provides indemnity where the insured, owing to some form of negligence, is legally liable to pay compensation to a 3rd party.
Motor 3rd liability insurance
perils include motor accidents caused by the insured
Public liability insurance
Perils depend on the type of policy (e.g. dog bites, falling objects)
Perils include faulty design, manufacture, packaging and misleading instructions.
Perils depend on the profession of the insured.
5 Types of liability insurance
- employers’ liability
- motor 3rd party liability
- public liability
- product liability
- professional indemnity
Employers’ liability insurance
Perils include accidents in the workplace due to the negligence of an employer or employee, exposure to harmful substances/working conditions.
Property damage insurance
Indemnifies the insured against loss of, or damage to , their own material property.
6 Types of property damage insurance
- residential building
- moveable property (contents)
- commercial building
- land vehicles (car)
- marine craft
Financial loss insurance
Indemnifies insured against financial losses arising from a peril covered by the policy.
3 Types of financial loss insurance
- pecuniary loss
- fidelity guarantee
- business interruption
perils include bad debts or failure of 3rd parties, includes mortgage indemnity guarantee insurance.
perils include dishonest actions by employees such as fraud/embezzlement
a. k.a. consequential loss
- perils include fire in the insured’s own property or in a neighbouring property.
3 Types of fixed benefits insurance
- personal accident
Personal accident insurance
perils include loss of limb or other specified injuries from an accident.
The peril is redundancy.
Key features of property insurance
- Generally for a period of 1 year, and are not guaranteed renewable
- May be multiple claims in the period
- The cover may be offered on commercial lines or personal lines
- Underwriting on personal lines business will be standardised, while underwriting on commercial lines will be more individual and extensive
- Classic short-tailed business (reporting & settlement)
- Precisely what is covered will vary and will be specified in the policy document
- Excesses are common to reduce the number of small claims and keep the cost of insurance down.
- Buildings and contents cover can be sold separately
- Premiums based on the sum insured (value of contents) or proxies (number of bedrooms)
- Principle of average applies
Cover for buildings is done on what basis…
Replacement basis, with the value of the property being based on the cost of rebuilding
Likely basis for commercial contents insurance
Likely basis for household contents insurance
or replacement basis
Principle of average
Used to discourage under-insurance.
Paid = claim * sum_insured / current_value
Perils covered under property insurance
the policy document will specify which perils will be covered
- Burst pipes
- Storm/flood/lightning/other weather damage
- Natural disasters
- Damage caused by measures taken to put out a fire
Risks faced by the insurer under property insurance
- Insufficient, inadequate or appropriate past data to price the contract
- Insufficient experience to design an appropriate product
- May struggle to administer the business appropriately
- Competitors may react to the insurer’s entry to the market by lowering prices / making market share difficult
- Legislative or taxation changes may impact on profitability.
- New business strain
- Low volumes may mean the insurer is unable to recoup its initial expenses
- Withdrawals may be higher than expected
- Claims may be higher than expected
- Investment returns may be lower than expected
- Expense risk (higher than expected)