M93 - Chapter 11 Flashcards
Risk Criteria Categories - Trade
Trade - High risk etc, may decline or seek additional capacity
Risk Criteria - Risk indices and Size of Insurance
Risk/Insured indices - Check the risk index for current exposure
Size of Insurance - Sum Insured and Estimated maximum loss
Physical and Moral Hazards
Physical - Seen via prop or survey
Morale - As above.
Underwriting terms and how a risk is controlled
Warranties and conditions precedent to liability
Excesses & Deductibles
Frachieses
Average
Quick warranty example - and impact of IA
Example - Install and use alarm / Portable heaters away from combustables terms
IA made it so breach of warranty did not invalidate cover, merely suspended it until resolved.
Difference between conditions precedent to contract and liability
Contract - Has to be done prior contract, is terminated without.
Liability - Has to be done for claim to be paid, will not terminate contract.
Typical theft warranties
Alarm conditions - At least one responsible person on premises when alarm off / notify insurers of change in response etc.
Safe keys - OOO Safes/strongrooms should be locked and keys kept securely away EG At owners home.
Breach of warranty on combined policy
Printpat v AGF 1999 - Held that if a warranty effecting only theft is breached, it should not effect other sections as long as they didn’t impact the loss.
What do excesses do?
Risk management tool
Remove administration costs associated to small claims
Can be compulsory and voluntary
Facts about deductibles
They are deducted from the claim (slightly different from excess)
They can change by policy section
They can be aggregated as you know
Discounts on premium vary depending on size, risk locations and INSURED past loss experience.
What considerations does a UW make when considering if a BI risk is acceptable?
Is it acceptable, if not?
Can this be dealt with by increased premium, or
Controlled by warranties and conditions
What is considered for rate base calculations?
5 things. Premium first
Premium Losses Commission Profit Other management expenses
What is a principle of underwriting concerning each account?
It should be financially self supporting, without the need for investment income,.
TO what degree is the INSURED expected to contribute to the common fund?
Value of the risk that will call on the fund
The degree of hazard
Fire policies are calculated on sum insured multiplied by rate and what considerations?
CDE
Classicisation of trade - High, low etc.
Discrimination - The specifics of each risk and its features
Experience - Loss ratio.
Steps to underwrite property premium
Classification by risk - Losses and costs / sums insured
Discrimination - Apply loads for particular risk features EG Wooden construction, close to the flood areas.
Less discounts for good practice
Steps to BI pricing
Basis rate - Reflects inception hazard IE The likely hood of a claim occurring.
Profits rate - A sliding scale reflecting the maximum indemnity period.
To increase rate accuracy insurers applied a different % rate to select periods of the indemnity period EG .15% on 100% for 12 months, .15% on 90% up to 18 and .15% on 75% for 24.
How much is loaded onto short period insurers traditionally?
5%
What are the special risks with special requirements
Sprinklered risks - High discounts, but type and age of system are important.
Spon combustion risks - Storage of hay, coal, flax etc is important
Non-standard construction - Anything outside normal definition
Goods in open / High Pile risks (wharehouses etc)
Rent payable
Special occupations
Standard way to calculate premiums
SI x Rate = Premium
For fire: Normal rate add for non-standard construction, hazardous heating and multiple tenants
Theft: Rate based on area, theft attractive goods.
Discounts for LTUs of 3 or 5 years.
5%
Ways on altering the premium EG Loads and discounts
6 and 1 is LTU
Increased risk Load - Alarm response reduced could trigger 100%
Reduced risk discount: Opposite of above
Reducing claims payments: Excesses, deductibles and franchises
Reducing amount payable: Lower limits set within schedule
Retaining business via LTU’s: 5% discount for 3 or 5 years
Reducing the total amount payable: Higher rate for the first 10k and lower for the next 10k (Works for theft, if its felt the whole stock is unlikely to be stolen)
UW Considerations - Things that cannot be easily changed
The business The premises Trade process and power supply Heating system, if fixed. Other occupants.
UW Considerations - Things that can be easily changed
Waste Control Congestion control (clear walkways etc) Work flow Maintenance and cleanliness Training Portable heaters - Servicing, placement etc. Segregation Basic fire extinguishment
What ratio’s is COR comprised of
Expenses ratio (costs)
Claims ratio
COR Calculation
Incurred losses + expenses / earned premium
Types of EML
Probable maximum loss (PML)
Normal loss expectancy (NLE)
Re-insurance types
Co-Insurance
Excess of loss / layered programs
Re-insurance
Re-insurance / co-insurance relationship to the Insured
Insured and Insurer - Direct relationship
Insurer and reinsurer - Direct relationship
Insured and reinsurer - No relationship
Insured and co-insurers - Direct relationship, but its strictly a monetary relationship associate to the % of the risk they carry
Co-Insurance in simple terms
A risk is Insured by multiple insurers at once, each with their own relationship.
A collective policy is issued
A lead is appointed, usually that with the largest %
Excess of loss
Excess Layer - you know about this,
Reasons to re-insure
Too little capacity for a large client or set of risks
Over exposed on risk index
Entering new market
Types of Re-insurance
Facultative - arranged per case.
Treaty - Arrange in advance, most are ‘blind’
Why use facultative?
Treaty capacity has been filled
Risk outside of treaty
Risk is unusual
This method is quite expenses, so treaty is generally favoured.
What is proportional re-insurance
RI picks up losses in excess of an agreed amount, subject to an upper limit.
Risk of excess loss (Picks up an amount above a set limit EG Max 800k, after a loss of 200k)
Catastrophe excess of loss (Layers cover, effected by the 72 hour clause associated to storms)
Excess of loss ratio (Stop loss)
Non-proportional re-insurance
General re-insurance facts
Renewal dates normally clustered around set dates EG Jan 1st (Re-insurance season)
Considerations - UW strategy and risk appetite, geo scope, basis of acceptance and claims experience
What does the FCA consider ‘appropriate information’ to be when advising a renewal?
Typical information know to a customer in that sector
Policy terms, benefits etc.
The policies overall complexity
When will an insurer generally start work on a renewal?
Large risks - 3 months.
Others - 6 weeks.
