Chapter 8: General insurance overview and general insurance products

Question 1

Liability insurance

Answer 1

provides indemnity where the insured, owing to some for of negligence, is legally liable to pay compensation to a 3rd party.

Question 2

Motor 3rd liability insurance

Answer 2

perils include motor accidents caused by the insured

Question 3

Public liability insurance

Answer 3

Perils depend on the type of policy (e.g. dog bites, falling objects)

Question 4

Product liability

Answer 4

Perils include faulty design, manufacture, packaging and misleading instructions.

Question 5

Professional indemnity

Answer 5

Perils depend on the profession of the insured.

Question 6

5 Types of liability insurance

Answer 6

• employers’ liability
• motor 3rd part liability
• public liability
• product liability
• professional indemnity

Question 7

Employers’ liability insurance

Answer 7

Perils include accidents in the workplace due to negligence of an employer or employee, exposure to harmful substances/working conditions.

Question 8

Property damage insurance

Answer 8

Indemnifies the insured against loss of, or damage to , their own material property.

Question 9

6 Types of property damage insurance

Answer 9

• residential building
• moveable property (contents)
• commercial building
• land vehicles (car)
• marine craft
• aircraft

Question 10

Financial loss insurance

Answer 10

Indemnifies insured against financial losses arising from a peril covered by the policy.

Question 11

3 Types of financial loss insurance

Answer 11

• pecuniary loss
• fidelity guarantee
• business interruption

Question 12

Pecuniary loss

Answer 12

perils include bad debts or failure of 3rd parties, includes mortgage indemnity guarantee insurance.

Question 13

Fidelity guarantee

Answer 13

perils include dishonest actions by employees such as fraud/embezzlement

Question 14

Business Interruption

Answer 14

a. k.a. consequential loss

- perils include fire in the insured’s own property or in a neighbouring property.

Question 15

3 Types of fixed benefits insurance

Answer 15

• personal accident
• health
• unemployment

Question 16

Personal accident insurace

Answer 16

perils include loss of limb or other specified injury from an accident.

Question 17

Health insurance

Answer 17

perils include the need for treatment in a hospital

Question 18

Unemployment insurance

Answer 18

The peril is redundancy.

Question 19

Key features of property insurance

Answer 19

• Generally for a period of 1 year, and are not guaranteed renewable
• May be multiple claims in the period
• Cover may be offered on commercial lines or personal lines
• Underwriting on personal lines business will be standardied, while underwriting on commercial lines will be more individual and extensive
• Classic short-tailed business (reporting & settlement)
• Precisely what is covered will vary and will be specified in the policy document
• Excesses are common to reduce the number of small claims and keep the cost of insurance down.
• Buildings and contents cover can be sold separately
• Premiums based on sum insured (value of contents) or proxies (number of bedrooms)
• Principle of average applies

Question 20

Cover for buildings is done on what basis…

Answer 20

Replacement basis, with the value of the property being based on the cost of rebuilding

Question 21

Likely basis for commercial contents insurance

Answer 21

indemnity basis

Question 22

Likely basis for household contents insurance

Answer 22

indemnity basis

or replacement basis

Question 23

Principle of average

Answer 23

Used to discourage under-insurance.

Paid = claim * sum_insured / current_value

Question 24

Perils covered under property insurance

Answer 24

policy document will specify which perils will be covered

typically includes:

• Fire
• Theft
• Burst pipes
• Storm/flood/lightning/other weather damage
• Natural disasters
• Explosions
• Damage caused by measures taken to put out a fire
• Subsidence

Question 25

Risks faced by the insurer under property insurance

Answer 25

COMPANY

• Insufficient, inadequate or appropriate past data to price the contract
• Insufficient experience to design an appropriate product
• May struggle to administer the business appropriately

OTHERS

• Competitors may react to the insurer’s entry to the market by lowering prices / making market share difficult
• Legislative or taxation changes may impact on profitability.

CUSTOMERS

• Anti-selection
• New business strain
• Low volumes may mean the insurer is unable to recoup its initial expenses
• Withdrawals may be higher than expected

COSTS

• Claims may be higher than expected
• Investment returns may be lower than expected
• Expense risk (higher than expected)

Question 26

5 Types of claim reserves

Answer 26

1. Outstanding reported claims reserve
2. Incurred but not reported (IBNR)
3. Unexpired risk reserve
4. Catastrophe reserve
5. Claims handling expense reserve
   (6. Mismatching reserve)