Chapter7-General insurance

Question 1

Framework

Answer 1

1 General insurance products
2 Indemnity definition
3 Features of liability insurance
4 Perils covered under liability insurance
5 Perils covered under property damage insurance
6 Perils covered under financial loss insurance
7 Perils covered under fixed benefit insurance
* Rating factors
** Risk factors
*** Setting premiums

Question 2

Rating factors

Answer 2

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 3

Risk Factors

Answer 3

A Risk Factor is a factor that is expected, possibly with the support of statistical evidence, to have an influence on the intensity of risk in an insurance contract.

Question 4

Setting premiums

Answer 4

1) Start with risk premium for a base case (eg male, 40-45, sedan)
Risk Premium=Expected Claim Frequency×Expected Cost per Claim

2) Determine risk premiums for other categories using GLM’s (% Adjustments to base case)

3) Adjust risk premium to get office premiums (Gross premiums) by allowing for loadings for:
- Commission
- Expenses
- Profit
- Contingencies
- Investment income
- Cost of reinsurance

4) Premiums will vary between new business and renewal business as insurers subsidise new business premiums to some extent with renewal premiums.