Chapter 2 - Risks written in the London Market Flashcards
What is Agricultural crop and forestry/hail insurance? Main peril? And claims?
Include anything being farmed commercially as a crop e.g., wheat, fruit, tobacco and herbs.
Main peril: Loss of the crop primarily due to weather or disease
Claim: Loss of crop, through frost or hail, damage – common for tree fruit crops where hail at the wrong time of year destroys the buds and severely reduces the crop
What is Bloodstock and Livestock insurance? Main perils? And claims?
Bloodstock: covers racehorses and show-jumpers
Livestock: covers all animals (including fish) that can be reared commercially
Main perils: sickness/injury and total loss for the racehorses as well as loss of value. For livestock, it is important to insure loss by disease.
Claims: Racehorses have to be euthanised (put down) having been injured in a race. The payout will be the insured value of the racehorse. If a stallion, mare or bull fails to breed and turns out to be infertile, then their value drops dramatically and a claim can be made on that basis (depreciation, in effect).
What does Contingency insurance generally relate to?
Entertainment or sporting events
What is Concert or event cancellation/abandonment? And typical claims?
Contingency insurance covers the costs of refunding tickets and rearranging the event, if
possible, to try to recoup some of the costs
Claims: cancellation of one day’s play at the annual Wimbledon tennis championships, a cricket test match because of rain, or cancellation of a music concert because the artist became too unwell to perform.
What is Over redemption?
The value is outweighed by the cost if too many people claim the free gifts, causing them to use up all the extra profits
Insurers will consider the normal level of sales and add on a safety margin.
The insurance will be triggered if there is more redemption than expected.
What is Prize indemnity?
Insurance to cover the cost of a valuable prize if not donated
UW calculates the odds of the incident occurring
What areas are included in personal accident and health insurance?
Personal accident
Personal accident and illness/sickness
Kidnap and ransom (K&R)
What is personal accident insurance?
Covers insured against accidental injury usually subject to exclusions and disclosure of the insured’s hobbies
Benefits are paid weekly or monthly for an agreed period. If no improvement after the accident, then lump sums are payable by ‘permanent total disablement’
What is personal accident and illness/sickness?
Cover ‘sudden onset’ illnesses e.g., heart failure
Pre-existing conditions are generally excluded
What is kidnap and randsom?
Payment of the ransom itself if the insured is kidnapped
Policies can include the cost of medical and psychological treatment and pay their salary if held hostage
Includes payment for a team of hostage negotiators dedicated to handling the matters, liaising with family of the seized person, handling any payment of ransom
What is construction insurance?
Large construction projects with various contractors - Construction all risks (CAR)
Physical damage and liability policy
Contractors can be party to insurance as well as banks etc
Claims paid if policy falls within a number of exclusions
Policy period should match the contract period - point of materials for construction to start moving to site while they are being stored for prior use
Policy should terminate at point of completion - insurers work out whether they are on risk IRO work that has not been completed
Maintenance period - no longer than 12 months after handover/completion. Insurers cover if contractor has mainted contractual liability within the period
What is covered under the construction CAR policy (incl any maintenance period?)
Loss or damage to the building works;
Machinery movement (which covers machinery while being moved including some testing once installed);
Business interruption;
Public liability and employers’ liability; and
Damage to plant (machinery) which is used for installation or construction (whether that
the plant is owned by the insured or belonging to others).
What are extensions to cover that can be purchased under a CAR construction policy?
Cost of reconstructing plans
Breakdown or explosion of machinery
Expediting expenses - cover to pay for extra costs e.g., overtime or air freight charges for repairs/rebuiling following a loss or damage
What are normal exclusions under CAR construction policy?
- Defective design, materials or workmanship (only the defective element is excluded – any
consequential damage to other property is covered). - Existing property (i.e. what was on the site before construction began).
- Breakdown or explosion (see the extension that can be purchased for this).
- Anything for which the contractor is not liable under contract.
- Wear and tear or deterioration.
What are the key aspects for an insurer to consider with CAR Construction insurance?
- Experience of the contractor in the type of work being undertaken.
- The contracts that have been entered into by the contractor and the employer and the
contractor and their sub-contractors. - The contract value – therefore the sums insured. These policies have scope for increases
in the sums insured during the building period (such as inflation) and it is very important
that the insurer is kept advised of these amounts; otherwise the sums insured may not be
adequate to reinstate the damaged property. - Where and when the construction is taking place.
How can claims arise in a CAR construction policy?
- Injury claims because personnel fall off any part of the construction.
- Part of the construction sinks into the ground because of heavy rainfall.
- Parts of the structure do not fit together properly (this may possibly be excluded,
depending on the cause of the problem). - Collapse of equipment, such as a crane which will not only be damaged itself but can
cause damage to the construction project or people as a result of the collapse.
What is erection all risks (EAR) construction insurance?
Cover can be absorbed within a CAR policy but is often purchased
separately by the firms which provide cranes and/or those which are responsible for the
erection of any other steelwork, for example
EAR provides cover for loss or damage to owned equipment, as well as liability cover should the insured or their equipment cause any incident on-site (or on a site in the vicinity).
What is property insurance?
Covers physical damage only once building has been handed over to the owner
What are the three parts property insurance can be split into?
- Buildings: can vary from refineries and chemical plants through to shops and offices.
- Machinery: varies depending on the type of building but can include industrial machinery
and plant, fixtures and fittings, office equipment, computers and money. - Stock: can include raw materials, materials in the production process and finished stock
stored on-site
Is fire covered in an ‘all risks’ property policy?
Fire is actual ignition (flames) which is accidental or a fortuity.
– Note it can include damage caused while trying to put out the fire and damage to
property blown up trying to stop the fire spreading, as well as theft or weather related
losses following the fire.
– Fire is not a chemical reaction where there is no ignition, electrical arcing, charring or
scorching (where there is no fire). Additionally, if the fire is where it is supposed to be
(for example in a furnace) then this may not be covered.
– Underground fire must originate beneath the ground and have started naturally. In
other words, fires in basements or tunnels are not considered to be ‘underground’.
Is lightning covered in an ‘all risks’ property policy?
Yes
an electrical discharge which may or may not lead to a fire.
Is explosion covered in an ‘all risks’ property policy?
Yes, a violent release of energy which may or may not be connected to a fire.
An explosion can be caused by the release of some dusts. However, if an object bursts
through steam pressure alone this is not necessarily an explosion
Is an earthquake covered in an ‘all risks’ property policy?
Yes, i.e. pure earthquake, shake damage,
earthquake excluding any damage caused by subsequent fire, or fire damage following
an earthquake.
Can an aircraft be covered in an ‘all risks’ property policy?
Yes, this includes objects dropped out of or off aircraft, but excludes any
damage caused by sonic bangs (not so regular an occurrence now that Concorde no
longer operates).
Can riots and strikes be covered in an ‘all risks’ property policy?
under the Public Order Act 1986 you need at least twelve people for a riot and you have to cause at least one person who is described as having reasonable courage to fear for their personal safety.
The importance of the definition of riot in law is that if the policy just covers riot with
no further provisions or definitions of riot, and the policy is subject to English law, if
the required twelve people and one alarmed one are not present, there is no riot and
potentially no cover.
Can malicious acts be covered in an ‘all risks’ property policy?
This extends the riot cover above to incidents such as football hooligans running wild and causing damage, but it does not cover damage to empty buildings or damage due to theft.
Can storm, flood or escape of water be covered in an ‘all risks’ property policy?
– Storm; weather conditions need to be violent and extreme for a storm.
– Flood; escape of water from its normal confines. Overflowing drains following heavy
rainfall or changes in the water table are not floods.
– Escape of water; escape from tanks or pipes. Sprinkler leakage and damage to empty
buildings are generally excluded but can be purchased separately.
Can impact damage be covered in an ‘all risks’ property policy?
by third party road vehicle or even animals.
What are additional heads of cover that can be purchased in an ‘all risks’ property policy?
Sprinkler leakage: failure of the system and sudden release of water.
Subsidence: provision of this cover is usually subject to an insurer being made aware of
any work being undertaken on adjoining land which might impact the insured’s property.
YesWhat are the 3 main categories of property insurance exclusions?
Those risks or loss or damage to property that the insurers will never cover:
– inherent vice: the normal and natural behaviour of things which would not be a
fortuity but rather a certainty or inevitable such as iron rusting if not protected from
the atmosphere;
– trade risks such as the failure of a creditor to pay their bills;
– normal settlement of new buildings;
– war risks;
– radioactive contamination;
– anything insured elsewhere; and
– any property insured for marine perils.
Those risks that insurers may cover after consideration of the risk presented
Those risks that insurers usually provide as ‘buy-backs’ (i.e. the insured can pay an
additional premium to buy back elements of or the entire cover which is excluded) e.g.,
* fraud and employee dishonesty;
* theft;
* subsidence;
* jewellery;
* goods in transit;
* fixed glass;
* sanitary ware;
* money;
* land, bridges and civil engineering works; and
* crops and trees.
Does property insurance use the concept of reinstatement to indemnify loss or damage?
Yes - restore the building to the previous condition
What is it called when underinsurance or average applies to a property policy?
Reinstatement memorandum - extension to the policy which triggers the application of the average clause if sum insured represents e.g., 85% of full reinstatement value
What is the purpose of a ‘Day One Average Memorandum’ or ‘Day One Reinstatement’?
Counteract the impact of inflation given the reinstatement of a building may take years
Are Onshore Energy risks written within a property account?
Yes or separate depending on the size of the insurer
Are Onshore Energy risks the same as property-related risks? What does the risk include?
Yes
Location - proximity to towns and cities
The activity - petrochemical, power station, oil refinery, biofuel?
Risks being created by the activity - is the activity explosive, what is the raw material, how is it stored?
What claims arise in an onshore energy risk?
Fire or explosion
What insurances are grouped under the general property heading?
Glass insurance - fixed glass, boarding up, replacing inbuilt alarm systems, lettering and window frames
Stock insurance - raw materials, materials in production, - physical damage policy - pay a deposit premium then regular declarations to the insurer during the policy period with balancing payments based on average declarations during the year. Claims are theft or damage - fire
What is theft insurance to insurers?
Dishonesty appropriating property belonging to another with the intention of depriving them. Forcible entry or exit of the premises
What perils are excluded from a theft property?
Fire, money, or war
It should be covered elsewhere
Collusion - ‘inside job’ - the thief has help from someone inside the organisation
Entry gained using tricks or keys - fake pass, copy of key, someone lost their keys
What are precuniary losses?
The loss suffered is monetary or financial in its original nature rather than financial cost of replacing a physical thing or compensating for injury
What is money insurance?
Covers all risks of loss of money which is the insured’s responsibility (not necessarily owned).
Responsibility - may have a role in transportation, storage or distribution of the items being insured
Includes cash, cheques, stamps, gift vouchers, lottery tickets, travel tickets
Measured by negotiability
What is negotiability?
The concept of ease of transfer
What items are ‘freely negotiable’?
Cash - passed from one person to the other
Gift card - no complicated transfer process
What items are not ‘freely negotiable’?
Cheque - pay to your bank account, cannot be given to someone else
What is fidelity guarantee insurance?
Cover the loss of property as a direct result of a fraudulent act committed during the policy period - even if discovered after the policy period
What behaviour could result in a claim of fidelity guarantee insurance?
Anyone physically handling money or the ability to divert cash (computer operators). Employee could steal assets from employer whilst on shop floor
What are the three types of fidelity guarantee insurance?
Blanket cover for all employees
Named employees only
Named roles only (irrespective of who occupies them)
Do fidelity guarantee insurance policies cover the insured if the employee leaves the company?
Yes - up to 24 months after they have left
