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London Markets 1 > CHAPTER 3: Main Classes of Business > Flashcards

CHAPTER 3: Main Classes of Business Flashcards

1
Q

What are honour policies?

A

Policies where the financial extent or the insurable interest is not entirely clear. These policies are not enforceable in a court.
The term Policy Proof of Interest (PPI) can be used to identify them as mere possession of the policy is evidence of some insurable interest.

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2
Q

Name some types of marine insurance?

A
  • Yacht insurance (hull insurance)
  • Commercial vessel insurance (hull insurance)
  • Builder’s risk insurance
  • Loss of earnings insurance
  • Cargo and goods in transit insurance
  • War and strikes insurance
  • Marine liabilities
  • Political risks insurance
  • offshore energy insurance
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3
Q

What is yacht insurance?

A

Yacht insurance covers sailing, motor and inland vessels (personal/individuals). A subset in hull insurance.

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4
Q

What is commercial vessel insurance?

A

Commercial vessel insurance covers cargo vessels, cruise/passenger vessels and specialist vessels (commercial). A subset in hull insurance.

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5
Q

What is hull insurance?

A

The key coverage is first party insurance, essentially coverage for damage to the insureds ship. In marine insurance this is referred to as Particular Average.
This policy also covers damages to another ship proportionate to their blame for the incident.

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6
Q

What is builder’s risk insurance?

A

Cover for both physical damage and liability cover, where the insureds can be just the purchaser/owner or the purchaser/owner and the build yard.

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7
Q

What is loss of earnings insurance? How are the limits/excess different?

A

If a shipowner is unable to use a ship they cannot earn money from it, assuming that this is due to some damage or other problem and not a pure business risk (such as no work).

The limit/excess will be expressed in days. So after 14 days the policy can be claimed on, and limit may be a max of 150 days.

There will be financial limits, based on information provided by the insured at inception.

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8
Q

What is the difference between cargo insurance and goods in transit insurance?

A

Cargo insurance is physical damage insurance for the items being moved around, whereas goods in transit insurance is primarily liability insurance for the person or organisation moving the items around.

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9
Q

What are some details about cargo insurance?

A

The insurance only covers damage to the cargo, not the cargo damaging any persons or property. The insurance may cover the items for a short stop, but generally they should be moving continuously. The insurance does not cover storage.

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10
Q

What is stock throughput insurance?

A

A combination of transit policy with storage policies. This would be for businesses that may store their goods in a warehouse and then transport them around the country.

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11
Q

What is Jeweller’s block insurance?

A

A package policy covering different property and liability type risks and can cover all aspects of the jewellery business from manufacturing to trade shows and retail risks.

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12
Q

What is specie insurance?

A

A physical loss or damage insurance covering:

  • Loose gemstones
  • Precious metals
  • Valuable documents - including tickets, vouchers, cheque books - insurance will cover the costs of reconstructing the documents
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13
Q

What is fine art insurance?

A

Insurance covering any fine art or installations, these don’t need to be tangible installations. The insurance covers the transit between any collections or exhibitions.

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14
Q

What is satellite pre-launch insurance?

A

Cover for satellites moving from the manufacturing facility to the rocket launch, the policy only goes off risk once the engines are intentionally ignited.

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15
Q

What is cash in transit insurance?

A

It covers the movement of money between locations. The insurance covers loss or damage to the cash.

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16
Q

What is goods in transit

A

Insurance to cover the liability of the carrier in respect of the goods being carried. Cover includes loss/damage and releasing cargo at destination to the wrong party.

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17
Q

What is war insurance?

A

Insurance to cover war and civil war type risks, including captures and seizures and damage from old mines. Piracy is not included in the main London Market wordings by default.

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18
Q

What is strikes insurance?

A

Covers both strikes and damage caused by terrorists or those acting from a political or religious motive. (A strike is a concerted stoppage of work)

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19
Q

What other insurances should shipowners consider purchasing?

A

Liability insurance for injuring others or their properties. Pollution or damages caused by cargo. Removing wreck after the incident.

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20
Q

What is Political Risks Insurance?

A

Insurance to cover hostile or unconstitutional governmental actions.

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21
Q

What is offshore energy insurance?

A

Can be divided into three phases:

  • Exploration Phase
  • Construction Phase
  • Operational Phase
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22
Q

Name some types of non-marine insurance?

A
  • Property Insurance
  • Construction Insurance
  • Pecuniary Insurances
  • Onshore energy insurance
  • Cyber insurance
  • Business Interruption insurance
  • Non-marine liabilities insurance (PI, EL, PL)
  • Personal Accident insurance
  • Bloodstock/livestock insurance
  • Kidnap and ransom insurance
  • Intellectual property insurance
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23
Q

What is property insurance?

A

Physical damage insurance for buildings, for all different types of buildings ( commercial, domestic etc). Industrial building policies can also cover machinery.

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24
Q

What is stock insurance?

A

Physical damage insurance to cover stock at a premises.

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25
Q

What is theft insurance?

A

Insurance to deal with theft involving forced entry to property, doesn’t cover non-forced entry claims.

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26
Q

What is glass insurance?

A

Covers glass elements of a building and boarding up properties for security reasons.

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27
Q

What are pecuniary insurances?

A

Insurances to cover monetary loss instead of physical loss or damage.

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28
Q

What is money insurance?

A

Much like cash in transit, this is insurance to cover money and valuable documents which are the responsibility of the insured.

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29
Q

What is fidelity guarantee insurance?

A

Insurance to cover fraudulent acts involving money, such as an employee transferring funds to their account.

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30
Q

What is construction insurance?

A

Construction insurance to cover liability and physical damage/loss insurance. Liability here includes damage to third party property and bodily injury to third parties.

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31
Q

What else considered in onshore energy insurance?

A

It is also a property risk to cover the generation risks (such as power plants etc)

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32
Q

What is cyber insurance?

A

Cover for cyber related risks. Issues can be:

  • PI where services fail in some way
  • Network Security Failures
  • Privacy breaches

Exposures that the policy can cover includes:

  • Business Interruption
  • Reputation Protection
  • Payment of ransoms where extortion is involved
  • practical support (legal advice, liasion with regulators etc)
  • Physical damage to systems
  • Regulatory investigations (e.g. breach of GDPR)
  • Directors and Officers liability
  • Contingent business interruption (supplier is hacked and this causes business to stop)
33
Q

What is business interruption insurance? What extension of coverage can be obtained and for what purpose?

A

Basic business interruption insurance covers a business for shutdown and subsequent loss of income due to physical loss or damage to the insured property.

Contingent Business Interruption insurance can be purchased as an extension to basic BI insurance to cover any shutdown and subsequent loss of income due to a different party (usually a supplier etc) having a problem or being damaged.

34
Q

What is advanced loss of profits (ALOP) / delay in start-up (DSU) insurance?

A

Insurance to cover the loss of profits/costs incurred from the delay of a project not being completed on time.

In marine policies this could be with a cargo policy and a DSU if the items/machinery do not arrive on time and cause delays.

In non-marine policies this could be physical damage to assets resulting in delays.

35
Q

What is Employers’ Liability insurance?

A

Insurance to cover an employer should an employee be injured during their employment and wants to claim against the employer. Marine specialist version is ‘maritime employers’ liability’

36
Q

What is Public Liability insurance?

A

Insurance to cover any party that is liable for loss or damage caused to members of the public visiting their premises, or loss or damage caused by an employee to a client or member of the public.

37
Q

What is Professional Indemnity insusrance?

A

PI covers professionals for negligent activity or advice, which results in either a financial or physical loss.

38
Q

What is Motor Liability insurance?

A

A compulsory insurance for all drivers and only covers liability to a third party for loss or damage to their property.

39
Q

What is General Liability insurance?

A

A general liability policy than can respond to any claim as long as the insured has a legal liability.

40
Q

What is Products Liability insurance?

A

Insurance to cover any physical damage to something or injury to someone by a product. This is available to anyone in the chain including manufacturer, supplier, sales and distributors.

41
Q

What is bloodstock/livestock insurance?

A

Bloodstock means horses, generally racehorses. Livestock refers to many other animals including cows/sheep/fish farms etc. The basic cover covers the death or illness of the animals, but can be extended to cover infertility or other issues.

42
Q

What is contingency insurance?

A

Insurance to cover things such as prize indemnity, event cancellation, weather-related insurances, death and disgrace etc…

weather-related insurances would be weather causing a sport event to cancel.

Death and disgrace is where an advertising campaign may need to be reshot due to the face of the campaign dying or doing something to hurt their image

43
Q

What is personal accident insurance?

A

This is not an indemnity policy (it is a benefit policy) as it is not possible to put a price on a hand/leg/sight etc… Instead benefits are paid should the policy trigger.

44
Q

What is personal illness/sickness insurance?

A

Also known as ASU, insurance triggered by sickness or accident/injury.

45
Q

What is Death in Service insurance?

A

Insurance purchased by employers to cover the situation where an employee dies whilst in their employment. this payment is generally 2-4 times the employees salary.

46
Q

What is kidnap and ransom insurance?

A

Insurance to cover kidnapping and ransoms. The 3 main areas covered are:
- The payment of the ransom
- Payment for the provision of a specialist negotiator
- Payment for medical care after they are released
The insurance must also be kept secret.

47
Q

What is malicious product tamper/extortion/product recall insurance?

A

Insurance to cover any problems that may happen to stores products, that results in:

  • removing potentially effected items from shelves
  • Replacing the stock
  • Maintaining the brand reputation

Extortion can be to prevent the spreading of the information or revealing the contamination/problem.

48
Q

What is intellectual Property Insurance?

A

Insurance to cover the legal costs of defending an action against the insureds intellectual property.

49
Q

What are the types of aviation insurance categories and key factors to consider?

A

Physical damage insurance. General key factors are take-off, flying and landing. Insurer considers the construction, the propulsion and the experience of the pilots.

  • Private Pleasure fixed wing aircraft
  • Commercial fixed wing aircraft
  • Rotary aircraft (helicopters)
  • Gliders
  • Microlights (essentially gliders with small engines)
  • Hot air balloons
  • Unmanned aerial vehicles or drones
50
Q

What are the aviation liabilities?

A

There are 3 categories:
Passengers: Any injury to passengers whilst on or boarding/disembarking the plane. Luggage is included if the plane is also damaged.

Third parties other than passengers: Covers baggage handlers and other ground staff

Products-related liabilities: Illness from food provided on the plane, damage from bad parts to the plane or contaminated fuel.

The aircraft crew would be covered under standard employers’ liability so no specialist aviation equivalent.

51
Q

What is Loss of License/Los of Use insurance?

A

Loss of use provides a replacement revenue stream after x days.

Loss of insurance provides income if the loss of license is out of the insureds control, i.e a surprise medical condition.

52
Q

What policies are required by airport operators?

A

The policies combine both physical damage and liability insurance. There are 3 categories:

  • Premises liability - Someone injuring themself in the airport
  • Products Liability - e.g. if the airport provides fuel to the aircraft
  • hangar-keepers’ liability - If the airport provides maintenance or storage to clients
53
Q

What is reinsurance?

A

Where an insurer buys insurance to transfer part of a risk they insure.

54
Q

What are the names of the parties in reinsurance?

A

The original insured buys insurance from an insurer. This insurer would then buy reinsurance from a reinsurer. This can continue infinitely and have multiple insurers/reinsurers at each stage

55
Q

How can reinsurance be purchased?

A
  • For a single risk
  • A certain class of business
  • An insurers whole portfolio of business
  • Catastrophe losses
56
Q

What is the reinsurance equation?

A

Inwards premium >= Claims + reinsurance costs + operating costs

57
Q

What happens if a reinsurer goes insolvent?

A

Insurers have a duty to pay any claims to the insured , if the reinsurer goes insolvent this is a business risk for the insurer.

58
Q

What are the benefits of purchasing reinsurance?

A
  • Increasing Capacity - As insurers/underwriters have a limit on how much risk they can write, by purchasing reinsurance it allows insurers to take on more direct risks and increase their status and market share. Also benefits the customers by making it easier to place insurance.
  • Smoothing peaks and troughs - where there is a big loss the reinsurance will spread the loss out over a longer period, making the insurer more stable as there aren’t big losses.
  • Allowing the insurer to enter new classes of business, seen as prudent by regulators
  • Protect the whole portfolio of business
59
Q

What is Facultative reinsurance?

A

Reinsurance on a single risk.

60
Q

What is Treaty reinsurance?

A

Reinsurance on a whole portfolio, either a class of business or an insurer’s whole book of business.

61
Q

What are the benefits of writing/selling reinsurance?

A
  • Accessing other geographical areas with a reduced risk
  • Accessing other classes of business with a reduced risk, allows insurers to test the water without having to employ a team of underwriters specialised in a specific class of business
62
Q

What is paid-up capital?

A

The amount of money received into a company from the shareholders. This can be increased by a company issuing more shares.

63
Q

What are some typical traits of reinsurers?

A

They are limited liability companies, with substantial amounts of paid-up capital (excess of £100m). They can have less capital but this isn’t usual.

64
Q

What are the main types of reinsurer?

A
  • Specialist companies who do not write any direct insurance
  • Lloyd’s syndicates
  • Insurers who also write reinsurance aswell as direct business
65
Q

Who would buy reinsurance?

A
  • Insurance companies
  • Captive insurers
  • Other reinsurers
66
Q

What is a captive insurer?

A

An insurance company that is wholly owned by its insureds. Generally set up as part of a larger commercial organisation and only takes risks from that organisation.

The advantage is that they won’t get affected by market increases. Reinsurance prevents some of the risks they create.

67
Q

What is a Lloyd’s syndicate?

A

A group of individuals who agree to provide capital and take insurance risks. Can entrust individuals to underwrite risks on their behalf.

68
Q

What are the main reinsurance markets?

A

London, Bermuda, US and Europe

69
Q

Who are the buyers of reinsurance?

A

Insurance companies, reinsurers, captive insurers and mutuals.

70
Q

What is a mutual?

A

A group of line-minded organisations grouping together to form an insurance pool.

71
Q

What’s the definition of To Cede?

A

The act of sharing the risk with reinsurers

72
Q

What’s the definition of Cedant?

A

The original insurer who is passing the risk to reinsurers

73
Q

What’s the definition of Cession?

A

The share of the risk passed to reinsurers.

74
Q

What’s the definition of Collecting note?

A

The document used to present the claim to reinsurers under an excess of loss contract.

75
Q

What’s the definition of non-proportional reinsurance?

A

Reinsurance where the premium and claims do not have a direct correlation. The premium is set more in line with a direct insurance, claims are dealt with on a purely financial basis rather than a shared basis.
Excess of loss and stop loss are examples of this type.

76
Q

What’s the definition of proportional reinsurance?

A

Reinsurance where the premium and claims are shared between the insurer and reinsurer in pre-agreed proportions, such as 70%-30%. In more complex contracts these may include financial limitations.
Quota share and surplus treaty reinsurance are examples of this.

77
Q

What’s the definition of retrocedant?

A

A reinsurer obtaining reinsurance for itself.

78
Q

What’s the definition of retrocession?

A

A cession where the entity ceding is already a reinsurer.

79
Q

What’s the definition of a retrocessionaire?

A

A reinsurer accepting reinsurance from an entity that is itself a reinsurer.

London Markets 1 (9 decks)

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