Chapter 3 - Main classes of business written in the London Market Flashcards
Marine insurance - what are Honour policies?
Writing insurance where the purchasers insurable interest is not entirely clear.
Policy Proof of Interest
What does Yacht insurance cover?
The following types of vessels
Sailing
Motor
Inland
What does Commercial Vessel Insurance cover?
These type of vessels
Cargo
Cruise/passenger
Specialist
What is the key common element covered by any type of marine hull insurance?
First party insurance
(Damage to the insured ship - physical loss or damage)
Physical damage caused to property is known as ‘Particular Average’ in Marine.
Most policy wording also provide cover for liabilities arising under maritime law (vessel collided with another vessel)
How is Builders Risk insurance used in Marine?
Construction of vessel - expensive & lengthy.
Combined physical damage & liability cover
When might Loss of earnings insurance be used in Marine?
If shipowner can’t use ship because it is damaged and can’t earn money from it carrying passengers, cargo, or hiring it out.
I’m non-marine normally referred to as BI.
Waiting period of days before they can claim. Policy limit expressed as a period of days.
Financial provisions calculated using insurers business info such as wages bill or rent
Difference between cargo and goods in transit
Cargo = physical damage for goods being moved around
Goods in transit = liability for the entity moving items around, invade they damage goods in their care
What does Cargo insurance not cover that hull insurance for ships would?
Liabilities for cargo damaging persons on their property
Cargo insurers do not anticipate insuring storage as this would be static - what insurance would be used for this?
Stock throughput insurance
Stock throughput insurance
End-to-end
Combines transit and storage policies
Removes danger of gaps in cover
Jewellers block insurance
Covers jewellery trade
Introduced into Lloyd’s by Cuthbert Heath 19th century
Package policy covering property and liability risks
Physical loss or damage
Excluded - mysterious disappearance, inventory losses
Specie insurance
Loose gemstones
Precious metals
Valuable documents
Physical loss or damage
Fine art insurance
Paintings
Sculptures
Installations
Physical loss or damage
Satellite pre launch insurance
Moving satellite to launch pad
Cargo covers for physical loss or damage until launch insurer takes over when engines are ignited.
Aggregation is an issue where several satellites launched at once
Cash in Transit insurance
Movement of money between locations Head office to local branch Bank to ATM Company premises to bank Risk prevention includes: - varying routes - mixing up truck crews - armed truck crews - paper money soaked in dyes - GPS
Goods in transit insurance
Covers liability of the carrier
Does not cover sea carriers
Covers loss or damage to goods, releasing cargo to wrong party
Parties in insurance
First party
Second party
Third party
First party = insured
Second party = insurer
Third party = anyone else
War and strikes insurance
Covers war and civil war risks
Captures and seizures
Damage caused by abandoned mines
Piracy not covered - covered in hull and also cargo
Why is War and Strikes insurance freely available?
Marine risks expected to be mobile and able to move out of danger should it arise
Strikes insurance covers…
Strikes and damage caused by terrorists or political/religious motives
Types of marine related liability
- injury/death of crew
- injury/death of visitors
- pollution caused by escape of cargo etc
- damage to cargo
- damage to other people’s property
Parties who should consider liability insurance
- port authorities
- shipbuilders/ ship repairers
- marina owners
Liability for land-based employees covered by non-marine employers liability
Political risks insurance (PRI)
Allows investors and businesses to mitigate risk arising from restriction imposed by government actions
Offers trade finance banks realistic alternative to syndicating exposure to direct competitors
Alternative for exporters to using state-funded Export Credit Schemes
Subclasses of PRI offered
Asset risks such as CEND, CCP.
Contract frustration risks such as non-payment, non-delivery, exchange transfer, non honouring of documentary letters of credit, wrong calling of bonds.
War in land
Political violence
Offshore energy insurance
Location and extraction of oil and gas under seabed. Upstream.
Exploration phase
Construction phase
Operational phase
Non-marine: Property insurance
Physical damage for buildings
Machinery fittings and fixtures
Raw materials
Reinstatement of building
Types of insurance that fall within property but should be reviewed separately
- stock insurance
- theft insurance
- glass insurance
- goods in transit
Pecuniary insurance
Cover monetary loss:
Money insurance (money and docs)
Fidelity guarantee insurance
(Fraudulent acts)
Construction insurance
Each party should get their own insurance but makes sense to have central policy to prevent gaps in cover.
Maintenance periods can be built into policy for 12 months
CAR and EAR policies
Contractors all risks
Erection all risks
Physical damage and liability cover
CAR - on behalf of sub contractors
EAR - contractor responsible for putting up machinery or steel structures
Onshore energy insurance
Oil and gas industry after it has been located and recovered (downstream)
Midstream: pipelines
Downstream: refining and petrochemical processing elements
Business interruption
Vessel damaged and insured cannot generate income.
Replace lost income after waiting period
Separate policy or extension (contingent BI)
- Supplier fails to provide supplies to factory
- Power suppliers premises is damaged and cuts of power supply to insureds factory
Advance loss of profits (ALOP)
Delay in start up (DSU)
Penalty clauses invoked if project overruns and risks of loss of profit if not completed on time.
This can be insured on marine or non marine.
Marine - cargo
Non marine - additional cover to CAR/EAR
Casualty (non marine liabilities)
EL - maritime EL for covering ships crew
PL - any party liable for loss or damage to visiting members of the public
Professional liability- lawyers doctors etc for claims made against them for incorrect advice or negligent activity.
Motor liability- not written in LM
General liability- purchased as freestanding policy or addition to physical damage or construction
Product liability- product causing damage to someone.
Bloodstock/livestock insurance
Bloodstock = horses
Main risk is death/illness
Also infertility
Contingency insurance
Underlying concept that insurance requires fortuity
- Event cancellation
- Weather-related insurances
- Prize indemnity
- Death and disgrace
- Over redemption
Personal accident insurance
PA- permenant disablement weekly or monthly benefits or lump sum. Death lump sum
Personal illness/sickness
Death in service
Kidnap and ransom
- payment for medical expenses once released
- payment of ransom
- provision of specialist negotiation team to assist the insured/family during the incident
Existence of insurance must remain secret
Malicious product tamper/extortion/product recall
Tampering:
- remove stock
- replace stock
- maintain brand loyalty
Extortion:
Money in exchange for
- revealing information
- keeping quiet
Intellectual property insurance
Rights to inventions
Trademarks and logos
Inventors patent their inventions legally to protect rights and make money
Insurance covers legal costs of defending an action against your intellectual property
Aviation: physical damage
- Private pleasure fixed wing insurance
- Commercial fixed wing aircraft
- Rotary aircraft
- Gliders
- Microlights
- Hot air balloons
- Unmanned aerial vehicles/drones
Aviation liabilities
Passengers - injury ocurred while boarding disembarking or on plane
3rd parties (other than passengers) - baggage handlers and ground staff
Products related- illness resulting from food, contaminated fuel, repairs with substandard parts
Loss of licence/use
Loss of use - Provides a replacement income stream after a waiting period measured in days
Loss of licence - available in aviation market, for those who fail their medicals unable to
Operate in their role as aircrew
Airport operators policies
Premises liability
Products liability
Hangar keeper liability
Reinsurance
Insurer buying reinsurance for itself to transfer some of the risk to other insurers
Reinsurers can be organisations operating as insurers
Viewed as good business practice
Inward premium > claims + reinsurance cost + operating cost
Benefits of reinsurance - increasing capacity
- Increasing financial capacity
Gross capacity = amount of business written.
Net position = one after you have made room for more
Prudent purchasing of insurance of reinsurance allows insurers to accept more risk.
Benefits of reinsurance - smoothing peaks and troughs
- Smoothing peaks and troughs
Gradual trends favoured. Spreads cost of large losses over several years smoothing our highs and lows
Allows insurer to diversify into new classes of businesss
Protect portfolio
Benefits of writing reinsurance
Accessing other geographical areas
Accessing other classes of business
Sellers of reinsurance
Limited liability companies with Large amounts of paid up capital from shareholders - Specialist companies, don’t write direct - Lloyd’s syndicates - Write reinsurance and direct Provide insurance for: - insurance companies - captive insurers - other reinsurers
Buyers on insurance
Based on supply and demand
Captive insurers - company part of larger commercial organisation, takes risk only from parent company who is not impacted by general premium increase across market. Claims paid with funds from within captive.
Mutuals - like minded organisations grouping together and forming insurance pool. Run by professional managers. Lawyers, architects, marine insurers
What does it mean to cede?
Pass risk to reinsurer
What is facultative reinsurance?
Reinsurance purchased for individual risk which would not fit with any other part of reinsurance
What is non proportional reinsurance?
Premium and claims don’t have direct correlation
What is Proportional reinsurance
Premium and claims shared between insurer and reinsurer in pre agreed proportions
Retrocession
Cession where entity ceding is already a reinsurer
Retrocedant
Reinsurer obtaining reinsurance for itself
Treaty reinsurance
Reinsurance purchased to cover a wider portfolio of risks/ class of business / whole book of business
Retrocessionaire
Reinsurer accepting reinsurance from an entity that is itself a reinsurer
Cession
Share of risk passes to reinsurers
