M93 - Chapter 11

Question 1

Risk Criteria Categories - Trade

Answer 1

Trade - High risk etc, may decline or seek additional capacity

Question 2

Risk Criteria - Risk indices and Size of Insurance

Answer 2

Risk/Insured indices - Check the risk index for current exposure

Size of Insurance - Sum Insured and Estimated maximum loss

Question 3

Physical and Moral Hazards

Answer 3

Physical - Seen via prop or survey

Morale - As above.

Question 4

Underwriting terms and how a risk is controlled

Answer 4

Warranties and conditions precedent to liability

Excesses & Deductibles

Frachieses

Average

Question 5

Quick warranty example - and impact of IA

Answer 5

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.

Question 6

Difference between conditions precedent to contract and liability

Answer 6

Contract - Has to be done prior contract, is terminated without.

Liability - Has to be done for claim to be paid, will not terminate contract.

Question 7

Typical theft warranties

Answer 7

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.

Question 8

Breach of warranty on combined policy

Answer 8

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.

Question 9

What do excesses do?

Answer 9

Risk management tool
Remove administration costs associated to small claims
Can be compulsory and voluntary

Question 10

Facts about deductibles

Answer 10

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.

Question 11

What considerations does a UW make when considering if a BI risk is acceptable?

Answer 11

Is it acceptable, if not?

Can this be dealt with by increased premium, or

Controlled by warranties and conditions

Question 12

What is considered for rate base calculations?

5 things. Premium first

Answer 12

Premium
Losses
Commission
Profit
Other management expenses

Question 13

What is a principle of underwriting concerning each account?

Answer 13

It should be financially self supporting, without the need for investment income,.

Question 14

TO what degree is the INSURED expected to contribute to the common fund?

Answer 14

Value of the risk that will call on the fund

The degree of hazard

Question 15

Fire policies are calculated on sum insured multiplied by rate and what considerations?

CDE

Answer 15

Classicisation of trade - High, low etc.

Discrimination - The specifics of each risk and its features

Experience - Loss ratio.

Question 16

Steps to underwrite property premium

Answer 16

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

Question 17

Steps to BI pricing

Answer 17

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.

Question 18

How much is loaded onto short period insurers traditionally?

Answer 18

5%

Question 19

What are the special risks with special requirements

Answer 19

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

Question 20

Standard way to calculate premiums

Answer 20

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.

Question 21

Discounts for LTUs of 3 or 5 years.

Answer 21

5%

Question 22

Ways on altering the premium EG Loads and discounts

6 and 1 is LTU

Answer 22

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)

Question 23

UW Considerations - Things that cannot be easily changed

Answer 23

The business
The premises
Trade process and power supply
Heating system, if fixed.
Other occupants.

Question 24

UW Considerations - Things that can be easily changed

Answer 24

Waste Control
Congestion control (clear walkways etc) 
Work flow
Maintenance and cleanliness
Training
Portable heaters - Servicing, placement etc.
Segregation
Basic fire extinguishment

Question 25

What ratio’s is COR comprised of

Answer 25

Expenses ratio (costs)

Claims ratio

Question 26

COR Calculation

Answer 26

Incurred losses + expenses / earned premium

Question 27

Types of EML

Answer 27

Probable maximum loss (PML)

Normal loss expectancy (NLE)

Question 28

Re-insurance types

Answer 28

Co-Insurance

Excess of loss / layered programs

Re-insurance

Question 29

Re-insurance / co-insurance relationship to the Insured

Answer 29

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

Question 30

Co-Insurance in simple terms

Answer 30

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 %

Question 31

Excess of loss

Answer 31

Excess Layer - you know about this,

Question 32

Reasons to re-insure

Answer 32

Too little capacity for a large client or set of risks

Over exposed on risk index

Entering new market

Question 33

Types of Re-insurance

Answer 33

Facultative - arranged per case.

Treaty - Arrange in advance, most are ‘blind’

Question 34

Why use facultative?

Answer 34

Treaty capacity has been filled

Risk outside of treaty

Risk is unusual

This method is quite expenses, so treaty is generally favoured.

Question 35

What is proportional re-insurance

Answer 35

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)

Question 36

Non-proportional re-insurance

Question 37

General re-insurance facts

Answer 37

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

Question 38

What does the FCA consider ‘appropriate information’ to be when advising a renewal?

Answer 38

Typical information know to a customer in that sector

Policy terms, benefits etc.

The policies overall complexity

Question 39

When will an insurer generally start work on a renewal?

Answer 39

Large risks - 3 months.

Others - 6 weeks.