Chapter 3 - Insurance Products - Types Flashcards
1
Q
What is the basic characteristic of a liability insurance product.
A
Provides indemnity where the insured, owing to some form of ‘tort’ (such as negligence), is legally liable to pay compensation to a third party.
2
Q
List 10 types of liability cover.
A
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
3
Q
Will the legislation (for the country) impact the extent of any legal liability, for a particular product?
A
Yes, for example for Marine and Aviation liability International laws may prevail, however, for 3rd party motor or employers’ liability, national laws may apply
4
Q
What is the basic benefit under a liability product? What may the benefit be subject to?
A
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.
5
Q
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?
A
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)
6
Q
What is 3rd party motor liability? What is the form of benefits paid out?
A
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
7
Q
What is Marine and Aviation Liability?
What are P&I clubs for ship owners?
A
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.
8
Q
What is public liability insurnace?
A
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.
9
Q
State the two main types of cover under a public liability product?
A
These are;
- the risk at insureds own premises
- the risk when work is carried out by the insured away from their premises
10
Q
What is product liability? What other costs may be covered under the policy?
A
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.
11
Q
What is Professional Indemnity insurance?
A
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.
12
Q
What is directors and officers (D&O) cover
A
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.
13
Q
Explain the 3 types of cover under a D&O policy?
A
- 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.
14
Q
What is Employment practices liability (EPL) cover?
A
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.
15
Q
What is environmental liability cover?
A
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.
16
Q
What is Cyber liability cover? And how is it usually sold?
A
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.
17
Q
What are the insured perils under an Employers liability agreement? (3)
A
- accidents caused by the negligence of the employer or other employees
- exposure to harmful substances
- exposure to harmful working conditions
18
Q
What are the two perils covered under a motor third party liability insurance?
A
- 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
19
Q
What are the main perils under a marine and aviation liability policy?
A
- 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
20
Q
What are the perils covered under a public liability policy?
A
It will usually depends on the type of policy. The policy will typically not have named perils but perils may be excluded.
21
Q
What is usually covered under a product liability contract?
A
- faulty product
- faulty manufacturing
- fault packaging
- incorrect and misleading instructions
22
Q
What perils may be covered in a PI policy?
A
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
23
Q
For a D&O policy, what may be covered (i.e. the perils)? (3)
A
- 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
24
Q
What perils may be covered in an EPL policy? (6)
A
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
25
For an environmental liability policy, what will be covered?
Any incident causing gradual or sudden environmental pollution
26
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)
27
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
28
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.
29
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.
30
What exposure measure is used for 3rd party motor liability?
Vehicle years
31
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
32
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).
33
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.
34
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.
35
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.
36
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.
37
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.
38
What is the claims frequency for liability classes?
Low (small)
Can be slightly more frequent for motor liability claims (property and bodily injury)
39
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.
40
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
41
What are the main rating factors for 3rd party motor insurance?
42
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)
43
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
44
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.
45
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
46
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
47
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
48
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.
49
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
50
What is the basic benefit paid out under a property policy.
The benefit is usually the amount needed to indemnify the sinuses against the value of the loss or damage, subject to any excess or limits.
51
What are the benefits under a household policy? What other cover may be attached to the policy?
The amount paid out is usually the amount needed to restore the household to its previous condition, subject to any excess/deductibles or limits.
Ancillary costs, such as the provision of alternative accommodation while the insured property is inhabitable, may also be provided - however, this is not standard.
Public liability may also be attached the policy.
52
What benefits are paid under a commercial property cover?
Usually, the sum assured is the value of the total property. Alternatively, it may be on a first loss basis.
53
Explain the concept of first loss (for a commercial property), stating whne it may be appropriate.
First loss is a form of insurance cover for which the chosen sum insured is less than the total value of the property. Leaving the insured to bear any costs that may exceed the sum insured.
A first loss policy may be appropriate in the following scenarios:
- only water damage is covered (so only the value of the ground floor may be affected)
- the insured believes that a total loss is extremely unlikely
- the property is priceless and, therefore, does not have a total loss value. I.e. the property can't be reinstated.
54
What is covered under a moveable property policy? State a few extensions they may include.
What are the benefits under a movable property policy?
The sum insured will be based on the value of contents, with the policy outlining what exactly is covered.
Household policies may include the following extensions:
- food in freezer spoiled during a power cut
- pet insurance
- bicycles
- contents of a shed(s)
These policies will typically pay out:
- replacement value, which is the cost of a new item reduced to allow for any depreciation on the lost item.
- on a 'new for old' basis, under which the cost of an equivalent brand new item is provided
The insurer will have the right to provide a replacement item rather than provide monetary compensation.
55
What are the effects of inflation on moveable property insurance, and how do insurers aim to protect policyholders?
There is risk that the policyholder becomes under insured as a result of increasing costs (for contents) due to inflation.
To avoid the risk of inflation, an indexation clause is added into policies where the sums insured are increased automatically in value year on year.
56
What are the 3 main types of cover under a motor property policy?
What benefits are paid out on claims typically?
Motor has 3 levels of cover:
- third party only - not commonly used
- third party, fire and theft - addition to third party, losses arising to the insured vehicle as a result of fire and theft are paid out
- comprehensive - above + any losses arising from accidental or malicious damage to the insurer's vehicle
The benefit paid out is usually the depreciated value of the motor vehicle. In most cases, the insurer will have the vehicle repaired.
57
Under a comprehensive motor policy, what else can be covered, excluding damage to the insurer's car, damages to the 3rd party? (6)
- specific injuries to the insured/or spouse (limit defined)
- personal medical expenses (limit defined)
- legal expenses in relation to a claim
- loss or damage to personal effects that were in the car
- replacement of locks after theft of the car
- replacement/repair of broken windscreens
58
What may be covered under a Marine & aviation property policy? (2 main, 2 extra)
- Loss of or damage to the vessel or aircraft (called 'Hull insurance')
- loss of or damage to cargo (called 'cargo insurance')
Other covers may include:
- vessel or craft under construction
- compensation for loss of use of the craft (BI?)
59
For a marine & aviation policy, what would constitute to a total loss? (3)
- damage to the vessel/craft such that it is no longer recognisable
- insured item is total destroyed
- the insured it irretrievably deprived of the insured item
60
What is a constructive total loss, under a property policy?
The insured abandons the inured item because an 'actual total loss' is unfavourable or because the costs of preventing a total loss exceed the value saved.
61
What is covered under a Goods in transit policy? What may be the maximum value insured? What cover may be excluded as a part of a GIT cover?
- loss of or damage to insured goods whilst being transported in vehicles specified in the policy (e.g. company vehicle or perhaps also by a carrier). The periods of loading and unloading are covered as well as the journey.
- sum insured will typically be the value of the goods
- BI cover is excluded.
- there will need to be a special extension if livestock is the goods covered.
62
What is the nature (term) of a construction and engineering project policy? Dicuss the claims experience and effects of inflation on the policy.
-these projects tend to last 10-15 years, and thus, policies will typically last the whole length of the project, and there may be an option to extend the policy term if the project is expected to overrun.
- these policies will have claims arising long after the completion of a project
- covers are usually adjustable for changes in the value of the property and materials, so the insured is not underinsured
63
What is covered by an extended warranty policy?
It aims to cover the costs of repair or replacement of faulty parts in a product (typically electrical goods, furniture, or motor vehicles) beyond the manufacturer's normal warranty period. Terms may be for several years.
64
What is covered under a crop insurance policy?
This will indemnify the insured against losses to the crop due to specified perils.
65
List the 8 types of perils covered under a household property policy. What is the main peril covered?
- fire (main cover)
- explosion
- theft (damage to house as a result of forced entry)
- flood
- lighting
- storm
- subsidence (huge issue in the UK)
- damage to property as a result of putting out a fire
-
66
What perils may be covered under a commercial buildings cover? (3)
- fire
- weather related losses
- malicious damage
At times, cover may be 'all risks', which means cover is provided in all instances unless excluded.
67
What are the perils insured under a motor property policy? (4)
- accidental damage
- malicious damage
- fire
- theft
68
What may be covered under a movable property policy? What the 2 key perils? (5)
- fire (key)
- theft (key)
- malicious damage
- weather related damage
- accidental damage (usually provided apart of household policies as an add on)
69
For marine and aviation property, what are the perils covered? (7)
For marine property policies in particular, what else may be covered? (4)
- perils at sea (or other navigable waters)
- fire
- explosion
- jettison
- piracy
- sinking
- damage
Marine:
- energy (onshore, offshore and construction)
- liability (third party property)
- specie (more valuable items in transit)
- War
70
For a goods in transit policy, what perils are covered? (3)
- loss
- damage
- theft
71
What perils are usually covered under a construction property policy? (5)
What about an engineering property policy? (3)
- damage
- destruction
- design
- faulty parts
- failure to finish the project
- machinery breakdown
- explosion
- electronic failure
72
What perils are covered under an extended warranty policy?
Faulty manufacturing
73
What are the main types of perils covered under a crop policy?
- disease
- fire
- weather related events (storms or droughts)
74
For property related policies, what is the basis of cover?
On a losses occurring basis
75
For a household property (buildings and contents), what is the main exposure measure used to rate the premium? And why?
What other factor may be used and why?
Sum insured years, I.e. the sum for which a property is insured multipled by the period at risk.
The sum insured should be the value of rebuilding the property and clearing any debris.
At times, the number of bedrooms/rooms can only be used as the build cost will be a function of this.
76
What is the main exposure measure used to rate a commercial property (buildings and contents) policy?
Explain why the factor is complicated to use.
Sum insured years
It may be complicated for two reasons:
- the amount of contents during a particular insurance period will vary greatly. This contents may be covered on a declaration basis.
- inflation is hard to be allowed for. This is because for commercial property, the cost of claims may vary based on various factors, which will be different for different commercial risks.
77
For commercial property insurance, covering multiple properties in various locations/industries is the sum insured years sensible to use an exposure measure?
Suggest another reason why the sum insured years value may be inappropriate.
No - it would be best to use a probable maximum loss (PML) or estimated maximum loss (EML), as the chances of all buildings being destroyed from a single event are low/not possible,
Underwriter deems a total loss to be very unlikely.
78
What is the main exposure measure that can be used to price a motor property policy? And why?
Suggest why it may not be used and what the alternative measure may be.
Vehicle miles is probably the best, as the chances of an accident depends on the extent to which the vehicle will be used.
However, it may be hard to verify the miles travelled as stated by the proposer, so vehicle year may be used instead - which allows for ease of calculation.
79
Explain how the use of a black box can be used to rate a motor policy.
The insured will be charged a premium based on standard motor policy factors (e.g. age, area, vehicle make, etc) and estimated mileage. A black box will then calculate the actual usage and safety of the driver and adjust the premium at the end of the term or provide an adjusted premium for the next period.
80
What main exposure measure will be used to determine the premium of a:
- marine policy (2)
- aviation policy (3)
Marine
- value of the Hull
- value of the contents
Aviation
- value of the Hull
- value of the contents
- number of take offs and landings - as this is even most losses occur.
81
What is the best exposure measure used to rate a goods in transit cover?
What are the 4 main types of contents insured under a goods in transit policy?
The consignment value of the contents/goods.
Cover can be specific towards:
- specie
- fine art
- jewellery
- cash
And so on
82
What main exposure measures may be used to price:
- construction contracts (1)
- engineering projects (2)
What other factor should be considered?
- value of the contract (both)
- sum insured (engineering)
The insurer should also consider the fact that for construction and engineering property policies, the risk is not uniform through the term, I.e. rebuild cost at the start of building works will be less compared to the end.
83
What is the main exposure measure used to rate extended warranty policies?
Appliance-years I.e. the number of Appliances multiplied by the term of the policy - in years.
84
What exposure measure should be used to rate crop policies? (3)
- value of the crops
- sum insured
- Value of processed food
85
What are the main claims characteristics of a property claim? (2)
- usually reported quickly (i.e. observed)
- paid quickly (as loss amount is typically known)
86
For household and commercial properties, explain the claims characteristics.
What type of claims may be an exception?
- Usually, when an event happens, it is known with reason (I.e. fire or burglary)
- the loss amount could be determined fairly quickly
- paid out as a lump sum, or if the claim is large, then in regular payments (I.e. paid when repairs are done - over a period)
- for Subsidence claims it may be difficult to identify the time of the event, as they develop over time.
87
Suggest how claims may be distributed for both household and commercial property policies.
For household properties, claims will be fairly consistent in size and distribution, with a small number of larger, total loss claims, and occasional liability losses.
For commercial property claims, claims sizes/frequency may vary depending on the nature of the property insured.
88
List 4 examples of how a household insurnace portfolio could be exposed to accumulations.
- fire
- Subsidence
- natural catastrophe events (stroms, quakes, etc)
- explosion
89
What are the claims characteristics of a motor property policy?
What is the typical frequency of motor property claims?
Under a fleet policy, why would we expect to see more claims? (4)
- Reported and settled quickly
- frequency for comprehensive cover is higher than 3rd party property only
- Frequency for fleet policies will be higher than private motor policies, due:
-- Lots of drivers
-- Unfamiliarity with the vehicle for drivers
-- Long miles driven
-- higher moral hazard, as its a company owned asset.
90
What are the claims characteristics under a Marine and aviation policy? (4)
- claims ate reported as soon as a vessel/craft reaches a major port/ or lands (or the event takes place at the port/ airport)
- settlement delays might be long if there is dispute over legal liability or the amount that should be paid
- minor damage is often repaired when the vessel/craft goes for routine maintenance
- claims amounts cab vary from relatively small amounts for minor Hull damage to very large amounts in respect to loss of large vessel and cargo
91
Is there an accumulation risk associated with marine & aviation policies?
Yes:
- geographical concentration e.g. Dock is hit with a storm, which impacts many vessels
- liability claims arising from hazardous material spilled into polluted coastal areas.
92
What are the claims characteristics under a Goods in transit policy?
Reporting delays are common as events may not be reported until the vessel reaches its destination (months rather than years)
93
What are the claims characteristics under a construction and engineering policy? (3)
Dicuss both property and liability claims, along with the nature of the business and what that means to claims experience.
- property claims are reported and settled quickly, although serious damage may take longer time to repair I.e. settle
- liability claims will take longer for reasons discussed for liability claims
- claims may emerge many years in the future because of the long-term nature of the policies and some policies covering multiple years/periods
94
What are the claims characteristics under an extended warranty policy? (4)
- claim costs are fairly uniform by product, as they related to the cost of the original product
- where repairs are covered, there is risk multiple repairs being needed, which may increase the claim cost above the original price
- claims could arise because a proportion of goods sold turns out to have been faulty, which may be stable.
- large number of claims caused by a defective product design. Adds volatility to the reporting patterns.
95
What are the claims characteristics of crop insurnace? (4)
Is there a risk of accumulation?
- reported at the end of the growing season mostly
- most claims ate settled quickly
- claims sizes will depend on the farm size/sum insured
- claims frequency tends to be low in most years
- there is a risk of accumulation as weather/pest epidemics can impact a whole region
96
What rating factors may be used to price a household property (buildings and contents) insurnace? (11 + 7)
- sum insured,
- number of rooms
- location (risk of theft, subsidence, and flood vary by location)
- voluntary or compulsory use of excesses
- is property used for business
- if the policyholder owns or rents the property
- how much is the property unoccupied
- house/flat/other
- type and standard of construction
- age of the building
- type of locks/ security systems
- smoke alarms
- value of contents
- type of cover (replacement or indemnity)
- family composition
- smoker/ non-smoker
- type of heating
- age of policyholder
97
What is the difference between indemnity and replacement cover?
Indemnify cover aims to compensate the insured for the value of the items as at the date of loss
Replacement cover requires the insurer to pay for new replacement items
98
What rating factors are used to rate commercial property insurnace (building and contents)? (10)
- value of property
- surveyors report
- trade of business
- estimated maximum loss
- age of building
- fire protection equipment
- construction type
- excesses
- location of building
- hazardous materials
99
What rating factors will be used to price a motor policy? (11)
- miles driven
- density of traffic where car is driven
- ability of driver
- speed at which the vehicle is driven and level of performance
- ease with which the vehicle can be damaged and the cost of repairs
- theft risk
- Weight of vehicle
- fire risk
- type of cover
- excess
- value of the car and contents
100
For motor insurnace, how well can information provided be trusted? What can be used make the measures provided more objective ?
Not well, as policyholders may stretch the truth to get the best deal or be too subjectively about their own driving skills.
The use of black boxes allows factors to be measurable for motor insurance policies.
101
Why is an excess important? And how will it impact the policy provided?
The excess of the policy can determine the claims experience for the policy. The higher the excess, the lower the levels of claims exceeding it and therefore lower claims paid out.
102
What other rating factors may be used for when direct information is unreliable? (13) these may be used as proxies for the main factors
- use of vehicle
- age of vehicle
- occupation of the policyholder and other drivers
- whether there are additional drivers of the vehicle as well as the policyholder
- sex (gender) - banned in Europe
- age of policyholder
- whether or not drivers are limited to named drivers
- make and model of vehicle
- extent of any modification to the engine or body
- location of policyholder
- where the vehicle is kept overnight
- driving convictions ?
- past experience
103
For motor fleet cover, what are the main four rating factors? (4)
- fleet vehicles
- type of cover
- level of excess
- types of use and goods carried
104
For Marine and Aviation Property insurance, what are the main rating factors used? (4 + 4)
- size
- vessel type
- age
- nature of the cargo
- destinations covered (area)
- crew size and experience
- previous claims experience
- scope of the voyages
105
What are the main rating factors for goods in transit property cover? (5)
- mode of transport
- nature of goods
- type of storage used
- time period of transit and number of stages
- length of time spent at warehouse
106
What are the main rating factors used for a construction and engineering property policy? (5)
- type of project
- term of project
- contracting firm
- materials and technologies used
- location of project
107
Name the 3 factors which premium will depend on for an extended warranty policy?
- make and model of the item being covered
- the length of the manufacturers guarantee
- the term of the warranty
108
What factors may be used to rate a crop insurance product? (8)
- location
- type and mix of crops
- size of farm(s)
- availability/method of irritation
- pest control techniques used
- level of excess
- claims history
- sum insured
109
What are the 5 ways in which financial loss policies can be categorised?
- fidelity cover
- credit insurance
- payment protection insurance
- business interruption cover
- legal expenses cover
110
Under a financial loss cover, what is the basic level of cover?
The benefit provided is indemnity against financial loss arising from a peril covered by the policy.
111
For the 5 financial loss products, explain what is covered.
Fidelity guarantee: covers the insured against financial caused by dishonest actions of its employees (fraud or embezzlement). These will include loss of money or goods owned by the insured of for which the insured is responsible, and reasonable fees insured in establishing the size of the loss (paid to auditors or accountants etc)
Credit insurance: covers a creditor against the risk that debtors will not pay their obligations. The principle types are:
- trade credit
- mortgage indemnity
Payment protection insurance: covers the insureds who are subject to obligations to repay credit advance or debt. Usually sold to individuals to cover personal loans, mortgage loans, or credit debts.
Cover is provided against disability and unemployment, on the basis that these perils may prevent the insured from getting an income.
Business interruption: cover indemnifies the insured against losses made as a result of not being able to conduct business.
The sum insured per day will normally be specified, and the insured will receive this until the property can be occupied again or until the term specified in the policy has expired. There is usually a minimum term before a claim can be made.
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
Legal expenses policies will normally cover the payments made to legal representatives
112
Under a financial loss product, what are the perils that may be insured. (6)
- dishonest actions by employees (FG)
- failure of third parties species in the policy (credit)
- accident or sickness resulting in loss of income with which to replay debit (payment protection)
- fielre at the insureds own property (BI)
- legal proceeding being brought against the insured (legal expenses)
113
What other product may a BI policy be sold alongside?
Commercial property insurance, and it will cover the same perils: fire, weather losses, and so on.
Usually, a BI claim will follow a property damage claim.
114
Under what basis for cover is financial loss cover written?
Losses occurring basis
115
What are the main measures of exposure to which premiums are related to each financial loss product?
FG & Credit: Depended on the type of cover provided
Payment protection: usually the amount of loan or the total amount payable under the policy.
On a mortgage, it will be the insured monthly benefit. On a credit card, it will be the outstanding balance at the latest monthly statement.
BI: annual profit or turnover. The amount payable should be set such that the insured has an incentive to get the business up and running as quickly as possible.
Legal expense cover: number of policyholders or policyholder-years
116
Explain the following in relation to a credit insurance:
- Trade credit
- mortgage indemnity
Trade credit: covers uncollectable bebts and may be sold on an annual basis; cover may also be for the duration of a particular project.
Mortgage indemnity: covers the lender in a mortgage loan against the risk of the borrower defaulting the value of the property on which the loan is secured, not being sufficient to repay the loan. Duration of these policies may be the duration of the mortgage (I.e. long term contracts)
117
In general, what is the claim characteristic of a financial loss policy?
What are the claims characteristics for each of the financial loss products, and what are they dependent on? (Nothing for legal expenses cover)
In general, frequency and severity of losses will vary by class, but in general, these risks are short tailed.
FG: Typically, there may be some delay to discover fraudulent behaviour of employee - I.e. reporting delays. Settlement delays may also be significant due to the time taken to establish a loss amount.
Credit insurance: will heavily depend on economic factors and circumstances
- unemployed
- interest rates
- house prices
Payment protection insurance: series of payments until the insured is recovered or until the limit is reached. Frequency will usually depend on:
- unemployment levels (loss of work)
- morbidity levels (sickness)
- general environment (accidents)
BI: Reporting delays will be associated with any property claims. Settlement, however, is likely to be slower than for property claims, owing to the greater need for verification. Although once a loss is established, payments will be made regularly.
118
What are the main risk and rating factors of the 5 financial loss products? (5, 10, 3, 1)
In general, the risk and rating factors for a financial loss product will depend on the cover provided and the nature of the policy.
FG and credit:
- individually underwritten
- nature of the business a
- size of the sums at risk
- size of the loan (in excess of a certain proportion of the value of the property)
- quality of the loan underwriting (by the provider)
Payment protection:
- sums of the loans insured
- term of the loans
- how they are to be financed (single premium vs regular)
- age
- gender
- employment status
- occupation
- state of health
- amount of monthly benefit
- business mix of lender
BI:
- similar to the factors used to price commercial property insurance, including:
- annual profits
- annual turnover
Legal expenses:
- sums insured
119
For a personal accident cover, explain the form of cover and benefits paid out.
What is Covered
Form of indemnify insurnace
Level of cover
Fixed amounts paid, in the event that an insured party suffers the loss of one or more limbs or other specified injury or accidental death.
It's not a form of indemnity insurnace because it is not possible to quantify the value of the loss, for instance, of an arm.
Usually, the level of cover will be selected by the insured, which will be paid out in full if they suffer the complete loss of or loss of use of a major limb or permanent total disablement.
Often, there is a reducing scale of benefits, known as a continental scale, for lesser injuries, in which each injury is worth a set proportion of the full sum insured.
120
Name another form of fixed benefits cover.
Amounts paid out per day, week, and month until recovery of the insured, from disability caused by an accident. Money will be used to pay for care and hospital fees etc.
121
What are the insured perils under a personal accident policy, and what is the basis for cover? (1, 1)
What is the measure of exposure to which premiums are related? (2)
- any form of accident that results in the loss of limbs or other specified injury
- on a losses occurring basis
- person-year multiplied by the sum insured
122
What are the claims characteristics under a personal accident policy? (4)
What is the reporting delay in relation to accidental death claims?
What is the settlement delay in relation to disability claims?
- Usually reported quickly (incidence of an event is clear)
- might be longer for accidental death claims as dependent doesn't know of the their entitlement
- settled quickly for loss of limbs,
- for permanent disability, may take longer as insurer will want to wait for the condition of the insured to stabilise.
- known claim amount, so reduces any settlement delays
- frequency can be stable
123
What are the main risk and rating factors for a personal accident policy?
- sum insured
- occupation
- health of insured
- hobbies (any dangerous sports/hobbies)
- age (less so much)
- gender (banned in EU)
Usually not provided to older age members.
