Chapter 3

Question 1

Corporate Strategy

Answer 1

Often very broad and high level

i.e grow customer base, increase cross selling

Question 2

Underwriting Strategy

Answer 2

• premium targets;
• claims and expense ratios;
• expected investment returns.

Question 3

Physical hazard

Answer 3

Those physical aspects of a risk that directly impact on its insurability or the terms, conditions and exceptions at which insurance may be accepted.

Question 4

Physical Hazard

Answer 4

MD - Construction, location to fire services/water/quake zones
BI - Back up sites, alternative suppliers
Liabs - Health & safety, nature of activities
Motor - Ages & condition of vehicle, driver training, compliance of driving hours restrictions, number of vehicles in the fleet.
Personal Accident - Age & health of person, activities, places visited

Question 5

Moral Hazard

Answer 5

Conduct & attitude of the insured i.e carelessness
- Pre inception
- Post Inception
- Post-loss

Question 6

Pre inception moral hazard

Answer 6

Not giving full information in proposal form
Poor risk management i.e maintenance, H&S, training etc

Question 7

Post Inception moral hazard

Answer 7

Attitude to surveyor recommendations for risk improvement
Delays in payment of premium
Delays in producing declarations for premium adjustments

Question 8

Post loss moral hazard

Answer 8

• delays in notification of the loss with full details of the circumstances;
• lack of readiness to help insurers determine the value of the loss;
• exaggerating the value of the loss; and/or
• failure to provide accurate records to facilitate speedy loss settlement

Question 9

Four key sections of a wordings

Answer 9

Conditions Clause

Operative Clause

Schedule

Exemptions or exclusions clause

Question 10

Operative Clause

Answer 10

Type of event insured against

Question 11

Exemptions or exclusions clause

Answer 11

General Exclusions - whole policy

Specific Exclusions - certain parts of policy

These are determined by - reinsurance protection available, cost of giving cover

Question 12

Conditions Clause

Answer 12

Express the policy holders rights and obligations

Question 13

Schedule

Answer 13

The schedule describes the precise subject matter of the insurance

Question 14

Warranties

Answer 14

Are suspensive covers. i.e once remedied cover is back in force

Question 15

Franchise

Answer 15

Time Franchises (Prvention of access 12 hours) Once claim threshold is met entire amount of loss is paid

Question 16

Classification

Answer 16

Personal - car, house, PA, Pet

Motor - Commercial vehicle, motor fleet, motor trade

Property - MD, BI, Theft, Money

Within each class covers and perils are classified separately Fire, lightening, explosion etc

Question 17

ABI Codings

Answer 17

Common coding’s simplify exchange of information for reinsurance and co-insurance

Not compulsory

Question 18

Standard Industrial Classification (SIC)

Answer 18

Governmental classifications (European and US versions)

Question 19

Motor classifications

Answer 19

Type of vehicle
Use of vehicle
Age of driver

Question 20

Categorisation

Answer 20

Categorise risks into comparable groups for ease of analysis and rating. The aim is to group together risks with similar features and characteristics, which will have a similar degree of hazard and claim profiles. Two examples of this are private car rating groups and theft rating areas.

Question 21

Categorisation for car rating groups

Answer 21

Band together models of cars with similar characteristics e.g:

• damage and parts costs;
• repair times;
• new car values;
• body shells;
• performance; and
• car security.

Question 22

Categorisation for theft rating areas

Answer 22

Allocate post codes to different rating areas based on claims, crime stats etc

Regular reviews should take place to ensure accuracy

Question 23

Risk Improvement Criteria