Chapter 8: General Insurance products

Question 1

What are the four groups of generic general insurance products?

Answer 1

❖ Liability insurance=>
- employers’ liability - indemnifies against insured against legal liability to compensate an employee or estate for accidental bodily injury, disease or death suffered, owing to negligence of an employer

• motor third party liability - indemnifies the owner of a motor vehicle against compensation payable to third parties for death, personal injury or damage to their property
• public liability - damage to property belonging to third party other than those covered by other liability insurance
• product liability - damage to property belonging to a third party which results from product fault
• professional indemnity - negligence in the provision of a service, e.g. unsatisfactory medical treatment, incorrect advice from an actuary

❖ Property damage insurance=> residential buildings, commercial buildings, moveable property, land and vehicles, marine craft and air craft

❖ Financial loss=>
- pecuniary loss - protects the insured against bad debts or other failure of a third party
- fidelity guarantee - dishonest actions by its employees (fraud or embezzlement)
- business interruption - losses as a result of not being able to conduct business for various reasons
- cyber insurance - protect against cyber risk

❖ Fixed benefit=>
- personal accident - suffers the loss of one or more limbs or other specified injury
- health - money for medical treatment
- unemployment - lump sum or an income stream when policyholder made redundant

Question 2

What is indemnity?

Answer 2

> Compensation or reimbursement for a loss.
❖ The insured should be restored to the same financial position before the loss event.
❖ Examples of insurance that not fully indemnify=>
i. Fixed benefit insurance
ii. Policy excess
iii. Maximum level of cover
iv. New for old household contents insurance

Question 3

What are the features of liability insurance?

Answer 3

1> Indemnity where the insured=> some form of negligence is legally liable to pay compensation to a third party.

2> Legal expenses relating to such a liability are usually covered
❖ Illegal acts of negligence=> invalidate the cover
❖ International or notional law may apply
❖ Benefits may be restricted by a maximum limit or an excess
❖ Claim => result in cancellation of future cover or for a reinstatement premium to be paid
❖ Claims are medium to long tail=> real in nature linked to court-award, earnings or property price inflation

Question 4

What perils are covered by the main types of liability insurance

Answer 4

1> Employers’ liability
- accident due to negligence of employer or other employees
- illness due to exposure to harmful substances
- injury or illness due to exposure to harmful working conditions

2> Motor third party liability
- motor accidents caused by the insured - death, personal injury or damage to their property

3> Public liability
- perils depends on the policy type
- e.g. dog bites, falling objects

4> Product liability
- faulty design, manufacture, packaging and misleading instructions

5> Professional indemnity
- perils depend upon the profession
- examples include incorrect medical diagnosis, inappropriate legal advice, error in actuarial report

Question 5

What are the perils covered by the main types of property damage cover?

Answer 5

1> residential/commercial buildings- fire, explosion, lightning, theft, storm, flood

2> moveable property (contents)=> theft and same as building

3> land vehicles(e.g. car) - accidental damage, theft

4> Marine hull cover=> perils of sea, fire, explosion, jettison, piracy

5> aircraft - same as marine but air based

Question 6

What are the perils covered by the main types of financial loss insurance?

Answer 6

1> Pecuniary loss=>bad debts, third party failure
2> Fidelity guarantee=> dishonest employee action, fraud
3> Business interruption=> being unable to conduct business

Question 7

What are the perils covered by main types of fixed benefits insurance?

Answer 7

1> Personal accident=> accident resulting in loss of limbs or other specified injury

2> Unemployment => retrenchment or redundancy

3> Need for treatment in a hospital

Question 8

Explain the difference between a risk factor and a rating factor. [2]

Answer 8

• A risk factor is a factor (or characteristic of the insured) that is expected, possibly with the support of statistical evidence, to have an influence on the intensity of risk in an insurance contract
• A rating factor is a factor used to determine the premium rate for a policy
• Rating factors are measurable in an objective way and relates to the intensity (likelihood and/or severity) of the risk
• It must, therefore be a risk factor or a proxy for a risk factor(s)