- what level of risk does the client wish to retain
2, what level of retention will insurers impose - what economies of scale (prem savings) can be achieved by packaging some or all risks
- if risks packaged can some of the premiums be saved for additional cover?
- can an insurer be encouraged to write high risks if it is offerred another profitable bit of business from that client?
- can an insurer be locked in at the bottom of the market before premiums are expected to rise?
- can stable pricing be achieved by a long term agreement or via a multi years programme
- how can prog be structured to achieve the limits and client needs
- what is optimum point for completing and starting a new excess layer
- how can prog be structured to include specialist cover considerations? eg terrorism, financial loss, enviro liab
- insurers - what markets r interested in writing the risk and how will they respond to the program structure
differing deductibles- factors
- retention level that covers ‘inevitable losses’
- higher level of retention- driven by other factors
- increase control over pricing and t&cs
- control claims
- control risk improvement measures- higher retention means insurers more flexible about risk improvement
- save money through prem reduction/credits
- clients risk appetite
- risk funding mechanism
broker should discuss following deductible issues with client *
- if public comp what level of retention can it tolerate publicly?- impact on share price
- whats the client position and cash flow?
- whats the attitude and experience of the board?
- how well does the senior management understand the prog and risks
claims and deductible analysis
- identify trends
- details of claims not insured eg those falling in the retention, for all locations ects
- date of occurrence, amount paid, os amounts etc
- liability claims = triangulations showing claims over a period of time- adjust for exposure and inflation eg- el payroll / hazard- pdbi prop and business int values
- other exposure methods relevant to the client
deductible analysis - inflation - el claim 5 years ago at 39k would be 60k today 9% increase
account underwriting
advantages of packaged and combined pols
placing all of clients risks with one insurer
smaller businesses most insurers will only offer cover on packaged or combined basis for marketing purposes
combined policies facilitate broader cover
premium savings via economy of scale
enables more difficult business to be placed
disadvantages
reliance on one insurer
many insurers are better at one class than others
once placed reduced the possible need for the broker
often insurer driven- eg will only place el if placed alongside motor liab
cross class retention on combined packages eg broker will have to pay attention to the specific level of deductible as long and short tail classes will be mixed eg property and el- check if seperate deductibles or one deductible that operates across the package- a cross class retention +’s -‘s are
+
- economy of scale in the cover prem
- cross class agg less than sum of individ aggs
- insured only has to worry about 2 numbers - the retention and the agg as opposed to diff amounts under diff policies
- can make retention such as funding a captive easier
- ’s
1. mixing short tail and long tail always problematic
2. means insureds retention account cannot be closed for many years
3. often creates ‘clash’ exposures eg single event resulting in more than 1 claim eg explosion - property , el liab claims from one event
4. difficult to unwind if change in business or management
5. most insurers have diff capacities and treaties for long and short tail business leading to complications
6. make dealing with changes in comp structures more difficult
multi year policies and re-broking exercises
most brokers will encourage clients to re-broking exercises every 3 - 5 years, however they will break the cycle if
- there is a sig change in the insurance market
- insurer imposes excessive terms at renewal
- there is a change in the clients business activities
benefits and disadvantages of self insured programmes
+
- cash flow savings
- dependent on structure ipt will be cheaper
- programmes respond quickly to investment in loss prevention as reduced claims = reduced costs
- control of claims- most insurers unwilling to cede control of claims
- ’s
1. uncertainty- known cost of conventional prog versus unknown costs of a self insured prog but this can be mitigated by the funding mechanism
2. self insured programmes require admin and commitment
3. the insured is assuming the tail in liab covers
4. loc’s are an irritation for clients- deducted from overall debt facilities and impinge on working capital of the business
co insurance- more than one insurer increases transactional and negotiation costs but its an appropriate option where:
- risk is high. complex, involves sig limits, - and no one insurer can provide capacity
- needed to gain excess capacity for mid term increase in risk or exposure
- economic enviro- clients may want to spread the risk
fac insurance - increase capacity and write higher ‘line’
excess layers - common method of achieving higher limites of indemnity on liability policies, the additional layer is the excess layer often used in el policies & 3rd party liab- essential that the insurers on the excess layer follow the T&Cs on the primary policy so that the same cover applies on the programme ensure;
- policy periods match
- there are no gaps in cover from the way limits are expressed
3 there is clarity on how the excess layer will step down
4 clarify if the next step up should be forewarned about the limit of indemnity
5 there is consistency on the reinstatement provisions throughout the layers- whether each layer is subject to one or more automatic reinstatements or whether it is ‘round the clock’- eg each layer steps down until the indemnity is exhausted
umberella policies - have their own wording and they sit over a policy or a programme but it is independent of the cover underneath, however does not follow any T&c’s and has its own attachment point- its a way of providing additional limits or specialist cover eg product recall at the end of the clients exposures
specialist covers
nat hazards/ government schemes may cover flood, stor,m, terrorism, earthquake
dont force fit brokers to consider if its necessary to include specialist lines in the programme or arrange a stand alone policy- local market and scheme uws can offer competitive terms
specialist covers are enviro liab, product guarantee, recall, motor uninsured loss recoveries etc
catnat, consorcio - switzerland elemental pool, america nfip, denmark stromradet- each country has own rules, cover may be mandatory, can the scheme be incorporated into the wider prog? or are alternatives required. many terrorism schemes are standalone and with some government involvement- sasria south africa- uk pool re- america tria- terrorism mostly uw by postcode-difficulty getting this mapping from china
global programmes +’s and -‘s
main driver = effective corporate management and control across the group
hard and soft markets affect desiribility eg if the usa market is hard but uk soft, might be cheaper to get insurance locally
+’s
1. consistency of cover, central control over costs, savings obtained via group buying, offers simpler identification of losses worldwide, can act as a vehicle for global risk mngmt, facilitates focussing on risk eg via a captive, prem allocations can be adjusted for claims experience
-‘s parent needs to control from the centre, could upset local r.ships, may cost more in aggregate terms, can cause legislative problems, reduces choice of insurers, premium has to be allocated and paid locally, subsidaries may be forced to buy cover that doesnt apply
global programme
exceptions to wider cover not being under the master policy are; extended product liab and water pollution in germany, local customs and practice eg tenants and neighbours cover in france
global prog- master pol operating across all countries, often referred to as dic - difference in conditions, master pol operates above corporate deductibles, sits above local policies giving wider cover wherever poss the local policies are uw’ by local office of master insurer, provide same cover as the master or as wide as poss, subject to local deductible that is acceptable. the master policy is technically a non admitted policy
