CHAPTER 2 - A Flashcards
What does agricultural crop and forestry/hail insurance cover?
Risks associated with commercially farmed crops such as wheat, fruit, tobacco, and herbs
The main peril is loss of crop due to weather or disease.
What is a typical claim in agricultural crop insurance?
Loss of crop due to frost or hail damage
This is common for tree fruit crops where hail at the wrong time can destroy buds.
What is bloodstock insurance?
Insurance that specifically covers racehorses and show-jumpers
It includes coverage for sickness, injury, and total loss.
What does livestock insurance cover?
All animals that can be reared commercially, including fish
Important to insure against loss by disease.
What is a common claim scenario for racehorses?
Euthanization due to injury sustained in a race
The payout will be the insured value of the racehorse.
What happens if a stallion or mare proves to be infertile?
Their value drops dramatically, allowing for a claim based on depreciation
This applies to both racehorses and breeding bulls.
What is contingency insurance?
Insurance related to entertainment or sporting events
It covers various sub-categories including event cancellation.
What does concert or event cancellation insurance cover?
Costs of refunding tickets and rearranging events
This is critical when events are disrupted by unforeseen circumstances.
What factors do underwriters consider for event cancellation insurance?
Tour schedule, venue, health of the artist, cancellation policy
These factors help assess risk and potential for rescheduling.
What are common claims in event cancellation insurance?
Cancellation of events like Wimbledon matches, cricket tests, or music concerts
Often due to weather or artist health issues.
What is over redemption insurance?
Insurance against costs exceeding expected claims on promotional offers
This arises when too many people claim free gifts from promotions.
How do insurers determine coverage for over redemption?
By considering normal sales levels and adding a safety margin
Coverage is triggered when redemption exceeds expectations.
What does prize indemnity insurance cover?
Costs associated with awarding prizes for achieving specific feats
Examples include ‘hole in one’ prizes at golf competitions.
What is a key aspect of prize indemnity insurance?
Statistical calculation of the odds of the incident occurring
An independent adjudicator may be present to prevent cheating.
What factors are important for rating contingency insurance?
Difficulty of the event and statistical probability of prize claims
This ensures accurate assessment of risk.
What does personal accident insurance cover?
Covers the insured against accidental injury with predetermined benefits for various injuries
Different payout levels for dominant vs non-dominant hands, with weekly or monthly benefits.
What are common exclusions in personal accident insurance?
Exclusions often include longstanding or chronic conditions and specific hobbies
Hobbies such as skydiving may lead to exclusions.
What does kidnap and ransom insurance typically cover?
Payment of ransom, medical treatment costs, salary during captivity, and hostage negotiators
Insurers assess the risk based on the insured’s profile and security measures.
What is ‘Contractors’ all risks’ (CAR) insurance?
An insurance policy for contractors covering physical damage and liability during construction projects
It is often taken out by the head contractor for major projects.
What key aspects are considered in construction insurance?
- Experience of the contractor
- Contracts entered into
- Contract value
- Location and timing of construction
It is essential to keep insurers updated on changes in sums insured.
What is covered under construction insurance?
- Loss or damage to building works
- Machinery movement
- Business interruption
- Public liability
- Employers’ liability
Coverage may extend to damage to construction machinery.
What are normal exclusions in construction insurance?
- Defective design
- Existing property
- Breakdown or explosion
- Wear and tear
Consequential damage from defects is usually covered.
What does property insurance generally cover?
- Buildings
- Machinery
- Stock
Coverage can vary depending on the specific use of the property.
What are the typical heads of cover in an all risks property policy?
- Fire
- Lightning
- Explosion
- Earthquake
- Aircraft damage
- Riots/strikes
- Malicious acts
- Storm, flood or escape of water
- Impact damage
Each type of coverage has specific definitions and exclusions.
What are some risks that property insurers will never cover?
- Inherent vice
- Trade risks
- Normal settlement of new buildings
- War risks
- Radioactive contamination
These risks are considered certainties rather than fortuities.
What is meant by ‘reinstatement’ in property insurance?
Insurer agrees to restore the property to its pre-loss condition without deductions for wear and tear
This process may take time and require accurate sum insured amounts.
What is a reinstatement memorandum in property insurance?
An extension that applies the average clause only if the sum insured is at least 85% of the full reinstatement value
Helps mitigate the effects of underinsurance.
True or False: Property insurance is compulsory for all businesses.
False
It is up to the client to decide what works best for their requirements.
Fill in the blank: Personal accident and illness policies cover _______ as well as personal accidents.
sudden onset illnesses
Chronic conditions are generally excluded.
What is the role of hostage negotiators in kidnap and ransom insurance?
To handle negotiations on the ground, liaise with the family, and manage ransom payments
They are often included in the coverage for kidnap and ransom policies.
What is ‘Erection all risks’ (EAR) insurance?
Insurance covering loss or damage to owned equipment and liability on-site during erection activities
Often purchased separately from CAR policies.
What is the significance of the policy period in construction insurance?
It must match the construction contract period, from material movement to project completion
Important for determining when coverage begins and ends.
What are some extensions that can be purchased with construction insurance?
- Cost of reconstructing plans
- Expediting expenses
Expediting expenses cover additional costs for rapid repairs or rebuilding.
What is the purpose of the Day One Average Memorandum?
To counteract the impact of inflation on the reinstatement value of a building
This approach is used because reinstatement may take several years after damage occurs.
What are the two parts of the sum insured in a Day One policy?
- The cost of reinstating as new at prices on the first day of the policy (Base/Day One or Declared Value)
- An agreed percentage uplift designed to account for inflation
What happens if the calculations for the sum insured are incorrect?
Average or underinsurance can still be applied.
What is an onshore energy risk?
A property risk specific to the energy industry.
What are the underwriting considerations for onshore energy risks?
- Location – proximity to towns or cities
- The activity – type of facility (e.g., petrochemical plant, power station)
- Risks from the nature of the activity – potential for explosions, storage of raw materials
What types of claims arise from onshore energy risks?
Similar to other property risks, such as fire or explosion.
What does glass insurance cover?
Fixed glass, including all risks cover for boarding up, replacing inbuilt alarm systems, lettering, and window frames.
What is stock insurance designed to cover?
Raw materials, materials in production, and finished stock in storage.
How is the premium structured in stock insurance?
An agreed sum insured is set, and the insured pays a deposit at the start, making regular declarations with balancing payments based on average declarations.
What types of damages are covered under stock insurance?
- Theft or damage to raw materials
- Fire damage
- Water damage
- Damage during work stoppages
- Fire, theft, and water damage for completed stock awaiting distribution
What is stockpiling in the context of insurance?
Stockpiling refers to the accumulation of raw materials or finished products, which can lead to increased exposures and potential underinsurance issues.
Insurers need to be informed about stockpiling to accurately assess risk and coverage.
How is theft defined under English law?
Theft is defined as ‘dishonestly appropriating property belonging to another with the intention of permanently depriving them of it’.
Insurers expand the definition to include forcible entry or exit of the premises.
What are some perils typically excluded from a theft insurance policy?
- Fire
- Money
- War
These exclusions are often covered under different insurance policies.
What is collusion in the context of theft insurance?
Collusion refers to an ‘inside job’ where the thief has assistance from someone employed within the insured organization.
What types of claims are typically associated with theft insurance?
Claims arise when something has been stolen, requiring thorough investigation to rule out exclusions.
Insurers need to ensure the claim does not involve excluded perils.
What are pecuniary insurances?
Pecuniary insurances cover monetary or financial losses rather than the cost of replacing physical items or compensating for injuries.
What does money insurance cover?
Money insurance covers all risks of loss to money for which the insured has responsibility, including cash, cheques, stamps, gift vouchers, and travel tickets.
Define negotiability in the context of money insurance.
Negotiability is the concept of ease of transfer of items like cash and gift vouchers, which can be passed without complicated processes.
What is the basic cover under money insurance policies?
The basic cover is ‘all risks’ while money is on insured premises, in transit, or at a private residence.
It also covers risks of assault for those carrying money.
What are some general exclusions in money insurance?
- Loss from unattended vehicles
- Loss due to use of keys or codes
- Dishonesty of employees or directors
What does fidelity guarantee insurance cover?
Fidelity guarantee insurance covers loss of property due to fraudulent acts committed during the insurance period, even if discovered later.
What are the three bases on which fidelity guarantee insurance can be purchased?
- Blanket cover for all employees
- Named employees only
- Named roles only
What internal risk management activities are typically required for fidelity guarantee insurance?
- Obtaining and checking employee references
- Correct signing procedures for money movement
- Regular cash checks
- Daily banking of cash or cheques
- Reconciliation of bank accounts
- Stocktaking procedures
- Annual audits by professional auditors
True or False: Money insurance only covers cash.
False
Money insurance also includes cheques, stamps, gift vouchers, and travel tickets.
What is the insurer’s interest in employee prosecution in fidelity guarantee insurance?
The insurer wants to see that the employee involved is prosecuted by their former employer, especially if a claim is paid, to consider subrogation opportunities.
Fill in the blank: The concept of _______ refers to the ease of transferring ownership of money-related items.
negotiability
What is the purpose of business interruption (BI) insurance?
To assist with replacing the income that would have been received had the physical loss to your property not occurred
BI insurance helps businesses maintain financial stability during the rebuilding process after a loss.
What is a deductible in the context of business interruption insurance?
A waiting period expressed in days
The waiting period is the time before the insured can make a claim.
What happens if a business is up and running again before the waiting period ends?
The insured has no claim
For example, if the waiting period is 14 days and the business resumes in 7 days, no claim can be made.
What must insurers consider when determining the maximum payout time for BI insurance?
How long it might realistically take to rebuild the business premises or move it to another location
This consideration helps in assessing the potential duration of the business interruption.
What is the relationship between standard BI insurance and physical loss?
Standard BI requires some physical loss or damage to have occurred to the insured’s property
Many standard BI policies also require a recoverable claim on property insurance.
What is contingent business interruption (CBI) insurance?
Insurance covering business interruption due to loss or damage at third-party premises
CBI insurance can be triggered even if the insured’s own property has not suffered physical damage.
Provide two examples that may give rise to claims under CBI insurance.
- Supplier of raw materials cannot supply due to a loss
- Power supply is cut off due to external factors
These scenarios illustrate how business operations can be disrupted indirectly.
What is ‘supply chain’ insurance?
Insurance covering business interruption due to another party’s failure to deliver supplies
The insured can nominate specific suppliers to be covered under this policy.
How are homeowners’ insurance risks generally written?
Via forms of delegated underwriting, such as binding authorities or service companies
Homeowners’ insurance covers similar risks as commercial property insurance.
What types of risks do homeowners’ insurance cover?
- Damage to buildings caused by various perils
- Cost of rebuilding or reinstating the property after loss
Homeowners’ insurance is similar to commercial property insurance in terms of coverage.
What is A2A Directors’ and Officers’ (D&O) liability insurance?
Insurance purchased by firms to protect directors and officers from claims made by shareholders and investors due to financial loss caused by their actions.
This insurance is crucial for protecting senior personnel in a firm.
What types of business does a D&O insurer categorize?
US and non-US business, financial institutions and non-financial institutions.
This categorization helps in assessing risk and coverage.
What is typically covered under a D&O policy?
Financial loss arising from claims due to actions such as:
* breach of duty
* breach of trust
* neglect
* misleading statement
* wrongful trading
Coverage includes damages and legal costs but excludes punitive damages in US courts.
List the main exclusions of a D&O policy.
- Fraud
- Insured persons making a financial gain
- Investigations prior to inception
- Ongoing litigation
- Pollution/radiation/war
- Pre-subsidiary actions
- Bodily injury/emotional distress (unless employment-related)
These exclusions limit the liability of insurers under the policy.
What are some possible extensions under a D&O policy?
- Automatically adding acquired companies
- Employment claims coverage
- Extended reporting period for claims after non-renewal
- Representation costs for investigations
Extensions enhance the coverage provided to insured firms.
What triggers a D&O claim?
Claims generally arise from allegations of wrongdoing by directors that reduce investment value.
Claims can also be due to breaches of legislation.
What is the basis on which D&O policies are generally written?
Claims made basis, meaning the policy in force when a claim is made is the one that applies.
This differs from losses occurring policies.
Define a ‘losses occurring’ policy.
A policy triggered by losses that happen during the policy period.
Common in property or first-party insurance.
What does Errors and Omissions (E&O) insurance cover?
Covers professionals against claims of breach of duty, negligence, errors, and omissions in their professional obligations.
E&O insurance is also known as professional indemnity insurance.
Which professionals are required to have professional indemnity insurance in the UK?
Lawyers and accountants, among others.
This requirement is to protect innocent victims of professional negligence.
List coverage items under a typical professional indemnity policy for accountants.
- Negligence or breach of duty of care
- Negligent misstatement/misrepresentation
- Infringement of intellectual property rights
- Breach of confidence
- Defamation
- Dishonesty of staff
- Other civil liability unless excluded
This coverage addresses various professional risks faced by accountants.
What are common exclusions in professional indemnity insurance?
- Investment advice
- Pension scheme dealings
- Sale/purchase of stocks
- Breach of tax/competition legislation
- Pollution/war/nuclear risks
- Cyber risks
- Deliberate acts
- Fines and penalties
These exclusions help limit insurer liability under the policy.
What is the limitation period for making claims under English law?
Six years for most contracts and tort claims, three years for personal injury claims.
This concept is crucial in determining the validity of claims.
What does public liability insurance cover?
Legal liability for damages in respect of:
* Accidental injury to third parties
* Accidental loss/damage to third-party property
* Nuisance and trespass
This insurance protects organizations against claims from the public.
List common exclusions found in public liability policies.
- Use of mechanical vehicles
- Aircraft or aerial devices
- Employer’s liability
- Damage to owned property
- War/radioactive contamination
- Product defects
- Professional risks
- Asbestos
- Pollution
These exclusions help define the scope of coverage.
True or False: Public liability claims can only arise from minor incidents.
False
Claims can range from minor injuries to significant events like train derailments.
What is products liability insurance?
Insurance purchased by entities that may be sued due to manufacturing, distributing, or selling products
It covers liability arising from injury or damage related to products.
What are some common exclusions in products liability insurance?
- Damage to the products themselves
- Liability arising out of product recall
- Liability for repair or replacement of the product
- Faulty design liability
- Matters covered under employers’ liability policy
- Liability incurred under certain contracts
- Deliberate acts
- Fines or penalties
- War/terrorism/radioactive contamination
- Liability to owned property
These exclusions define the limitations of the insurance coverage.
In the event of a faulty product, who can be sued?
The retailer, manufacturer, or both
This ensures the claimant can receive compensation from responsible parties.
What is employers’ liability insurance?
Insurance that covers legal liability for injuries to employees during the period of insurance
It is compulsory in the UK.
What types of claims could arise under employers’ liability insurance?
- Injuries from equipment left out
- Crushed by equipment
- Electrocution
- Chest diseases from asbestos exposure
Some claims may be made years after the incident due to delayed illness onset.
What is the purpose of the Employers’ Liability Tracing Office (ELTO)?
To maintain records of all new and renewed employers’ liability policies since 2011
This helps claimants find insurers for past employers.
What is workers’ compensation in the USA?
A form of employers’ liability insurance that is compulsory and provides benefits for employee injuries
It differs from the UK system and does not have a national health service equivalent.
What are the key features of workers’ compensation insurance?
- Compulsory for employers
- Strict liability for injuries
- Short waiting period before coverage starts
- Covers medical expenses and income replacement
- Provides retraining costs if unable to return to previous job
These features ensure employees are protected regardless of employer negligence.
What does comprehensive general liability insurance cover?
A combined policy covering various liability classes, including advertising liability
It is also known as commercial general liability insurance.
What is active shooter insurance?
Liability cover for litigation arising from incidents involving guns and weapons
It includes crisis management and post-event counselling services.
What is financial guarantee insurance?
A contract of insurance where the insurer agrees to pay out upon the occurrence of specified events.
What types of events are covered by financial guarantee insurance?
- Financial failures of companies
- Lack of response from financial supporters
- Changes in interest rates
- Changes in rates of exchange
- Changes in property values
Why is financial guarantee insurance perceived as gambling?
It has the potential for substantial gains, not just losses.
What is extortion in the context of insurance?
Threatening a company to obtain money, often by alleging product tampering.
What are some considerations for a retailer receiving an extortion threat?
- Checking and removing unsafe goods
- Maintaining brand image
- Ensuring alternative goods are available
- Maintaining client confidence
What does malicious product tamper insurance assist with?
Financial impact of addressing threats and providing experienced assistance for resolution.
When does accidental contamination insurance typically trigger?
When illness occurs in a person after using or ingesting the product.
What is product recall insurance?
Insurance that covers costs associated with recalling a product that has a fault.
What typical costs does recall insurance cover?
- Advertising for the recall
- Additional employee costs
- Rental costs for extra space
- Shipping affected products
- Disposal of recalled products
- Redistribution costs
What are some exclusions in product recall insurance?
- Liability claims
- Products that are part of another’s finished product
- Loss of income
- Financial loss due to competitor recalls
- Redesign or re-engineering costs
- Foreseeable issues by the insured
What is required for Lloyd’s syndicates to write war insurance?
Permission from Lloyd’s through the business planning process.
What is terrorism and political violence insurance?
Insurance covering property damage from terrorist acts and other human-caused perils.
What perils does political violence insurance typically cover?
- Terrorism
- Sabotage
- Riots, strikes, and civil commotions
- Malicious damage
- Insurrection, revolution, or rebellion
- Mutiny or coup d’état
- War and civil war
What is cyber insurance?
Insurance that covers risks related to the loss or damage of information from IT systems.
What does a first-party cyber policy cover?
Own assets including property, digital assets, extortion, and reputational damage.
What is mergers and acquisitions insurance?
Insurance protecting against risks faced during the buying of another company.
What are common reasons for companies to engage in mergers and acquisitions?
- Economies of scale
- Access to wider distribution networks
- Increasing market share
- Efficient corporate and tax structures
What is warranty and indemnity insurance?
Insurance that protects against breaches of warranties during mergers and acquisitions.
