Chapter 2: Insurance products - types Flashcards
Liability insurance
Provides indemnity where the insured, owing to some form of tort, is legally liable to pay compensation to a third party
Tort
A legal term to mean a civil wrong or injury, not arising out of any contract, for which actions to damages may be sought.
Those that conduct such wrongs are known as tortfeasors.
Different bases on which liability claims are made
- on the basis of some breach of contract between injured party and responsible party
- on the basis of negligence
Main types of liability insurance
- Employers’ liability/workers’ compensation
- motor third party liability
- marine and aviation liability
- public liability
- product liability
- professional indemnity and errors and omissions (E&O) liability
- Directors’ and Officers’ (D&O) liability
- environmental liability and pollution liability
Basic benefit under liability insurance
An amount to indemnify the policyholder fully against a financial loss
Subject to any statutory requirements, this benefit may be restricted by:
- maximum indemnity per claim (sum insured) or an aggregate maximum per year
- maximum indemnity per event (may involve more than one claim)
- an excess
Any legal expenses relating to liability are usually also covered
An illegal act of negligence will invalidate the cover
Employers’ liability
Indemnies the insured against the legal liability to compensate an employee or his/her estate for bodily injury, disease or death suffered, owing to negligence of the employer, in the course of employment.
Loss of/damage to employees’ property is also usually covered.
When are employers liable under employers’ liability?
If they are negligent in providing their employees with safe working conditions. Generally they are liable if they fail to:
- provide proper working place with proper equipment in which employees can work
- properly maintain the working place as well as the tools and equipment
- create and enforce proper working procedures and methods
Liability insurance
Benefit form
Can be in form of regular payments to compensate for disabilities that reduce the employees’ ability to work, lump sum payments to compensate for permanent injuries to the employee and benefits under the legal framework.
Legal costs will also be covered
Other costs such as care costs can also be included
Liability insurance
Compulsory cover
In many countries, cover is compulsory and may sometimes be provided by State funds to which employees contribute (e.g. The Compensation for Occupational Injuries and Diseases Act in South Africa).
System of employers’ liability vs workers’ compensation
System of employers’ liability - losses must arise from the employers’ negligence if they are to form a basis of compensation
Workers’ compensation - losses merely have to be suffered in the course of employment, not necessarily due to the employers’ negligence.
Motor third party liability
Indemnifies the owner of a motor vehicle against compensation payable too third parties for personal injury or damage to their property.
Motor third party liability
Possible heads of damage
- loss of income (split between past income and loss of future income, with each considered seperately)
- medical and nursing costs (including hospital costs)
- compensation for pain and suffering
Motor third party liability
Compulsory cover
In most countries, such cover is compulsory (precise rules may vary) - e.g. amount of cover required
In South Africa it’s not compulsory unless a car has been bought on credit in which case comprehensive insurance is compulsory - condition set by lending bank.
Marine and aviation liability insurance
Insured is indemnified against the legal liability to compensate a third party for bodily injury, death or damage to property arising out of operation of the vessel/aircraft.
Third parties include and aren’t limited to passengers.
Mostly provided by Protection and Indemnity clubs and not commercial insurance companies
Public liability
Insured is indemnified against the legal liability for the death of or bodily injury to a third party, other than those liabilities covered by other liability insurance
Public liability insurance
Main types of cover
- the risk at insured’s own premises
- risk when work is carried out by the insured away from their own premises
Product liability insurance
Indemnifies the insured against the legal liability for the death of or bodily injury to a third party, or for damage to property belonging to third party, that results from a product fault.
Usually also covers legal costs.
Some policies include the cost of recalling faulty products that haven’t actually caused damage.
Professional indemnity insurance
Indemnifies the insured against legal liability for losses resulting from the negligence in the provision of a service, e.g. unsatisfactory medical treatment or incorrect advice from an actuary. Insured will be a professional person or firm.
Directors’ and Officers’ liability insurance
Indemnifies the insured against the legal liability to compensate third parties owing to any wrongful act of the insured in his/her capacity as a director/officer of a company.
Professional indemnity
Compulsory cover
Often a legal/regulatory condition of being allowed to practice a profession or may be imposed as a condition by a professional body.
Environmental liability
Insured is indemnified against the legal liability to compensate third parties as a result of bodily injury, death or damage to property as a result of unintentional pollution for which the insured is deemed responsible.
Cost of cleaning up the pollution and regulatory fines may also be covered. Gradual and sudden environmental pollution will generally both be covered.
Employers’ liability
Perils can be grouped into the following:
- accidents caused by the negligence of the employer or other employees
- exposure to harmful substances
- exposure to harmful substances
Motor third party liability
Perils can be grouped into:
- loss of or damage to the property of third parties caused by insured vehicle
- bodily injury and death of third parties caused by the insured vehicle
Marine and aviation liability
Perils can be grouped into:
- loss of or damage to passengers’ property (incl. luggage)
- bodily injury and death of passengers either while on board the vessel or aircraft or when boarding or leaving the aircraft
- bodily injury caused by vessel/aircraft
- damage to property caused by the vessel/aircraft
Public liability perils
Insured perils will relate to the type of policy.
In general, the policy won’t be restricted to names perils (All-Risks cover), although some perils may be explicitly excluded
Product liability perils
Depend greatly on the nature of the product being produced but include:
- faulty design
- faulty manufacture
- faulty packaging
- incorrect/misleading instructions
Professional indemnity perils
Depend on the profession of the insured. Examples:
- wrong medical diagnosis
- error in medical operation
- error in actuarial report
Directors’ and Officers’ liability perils
- allowing the company to continue operation in circumstances when it should have been declared insolvent
- any act resulting in the insured being declared unfit for his/her role
- allowing false financial statements to be published
Environmental liability perils
Can be regarded as any incident causing gradual or sudden environmental pollution
Employers’ liability
Basis for cover
Most classes are written on basis of when the loss was incurred (losses-occurring basis)- cover related to the date of the accident rather than the date of reporting the accident
Employers’ liability
Problems with the basis of “when the loss was incurred”
- an industrial disease resulting from prolonged exposure, it is hard to define the accident date
- some diseases take a very long time to fully develop so there have been extensive reporting delays with employers’ liability
Motor third party liability
Basis for cover
Losses-occurring basis
Marine and aviation liability
Basis for cover
Losses-occurring basis
Public liability
Basis for cover
Depends on exact coover being provided but usually on losses-occurring basis.
If combined with other insurances, the basis for cover would be as for the other insurance cover provided
Product liability
Basis for cover
Usually on a claims-made basis. Can also be written on a losses-occurring basis.
Professional indemnity (including D&O)
Basis for cover
Claims-made basis
Environmental liability
Basis for cover
Claims-made basis
Employers’ liability
Measures of exposure to which premiums are related
- person-hours worked best measure for assessing claims frequency
- claims settlement often related to loss of earnings - main measure of exposure is payroll/total wage and salary costs
Motor third party liability
Measures of exposure to which premiums are related
Sum-insured vehicle-year
Agreed monetary premium is charged for the insurance of a single car worth R1 for a year. Actual premium is then calculated by multiplying this rate by the sum insured and number of years insured.
Marine and aviation liability
Measures of exposure to which premiums are related
- passenger kilometers (# of passengers times kilometers travelled)
- passenger vogages
- in-service seats
- in -service vessels/aircrafts
Turnover is still most commonly used measure although not always most accurate measure of risk
Public liability
Measures of exposure to which premiums are related
Most commonly used measure of exposure is turnover
An alternative is payroll
Product liability
Measures of exposure to which premiums are related
Most commonly used measure of exposure is turnover
Professional indemnity
Measures of exposure to which premiums are related
The most commonly used measure of exposure is turnover
Environmental liability
Measures of exposure to which premiums are related
Measure of exposure depends heavily on the nature of the industry carried out by the insured.
Causes of settlement delays in liability insurance
- delays caused by establishing liability
- time taken to establish the extent of injuries and assess the speed of recovery
Claim frequency of liability insurance
Tends to be low.
Motor liability claims are more frequent and usually smaller claims than other liability policies
Possible causes of accumulations of risk on a liability insurance portfolio
- unbalanced portfolio
- court award inflation
- an insurer who provides cover for several employers in the same industry is exposed to the possibility that a large number of claims will emerge from a common cause (e.g. asbestosis, industrial deafness and repetitive strain injury)
Court award inflation
If there’s a court award in favour of a claimant, it may trigger a large number if similar claims from individuals with the same complaint
Employes liability and public liability
Risk factors and rating factors
- type of industry/occupation(s) of the insured
- extent to which the employer implements safety measures
Employers’ liability and public liability
Underwriting factors
- type of industry/occupation
- exposure and claims experience
- location of the workforce
- frequency of visitors to the site
- the materials handled
- the processes involved
- safety precautions in place
- turnover
- size of deductible
- payroll
- level of staff training and safety standards (linked to quality of management)
- provision of first aid facilities
Motor third party liability
Risk factors and rating factors
Similar to those used for motor property
Marine and aviation liability
Risk factors and rating factors
- loss history
- type of craft/vessel
- commercial category (commercial, private, military)
- sattelites and missiles also attract seperate rating structure
- use of craft/vessel (passenger, cargo, leisure, business)
- geographic region (jurisdiction of litigation)
Product liability
Risk factors
- nature of products produced by the insured
- distribution channel of the product
- how much US-exposure the product has (in general, US has more claims likely to be made)
- its usage
- the general trade of policyholder (policyholder is the manufacturer)
- any potentially dangerous components within the products, and how quickly they can deteriorate
Professional indemnity
Risk factors
The nature of profession and company
Environmental liability
Risk factors
- processes carried out by the insured
- likely affects of any accident
- likely cost of clean-up
- general assessment of the risk management practices of the insured
Property damage insurance
Indemnifies the policyholder against loss of or damage to the policyholder’s own material property
Types of property that are subject to damages covered under property damange insurance
- residential buildings
- commercial and industrial buildings
- movable property (contents)
- land vehicles
- marine craft
- aircraft
- goods in transit
- construction
- engineering plant and machinery
- crops
Land vehicles can be further divided into:
Property damage insurance
- private motor
- commercial vehicle
- motorcycle
- motor fleet
Household buildings property
Benefits
By principle of indemnity - amount required to fully reinstate (incl. the clearing away of debris, rebuilding, repairing, etc) the property, rather than the market value of the property
Subject to any excess or deductible
Ancillary costs (e.g. alternative accomodation) may be covered
Normally include insurance for liabilities arising from the insured property
Commercial buildings property
Benefits
Cover is likely to be for the full value of the property (amount needed to fully reinstate the property and not the market value), although it may be on a first loss basis.
When is a first loss basis appropriate for property damage insurance?
- the insured considers that a loss in excess of the sum insured is extremely unlikely
- the item is effectively priceless for which there may be no possibility of the building being reinstated
- the insurance is against water damage (ground floor areas may only be affected)
Movable property
Benefits
Sum insured is based on value of contents
Amount paid on a claim can be:
- replacement value - cost of a new item reduced to allow for the depeciation on the lost item
- cost of an equivalent brand new item (new-for-old basis)
Commercial contents - pure indemnity (full depreciated value of contents covered)
May apply principle of average in case of underinsurance
Motor property
Benefit
Maximum benefit is the depreciated value of the vehicle (book value, market value or retail value)
Usual (additional) cover under comprehensive motor policies
- specific injuries to the insured and/or spouse
- personal medical expenses
- insured’s legal expenses in relation to any claim
- loss or damage to personal effects that were in the car (up to defined amount)
- replacement of locks after theft of the car (in the event that the car is recovered)
- replacement/repair of broken windscreen)
Marine insurance
Benefits
Principle forms of insurance needed:
- loss of or damage to the craft (hull insurance)
- loss of or damage to cargo
Other types of insurance incuded:
- compensation for loss of use of the craft (type of business interruption cover)
- insurance against damage to vessel under construction
Claim amount is equal to full sum insured in the event of an actual total loss or constructive total loss.
Cargo insurance
Insurance for actual contents of a vessel
Freight insurance
Insurance that covers the money payable for shipment of the cargo that will not be received if the shipment isn’t delivered
Actual total loss is deemed to occur in one of the following ways:
- where the insured item is completely destroyed
- where it is so damaged that it can no longer be classed as the type of object originally insured
- where the insured is irretrievably deprived of the insured item
Constructive total loss
The insured abandons the insured item because an “actual total loss” is unavoidable or because the costs of preventing a total loss exceed the value saved.
Goods in transit insurance
Commercial insurance cover against loss of or damage to goods whilst being transported in vehicles specified on the policy.
Goods in transit insurance
Benefits
Sum insured is likely the value of goods
Periods of loading and unloading are usually covered in addition to the journey
Losses due to business interruption are NOT usually included
Special extention is usually required for transportation of livestock
Construction and engineering insurance
Provide cover against damage and distruction during construction/engineering projects and also cover in the event of failure to finish the project.
Crop insurance
Indemnifies the insured against losses to their crop due to specified perils.
Extended warranty insurance
Covers losses arising from the need to replace or repair faulty parts in a product beyond the manufacturer’s normal warranty period.
Household building property
Insured perils
- fire - principle perils insured against
- explosion
- lightning
- theft
- storm
- flood
- subsidence
- damaged caused by measures taken to extinguish fire
Movable property insurance
Perils
- fire and theft
- malicious damage
- damage arising from weather events
- accidental damage usually provided but often optional extra
Motor property insurance
Perils
- accidental/malicious damage to insured vehicle
- fire or theft of vehicle
Marine hull cover insurance
Perils
- perils of the seas (or other navigable waters)
- fire
- explosion
- jettison
- piracy
- sinking
- damage etc.
Sections covered under marine property insurance
- energy (offshore, onshore and construction)
- liability (third party property)
- specie (more valuable items in transit)
- war
Goods in transit
Perils
Damage, loss and theft
Construction insurance
Perils
- damage
- destruction
- design defect
- faulty parts
- failure to finish construction project
Engineering insurance
Perils
- machinery breakdown
- explosion
- electronic failure
Extended warranty
Perils
Faulty manufacture
Crop insurance
Perils
- disease
- fire
- weather-related perils
Property damage insurance basis for cover
Lossess-occuring basis
Household property (buildings and contents) insurance
Measure of exposure to which premiums are related
- sum insured years - sum for which property is insured multiplied by the period at risk
- linked to property size
Commercial property (buildings and contents) insurance
Measure of exposure to which premiums are related
Usually sum insured year or EML year
Why is the sum insured year not simple to determine for commercial property contents?
- Amounts of stock held may vary considerably over the period of the insurance. Hence stock may be covered on a declaration basis, determined retrospectively with an adjustment premium
- No standard way of allowing for inflation in the policy. Policies with different types of inflation treatment need to be considered seperately to determine the exposure
Motor property
Measure of exposure to which premiums are related
- vehicle-kilometers - best measure for damage claims (difficult to verify)
- vehicle-year usually used
Motor fleet:
- need an adjustment premium as the number of vehicles in the fleet will change during the year
Marine and aviation insurance
Measure of exposure to which premiums are related
Marine property:
- insured value of the hull/cargo value - hull and contents insurance respectively
Aviation property:
- insured value of aircraft
- value of goods carried
- number of take-offs and landings
Goods in transit insurance
Measure of exposure to which premiums are related
Consignment value
Construction insurance
Measure of exposure to which premiums are related
Value of the contract
Engineering insurance
Measure of exposure to which premiums are related
Sum insured value or value of contract
Note: Risk isn’t uniform along timeline of the project
Extended warranty
Measure of exposure to which premiums are related
- number of appliances
- appliance years (number of appliances times number of years)
- vehicle-years (for vehicle extended warranty)
Household and commercial property
Claim characteristics
Claim event usually occurs suddenly and cause is easily determinable
Notification is made promptly and reasonably good estimate of the claim amount can be made (subsidence claims are exception)
Settlement is usually by single payment although larger claims can take longer and may be settled in intermediate payments
Delays may be greater where it’s necessary to verify the value of stock held in commercial property.
Most exposed to moral hazard
Motor property
Claim characteristics
Claims for damage to insured’s vehicle: reported and settled quickly
Claims for damage to property of third parties: slightly longer to settle
Some delay in settling property claims while liability for settlement is established
Motor claims - generally high frequency
Generally, private motor insurance doesn’t give rise to accumulations of risk - business tends to be sold nationally
Marine and aviation
Claim characteristics
- claims usually reported as soon as vessel reaches major port & reporting delays may be very long after initial advice of the incident
- Insured likely to notify quickly after incident occurs. Repairs may be deferred until vessel scheduled for its next refit, when the full extent of the damage and likely cost incurred will be reported to the insurer = delay before all info is received could be significant
- settlement delays may be long if there’s dispute over legal liability/amount that should be paid
- minor damage is often repaired when vessel goes into dock for routine maintenance
- claim amounts can vary
How are accumulations of risk possible with marine insurance?
- geographical concentration = exposed to possibility of lots of claims arising from one incident, e.g. storms or tidal waves
- if ship spills hazardous material in populated costal area there may be many liability claims
Goods in transit insurance
Claim characteristics
May be reporting delays if claims aren’t reported until vehicles or vessels reach destination
Claim size depends on goods being transported and claim frequency depends on method of transport
Construction and engineering insurance
Claim characteristics
Property claims generally reported and settled quickly
Serious damage may take a long time to repair
Liability claims will take longer to settle
Claims from single underwriting year can take many years to emerge because of the long-term nature of policies and policies often cover a multi-year contract period
May be difficult to determine date of loss for construction policy
Extended warranty
Claims characteristics
Claim costs are fairly uniform by product - related to the cost of the original product
If repairs are covered - risk of multiple repairs being needed = increase claim cost above original price of goods
Volatility to reporting patterns - may be stable for some time and then suddenly a large number of claims
Household property (buildings and contents)
Risk and Rating factors
Rating factors:
- sum insured
- number of rooms
- location
- voluntary/compulsory use of excesses
- whether there’s any business use of the property
- whether the policyholder owns or rents the property
- if property is normally occupied during the day
- whether it’s a house or a flat or other construction
- type and standard of construction
- age of building
- type of locks and/or burg;ar alarms fitted
- whether smoke alarms have been fitted
- high risk contents
- dog ownership
- family composition
- smoker/non-smoker
- type of heating
- age of policyholder
Commercial property insurance
Risk and rating factors
Risk factors:
- monetary value of property
- surveyor’s report of property
- trade or business
Rating factors also considered:
- estimated maximum loss
- age of building
- fire protection equipment
- construction type
- excesses
- location of building
- hazardous building materials
- qualitative impressions, e.g. nature of adjacent buildings & how well company is run
- previous claims experience especially with smaller claims
Motor property insurance
Risk factors
- number of miles driven
- density of traffic where car is driven
- ability of driver
- speed at which the vehicle is usually driven and its general level of performance
- ease at which the vehicle can be damaged and the cost of repairing it
- theft risk
- weight of the vehicle
- fire risk
Other rating factors used as proxies for risk factors in motor property insurance
- policy excess
- use to which vehicle is put
- age of vehicle
- occupation of policyholder and other drivers
- whether there are additional drivers
- sex of main driver
- age of policyholder or other drivers
- whether driving is restricted to certain named drivers
- make and model of vehicle
- extent of any modification to engine or body
- location of policyholder
- where vehicle is kept overnight
- whether driver has any driving convictions
- past experience
Important rating factors for fleet motor insurance
- types of vehicles
- type of cover
- level of excess
- types and use of goods carried
Marine and aviation property insurance
Risk factors
- size of craft
- nature of cargo
- type and value of craft
- scope of voyages
- areas covered or destination
- number and experience of crew
- previous claims experience
Goods in transit insurance
Rating factors
- mode of transport
- nature of goods
- type of storage used
- time period of transit and number of stages
- length of time spent at warehouse
Construction and engineering insurance
Rating factors
- type of project
- term of project
- contracting firm
- materials and technologies used
- location of project
Extended warranty
Rating factors
- make and model of item being covered
- length of manufacturer’s warranty
- term of warranty
Categories of financial loss insurance
- fidelity guarantee
- credit insurance
- creditor insurance
- business interruption cover (aka consequential loss)
- legal expenses cover
Fidelity guarantee insurance
Covers the insured against financial loss caused by dishonest actions of its employees (fraud or embezzlement). These will incude loss of money or goods owned by the insured or for which the insured is responsible and reasonable fees incurred in establishing the size of the loss (e.g. paid to auditors/accountants)
Fraud
Wrongful or criminal deception intended to result in financial or personal gain
Embezzel
Steal or misappropriate funds placed in one’s trust or under one’s control.
Credit insurance
AKA pecuniary loss insurance
Covers a creditor against the risk that debtors will not pay their obligations.
Principle types of credit insurance
- trade credit
- mortgage indemnity
Trade credit
May cover uncollectable debts and be sold on an annual basis; cover may also be for the length of a project
Mortgage indemnity
Covers the lender (mortgagee) in a mortgage loan against the risk of the borrower (mortgagor) defaulting and the value of the property on which the loan is ecured not being sufficient to repay the loan. Policy may last for the duration of the mortgage.
Unusual features of mortgage indemnity insurance compared to other insurance classes
- policy is usually single premium bur cover lasts for long
- no direct benefit for the person paying the premium
- risk of claim closely linked to the economic cycle
- claim amount = amount of loan outstanding - resale value which reduces over time
Creditor insurance
AKA payment protection insurance (PPI)
Provides cover to insureds who are subject to obligations to repay credit advances or debt. Most policies are made to individuals to cover personal loans, mortgage loans or credit card debts
Business interruption cover
AKA consequential loss and loss of profits
Indemnifies the insured against losses made as a result of not being able to conduct business.
Benefit calculated so that after claim payment the insured achieves the same net profit they would’ve if the claim incident didn’t occur
Factors to consider when calculating benefit on business interruption cover
- turnover will drop off dramatically but will start to build up again as soon as production facilities can be restarted
- prospector will need to assess how long it’ll take to rebuild the business in event of major disaster. This period is specified in the policy and is known as the indemnity period. Insured will be indemnified for loss of profit over this period
- profit will depend on levels of fixed and variable expenses incurred. Won’t be covered for expenses incurred while business isn’t being conducted, but will be compensated for fixed expenses
- Additional temporary costs may be incurred
- Seasonal variation in business and organic growth/shrinkage in business needs to be considered
Suretyship
Product that provides a guarantee of performance or for fixed commitments of the insured
Legal expenses cover
Indemnifies the insured against legal expenses incurred as a result of:
- legal proceedings being initiated against the insured
- the need for the insured to initiate proceedings
Financial loss insurance
Insured perils
Depend on precise cover. May include:
- dishonest actions by employees (fidelity guarantee)
- failure of third parties specified in the policy (credit)
- accident/sickness resulting in loss of income with which to repay debt (creditor)
- fire at insured’s own property (business interruption cover)
- fire at neighbouring premises causing loss of access to own property (business interruption cover)
- legal proceedings brought against the insured (legal expenses cover)
Financial loss insurance
Basis for cover
Losses-occurring basis
Sometimes legal expenses is written on a basis combining losses-occurring and claims-made. Claims must both occur and be reported within the policy period.
Fidelity guarantee and credit insurance
Measure of exposure to which premiums are related
Depends on precise cover being provided.
Mortgage indemnity insurance: excess of the amount of loan over a certain percentage (normal advance) of the value of the property
Creditor insurance
Measure of exposure to which premiums are related
On personal loans: amount of the loan or the total amount repayable
On mortageg: Insured monthly benefit
Credit card: outstanding balance at the latest monthly statement date
Business interruption cover
Measure of exposure to which premiums are related
Annual proft or turnover
Adjustment premiums usually needed as profit can’t be known in advance
Amount payable is usually low enough to give insured incentive to get business running again
Legal expenses cover
Measure of exposure to which premiums are related
Number of policyholders or policyholder-years
Fidelity guarantee insurance
Claim characteristics
May be reporting delays (takes time to discover fraudulent behaviours)
Settlement delays could be significant - time to establish size of the loss
Potential size could be large - claim sizes also depend on regulation in the territory
Credit insurance
Claim characteristics
Mortgage indemnity guarantee:
- depends on economic factors
- size of individual claims unlikely large but accumulation risk due to economy link leads to high aggregate losses
Trade credit insurance:
- state of economy influences frequency and severity of claims
- size depends on the industry and level of goods and services purchased on credit
Creditor insurance
Claim characteristics
Normally a series of payments made until insured recovers or limit is reached
- monthly personal loan policies repayments - rate of interest doesn’t vary after loan is taken out
- monthly benefit on mortgage repayment - set amount selected by insured and linked to monthly repayment - may vary if interest rate changes
- monthly benefit on credit card policy - minimum monthly payment on balance as at monthly statement preceeding claim
Frequency is linked to rate of unemployment and morbidity/accident rates
Business interruption cover
Claim characteristics
Reporting delays directly linked to any associated property claim
Settlement is likely slower than for property claims - greater need for verification
Once loss is established, payments are made regularly until business is back in full operation
Fidelity guarantee and credit insurance
Risk factors and rating factors
Nature of business and size of sums at risk will be considered.
Mortgage indemnity insurance
- amount of loan in excess of a certain proportion of the value of the property
- quality of loan underwriting by lender is considered
- don’t incorporate circumstances of individual borrower into rating structure
- effect of house price falls and interest rates
- term (or average term) of mortgage
Creditor insurance
Risk factors and rating factors
Cover for personal loans:
- amount lent or total amount repayable
- term of personal loan
Mortgage cover
- insured monthly benefit
Credit card
- outstanding balance
NB: no allowance is made for the profile of the individual being covered
Risk factors include:
- age
- sex
- employment status
- occupation
- state of health
- amount of monthly benefit
Business interruption cover
Risk factors and rating factors
Similar to those of commercial property damage insurance
Annual profits and/or turnover may be used
May incorporate dependence on economic cycle into rating process
Legal expenses cover
Risk factors and rating factors
Sum insured
Personal accident cover
Benefits are specified fixed amounts in the event that an insured party (may include policyholder’s family) suffers the loss of one or more limbs or other specified injury, or accidental death.
Not indemnity insurance.
Personal accident cover
Insured perils
Any form of accident that results in the loss of limbs or other specified injury
Personal accident cover
Basis for cover
Losses-occurring basis
Personal accident cover
Measures of exposure to which premiums are related
Sum-insured person-years - sum insured
Member-year/Employee-year for group cover - sum insured/total salaries
Personal accident cover
Claim characteristics
Reported quickly
Incidence of event is uaually very clear - reporting delays decreased
In case of accidental death, dependents may not know about policy = reporting delay
Claims may be settled quickly except if for permanent total disability - wait for condition to stabilise before paying
Claim frequency = stable
Claims can be large
Personal accident cover
Risk and rating factors
Risk factors:
- sum insured
- occupation
- age
- sex
- health
- dangerous pastimes
Rating factors are the same as they can be measured
Main levels of motor insurance cover available
- third party liability (TPL)
- third party, fire and theft (TPF & T)
- comprehensive
