Chapter 5 Flashcards

1
Q

Principle of Pooling Risks

A

The losses of few are met by the contributions of the many

Forming a common pool

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2
Q

Law of Large Numbers

A

By underwriting a large number of risks, insurers can predict losses more accurately and stabilise their financial results

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3
Q

Anti-Selection

A

When insurers fail to price and underwrite risks properly, attracting higher risk customers while deterring desirable ones

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4
Q

Underwriting Footprint

A

The boundaries within which an insurer operates, including the types of risks accepted and the limits on income and retention

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5
Q

Personal Lines v Commercial Lines in Underwriting

A

Personal lines use standardised terms and competitive pricing

Commercial lines require customised underwriting and higher commissions

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6
Q

Risk Appetite

A

Defines the type of risk an insurer will or will not accept, the limits on income and the use of reinsurance

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7
Q

Main Elements of Motor Insurance Premiums

A
  • anticipated claims costs
  • operating expenses
  • reinsurance and levies
  • contribution to profit
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8
Q

Two Types of Expenses in Motor Insurance

A

Variable costs - dependent on transaction volume

Fixed costs - independent on transaction volume

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9
Q

What factors influence reinsurance costs

A

The type of business written and the minimum premium levels set by reinsurers

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10
Q

Periodical Payment Orders

A

Structured settlements where periodic payments are made to cover future needs

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11
Q

Courts Act 2003 and PPOs

A

The Act gave courts the power to order PPOs without the consent of both parties

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12
Q

Personal Injury Discount Rate

A

The discount rate was set at -0.75%, a significant decrease from 2.5%

It is now 0.25% from 2019

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13
Q

Legal Aid, Sentencing and Punishment of Offenders Act 2012

A

Introduced key reforms in civil litigation funding, including abolishing the recoverability of success fees in “no win, no fee” agreements

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14
Q

Fixed Recoverable Costs

A

Predefined costs associated with legal claims, ensuring costs remain proportionate to the severity of the claim

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15
Q

District of Garaging or Use

A
  • high traffic areas lead to higher claim frequency
  • garaging areas influences rating
  • postal codes now used to classify risks
  • rural areas generally lower risk
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16
Q

Classification of Vehicle

A
  • vehicles classified by engine capacity, value, performance, repair cost and safety features
  • original 7 groups expanded to 50 over time
17
Q

Earned Vehicle Years

A

Exposure for risks in force during a specific period

18
Q

Earned Premiums

A

Portion of premiums reflecting the exposure during the review period

19
Q

Risk Factor Analysis

A

Analysing risks based on factors like district, driver age, vehicle type, usage and cover type

20
Q

Ratios in Underwriting

A

Incurred Claims Ratio - ratio of claims paid and estimated future liabilities to premium charged

Expense Ratio - portion of the premium allocated to cover operating costs

21
Q

Elasticity of Demand

A

Elasticity measures the change in demand as a result of a price change
If demand increases when the price decreases, the product is considered elastic

22
Q

Cap and Collar

A

Limits the maximum price increase (cap) and reduction (collar) to maintain price stability

23
Q

Motor Car Underwriting Factors

A
  • Proposer’s Information
  • Drivers Age, Medical History, Occupation and Experience
  • Driver’s Claims History
  • Driver’s Conviction History
  • Value and Age of vehicle
  • Previous insurance applications
  • Security of Vehicle
24
Q

Rehabilitation Periods

A

Fine - 1 year
Endorsement - 5 years
Penalty Points - 3 years
Disqualification - The end of the disqualification period
Imprisonment is spent after periods varying between 2 and 11 years, sentences of more than 4 years are ‘never spent’

25
Q

Vehicle Information Validation

A

Insurers link to databases such as the DVLA to retrieve vehicle details

26
Q

Accident and Loss History Checks

A

CUE - check past claims and accidents
MIAFTR - to identify thefts and total loss claims

27
Q

Credit Scoring in Underwriting

A

The score is based on factors such as financial history and is used to make underwriting or pricing decisions

28
Q

Use of Mapping and Census Data

A
  • can aid in geographical risk assessment, such as flood prone areas
29
Q

Loading and Premium Calculation

A
  • loadings are added to the base premium for higher-risk features
  • factors like claims history, convictions and vehicle modifications may result in a loading
30
Q

Discounts for Multiple Vehicles

A

Discounts may apply when two or more vehicles are insured under one policy

31
Q

Exclusion of DOC and coverage for high-risk drivers

A
  • DOC benefit may be excluded for policyholders under 21 or in certain high-risk occupations
32
Q

Types of Telematics

A
  • Pay as You Drive (PAYD)
  • Pay Per Mile
  • Usage Based Insurance
  • Pay How You Drive (PHYD)
33
Q

ADAS and autonomous vehicles

A
  • electronic systems provide varying levels of assistance
  • ADAS reduces accident frequency and claims costs, but repair costs are higher
34
Q

Automated Lane Keeping System

A

ALKS vehicles may be classified as self-driving in certain conditions

35
Q

Motorcycle Risk Differences

A
  • present higher risk due to greater vulnerability to injury
  • sidecars provide more stability but increase passenger risk
36
Q

Motorcycle Rating and Grouping

A
  • rated by engine size, performance and price
  • typically grouped into 10-15 categories
37
Q

Motorcycle Driving Factors

A
  • claims experience varies with age and experience
  • high risk for younger, less experienced drivers
  • stricter licensing laws include CBT, theory test and restricted access to more powerful motorcycles