Chapter 10 Flashcards
How can risk premium be defined?
The expected ultimate cost in claims of the risk being accepted, including an allowance for the degree of uncertainty attaching to the claims cost
Representing the amount of money required today to fund claims
What is claims run-off?
Risks being re-reserved once more information relative to a claim becomes available
What sort of claims does claim inflation affect the most?
Personal injury claims often exceeds generic inflation due to changes in legislation some of which are retrospective
What is claims farming?
When a company or a person encourages another to make a claim
What headings can variable costs be grouped into?
Underwriting, commission and claims handling
What charges need to be thought about for claims handling?
A charge per claim and a charge reflecting the differences in the volume of work required for more involved cases
What are risk management funds?
Used in the real estate market and offered to a customer towards the agreed costs in maintaining or protecting the assets
What are low claims rebates?
Some insurers offer to pay back the portion of the premium to incentivise more positive risk management
What is the risk capital requirement?
The proportion of total account premiums which must be kept as free reserves to ensure that an insurer can meet its claims obligations
What is the return on capital employed?
Measured as a proportion of the capital employed, classes of insurance with a higher degree of volatility must be capable of generating higher profits if they are to justify the shareholders taking that risk
What is the underwriting result?
The business result without investment income. It consists of the combination of the loss ratio, commission ration and the expense ratio
What two classes of investment do insurers balance their portfolio between?
Interest-bearing investments and investments whose value can be expected to grow at least in line with the economy
What investment generates a higher rate of return?
Investments whose value can be expected to grow at least in line with the economy (equities) generate a higher rate of return over the medium to long term but are more volatile in the short to medium term
What is the levy placed by the Financial Services Compensation Scheme?
Based on a % of gross direct premium to fund claims by policyholders whose insurer has become insolvent
If policy is priced incorrectly it may be the shareholders and not the policyholders who fund the levy
What is the Motor Insurers’ Bureau for?
The insurer of last resort for property damage or injury by an uninsured or untraced driver. There is an annual levy, dependent on claims experience. The rate for individual insurers depends on their mix of business, with higher rates for non-comprehensive private motor and fleet business than for comprehensive private motor
