Chapter 8: General insurance overview and general insurance products Flashcards
Liability insurance
provides indemnity where the insured, owing to some for of negligence, is legally liable to pay compensation to a 3rd party.
Motor 3rd liability insurance
perils include motor accidents caused by the insured
Public liability insurance
Perils depend on the type of policy (e.g. dog bites, falling objects)
Product liability
Perils include faulty design, manufacture, packaging and misleading instructions.
Professional indemnity
Perils depend on the profession of the insured.
5 Types of liability insurance
- employers’ liability
- motor 3rd part liability
- public liability
- product liability
- professional indemnity
Employers’ liability insurance
Perils include accidents in the workplace due to negligence of an employer or employee, exposure to harmful substances/working conditions.
Property damage insurance
Indemnifies the insured against loss of, or damage to , their own material property.
6 Types of property damage insurance
- residential building
- moveable property (contents)
- commercial building
- land vehicles (car)
- marine craft
- aircraft
Financial loss insurance
Indemnifies insured against financial losses arising from a peril covered by the policy.
3 Types of financial loss insurance
- pecuniary loss
- fidelity guarantee
- business interruption
Pecuniary loss
perils include bad debts or failure of 3rd parties, includes mortgage indemnity guarantee insurance.
Fidelity guarantee
perils include dishonest actions by employees such as fraud/embezzlement
Business Interruption
a. k.a. consequential loss
- perils include fire in the insured’s own property or in a neighbouring property.
3 Types of fixed benefits insurance
- personal accident
- health
- unemployment
Personal accident insurace
perils include loss of limb or other specified injury from an accident.
Health insurance
perils include the need for treatment in a hospital
Unemployment insurance
The peril is redundancy.
Key features of property insurance
- 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
Cover for buildings is done on what basis…
Replacement basis, with the value of the property being based on the cost of rebuilding
Likely basis for commercial contents insurance
indemnity basis
Likely basis for household contents insurance
indemnity basis
or replacement basis
Principle of average
Used to discourage under-insurance.
Paid = claim * sum_insured / current_value
Perils covered under property insurance
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
Risks faced by the insurer under property insurance
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)
5 Types of claim reserves
- Outstanding reported claims reserve
- Incurred but not reported (IBNR)
- Unexpired risk reserve
- Catastrophe reserve
- Claims handling expense reserve
(6. Mismatching reserve)
