Ch 8: General insurance products Flashcards
4 Key features of General Insurance Contracts
- Short term (typically one year contracts)
- Multiple Claims
- Claim amounts are UNKNOWN and VERY VOLATILE
- Delays in reporting and settlement of claims
List the four generic groups of general insurance products
- Liability
- Property damage
- Financial loss
- Fixed benefit
List the products covered under Liability Insurance
- Employer’s
- Motor third party
- Public
- Product
- Professional indemnity
List the products covered under Property Damage Insurance
- Residential buildings
- Commercial buildings
- Movable products
- Land vehicles
- Marine craft
- Aircraft
List the products covered under Financial Loss Insurance
- Pecuniary loss
- Fidelity guarantee
- Business interruption
- Cyber security
List the products covered under Fixed Benefit Insurance
- Personal accident
- Health
- Unemployment
What is the General Insurance split?
- personal lines – contracts sold to individuals, such as residential buildings and contents insurance
- commercial lines – contracts sold to businesses, such as commercial property, employers’ liability and business interruption insurance.
What is the difference between Short-vs long-tailed business?
- short-tailed means that claims are generally reported quickly and settled quickly by the insurer, and
- long-tailed means that there is a sizeable proportion of total claim payments that take a long time to be reported and/or a long time for the insurer to settle.
Define a Rating Factor
A rating factor is a factor used to DETERMINE the PREMIUM rate for a policy. which is measurable in an objective way and relates to the likelihood and/or severity of the risk.
It, therefore, must be a risk factor itself or a proxy for a risk factor(s).
How are profits determined for General Insurance Contracts?
’+ Premiums net of reinsurance premiums paid
‘+ Investment income and gains
‘- Claims incurred net of reinsurance recoveries
‘- Expenses and commission
‘- Tax
‘= Profit
claims incurred = claims paid + increase in provisions.
List the different types of reserves/provisions for general insurance contracts
- Outstanding reported claims reserve.
- IBNR reserve.
- Unexpired risk reserve.
- Catastrophe reserve.
- Claims handling expense reserve.
- an outstanding reported claims reserve (for claims that the insurer knows about, but have not yet been settled)
- an incurred but not reported (IBNR) reserve (for claim events that have occurred but which the insurer does not yet know about)
- an unexpired risk reserve (for claims that have not yet happened in a future period of cover)
- a catastrophe reserve (for, strangely enough, catastrophes)
- a claims handling expense reserve.
8 Key risks under general insurance contracts
- Claim frequency, amount, volatility and delays.
- Accumulations of risk (geographical & by class of business) and catastrophes.
- Investment risks. (poor or volatile returns, falls in asset values, default risk)
- Expenses higher than expected.
- Poor persistency (high lapses, low renewals).
- New business volumes too high or too low (too high = new business strain; too low = not enough business to spread overhead expenses across)
- Credit risk (reinsurer or broker)
- Operational risk (fraud, systems failure, regulatory changes)
Risk Management Tools used by general insurer.
- Reinsurance.
- Underwriting.
- Diversification across classes of business or geographically.
- Monitoring experience (claims & expenses)
Outline the seven features of liability insurance
- Provides indemnity where the insured, due to some form of negligence, is legally liable to pay compensation to some third party
- The legal fees associated with the claim are usually also covered
- Illegal acts of negligence will invalidate the claim and no payment will be made by the insurer
- There may be an upper limit and/or excess amount applied to the claim
- On the occurrence of a claim the cover may be cancelled, or a reinstatement premium or higher premium might be required for the cover to continue
- The claims are usually medium to long tailed and are likely to be real in nature
- International or national laws apply, depending on the type of cover
List the perils covered by employer’s liability insurance
- Accidents caused by negligent actions by the employer
- Exposure to harmful substances
- Exposure to harmful working conditions