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2022: CP1 A311 Actuarial Risk Management > Chapter 7 General Insurance Products > Flashcards

Chapter 7 General Insurance Products Flashcards

1
Q

What is the difference between short-tailed and long-tailed products?

A
  • Short-tailed: Claims are reported and settled quickly

* Long-tailed: Delays in reporting and settlement of claims

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2
Q

What are the two lines of GI products?

A
  • Personal Lines: Sold to individuals

* Commercial Lines: Sold to business

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3
Q

What is the aim of GI product benefits?

A
  • Indemnify (compensate for losses that occurred. Follows principle of indemnity that puts the insured in the same position as before the risk occurred
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4
Q

What causes REPORTING and SETTLEMENT delays (2/2)

A

Reporting delays:

  • Delays in events occurring and conditions emerging
  • Delay in reporting to thinking initially claim might be small

Settlement delays

  • Administration needed
  • Establish that is claim is valid
  • Who should pay (third party)
  • Dispute and court settlements
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5
Q

How is GI profit calculated

A 
\+ Premium income net of reinsurance paid
\+ Investment income and gains
- Expenses and commission
- Tax
= Profit
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6
Q

How are premiums set in GI products (8)

A
  1. Start with the RISK PREMIUM
  2. Risk premium = Expected claim frequency * Expected claim cost
  3. Use past data to obtain ECF and ECC
  4. Remove distorting features (trends, once-off events)
  5. Project claims data forward
  6. Use GLM to derive rating factors
  7. Add office premium (commission, expense and investment income)
  8. Adjust to competition to arrive at an actual premium
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7
Q

List 5 types of provisions GI products can set up

A
  1. Outstanding reporting claims reserve (claims know about but not yet settled)
  2. Incurred but not reported (claims that has occurred but has not yet been settled)
  3. Unexpected risk reserve (claims that has not yet happened)
  4. Catastrophe reserve (for catastrophes)
  5. Claim handling expense reserve
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8
Q

Give an overview of the investment strategy of GI products (5)

A
  • Liabilities can be varied or fixed
  • Claim amounts are exposed to inflation (either wage or price)
  • Short to medium-term assets, e.g., Hold cash (to meet varying) + bonds (to meet fixed)
  • Hold in local and foreign currency
  • Consider regulation on mix, amount and level of assets to hold
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9
Q

What are the key risks of a GI (7)

A
  1. Claim frequency, volatility, amount
  2. Accumulation of risk (geographical + class) = catastrophe
  3. Investment risk
  4. Poor renewal rate (persistency)
  5. New business strain -> too high or too low (cannot spread expenses)
  6. Credit risk (failure of reinsurer)
  7. Operational risk
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10
Q

What experience can be monitored to improve GI performance? (7)

A
  1. Expenses
  2. Lapses + renewals
  3. New business volume + mix
  4. Investment returns
  5. Reinsurance performance
  6. Profitability
  7. Claims
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11
Q

4 types of GI products and specify is it is on an indemnity or fixed benefit basis

A
  1. Liability (indemnity)
  2. Property damage (indemnity)
  3. Financial loss (indemnity)
  4. Fixed benefit (fixed)
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12
Q

What is a peril?

A

Cause of the risk - man-made or natural

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13
Q

Explain what is liability insurance

A

Provides indemnity due to negligence and has to pay to a third-party, usually also covers legal expenses.

Can be restricted by regulation on maximum or by excess

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14
Q

Why does GI implement excess? (3)

A
  1. Reduce small amounts
  2. Reduce claim size
  3. Policyholders more careful
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15
Q

Define 5 types of liability insurance

A
  1. Motor third-party liability: Indemnified the owner of a motor vehicle against compensation payable to third parties on death, personal injury or property damage (usually compulsory)
  2. Product liability: Indemnifies the insured against legal liability for the death, bodily injury to a third party, or property damage that results from a faulty product
  3. Professional indemnity: Indemnifies insured against legal liability resulting from negligence in the provision of a service (unsatisfactory medical treatment, or incorrect advice as an actuary)
  4. Employers liability: Indemnifies the insured against the legal liability to compensate an employee or their estate for accidental bodily injury, disease or death suffered owing to the negligence of the employer in the course of employment (usually compulsory)
  5. Public liability: Indemnifies the insured against the legal liability for death or bodily injury to a third party for damage to property belonging to a third party
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16
Q

Name 5 types of property to consider in property damage insurance

A
  1. Residential and commercial property (house -> fire, damage to property is theft)
  2. Personal and commercial property content (the content of house, usually new for old, theft)
  3. Motor vehicle (car, accidental, theft)
  4. Marine craft (perils of sea, jettison, piracy, damage of ship and cargo)
  5. Aircraft (fire, theft, vandalism, damage during flight from storms or terrorism)
17
Q

Name and define the 4 types of financial loss insurance

A
  1. Pecuniary loss: Protects the insured against bad debts or failure of third party
  2. Fidelity guarantee insurance: Cover the insured against financial losses caused by dishonest actions by employees (fraud or embezzlement)
  3. Business interruption cover: Indemnifies the insured against losses made as a result of not being able to conduct business for various reasons specified in the contract, e.g., fire, strike
  4. Cyber security insurance: Hacking, phishing, viruses, stealing data or keeping data hostage
18
Q

Name the 3 types of fixed benefit insurance

A
  1. Personal accident insurance: Provides a fixed amount in injury, usually specified in the contract. Group version does exist covers injury of employee but irrelevant who is at fault
  2. Health insurance
  3. Unemployment insurance: Provides lump sum or income stream no more than a year, in policyholder being redundant.
19
Q

Name other types of GI insurance

A

Travel insurance: Covers plane tickets if the airline is insolvent, lost or damaged luggage

Crop insurance: Cover losses to the crop – eg due to fire, storm

Pet insurance: Covering vet bills for injury or illness of pet, pet injures another person or damage of property, death or stolen pet, boarding fees if owner is ill or dead, cancelling holiday if the pet is ill

Income protection: Provides an income to the policyholder in the event of an accident or long-term sickness over a specified term

20
Q

Rating factors for pet insurance

A 
Type of animal (cat or dog)
Breed of pet
Usage of pet (working or personal animal)
Age of pet
Gender of pet
Neutered
The price paid for the pet
Postcode where the pet lives
Vaccination status of pet
Current and past medical history
Previous aggressive tendencies
Gender of owner
Age of owner
Level of cover
Choice of excess

2022: CP1 A311 Actuarial Risk Management (51 decks)

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