Chapter 3 - Insurance Products - Types Flashcards
What is the basic characteristic of a liability insurance product.
Provides indemnity where the insured, owing to some form of ‘tort’ (such as negligence), is legally liable to pay compensation to a third party.
List 10 types of liability cover.
Employers’ liability
Motor third party liability
Public liability
Marine and aviation liability
Product liability
Professional liability / E&O liability
Directors and officers liability
Employment practices liability
Environmental liability and pollution liability
Cyber
Will the legislation (for the country) impact the extent of any legal liability, for a particular product?
Yes, for example for Marine and Aviation liability International laws may prevail, however, for 3rd party motor or employers’ liability, national laws may apply
What is the basic benefit under a liability product? What may the benefit be subject to?
An amount to indemnify the policyholder fully against a financial loss, subject to any statutory requirements. The benefit may also be restricted by:
- a max indemnity per claim or per event, or an aggregate maximum per year.
- An excess
There may need to be further payment of premium or else cover may be terminated once a claim is paid, this will depend on the reinstatement clause.
Legal expenses relating to the liability will also be covered.
Cover will be void on any illegal negligence, I.e. crashed while driving drunk.
What is employer’s liability? Explain how benefits may be paid out and what costs may be covered. How is it different from workers compensation?
Employers liability will indemnify the insured against any legal liability to compensate an employee or their estate for bodily injury, disease or death suffered, owing to negligence of the employer, in the course of employment.
Benefits can be:
- regular payments to compensate for disabilities that reduce the employee’s ability to work
- lump sum to compensate for permanent injuries to the employee or death
Care costs will also be covered.
Legal costs are covered.
The difference between employers’ liability and workers’ compensation is that employers’ liability will only pay out in the case of an employer’s negligence (e.g. in the UK). Whereas, workers’ compensation will cover losses merely have to been suffered in the course of employment (e.g. in thr US)
What is 3rd party motor liability? What is the form of benefits paid out?
The cover aims to indemnify the owner of a motor vehicle against compensation due to third parties for personal injury or damage to their property.
Benefits can be payable:
- in regular intervals (loss of earnings)
- lump sum (property damage)
- related to care costs (hospital visits, medication, care etc)
It most countries this is compulsory cover and needs to be purchased, e.g. in the UK.
Cover is widely available in the UK for that reason
What is Marine and Aviation Liability?
What are P&I clubs for ship owners?
The 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 or aircraft. The third parties include, but are not limited to, passengers.
Large marine liability insurnace is covered by Protection and Indemnity clubs (P&I clubs). These are mutal associations of ship owners that provide cover their members on a pool basis.
What is public liability insurnace?
Thr insured is indemnified against the legal liability for the death, or bodily injury to a third party or damage to property belonging to a third party, other than those liabilities covered by other liability products.
State the two main types of cover under a public liability product?
These are;
- the risk at insureds own premises
- the risk when work is carried out by the insured away from their premises
What is product liability? What other costs may be covered under the policy?
This product aims to indemnify the insured against the legal liability for the death, or bodily injury to a third party, or damage to property belonging to a third party, that results from a product fault.
These policies will also cover any legal costs and any costs related to product recall.
What is Professional Indemnity insurance?
This cover aims to indemnify the insured against legal liability for losses resulting from negligence in the provision of a service. The insured any be a firm (of professionals) or a professional providing a service.
E.g. poor medical treatment, or incorrect advice from an accountant.
This cover is compulsory for many professionals by law/or their professional bodies.
Referred to as E&O cover in many jurisdictions.
What is directors and officers (D&O) cover
This aim of this cover is to indemnify the insured against the legal liability to compensate third parties owning to any wrongful act of the insured in their capacity as a director or office of a company. The insurnace is personal to the director/officer, but is usually bought by the company for them.
Explain the 3 types of cover under a D&O policy?
- Side A: coverage for individual directors
- Side B: coverage for the company where it is indemnifying the directors of the company
- Side C: coverage for the company to protect against securities actions
Securities action is a lawsuit filled by investors who bought/sold the company stock and suffered financially as a result.
What is Employment practices liability (EPL) cover?
It is a form of D&O insurance, specifically covering risks relating to employment practices.
It indemnifies the company and directors against the liabilities for the legal costs and subsequent awards for defending employment-related claims.
What is environmental liability cover?
This cover aims to indemnify the insured against the legal liability to compensate third parties as a result of bodily injury, death and damage to property as a result of unintentional pollution for which the insured is deemed responsible.
Costs of cleaning up the pollution as well as paying any regulatory fees may be covered.
Gradual and sudden pollution will both be covered.
What is Cyber liability cover? And how is it usually sold?
This cover aims to indemnify the insured against losses incurred as a result of a specified cyber or data loss event. Along with any legal expenses and fines.
The product is sold as a standard alone policy by service providers (I.e. in addition to any service/product they may provide).
The aim of the cover is to protect a business if it experiences a data breach or is subject to an attack by a malicious hacker that affects its computer systems. The cover will aim to get recontrol of the systems and pay any costs relating to this.
What are the insured perils under an Employers liability agreement? (3)
- accidents caused by the negligence of the employer or other employees
- exposure to harmful substances
- exposure to harmful working conditions
What are the two perils covered under a motor third party liability insurance?
- loss or damage to the property of third parties caused by the insured vehicle
- death of bodily injury to a third parties caused by the insured vehicle
What are the main perils under a marine and aviation liability policy?
- loss of, or damage to, passengers property, including luggage
- bodily injury or death to a passenger while on board the vessel or aircraft or when entering or leaving the vessel of aircraft
- bodily injury caused by the vessel or aircraft
- damage to property caused by the vessel or aircraft
What are the perils covered under a public liability policy?
It will usually depends on the type of policy. The policy will typically not have named perils but perils may be excluded.
What is usually covered under a product liability contract?
- faulty product
- faulty manufacturing
- fault packaging
- incorrect and misleading instructions
What perils may be covered in a PI policy?
This will usually depend on the profession the insurer is providing insurnace for.
E.g. for medics, cover may include wrong medical diagnosis
Or for actuaries, cover may include error in actuarial report
For a D&O policy, what may be covered (i.e. the perils)? (3)
- continuing to operate in circumstances when it should have been declared insolvent
- any act resulting in the insured being declared unfit for their role
- allowing false financial statements to be published
What perils may be covered in an EPL policy? (6)
Perils will include defending against, and possible settlement costs or, the following:
- unfair dismissal of an employee
- constructive dismissal of an employee
- discrimination against an employee, e.g. lower pay compared to another person doing the same role, overlooked for a promotion
- failure to correctly follow misconduct procedures when dismissing an employee
- failure to comply with working hours legislation
- wrongful demotion
For an environmental liability policy, what will be covered?
Any incident causing gradual or sudden environmental pollution
For a cyber policy, what may be covered? (8)
- virus damage
- personal data or primary issues
- slander or libel from an employee via email
- hacker attack
- online identity theft
- infringement of intellectual property, e.g., flim company seeking compensation for stolen leaked footage
- losses relating to breaches or actions by suppliers or business partners
- ransomware (a piece of software threatening to publish the victims data or block all access to it unless a ransom is paid)
For all 10 types of liability products, list the basis for cover, I.e. are they on a claims made or losses occurring basis?
Employers liability - varies, between a loss occurring and claims made basis.
- insurer is liable on a losses occurring basis, although, at times:
- claim may be split by the insurers from the loss occurring date to the claims made date.
- at times, a disease may take time to develop and thus there is a substantial period between a claim being made, and therefore it may be better to use a claims made basis
Public liability - depends on the policy it is attached to.
Claims made basis:
- product liability
- Professional indemnity
- D&O
- EPL (employment practices liability)
- environmental liability
- cyber
Losses occurring
- marine and aviation liability
- third party motor liability
Explain why it may be suitable to write product liability on a claims made basis.
Customers may not know when a product was bought or when the fault occurred (e.g. medication, taking a long time before a health problem is noticed). So it may be best practice to write the policy on a claims made basis.
What are the measures of exposure to which premium may be related to an employers liability?
What exposure may be a good indicator of claims frequency?
Employers liability:
- person hours could be a good measure when assessing claims frequency.
- however, claim settlements are usually based on earnings and therefore a better measure will be payroll, I.e. total wages and salary costs.
- the premium will be charged on an estimate for the coming year and therefore, depending on what the actual wageroll was at the end of the policy term, there will be extra premiums paid or recoveries made.
What exposure measure is used for 3rd party motor liability?
Vehicle years
What measures of exposure may be used for marine and aviation liability? (4)
Additionally, what may be used for marine liability specifically? (3)
- passenger kilometres
- passenger voyages
- in- service seats
- in- service vessels/aircrafts
Additionally, for marine,
- sum insured,
- feet drilled, and
-turnover
What exposure measures may be used for rating product and public liability? And why?
Turnover - for both
- for public liability, the cost of materials and equipment used is an indicative of the public liability risk.
In some situations, it is useful to use payroll for public liability, as this is related to the size of the workforce (typically).
What exposure measures may be used to rate the following policies:
- PI
- D&O
- Cyber
- EPL (employment practice liability)
Typically, turnover will be used. However, things such as funds under management may be used for fund managers etc.
What exposure measures may be used to rate environmental liability policies?
Depends on the company seeking insurance, for example, the number of power stations or the amount of energy produced could be used for a power company.
For a claim, what may need to be resolved before a liability can be settled? (3)
- whether or not there had been a loss
- whether or not the insured is liable
- the amount of the loss
Note: the loss may be reduced if there is contributory negligence on the part of the victim.
Explain reporting delay in relation to a liability claims.
Some liability claims remain undetected for many years and are often referred to as ‘latent’ claims.
For example:
- being exposed to asbestos before falling ill many years after
- storage tank may leak contents into the ground, causing pollution, for some yeas before the damage is discovered.
There is also no real clarity on which insurer should respond to the loss, and often some form of allocation is necessary.
Why may there be significant settlement delays for liability claims.
- personal injury loss
- bodily injury
How does the legal environment impact the settlement delay?
For personal injury loss, it may take years for the victim’s conditions to stabilise and can be assessed for damages. May involve litigation for some claims (large claims)
For bodily injury claims, settlement is usually regular claim payments rather than a lump sum settlement.
The legal environment will have an impact on the settlement of claims, thus this will impact the tail of the business in a particular country.
What is the claims frequency for liability classes?
Low (small)
Can be slightly more frequent for motor liability claims (property and bodily injury)
Explain how claims accumulation may occur for liability classes?
- if there is a court award in favour of a claimant, it may trigger a larger number of similar claims from individuals (I.e. a claim against a company)
- Insurer provides cover for many employers in the same industry. If the industry is exposed to a particular event (I.e. disease related), then a large number of claims may emerge from a common cause.
What are the main rating, risk and underwriting factors for an employers and public liability cover? (12)
- type of industry/occupation of the insured
- exposure and claims experience
- location of the workforce
- frequency of visitors to the side
- the materials handled
- the processes involved
- safety precautions in place
- turnover
- size of deductible/excess
- payroll
- level of staff training (linked to quality of management)
- provision of first aid facilities
What are the main rating factors for 3rd party motor insurance?
What are the main rating factors used for a marine and aviation policy? (6)
- loss history
- type of vessel or aircraft
- commercial category (commercial, private or military)
- satellites and missiles
- use of craft or vessel (passenger/cargo/business/leisure)
- geographic region (jurisdiction of litigation)
What ratings factors may be used to price product liability policies? (5)
- the distribution channel of the product
- How much US exposure the product has
- it’s usage
- the general trade of policyholder
- any potential dangerous components within the product and how quickly they deteriorate
What risk factors may be used to assess a PI cover? (3)
- the profession
- size of the profession
- sole practitioners vs large firms
However, each policy will be underwritten individually, and the underwriter will need to assess the risks arsing from a policy subjectively.
What rating factors will be used to price D&O and EPL cover?
D&O
- nature of the company
- turnover
- employee numbers
For EPL
- nature of the company
- legislation
However, each policy will be underwritten individually, and the underwriter will need to assess the risks arsing from a policy subjectively
What are the main rating factors used in environmental liability?
- the processes carried out by the insured
- the likely effects of any accident
- the likely cost of clean up
- a general assessment of the risk management practices of the insured
However, each policy will be underwritten individually, and the underwriter will need to assess the risks arsing from a policy subjectively
What rating factors will need to be considered for a cyber policy?
- nature of the company
- the personal data held
- the reliance on IT systems to operate
- the sophistication and level of security of their IT systems
However, each policy will be underwritten individually, and the underwriter will need to assess the risks arsing from a policy subjectively
What is the main characteristic of a property insurnace product?
A property product aims to indemnify the insured against loss or damage to its own property.
Name all the different types of property cover available. (11)
- commercial
- residential
- moveable property
- land vehicles (private motor, commercial, motorcycle, fleet)
- vessels (marine)
- aricrafts (aviation)
- goods in transit
- (property under) construction
- engineering plant and machinery
- goods insured under an extended warranty policy
- crops
