Chapter 8: General insurance products Flashcards
4 Key features of General Insurance Contracts
- Short term (typically one year contracts)
- Multiple Claims
- Claim amounts are UNKNOWN and VERY VOLATILE
- Delays in reporting and settlement of claims
List the 4 generic groups of general insurance products
- Liability
- Property damage
- Financial loss
- Fixed benefit
List the products covered under Liability Insurance
- Employer’s
- Motor third party
- Public
- Product
- Professional indemnity
List the products covered under Property Damage Insurance
- Residential buildings
- Commercial buildings
- Moveable products
- Land vehicles
- Marine craft
- Aircraft
List the products covered under Financial Loss Insurance
- Pecuniary loss
- Fidelity guarantee
- Business interruption
- Cyber security
What is the General Insurance split?
- Personal lines: contracts sold to individuals, such as residential buildings and contents insurance
- commercial line: contracts sold to businesses, such as commercial property, employers’ liability and business interruption insurance.
List the products covered under Fixed Benefit Insurance
- Personal accident
- Health
- Unemployment
What is the difference between Short- vs long-tailed business?
- short-tailed means that claims are generally reported quickly and settled quickly by the insurer
- long-tailed means that there is a sizable proportion of total claim payments that take a long time to be reported and/or a long time for the insurer to settle.
Define a rating facror
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, therefore, must be a risk factor itself or a proxy for a risk factor(s).
How are profits determined for General Insurance contracts?
+Premiums net of reinsurance premiums paid
+Investment income and gains
-Claims incurred net of reinsurance recoveries
-Expenses and Commission
-Tax
=Profit
Claims incurred= claims paid + increase in provisions.
Different types of reserves / provisions for general insurance contracts
- Outstanding reported claims reserve (known but not settled)
- Incured but not reported (IBNR): (claims occured but insurer does not yet known)
- Unexpired risk reserve (not yet happened in a future period of cover)
- a catastrophe reserve
- claims handling expense reserve
8 Key risks under general insurance contracts
- Claim frequency, amount, volatility and delays
- Accumulations of risk (geographical) and catastrophes
- Investment risks (poor volatile returns, falls in asset values, default risk)
- Expenses higher than expected
- Poor persistency (high lapses, low renewals)
- New business volumes too high or too low (too high= new business strain, too low= not enough business to spread overhead expenses across)
- Credit risk (reinsurer or broker)
- Operational risk (fraud, systems failure, regulatory changes)
Risk management tools used by general insurer:
- Reinsurance
- Underwriting
- Diversification accross classes of business or geographically
- Monitoring experience (claims & expenses)
Outline the 7 features of liability insurance
- Provides indemnity where the insured, due to some form of negligence, is legally liable to pay compensation to some third party.
Legal fees associated with the claim are usually also paid. - Illegal acts of negligence will invalidate the claim and no payment will be made by the insurer
- There may be an upper limit and/or excess amount applied to the claim
- The claims are usually medium to long tailed and are likely to be real in nature
- International or national laws apply, depending on the type of cover
Employer’s liability Insurance
Indemnifies the insured against 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.
Perils
* Accidents caused by negligent actions by the employer
* Exposure to harmful substances
* exposure to harmful working conditions
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.
Perils
Motor accidents caused by the insured
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.
Product liability Insurance
Indemnifies the insured agains legal liability to compensation payable to a third party for the bodily injury, death, or for the damage to property belonging to a third party, which results from a product fault.
Perils
* Faulty product design, manufacturing or packaging
* Misleading or incorrect instructions
Professional indemnity
The insured is indemnified agains legal liability resulting from negligence in provision of a service e.g. unsatisfactory medical treatment or incorrect advice from an actuary.
Perils (depends on profession)
* wrong medical diagnosis
* error in actuarial report
Define indemnity and give examples of where insurance does not fully indemnify the policyholder
Indemnity is compensation / reimbursement for loss incurred. The idea is to return a policyholder to the same financial position they were in before the loss event.
Examples of non-indemnity insurance include
* Fixed benefit insurance
* Insurance where there is an excess or maximum claim
* “New-for-old” insurance
List the perils coverd by Buildings insurance
- Fire
- Explosion
- Lighning
- Theft
- Storm
- Flood
List the perils covered by contents Insurance
- Fire
- Explosion
- Lightning
- Theft
- Storm
- Flood
THEFT is the major peril
List the perils for Motor property insurance
- accidential or malicious damage to the insured’s vehicle
- fire
- theft
Marine hull cover
Loss or damage to the craft
Perils
* Perils of the sea
* Fire
* Explosion
* Jettison
* Piracy
* Marine cargo: actual conents of the craft
* Marine freight: money paya
Percuniary loss insurance
Percuniary loss insurance, which includes mortgage indemnity guarantee insurance, protects the insured against bad debts or other failure of a third party
Perils
* Bad debts
* Third party failure
Fidelity guarantee insurance
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),
Perils
* Dishonest employee actions
* Fraud
* Embezzlement
Business Interuption insurance
Indemnifies the insured against losses made as a result of not being able to conduct business for various reasons.
Cyber Insurance
Avialable to protect against cyber risks. Cyber insurance can cover pecuniary, fidelity guarentee and business interuption cover losses for a business.
Fixed benefits: Personal accident insurance
Benefits are usually specified amounts in the event that an insured party suffers from a loss of one or more limbs or other specified injury. This is not indemnity insurance as it is not possible to quantify the value of the loss.
Perils
* Accidents resulting in loss of limbs or other specified injury
Fixed Benefits: Health Insurance
Provides money for medical treatment (may be indemnity or fixed)
Perils
Need for treatment in hospital
Fixed Benefit: Unemployment insurance
provides a lump sum or 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 policyholdr’s lifestyle and service any debts for short period while new employment is sought.
Perils
* Redundancy
