QA Bank Part 2 Flashcards

1
Q

income protection contract

A

Provides an income to individuals (and any covered dependents) while they are unable to work because of long-term sickness or incapacity due to accident or injury (within the terms of the contract).
the insured risks may also include unemployment.

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2
Q

Critical illness contract

A

Provides a cash lump sum on the diagnosis of a “critical”illness, as defined by the policy.
It may be sold as a stand-alone product or as a rider benefit to, for example, term assurance.

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3
Q

Long-term care contract

A

The contract can be used to cover, or help to cover, the cost of care in old age when individuals are no longer able to look after themselves.

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4
Q

Types of perils associated with:

- employer’s liability insurance

A
  • accidents due to negligence of the employer or other employees
  • illness due to exposure to harmful substances
  • injury or illness due to exposure to harmful working conditions
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5
Q

Types of perils associated with:

- public liability insurance

A
  • perils relating to policy type

- examples include dog bites, falling objects

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6
Q

Types of perils associated with:

- product liability insurance

A
  • perils depend on the nature of the product

- examples include faulty design, faulty manufacture, faulty packaging, misleading or incorrect instructions

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7
Q

Types of perils associated with:

- professional indemnity insurance

A
  • perils depend upon the profession

- examples include incorrect medical diagnosis, inappropriate legal advice, error in actuarial reporting

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8
Q

Types of perils associated with:

- Marine hull cover

A
  • perils of the seas and navigable waters
  • fire, explosion
  • jettison, piracy etc
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9
Q

Types of perils associated with:

- pecuniary loss

A
  • bad debts or failure of a 3rd party

- as an example is default on mortgage payments (under mortgage indemnity guarantee insurance)

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10
Q

Types of perils associated with:

- fidelity guarantee

A
  • dishonest actions by employees

- examples include fraud or embezzlement

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11
Q

Features of a contract design that increase the financing requirement

A

UNCERTAINTY

  • lack of historical data, and hence the need for greater margins in the provisioning calculation
  • policyholder options, which increase uncertainty involved, and hence the provisions
  • without-profit designs with non-reviewable premiums, due to the guarantees involved
  • regular premium designs

HIGH COSTS:

  • high initial expenses
  • high initial commission
  • high overheads, eg development expenses
  • high guarantees, which increase the provisions
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12
Q

Factors to consider when designing a financial contract

A
  • customer needs and interests
  • characteristics of other stakeholders involved in contract design
  • risk apetite of the parties involved
  • the level and form of the benefits
  • options or guarantees
  • discretionary benefits
  • benefits taken early / discontinuance benefits
  • contract terms and conditions
  • profitability
  • marketability
  • competition
  • statutory / regulatory requirements
  • financing requirements
  • premium / contribution pattern
  • charges vs expenses
  • extent of cross-subsidies
  • consistency with other contracts
  • administration systems
  • accounting implications
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13
Q

Key rating factors for:

- employers’ liability insurance

A
  • payroll
  • number of employees
  • Type of industry
  • Exposure to hazardous chemicals / products / processes
  • past claims experience
  • location
  • size of excess
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14
Q

Key rating factors for:

- residential building insurance

A
  • sum assured
  • number of rooms / bedrooms
  • age and gender of policyholder
  • owner or tenant
  • age of building
  • construction of building
  • past claims experience
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15
Q

4 Possible moral hazards in household insurance

A
  • engineering “accidents” to old/broken items and claiming full replacement
  • acting carelessly (leaving windows open / house unlocked)
  • carrying more cash / valuable items around
  • arson
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