QA Bank Part 2 Flashcards
income protection contract
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.
Critical illness contract
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.
Long-term care contract
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.
Types of perils associated with:
- employer’s liability insurance
- 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
Types of perils associated with:
- public liability insurance
- perils relating to policy type
- examples include dog bites, falling objects
Types of perils associated with:
- product liability insurance
- perils depend on the nature of the product
- examples include faulty design, faulty manufacture, faulty packaging, misleading or incorrect instructions
Types of perils associated with:
- professional indemnity insurance
- perils depend upon the profession
- examples include incorrect medical diagnosis, inappropriate legal advice, error in actuarial reporting
Types of perils associated with:
- Marine hull cover
- perils of the seas and navigable waters
- fire, explosion
- jettison, piracy etc
Types of perils associated with:
- pecuniary loss
- bad debts or failure of a 3rd party
- as an example is default on mortgage payments (under mortgage indemnity guarantee insurance)
Types of perils associated with:
- fidelity guarantee
- dishonest actions by employees
- examples include fraud or embezzlement
Features of a contract design that increase the financing requirement
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
Factors to consider when designing a financial contract
- 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
Key rating factors for:
- employers’ liability insurance
- payroll
- number of employees
- Type of industry
- Exposure to hazardous chemicals / products / processes
- past claims experience
- location
- size of excess
Key rating factors for:
- residential building insurance
- sum assured
- number of rooms / bedrooms
- age and gender of policyholder
- owner or tenant
- age of building
- construction of building
- past claims experience
4 Possible moral hazards in household insurance
- engineering “accidents” to old/broken items and claiming full replacement
- acting carelessly (leaving windows open / house unlocked)
- carrying more cash / valuable items around
- arson
