Chapter 4 - Types Of Insurance Products Flashcards
List the main types of Liability Insurance
Employers Liability
Mother third party liability
Product liability
Public Liability
Professional Indemnity + Errors & Omissions
Marine & Aviation liability
Directors & Officers liability
Employment practices liability
Cyber
Environmental (& Pollution) Liabilty
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What are the benefits of liability insurance?
The basic benefit of any liability insurance is an amount to indemnify the policyholder fully against a financial loss.
This benefit may be restricted by:
- A maximum amount per claim, or an aggregate maximum amount per year
- An excess.
List the main types of property insurance.
Home Property
Commercial Property
Contents (private or commercial)
Vehicles
Marine Craft
Aircraft
Goods in transit
Construction (Property under construction)
Engineering plant & machinery
Extended warranty
Crops
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List the main types of Financial Loss Insurance
Fidelity Guarantee
Credit Insurance
Payment Protection Insurance (Creditor Insurance)
Business Interuption Cover (Consequential Loss)
Legal Expense Cover
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List the main groupings under which general Insurance Types Fall
Liability Insurance
Property Insurance
Financial Loss Insurance
Fixed Benefits Insurance
Define Employers Liability Insurance
Employers’ liability indemnifies the insured (the employer) against the legal liability to compensate an employee / their estate for bodily injury, disease or death suffered, owing to negligence of the employer. The benefit may be regular payments or a lump sum. The perils include accidents and exposure to harmful substances or working conditions. The main measure of exposure is payroll. The main risk factor is the type of industry.
Define Motor Third Party Liability
Motor third party liability indemnifies the owner of a motor vehicle against compensation to third parties for personal injury or damage to their property. Cover is usually on a losses-occurring basis. The measure of exposure is the vehicle-year. The risk and rating factors are as for motor property damage.
Define Marine and Aviation Liability
Marine and aviation liability indemnify the insured 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. Exclusions are likely to include terrorism, war and illegal activities. Cover is usually on a losses-occurring basis. Possible measures of exposure include passenger kilometres / voyages and in-service seats. A wide range of rating factors is used in practice.
Define Public Liability Insurance
Public liability indemnifies the insured against legal liability for the death of or bodily injury to a third party or for damage to their property from any other cause. The perils will depend on the type of policy. The most common measure of exposure is turnover.
Define Product Liability Insurance
Product liability indemnifies the insured against legal liability for the death of or bodily injury to a third party or for damage to their property that results from a product fault. Cover is likely to be on a claims-made basis. Perils include faulty design, faulty manufacture, faulty packaging and incorrect or misleading instructions. The most common measure of exposure is turnover. The nature of the product is an important risk factor, however each policy will be individually underwritten
Define Professional Indemnity Insurance
Professional indemnity indemnifies the insured against legal liability for losses resulting from negligence in the provision of a service. Cover is usually on a claims-made basis. Perils may include wrong medical diagnosis, and errors in a medical operation or an actuarial report. The most common measure of exposure is turnover. The nature of the profession is an important risk factor, however each policy will be individually underwritten.
Define Directors and Officers Liability Insurance
D&O liability is a type of professional indemnity cover that indemnifies the insured against the legal liability to compensate third parties owing to any wrongful act of the insured director. Cover is usually on a claims-made basis. Perils include wrongfully allowing a company to continue operating, acts resulting in the insured being declared unfit for the role and allowing the publication of false financial statements. The nature of the profession is an important risk factor, however each policy will be individually underwritten.
Define Employment Practices Liability
Employment practices liability is a form of D&O insurance, specifically covering risks relating to employment practices. Perils include unfair or constructive dismissal of an employee and discrimination against an employee. Cover is usually on a claims-made basis. The nature of the company is an important risk factor, however each policy will be individually underwritten
Define Environmental Liability Insurance
Environmental liability indemnifies the insured against the legal liability to compensate third parties for the death of or bodily injury to a third party or for damage to their property as a result of unintentional pollution for which the insured is deemed responsible. Cover is usually on a claims-made basis. Perils are any incident causing environmental pollution. Each policy will be individually underwritten.
Define Cyber Insurance
Cyber insurance will indemnify the insured against losses incurred as a result of a specified cyber or data loss event. This may include legal expenses. Cover includes liability for businesses that hold sensitive customer data, use computer systems to conduct their business, or have a website. Policies are likely to be individually underwritten to reflect the different needs of the policyholders.
Define Residential, Commercial and Industrial Buildings Insurance
Residential, commercial and industrial buildings insurance usually pays the amount needed to restore the property to its previous condition, subject to any excess / deductible. The main perils are fire, explosion, lightning, theft, storm, flood, subsidence and damage caused in putting out fires. The exposure measure is usually the sum-insured year. The sum insured should be the cost of rebuilding / restoring the property. Subsidence claims may suffer reporting delays. Many rating factors are likely to be used.
Define Moveable Property Insurance
Moveable property can pay an amount equal to the replacement value of the item, or may be on a ‘new for old’ basis. The main perils are fire and theft. Malicious and accidental damage may also be covered. The exposure measure is usually the sum-insured year, although this may be less appropriate for commercial covers, where the level of stocks is very variable. Determining levels of stocks may lead to settlement delays. Many rating factors are likely to be used.
Define Land Vehicle Insurance
Land vehicle insurance provides a benefit to repair the vehicle, subject to a maximum of the replacement value of the vehicle. The exposure measure is the vehicle-year. Many rating factors are likely to be used, including the level of excess.
Define Marine and Aircraft Property Insurance
Marine and aircraft may cover loss of or damage to the craft and the cargo. Perils include fire and explosion. The exposure measure may be the insured value of the hull or aircraft and may allow for cargo. Claims may not be reported until the vessel reaches a port. There are no definitive rating factors.
Define Goods in Transit Insurance
Goods in transit is sometimes sold alongside marine and aviation insurance. The main perils are damage, loss and theft. The exposure measure is typically the consignment value. Claims may not be reported until the end of the journey. The main rating factors are mode of transport, nature of goods, type of storage, time period / number of stages of journey and length of time spent at warehouse.
Define Construction Insurance
Construction insurance may be provided for projects over the course of their lifetime (and sometimes beyond), and so may last for longer than a year. The main perils are damage, destruction, design defects, faulty parts and failure to finish the construction project. The exposure measure may be the value of the contract, which is unlikely to be uniform over the lifespan of the project, so allowance must be made for this. The main rating factors are type and term of project, contracting firm, materials and technology used and location of project.
Define Engineering Insurance
Engineering is similar in nature to construction. The main perils are machinery breakdown, explosion and electronic failure. The exposure measure may be the sum insured value of the contract, which is unlikely to be uniform over the lifespan of the project, so allowance must be made for this. Claim costs are likely to be fairly uniform, although there may be accumulations. Rating factors are similar to those for construction.
Define Extended Warranty Insurance
Extended warranty covers losses arising from the need to replace / repair faulty parts in a product beyond the manufacturer’s normal warranty period. Such policies may have a term of several years. The exposure measure is usually the number of appliances or appliance-years. The main rating factors include make / model of item, length of manufacturer’s guarantee and term of warranty.
Define Fidelity Guarantee Insurance
Fidelity guarantee covers the insured against financial losses caused by dishonest actions of employees. Contracts will be individually underwritten – the nature of the business and the size of the sums at risk will be taken into account.
Define Trade Credit Insurance
Covers uncollectible debts. The terms of the cover may be annual or may depend on the length of the contract. As above, contracts will be individually underwritten.
Define Mortgage Indemnity Insurance
Covers the lender against the borrower defaulting on the loan. The exposure measure may be the excess of the amount of the loan over a certain percentage of the value of the property. Claim experience depends heavily on economic factors. The premium will be affected by the quality of the lender’s loan underwriting.
Define Payment Protection Insurance
Covers individuals who cannot make loan repayments due to disability or unemployment. The loans may be personal loans, mortgages or credit card debts. Benefits are usually limited to a maximum number of payments. The exposure measure is usually the amount of the loan / the total amount payable under the policy. Claim frequency depends on the rate of unemployment and the likelihood of policyholders becoming sick / having accidents. The premium will vary with the term of the loan. No allowance is made for the profile of the individual being covered.
Define Business Interruption Cover
Indemnifies the insured against losses made as a result of not being able to conduct business. Perils are similar to those for property damage. The exposure measure is usually annual profit or turnover. Settlement may be slower than for the associated property damage claim.
Legal Expenses Cover
Indemnifies the insured against legal expenses from court proceedings being brought against/by the insured. The exposure measure may be the number of policyholders. Premiums will depend on the sum insured.
Define Personal Accident cover (a type of fixed benefits cover).
Personal Accident Cover usually provides fixed benefits in the event that the insured party (or parties) suffers one of a specified set of injuries/losses or death. The individual may be able to select the level of cover. The exposure measure is the person year multiplied by the sum insured. Claims tend to be reported and settled quickly. The main rating factor tends to be occultation, although age, gender (if permitted as a rating factor) and hobbies may also be used.
List different types of general insurance products that are often combined under a single policy.
- Motor Third Party Property and LiabIlity
- Residential buildings and contents (with some public liability cover).
- Commercial buildings, contents and business interruption (with some public liability cover).
List the 4 heading under which claim characteristics should be assessed
Delays
Frequency
Severity
Accumulations
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List the total considerations when analysing a type of insurance
- Cover Available and perils insured
- Common Exclusions
- Measure of Exposure
- Risk Factors
- Rating factors used in practice.
- usually forms of underwriting
- Major Characteristics of claims
- Delays
- Accumulations
- Frequency
- Severity
List the reasons for purchasing reinsurance
Profitability Increase
Avoid Single Large Losses
Smooth Results
Solvency Improvement
Limit exposure to a single event or accumulations
Increase capacity to accept ris
Financial Assistance
Expertise
Supervisory Condition
Additional business through reciprocity
Declare profits from liabilities more quickly.
PASS LIFE SAD
Also worth noting: To obtain additional business through reciprocity. To declare profits from outstanding liabilities more quickly. Supervisory condition
List the advantages of Facultative Reinsurance
The main advantage is that the cedant can fine tune their exposure to levels which are within their risk appetite.
List the disadvantages of Facultative Reinsurance
- It is time consuming and costly to place such risks
- There is no certainty that the required cover will be available when needed.
- Even if available, the required cover may only be available at unacceptable terms or price when needed.
- The primary insurer may not be able to accept a large risk until the required reinsurance cover is found, reducing its standing in the market
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List the advantages and disadvantages of Treaty Reinsurance
Treaty reinsurance does not really have any of the disadvantages associated with facultative reinsurance. The main disadvantage of reinsurance is.
- Inflexibility: Once the treaty is set up, both parties must operate within the terms of the treaty.
The advantages of treaty reinsurance are, that it is
- Efficient: Risks are reinsured automatically, hence it is administratively faster and cheaper.
- Certain: the direct writer knows that the reinsurance is available when they underwrite risks (once they fall under the terms and conditions of the treaty of course).
Define Facultative and Treaty Reinsurance
Facultative Reinsurance: is the reinsurance of a single risk. The reinsurer will be offered each individual risk for which reinsurance is required. There is no obligation for the ceding company to offer the risk and no obligation for the reinsurer to accept the risk. Each case is considered on its own merits and the reinsurer will accept the risk and quote whatever terms and conditions it sees fit.
Treaty Reinsurance: is the reinsurance of a group of similar risks under one reinsurance arrangement. Treaties are usually structured so that the insurer is obliged to pass on some of the risk in a prescribed manner and the reinsurer is obliged to accept it.
It is essential for both the direct writer and reinsurer that the treaty is absolutely precise in its definition of:
- What is and is not covered
- The financial arrangements (premiums, commissions, timing of payments)
- The obligations of both parties.
List the Basis’ under which reinsurance can be written
- Risk Attaching
- Loss Occurring
- Claims Made
