chapter 5 Flashcards
Maggie is arranging insurance for her motorcycle that, as part of the cover, allows additional riders. The additional riders are Maggie’s two children: James aged 22 and Jess aged 25. How will the risk typically be rated?
It will be based on James with a premium loading applied to both Jess and Maggie.
Underwriting motorcycles presents a different risk to underwriting motor cars. This is primarily due to the greater:
risk of theft and injury.
Larry was released from prison two years ago having served a five year sentence. He now intends to apply for motor insurance and the insurer asks a specific question about convictions. Does Larry have to declare and why?
He must declare his conviction because the original sentence was over four years and cannot be regarded as spent.
The insured has a motor policy with a maximum four year no claims discount [NCD] of 60%. This is not protected. If he had an accident where he was not at fault, and the insurer was unable to make a full recovery, what effect typically would this have on his NCD?
It would be stepped back to two years’ NCD at renewal.
Pedro is applying for motor insurance and has been told that he will have to pay a higher premium due to his occupation. He is most likely to be a:
a.
cleaner.
b.
part-time worker in a casino.
c.
civil servant.
d.
professional cricketer.
d.
professional cricketer.
An insurer’s underwriting strategy is typically broken down into three key elements:
premium targets, claims and expense ratios and expected investment returns.
What will an insurer take into account when determining its ‘risk appetite’?
How much reinsurance to use.
What is the purpose of risk evaluation in motor insurance?
To assess the likelihood and impact of claims to set appropriate premiums and underwriting terms.
What are the primary factors influencing motor insurance risk assessment?
Driver’s age and experience.
Vehicle type and modifications.
Past claims and conviction history.
Usage patterns (mileage, class of use).
Garaging location and security.
Can NCD be transferred between insurers?
Yes, but it depends on the number of claim-free years, not the discount percentage granted by the previous insurer.
What are earned vehicle years (EVY)?
A measure of exposure, calculated as the total duration vehicles are insured within a review period.
What is the claim ratio method in premium setting?
It involves adjusting premiums for cells to maintain a desired incurred claims ratio based on historical claims performance.
How does ADAS affect claims costs?
Reduces accident frequency.
Increases repair costs due to complex technology placement and recalibration needs.
What factors affect motorcycle insurance underwriting?
Engine size and vehicle performance.
Rider’s age, experience, and training.
Occupation and vehicle usage (e.g., courier services).
What are common reasons for applying loadings?
Vehicle modifications.
Driver’s adverse claims or conviction history.
High-risk occupations or usage patterns.
How does the “MyLicence” system support underwriting?
Provides insurers with real-time access to accurate driving licence and conviction details from the DVLA.
How does the Equality Act 2010 impact motor insurance underwriting?
The Act prohibits unlawful discrimination based on factors like gender, age, or disability unless supported by actuarial or statistical data.
What was the impact of the “Test Achats” ruling on motor insurance?
The 2011 European Court of Justice ruling prohibited using gender to calculate premiums, leading to unisex rating from December 2012.
What is the Rehabilitation of Offenders Act 1974’s role in underwriting?
It limits insurers from considering spent convictions when assessing risk or setting premiums.
What are examples of non-standard risks in motor insurance?
Young drivers on high-performance vehicles.
Drivers with multiple convictions or claims.
Vehicles with extensive modifications.
How do insurers handle high-risk or undesirable policies?
They may apply loadings, limit cover (e.g., RTA-only), or require a deposit for excesses to manage the risk.
How do time-based factors influence premium pricing?
Time of day a quote is requested.
Days between the quote and policy start date.
Customer’s preferred payment method.
How is fraud risk mitigated in high-risk policies?
Insurers may require deposits for third-party excesses, restrict cover to RTA-only, or exclude certain benefits like DOC (Driving Other Cars).
What is the role of eCall in connected vehicles?
eCall automatically contacts emergency services in the event of a severe accident, reducing response times by up to 50%.
What are the key recommendations of the Law Commission regarding automated vehicles?
Manufacturers bear responsibility for safety in self-drive mode.
Users-in-charge are not criminally liable in autonomous mode accidents.
What is the Declined Cases Agreement?
An arrangement ensuring RTA cover for drivers who cannot obtain insurance elsewhere, unless insuring them is against public interest.
