Chapter 2 - Risks Written In LM

Question 1

What are the 4 main non-marine risks written in LM?

Answer 1

1. Property
2. Pecuniary - e.g. business interruption
3. Liability
4. Contingency - range of risk events giving rise to a loss

Question 2

What is agricultural crop & forestry hail insurance & what is the main peril?

(This is a physical damage, non-marine class of business)

Answer 2

•Covers anything being farmed commercially as a crop, such as wheat, fruit, tobacco, & herbs

•Main peril: loss of crop primarily due to weather or disease

Question 3

What is bloodstock/livestock insurance & what are the perils?

(This is a physical damage, non-marine class of business)

Answer 3

•Bloodstock covers racehorses & show-jumpers

•Livestock covers all animals (including fish) that can be reared commercially

•Perils: sickness/injury & total loss of racehorse & loss of value, & livestock is loss by disease

Question 4

What are the 3 types of contingency insurance?

(This is a physical damage, non-marine class of business)

Answer 4

1. Concert or event cancellation/abandonment - covers cost of refunding tickets & rearranging the event
2. Over redemption - covers if there’s more redemption than expected (e.g. more customers using a coupon more than insured thought)
3. Prize indemnity - insurers firms that offer a prize (e.g. covers cost of the car, that is the prize)

Question 5

What is personal accident insurance?

(This is a physical damage, non-marine class of business)

Answer 5

•Covers accidental injury to the insured

•This is a benefit policy & payout is predetermined

Question 6

What is personal accident & sickness/illness insurance?

(This is a physical damage, non-marine class of business)

Answer 6

Covers sudden onset illnesses, such as heart failure

Question 7

What is kidnap & ransom insurance?

(This is a physical damage, non-marine class of business)

Answer 7

Covers payment of ransom if insured is kidnapped, payment of hostage negotiations, & payment of treatment for insured

Question 8

What is ‘contracters all risks’ (CAR) insurance, as a type of construction property insurance?

(This is a physical damage, non-marine class of business)

Answer 8

•Covers loss/damage to building works, machinery movement, business interruption, public & employers liability, & plant (machinery) damage

•Purchased by main contractor, which is a blended physical damage & liability policy

•Extension cover (expediting expenses) - covers extra costs such as overtime for obtaining parts to repair following damages

Question 9

What is ‘erection all risks’ (EAR) insurance, as a type of construction property insurance?

(This is a physical damage, non-marine class of business)

Answer 9

•Covers loss/damage to owned equipment, liability to cover the insured, or if equipment causes an incident on-site

•Purchased by firms that provide cranes & who are responsible for erection of other steelwork

Question 10

What are the 2 types of construction property insurance?

(This is a physical damage, non-marine class of business)

Answer 10

1. CAR - construction all risks insurance
2. EAR - erection all risks insurance

Question 11

What is property insurance?

(This is a physical damage, non-marine class of business)

Answer 11

•Covers physical damage & purchased by the owner

•Can indemnify the insured by reinstatement, so insurer restores building to pre-loss condition

•Covers for all risks policy: fire, lightning, explosion, aircraft, riot/strike (under public order act 1986), malicious acts, storm/flood, impact damage by 3rd party

• Additional cover: sprinkler leakage & subsidence (work undertaken on adjoining land which may impact the property)

Question 12

What is onshore energy insurance, as a type of property insurance?

(This is a physical damage, non-marine class of business)

Answer 12

Relates to downstream

Question 13

What is glass insurance, as a type of property insurance?

(This is a physical damage, non-marine class of business)

Answer 13

•Covers fixed glass

•Provides all risks cover for boarding up, replacing inbuilt alarm systems, lettering, & window frames

Question 14

What is stock insurance, as a type of property insurance, & how is the insurance structured?

(This is a physical damage, non-marine class of business)

Answer 14

•Covers raw materials, materials being used in production, & finished stock in storage that’s ready for distribution

•Claims arising: theft or damage to raw materials

•Structure of insurance: there’s an agreed sum insured, the insured pays a deposit of premium at start of policy, then makes balancing payments throughout policy period

Question 15

What is theft insurance as a type of crime related property insurance?

(This is a physical damage, non-marine class of business)

Answer 15

Need forceable entry/exit to the premises

Question 16

What is pecuniary insurance as a type of crime related property insurance?

(This is a physical damage, non-marine class of business)

Answer 16

Covers: loss suffered is monetary or financial

Question 17

What is money insurance as a type of crime related property insurance?

(This is a physical damage, non-marine class of business)

Answer 17

•Covers: loss to money (includes cheques, gift vouchers, & lottery & travel tickets)

•Insures needs to have a role in transportation, storage, or distribution

•Risk associated w/ these is measured by their negotiability (ease of transfer)

Question 18

What is fidelity guarantee insurance as a type of crime related property insurance?

(This is a physical damage, non-marine class of business)

Answer 18

•Covers: loss of property as a direct result of a fraudulent act committed

•E.g. employee stealing assets from employer

Question 19

What is business interruption insurance?

(This is a physical damage, non-marine class of business)

Answer 19

•Replaces income that insured would’ve received had the business not been interrupted

•There’s normally a waiting period before the insurer starts paying

Question 20

What is contingent business interruption insurance?

(This is a physical damage, non-marine class of business)

Answer 20

•Where insured’s business is interrupted due to their supplier

• Supply chain insurance - insured’s business is interrupted because another party lets them down

Question 21

What is homeowners insurance?

(This is a physical damage, non-marine class of business)

Answer 21

•Covers damage to buildings caused by perils & the cost of rebuilding/reinstating the property after a loss

•Normally written via forms of delegated underwriting

Question 22

What is directors & officers (D&O) liability insurance?

(This is a non-marine liability class of business)

Answer 22

•Covers: financial loss, including damages & legal costs

•Employers purchase for their D&Os, to protect them from claims made by shareholders/investors stating that the D&Os behaviour has caused them financial loss

•Generally written on a ‘claims made’ basis

•Extended period of reporting a claim is generally 12 months

Question 23

What is errors & omissions (E&O) / professional indemnity / professional negligence insurance?

(This is a non-marine liability class of business)

Answer 23

• Covers: professionals against claims arising for breach of professional care, negligence, errors, in the performance of their professional obligations

•Time for making claims is 6 years from alleged breach, which is reduced to 3 years for personal injury claims - but, there is no time limit for children to make medical malpractice claims until they reach adulthood

•Professional indemnity insurance is compulsory in UK for lawyers & accountants (solicitors act 1974) & brokers

Question 24

What is public liability insurance?

(This is a non-marine liability class of business)

Answer 24

Covers: legal costs for defending the insured against the claims being made against them

Question 25

What is products liability insurance? (This is a non-marine liability class of business)

Answer 25

•Covers: indemnity for injury/damage arising out of or in connection w/ a product •Purchased by an insured who could be sued as part of a manufacturing, distribution, wholesale, or retail chain, or involved in repairing, servicing, or maintaining items

Question 26

What is employer’s liability insurance? (This is a non-marine liability class of business)

Answer 26

•Covers: legal liability of the insured for injuries to employees & legal costs of defending the claims •Generally written in wider UK market, not LM, & this is know as ‘workers compensation’ in US (occupation specific regime: ‘Jones act’ for seafarers & ‘longshoreman & harbour workers compensation act’ for dock workers) •Typical exclusion: radioactive contamination & anything under a motor policy

Question 27

What is general liability/comprehensive general liability insurance? (This is a non-marine liability class of business)

Answer 27

This is a combined liability insurance policies of: employers, products, public, errors & omissions, & directors & officers liability insurance

Question 28

What is financial guarantee insurance? (This is a non-marine class of business)

Answer 28

•Insurer will pay out an agreed amount for events (like charges in interest rates or property values or rates of exchanges, & financial failures of companies) •Written in Lloyd’s & permission is granted to syndicates if the premium written for this class is less than 2% of their capacity (up to 6% for exempted classes, such as credit risk & contract frustration)

Question 29

What is extortion/malicious product tamper/contamination insurance? (This is a non-marine class of business)

Answer 29

•Assists insureds w/ the financial impact of addressing tampering issues & provide assistance to insured w/ a resolution •Accidental contamination insurance is generally triggered only by illness of person of having used the product or physical damage to property

Question 30

What is product recall insurance? (This is a non-marine class of business)

Answer 30

Covers: advertising to publicise the recall, employee costs for hiring staff to deal w/ the recall, shipping in the affected products, disposing of products, redistribution costs, & rental costs for extended a space to deal w/ the recall

Question 31

What do syndicates have to do if they want to write war insurance? (This is a non-marine class of business)

Answer 31

Syndicates need to obtain permission from Lloyd’s, provide realistic disaster scenario returns, & returns in relation to moveable risks

Question 32

What is terrorism & political violence insurance? (This is a non-marine class of business)

Answer 32

•Political violence insurance is similar to property policy & covers: terrorism, sabotage, riots/strikes, malicious damage, rebellion, & war •Government reinsurance programmes mean that commercial insurers can continue to offer terrorism insurance to their clients

Question 33

What is cyber insurance? (This is a non-marine class of business)

Answer 33

Covers: loss/damage of info from IT systems/networks, reputational damage, legal costs, business interruption, etc

Question 34

What is mergers & acquisitions insurance/warranty & indemnity? (This is a non-marine class of business)

Answer 34

Seller/buyer should have this in case the negotiations break down or if it’s found that some warranties are breached

Question 35

What is physical damage to aircraft insurance? (This is a physical damage, aviation class of business)

Answer 35

•Covers: accidental damage to aircraft while in flight, on ground, or taxiing (moving around airfield) •Insurers pay for repair or replacement of parts or whole aircraft - if insurer pays out a total loss, then they can sell any remaining parts of aircraft to recoup some of their losses

Question 36

What is drone/unmanned aerial vehicle insurance? (This is a physical damage, aviation class of business)

Answer 36

•Covers: physical damage including theft, cyber risks, & liabilities that might be incurred •To be licensed to fly a drone commercially, you need to have insurance

Question 37

What are the 3 types of physical damage insurances for aviation class of business?

Answer 37

1. Physical damage to aircraft insurance 2. Property insurance for airport buildings 3. Drone/unmanned aerial vehicle insurance

Question 38

What are the 3 main types of airline liability insurance for aviation class of business?

Answer 38

1. 3rd parties other than passengers 2. Passenger liability 3. Airport operator’s liabilities

Question 39

What is 3rd parties other than passengers insurance? (This is an airline liability insurance)

Answer 39

•Covers: the insured for amount they have to pay as damages for property damage or personal injury caused by aircraft or person/object falling from them •E.g. could include collision between 2 aircraft or causing injury to ground crew who are loading baggage

Question 40

What are the 3 types of airport operator’s liabilities insurance for aviation class of business?

Answer 40

1. Premises insurance 2. Hangers-keepers insurance 3. Products insurance

Question 41

What is passenger liability insurance? (This is an airline liability insurance)

Answer 41

•Covers: liability to passengers for accidental bodily injury & for any loss/damage to their cargo/baggage which has been caused by an accident to the aircraft •The airlines liability to passengers is governed by international laws called conventions, which set out how much has to be paid should passengers be injured/killed during an international journey

Question 42

What is premises insurance, as a type of airport operator’s liability? (This is an airline liability insurance)

Answer 42

Covers: bodily injury or property damage caused by the fault/negligence of the insured or their employees or from defect in the premises or machinery

Question 43

What is hanger-keepers insurance, as a type of airport operator’s liability? (This is an airline liability insurance)

Answer 43

Covers: the insured’s liability for loss of damage to non-owned aircraft while on ground & in the care custody/control/being serviced or handled by the insured

Question 44

What is products insurance, as a type of airport operator’s liability? (This is an airline liability insurance)

Answer 44

•Covers: the insured’s liability for bodily injury or property damage arising out of the possession/use/consumption/handling of any goods or products manufactured/altered/repaired/sold/supplied by the insured or their employees • Applies only to items which are in conjunction w/ the aircraft & once they’ve left the possession/control of the insured

Question 45

What is wholesale grounding insurance? (This is an aviation class of business)

Answer 45

If a manufacturer discovers a problem w/ an aircraft, there may be an order from the government aviation authorities that all aircraft of the same type are grounded pending completion of investigations

Question 46

What is aviation war insurance? (This is an aviation class of business)

Answer 46

•Applies to loss/damage to the aircraft & extortion of hijack •Exclusions: war breaking out between UK, USA, Russia, China, & France

Question 47

What is loss of license insurance? (This is an aviation class of business)

Answer 47

•Covers: members of aircrew for loss of their license to fly due to injury or illness & have failed a medical examination - this also applies to air traffic controllers •It serves as an income replacement insurance

Question 48

What is aviation repossession insurance? (This is an aviation class of business)

Answer 48

•Covers: cost of repossessing the aircraft & reconstructing any technical records for the aircraft •This is when loan or lease payments aren’t being met, the part who isn’t getting paid may want to take control of the aircraft

Question 49

What is contingent hull, liability, or war insurance? (This is an aviation class of business)

Answer 49

•This is purchased by banks which lend money for the purchases of an aircraft •If the aircraft is lost/damaged & insurance doesn’t pay out, then the bank loses its security for the loan

Question 50

What is space insurance? (This is an aviation class of business)

Answer 50

•Covers: property damage (total or partial loss) & liabilities (injury/damage caused to 3rd parties & 3rd party property) •For launch vehicles & satellites from their manufacture to the end of their useful life in space •Space insurers are involved when the rocket engine intentionally ignites

Question 51

What is construction all risks policies in vessel insurance? (This is a physical damage, marine class of business)

Answer 51

•Covers: physical loss/damage, collision liabilities & marine liability (known as protection & indemnity), war, & strikes/terrorism/malicious acts/political motives •The shipowner & eventual owner can be covered, & need to ensure that the values as risk are kept up-to-date w/ the insurers

Question 52

What perils are covered in physical damage to vessel insurance? (This is a physical damage, marine class of business)

Answer 52

•Includes perils of the sea, fire, explosion, piracy, violent theft from outside vessel, jettison (damage to ship by goods thrown overboard), contact w/ aircraft, earthquake/volcano, etc, & breakdown/accident to nuclear reactors (used for power) •Additional perils covered subject to requirement of due diligence on insured’s part: accidents in loading/moving cargo/fuel, bursting of boilers negligence of masters/crew/charterers, barratry (when crew/master turn against the owner of the ship & steal the ship or expose it to legal problems)

Question 53

What 4 things do hull insurers cover in vessel insurance? (This is a physical damage, marine class of business)

Answer 53

1. Collision liability - liability to pay for damage to another vessel or her cargo should the insured vessel collide w/ it & have any share in the blame 2. General average - hull insurer will pay the ship’s contribution to the party that incurred the cost that saved everyone else 3. Salvage - hull insurer will pay the ship’s share of any reward from when the rescuer saves someone 4. Sue & labour - insurer may pay a reasonable cost incurred

Question 54

What is cargo insurance? (This is a physical damage, marine class of business)

Answer 54

•Covers: loss/damage to the cargo & the cargo share of any contributions in general average, salvage or sue & labour expenses •Includes road, rail, air, & sea

Question 55

What are the 3 categories of perils for cargo insurance? (This is a physical damage, marine class of business)

Answer 55

A. All risks of loss or damage B. Fire, sinking, overturning, collision, discharge at a port of distress, earthquake, general average, jettison/washing overboard, entry of sea, total loss of any package overboard C. Fire, sinking, overturning, collision, discharge at a port of distress, general average, & jettison

Question 56

What are the 3 phases of offshore energy insurance? (This is a physical damage, marine class of business)

Answer 56

1. Exploration - looking for oil/gas 2. Construction - construct a rig 3. Operational

Question 57

In the exploration phase of offshore energy insurance, what are the 3 areas of exploration policy & what do they cover? (This is a physical damage, marine class of business)

Answer 57

1. Control of well (COW) - covers: cost of regaining control of the well once out of control (flow above surface which can’t be captured) 2. Redrilling - covers: cost of creating a new well, generally to the point it was before the incident 3. Seepage & contamination/pollution - covers: cost of remedial measures & damages payable for bodily injury, & loss/damage to property caused directly by seepage & contamination, cost of removing & containing the substances, & defence costs

Question 58

In the exploration phase of offshore energy insurance, what are the additional areas of coverage? (This is a physical damage, marine class of business)

Answer 58

Making the well safe, underground control of the well, removal of wreck, care & custody (loss of equipment that insured rented from others)

Question 59

What is covered in the construction phase of offshore energy insurance? (This is a physical damage, marine class of business)

Answer 59

Covers: construction of the rig - physical damage & removal of wreck, & liability (bodily injury or property damage arising out of the project)

Question 60

What are the 3 types of marine liability insurance? (This is a marine class of business)

Answer 60

1. Shipowners liability insurance 2. Professional negligence insurance - marine professionals include surveyors, ship agents & brokers, naval architects, & ship managers 3. Ports liability insurance

Question 62

What is loss of hire/loss of earnings insurance? (This is a marine class of business)

Answer 62

Covers/ costs after a waiting period if ship is damaged & cannot work

Question 63

What is shipowner’s liability insurance? (This is a marine liability class of business)

Answer 63

•Liabilities from causing bodily injury or damage to 3rd party’s property •Insurance comes from Protection & Indemnity (P&I) clubs (this is groups where the insured & insurer are the same) •Covers: wreck removal, pollution (sudden/accidental), 3rd party liability, loss/damage of cargo for short delivery, admin type fines, medical expenses/replacements/compensation for death/injury to crew, collision (the 25% of the damage to other vessel not covered by the hull insurer)

Question 64

What is specie/jewellers’ block insurance? (This is a marine class of business)

Answer 64

•Covers: physical damage & liability risks to the trade of dealing in gems, precious metals, valuable documents, & manufactured jewellery •Exclusions arising out of non-compliance w/ the ‘Kimberly process’ - ensures that diamonds being traded aren’t ’conflict’ / ‘blood’ diamonds

Question 65

What is fine art insurance? (This is a marine class of business)

Answer 65

•For artwork held in private & public collections, museums, & at exhibitions •Covers: cost of repair & depreciation in the value of the item after the repair or restoration •Excludes: climate-related issues, cyber issues, & anything undergoing repair

Question 66

What is cash in transit insurance? (This is a marine class of business)

Answer 66

Covers: money being moved between banks, a bank & ATM, & a customer & a bank

Question 67

What is political risks insurance? (This is a marine class of business)

Answer 67

•This is confiscation, expropriation, or deprivation of assets insurance - if insured’s assets were seized by local/regional/national government authorities & being evicted from the country •Covers: costs & expenses incurred should a shipment that started out as legal becomes not so •This type of insured often deals w/ businesses & political figures in other countries

Question 68

What is contract frustration or trade credit/credit risk insurance? (This is a marine class of business)

Answer 68

Contract frustration = counterparty is a governmental organisation Trade credit = counterparty is a commercial organisation •For a situation where contract is frustrated (cannot be fulfilled) •Covers: losses arising from the unilateral (1-sided cancellation) of a contract by the other party for no legitimate reason, not getting paid for goods you’ve shipped, not receiving goods you’ve paid for, & being paid in a currency that isn’t accessible

Question 69

What is bonds risk insurance? (This is a marine class of business)

Answer 69

•As a pre-cursor to entering into a contract, the insured may be asked to post a bond - this is meant to protect the other party should the insured default on their contract •Any bank being asked to provide such a bond will usually ask for this type of cover to be obtained

Question 70

Who normally writes motor insurance?

Answer 70

•Most is written by composite & specialist insurers who offer few other lines, but some are written in LM • Normally under delegated underwriting contracts to access knowledgable parties in other parts of the world

Question 71

What is portfolio management for insurers?

Answer 71

Making choices in terms of business written, which is makes sure that the long-term financial objectives of the investors (capital providers) are met

Question 72

What are the 4 different aspects of portfolio management for insurers?

Answer 72

1. Appetite - each insurer has a defined appetite, based on geographical areas or short-tail/long-tail, etc 2. Diversification - spreading the risk & reward across many classes of business, so if 1 makes a loss, hopefully others made profits 3. Investment strategy - a capital provider should consider their own risk appetite when considering investing in an insurer 4. ESG (environmental, social, & governance) - governs the way that organisations run their business & how they view any potential stakeholders/business partners