Ch 8: General insurance products Flashcards

1
Q

4 Key features of General Insurance Contracts

A
  1. Short term (typically one year contracts)
  2. Multiple Claims
  3. Claim amounts are UNKNOWN and VERY VOLATILE
  4. Delays in reporting and settlement of claims
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2
Q

List the four generic groups of general insurance products

A
  1. Liability
  2. Property damage
  3. Financial loss
  4. Fixed benefit
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3
Q

List the products covered under Liability Insurance

A
  1. Employer’s
  2. Motor third party
  3. Public
  4. Product
  5. Professional indemnity
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4
Q

List the products covered under Property Damage Insurance

A
  1. Residential buildings
  2. Commercial buildings
  3. Movable products
  4. Land vehicles
  5. Marine craft
  6. Aircraft
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5
Q

List the products covered under Financial Loss Insurance

A
  1. Pecuniary loss
  2. Fidelity guarantee
  3. Business interruption
  4. Cyber security
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6
Q

List the products covered under Fixed Benefit Insurance

A
  1. Personal accident
  2. Health
  3. Unemployment
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7
Q

What is the General Insurance split?

A
  • 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.
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8
Q

What is the difference between Short-vs long-tailed business?

A
  • 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.
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9
Q

Define a Rating Factor

A

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).

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10
Q

How are profits determined for General Insurance Contracts?

A

’+ 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.

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11
Q

List the different types of reserves/provisions for general insurance contracts

A
  1. Outstanding reported claims reserve.
  2. IBNR reserve.
  3. Unexpired risk reserve.
  4. Catastrophe reserve.
  5. 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.
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12
Q

8 Key risks under general insurance contracts

A
  1. Claim frequency, amount, volatility and delays.
  2. Accumulations of risk (geographical & by class of business) and catastrophes.
  3. Investment risks. (poor or volatile returns, falls in asset values, default risk)
  4. Expenses higher than expected.
  5. Poor persistency (high lapses, low renewals).
  6. New business volumes too high or too low (too high = new business strain; too low = not enough business to spread overhead expenses across)
  7. Credit risk (reinsurer or broker)
  8. Operational risk (fraud, systems failure, regulatory changes)
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13
Q

Risk Management Tools used by general insurer.

A
  1. Reinsurance.
  2. Underwriting.
  3. Diversification across classes of business or geographically.
  4. Monitoring experience (claims & expenses)
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14
Q

Outline the seven features of liability insurance

A
  1. Provides indemnity where the insured, due to some form of negligence, is legally liable to pay compensation to some third party
  2. The legal fees associated with the claim are usually also covered
  3. Illegal acts of negligence will invalidate the claim and no payment will be made by the insurer
  4. There may be an upper limit and/or excess amount applied to the claim
  5. 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
  6. The claims are usually medium to long tailed and are likely to be real in nature
  7. International or national laws apply, depending on the type of cover
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15
Q

List the perils covered by employer’s liability insurance

A
  1. Accidents caused by negligent actions by the employer
  2. Exposure to harmful substances
  3. Exposure to harmful working conditions
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16
Q

List the perils covered by motor third party liability insurance

A
  1. Motor accidents caused by the insured
17
Q

List the perils covered by public liability insurance

A

Depends on the type of policy

18
Q

List the perils covered by product liability insurance

A
  1. Faulty product design, manufacturing or packaging

2. Misleading or incorrect instructions

19
Q

Define indemnity, and give examples of where insurance does not fully indemnify the policyholder

A

Indemnity is compensation/reimbursement for a loss incurred. The idea is to return a policyholder to the same financial position they were in before the loss event.

Examples of non-indemnity insurance include:

  • Fixed benefit insurance
  • Insurance where there is an excess or a maximum claim
  • “New-for-old” insurance
20
Q

List the perils covered by buildings insurance

A
  1. Fire
  2. Explosion
  3. Lightning
  4. Theft
  5. Storm
  6. Flood
21
Q

List the perils covered by contents insurance

A
  1. Fire
  2. Explosion
  3. Lightning
  4. Theft
  5. Storm
  6. Flood

THEFT is the major peril

22
Q

List the perils covered by marine hull cover

A
  1. Perils of the sea
  2. Fire
  3. Explosion
  4. Jettison
  5. Piracy
23
Q

List the perils covered by pecuniary loss insurance

A
  1. Bad debts

2. Third party failure

24
Q

List the perils covered by fidelity guarantee insurance

A
  1. Dishonest employee actions
  2. Fraud
  3. Embezzlement
25
Q

List the perils covered by business interruption insurance

A
  1. Being unable to conduct business
26
Q

List the perils covered under personal accident insurance

A

Accidents resulting in loss of limb(s) or other specified injury

27
Q

List the perils covered under health insurance

A

Need for treatment in a hospital

28
Q

List the perils covered under unemployment insurance

A

Redundancy