Unit 2 - Insurance contracts Flashcards
For a risk to be insurable
- Policyholder needs to have an interest
- Risk must be financial and quantifiable
- Amount paid by insurer should bear some relationship to financial loss
Risk events ideally need to be
MUD PPI
- independent
- low prob
- able to be pooled together
- ultimate limit on liability
- moral hazard eliminated
- sufficient data
General insurance characteristics
- Fixed period of cover, then renegotiated
- Claims not usually fixed amounts, amount of loss needs to be proved
- Claim occurring doesn’t necessarily mean policy ends
- Lags in reporting
GI types of cover
- Liability
- Property damage
- Financial loss
- Fixed benefits
Liability insurance - overall
Provides indemnity where the insured (owing to negligence) is liable to pay compensation
Benefit paid = amount to cover p/h, may be capped and may have an excess
Liability insurance - types
- Employers
- Motor 3rd party
- Public
- Product
- Prof indem
Employers liability
WHAT - compensation against injury/death owing to neg of employer whilst employed. Normally compulsory
PERILS - accidents at work, harmful substances, harmful wording conditions (e.g. RSI)
Motor 3rd part insurance
WHAT - indemnifies owner against comp payable to 3rd parties for personal injury or damage to prop. Normally compulsory
Public liability
WHAT - Death/injury to 3rd party/prop damage where liabs not covered by other liab insurane
E.G. dog bite/falling object
Product liability
WHAT - indem against death/inj/prop dam from product fault
PERILS - packaging, faulty design, faulty manufacture
Prof indem
WHAT - Negligence in provision of service
PERILS - wrong diagnosis, wrong advice
Product insurance - overall
Indemnify p/h to damage of own property
Product insurance - types
Household (fire, flood, explosion) Moveable property (theft) Motor property (damage, fire, theft - fully comp) Marine property (hull cover)
Financial loss - types
- Pecuniary loss
- Fidelity gtee
- Bus interruption
Pec loss
WHAT - e.g. money loss. protects insured against bad debts or failure of 3rd party
PERILS - unemployment, failure of counterparty in contract
Fid gtee
WHAT - fin loss from dishonest actions
PERILS - fraud
Bus inter
WHAT - fin loss where not able to conduct business
PERILS - fire at neighbour premises, flood at premises
Fixed benefits - overview
Personal accident/health insurance
Personal accident insurance
WHAT - Fixed amounts if suffer loss of limbs
PERILS - accident
Health insurance
WHAT - medical treatment, payments whilst in hospital
PERILS - need for treatment
Emerging risks
Cyber risk/insurance
Life insurance characteristics
- One or more premiums paid by consumer
- Insurer pays benefits which are contingent on life
Whole life assurance
- Benefit paid on death of life, whenever occurs
- Surrender normally available
- No group version
- Used for funerals, paying off inheritance tax
- Key risks - mort/investment - depends on age as to which is more important
- Other risks - inflation, financial risk if -ve asset share early on, anti-selection risk
Term assurance
- Benefit payable on death in term
- No surrender available
- Group available
- Decreasing can be used to make sure repayments paid, or to provide income for kids if die
- Key risks - mortality
- Other risks - AS risk, financial if -ve asset share (especially if decreasing TA)
Convertible term assurance
- TA but can convert to WOL or endowment without further U/W
- No surrender pre-conv
- No group (unless convert post employment)
- Key risks - Same as TA, but more AS risk at conversion
Endowment assurance
- Benefit paid on survival to known date, or on death in term
- Surrender available
- Group available
- Used for savings (e.g. pension)
- Can be with/without profits, unit linked or index linked
- Key risk - mortality risk
Immediate annuity
- Regular payments provided alive, paid for with single premium
- Can be SL, JL or last survivor
- Can be temporary
- No surrender
- Group available (E.g. pension)
- Key risk - longevity, investment
Deferred annuity
- Pay out regular amounts if alive at end of deferred period
- Surrender possible in deferred period
- Group available
- Can be thought of as an endowment assurance and immediate annuity
Different types of life product
- Conventional w/o profit - fully gteed benefits + reg prems (TA)
- With profits - p/h has share of future surplus (WOL,EA)
- conventional - bonuses added to sum assured
- accumulating - bonuses added as addition to prems
- Unit linked
- Index linked
