Chapter 10 - Establishing the Price : Pricing Factors

Question 1

Risk Premium

Answer 1

Defined as:
The expected ultimate cost in claims of the risk being accepted, including allowance for the degree of uncertainty attaching to the claims cost

Question 2

Latent Claims

Answer 2

For liability policies, latent claims are an extreme form of Incurred but not Reported (IBNR) claims. In some instances there may be more than 50 years between the cause and the claim.

Question 3

Return on Capital Employed (ROCE)

Answer 3

Risk capital requirement is the proportion of total account premiums which must be kept as free as reserves to ensure that an insurer can meet its claims obligations.
As the profit is measured as a proportion of the capital employed classes of insurance with a higher degree of volatility must be capable of generating higher profits if they are to justify the shareholders taking that risk.

Question 4

Financial Services Compensation Scheme (FSCS)

Answer 4

The FSCS levies a surcharge based on the percentage of gross direct premium to fund claims by policyholders whose insurer has become insolvent.

Question 5

Motor Insurers Bureau (MIB)

Answer 5

The levy rate for insurers depends on their mix of business, with higher rates for non-comprehensive private motor and fleet business than for comprehensive private motor.

Question 6

Mesothelioma Act 2014

Answer 6

Mesothelioma is a cancer of the lining of the lungs and other organs after exposure to asbestos.
The levy funds the Diffuse Mesothelioma Payment Scheme which financial supports sufferers who can’t trace their employers.