Chapter 7-General insurance products

Question 1

1. Define the term ‘rating factor’.

Answer 1

A rating factor is a factor used to determine the premium rate for a policy, which is measurable in an objective way and relates to the likelihood and/or severity of the risk. It must, therefore, be a risk factor or a proxy for a risk factor or risk factors.

Question 2

2. What does liability insurance indemnify the insured against?

Answer 2

Liability insurance provides indemnity where the insured, owing to some form of negligence, is legally liable to pay compensation to a third party. Any legal expenses relating to such liability are usually also covered. An illegal act of negligence will often invalidate the cover.

Question 3

3. Describe the legislation that prevails over liability insurance.

Answer 3

For marine and aviation l iability, international law is likely to prevail.
For classes such as motor and employers’ liability, national laws are likely to apply.

Question 4

4. What is the basic benefit provided by liability insurance.

Answer 4

The basic benefit provided by liability insurance is an amount to indemnify the policyholder fully against a financial loss.

Question 5

5. How may the benefit under liability insurance be restricted?

Answer 5

However, subject to any statutory requirements, this benefit may be rest ricted by:
• a maximum indemnity per claim or per event (this may involve more than one claim)
• an aggregate maximum per year
• an excess, when the first part of any claim is not paid.
Subject to the details of any reinstatement clause, payment of any benefits may result in a cancellation of cover or the need for a further premium.

Question 6

6. List the five main types of liability insurance.

Answer 6

• employers’ liability
• motor third party liability
• public liability - often linked to other types of insurance such as property, marine etc
• product liability
• professional indemnity.

Question 7

7. Describe the cover provided by employers’ liability insurance.

Answer 7

Employers’ liability insurance indemnifies the insured against the legal liability to compensate an employee or their estate for accidental bodily injury, disease or death suffered, owing to negligence of the employer, in the course of employment. As well as accidents, perils covered include exposure to harmful substances or harmful working conditions.

Question 8

8. Describe the cover provided by motor third party liability insurance.

Answer 8

Motor third party liability insurance indemnifies the owner of a motor vehicle against compensation payable to third parties for death, personal injury or damage to their property. In most countries such cover is compulsory, with or without an upper limit on the amount of compensation. The cover provided may or may not be limited to that required by legislation.

Question 9

9. Describe teh cover provided under public liability insurance.

Answer 9

Under public liability insurance, the insured is indemnified against legal liability for the death of, or bodily injury to, a third party or for damage to property belonging to a third party, other than those liabilities covered by other liability insurance.

Question 10

10. Describe the perils covered under public liability insurance.

Answer 10

As this type of insurance forms part of many types of insurance policy, the insured perils will relate to the type of policy. For example, compensation for a dog bite may be covered by a household policy, while compensation for injury from a falling object may be covered by a commercial policy held by a builder.

Question 11

11. Describe the cover provided under product liability insurance.

Answer 11

Product liability insurance indemnifies the insured against the legal liability for the death of, or bodily injury to, a third party or for damage to property belonging to a third party, which results from a product fault.

Question 12

12. Describe the perils covered under product liability insurance.

Answer 12

Here the perils depend greatly on the nature of the product being produced, but include faulty design, faulty manufacture, faulty packaging and incorrect or misleading instructions.

Question 13

13. Describe the cover provided under professional indemnity insurance.

Answer 13

Under professional indemnity insurance, the insured is indemnified against the legal liability resulting from negligence in the provision of a service, eg unsatisfactory medical treatment or incorrect advice from an actuary, solicitor etc.

Question 14

14. Describe the perils covered under professional indemnity insurance.

Answer 14

The perils here depend on the profession of the insured. Examples include wrong medical diagnosis, error in medical operation and error in an actuarial report.

Question 15

15. What is the main characteristic of property damage insurance.

Answer 15

The main characteristic is to indemnify the policyholder. However, here the indemnity is against loss of, or damage to, material property.

Question 16

16. List the six main types of property covered by property damage insurance.

Answer 16

The main types of property that are subject to such damage are:
• residential building (eg house)
• moveable property (eg contents of house)
• commercial building (eg office)
• land vehicles (eg car)
• marine craft
• aircraft.

Question 17

17. What benefit is often paid under property damage insurance.

Answer 17

The benefit is often the amount to indemnify the insured against the value of the loss or damage, at the time the incident occurs, subject to any limits or excesses. Household contents cover is frequently written on a ‘new for old’basis, where new goods are provided to replace lost or damaged goods, whatever their age and condition.

Question 18

18. List the main perils under each of the types of property damage insurance.

Answer 18

In respect of household and commercial buildings, fire is the principal peril insured against but policies can cover many other perils such as explosion, lightning, theft, storm and flood.
Damage to the insured property caused by measures taken to put out a fire is also covered.
Theft is the major peril for moveable property.
For motor property, the perils include accidental or malicious damage to the insured vehicle, and fire or theft of that vehicle. In many countries, including the UK, this cover is typically provided together with motor third party cover within a single policy, whilst in other
countries it may be provided in a separate policy.
The following perils relate specifically to marine hull cover, but similar perils are covered for marine cargo, marine freight and aviation insurance:• perils of the seas (or other navigable waters)• fire• explosion• jettison• piracy etc.

Question 19

19. List the three main types of financial loss insurance.

Answer 19

• pecuniary loss
• fidelity guarantee
• business interruption cover, also known as consequential loss.

Question 20

20. Describe the benefit provided under financial loss insurance.

Answer 20

The benefit provided is indemnity against financial losses arising from a peril covered by the policy.

Question 21

21. Describe the three types of financial loss insurance.

Answer 21

Pecuniary loss, which includes mortgage indemnity guarantee insurance, protects the insured against bad debts or other failure of a third party.
Fidelity guarantee covers the insured against financial losses caused by dishonest actions by its employees (fraud or embezzlement). These will include loss of money or goods owned by the insured or for which
the insured is responsible and reasonable fees incurred in establishing the size of the loss (paid to auditors or accountants, for example).
Business interruption cover indemnifies the insured against losses made as a result of not being able to conduct business for various reasons specified in the policy, for example fire at the insured’s or a neighbouring property.

Question 22

22. What are the three types of losses which cyber insurance can cover.

Answer 22

Cyber insurance is available to protect against cyber risks. Cyber insurance can cover pecuniary, fidelity guarantee and business interruption cover losses for a business.

Question 23

23. Describe the typical cover provided by personal accident insurance.

Answer 23

Under personal accident insurance, benefits are usually specified fixed amounts in the event that an insured party (this may include the policyholder’s family as well as the policyholder) suffers the loss of one or more limbs or other specified injury. This is not indemnity insurance because it is not possible to quantify the value of the loss, for instance, of an arm.

Question 24

24. What is main peril covered under personal accident insurance?

Answer 24

Here the perils are any form of accident that results in the loss of limbs or other specified injury.

Question 25

25. Describe the cover provided by health insurance.

Answer 25

Health insurance, in its narrowest sense, provides money for medical treatment. As such, it is indemnity insurance. However, only part of the cost may be provided, or benefits may be a fixed amount regardless of the actual cost of treatment, and hence health insurance can be included with fixed benefit insurances. Hospital expense plans also exist which pay a fixed amount for each day the patient is treated in hospital as an in-patient.

Question 26

26. What is main peril covered under health insurance?

Answer 26

Health insurance cover is subject to the primary peril of the need for treatment in a hospital.

Question 27

27. Describe the cover provided by unemployment insurance.

Answer 27

Unemployment insurance provides a lump sum or an income stream, usually of no more than a year’s duration, in the event of the policyholder being made redundant. Its purpose is to provide additional funds to maintain the policyholder’s lifestyle and service any debts for a short period while new employment is sought.