General Insurance
Introduction
Actuaries need to have a good working knowledge of the products that they’ll have
to price. There are several aspects to this, for instance, the knowledge of the risk
underlying a product, the knowledge of the technicalities of the policy and how this
affects the risk and lastly the environment your business operates in.
The classification of general insurance is mainly by:
• Products by category of cover
• Products by type of customer
Products by Category of Cover
Under this category, insurance products can be classified into four broad categories:
liability, property, financial loss and fixed benefits, depending on the type of losses
that are indemnified and the type of compensation itself.
Liability Insurance
Liability insurance indemnifies the insured for legal liability related to bodily injury,
property damage, financial loss or reputational damage caused by the insured to a
third party because of negligence or other types of sort. Legal expenses are normally
covered as well.
Depending on the policy, liability insurance may cover heads of damages such as
• Damage to third-party property
• Cost of care
• Loss of earnings
, • Financial loss
• Pain and suffering
• Punitive or exemplary damages
• Claimant’s legal costs
• Defence costs
Examples of Liability Insurance include:
• Public liability
• Product liability
• Employers’ liability
• General liability
• Directors’ and officers’ liability
• Professional indemnity
• Motor third-party liability
• Aviation liability
• Marine liability
• Environmental liability
Property Insurance
Property cover indemnifies the insured for loss or damage to the insured’s property,
such as one’s house or one’s car. Therefore, property insurance is probably the most
straightforward to understand: your mobile phone charger, which was left plugged
in, overheats and starts a fire in your house; your house burns down; you make a
claim on your home insurance policy; your insurer (hopefully) pays you so that
you can rebuild your house from scratch.
There are a large number of covers that fall under the heading of property insurance.
Here are some examples:
• Home insurance building and contents
• Commercial property
• Marine cargo
• Aviation hull
• Motor own damage
, • Livestock
• Crop insurance
• Construction
• Engineering
• Movable property
• Goods in transit
Financial Loss Insurance
Financial loss insurance indemnifies the insured for financial losses arising from the
perils covered by the policy. Therefore, the principle of indemnity still holds, but
the idea here is that the loss is in itself financial, unlike the case of property, where
the loss typically involves a physical object (a building, a ship, a laptop) that has a
quantifiable value, and unlike liability, where the loss is the amount required to
satisfy the duty to compensate a victim for the effects of, for example, bodily injury
or property damage, which one can then attempt to quantify.
A typical example of financial loss is the loss of profit resulting from the fact that
a fire has damaged a manufacturing plant and has caused an interruption in the
production activity. This is normally covered as part of commercial property policies
under the heading ‘business interruption’. Examples include:
• Business interruption
• Trade credit
• Mortgage indemnity guarantee
• Fidelity guarantee
Fixed Benefits Insurance
Fixed benefits insurance provides a fixed amount of cover for a given injury (e.g.
loss of limb) or loss of life as a result of an accident. The usual principle of
indemnity, therefore, does not (and cannot) apply.
Fixed benefits are more common in life insurance than in general insurance but by
legal definition fixed benefit insurance is classified as general insurance; it is found
sometimes in isolation but most often as part of another policy, such as private
motor or travel insurance. Examples include:
• Personal accident
Introduction
Actuaries need to have a good working knowledge of the products that they’ll have
to price. There are several aspects to this, for instance, the knowledge of the risk
underlying a product, the knowledge of the technicalities of the policy and how this
affects the risk and lastly the environment your business operates in.
The classification of general insurance is mainly by:
• Products by category of cover
• Products by type of customer
Products by Category of Cover
Under this category, insurance products can be classified into four broad categories:
liability, property, financial loss and fixed benefits, depending on the type of losses
that are indemnified and the type of compensation itself.
Liability Insurance
Liability insurance indemnifies the insured for legal liability related to bodily injury,
property damage, financial loss or reputational damage caused by the insured to a
third party because of negligence or other types of sort. Legal expenses are normally
covered as well.
Depending on the policy, liability insurance may cover heads of damages such as
• Damage to third-party property
• Cost of care
• Loss of earnings
, • Financial loss
• Pain and suffering
• Punitive or exemplary damages
• Claimant’s legal costs
• Defence costs
Examples of Liability Insurance include:
• Public liability
• Product liability
• Employers’ liability
• General liability
• Directors’ and officers’ liability
• Professional indemnity
• Motor third-party liability
• Aviation liability
• Marine liability
• Environmental liability
Property Insurance
Property cover indemnifies the insured for loss or damage to the insured’s property,
such as one’s house or one’s car. Therefore, property insurance is probably the most
straightforward to understand: your mobile phone charger, which was left plugged
in, overheats and starts a fire in your house; your house burns down; you make a
claim on your home insurance policy; your insurer (hopefully) pays you so that
you can rebuild your house from scratch.
There are a large number of covers that fall under the heading of property insurance.
Here are some examples:
• Home insurance building and contents
• Commercial property
• Marine cargo
• Aviation hull
• Motor own damage
, • Livestock
• Crop insurance
• Construction
• Engineering
• Movable property
• Goods in transit
Financial Loss Insurance
Financial loss insurance indemnifies the insured for financial losses arising from the
perils covered by the policy. Therefore, the principle of indemnity still holds, but
the idea here is that the loss is in itself financial, unlike the case of property, where
the loss typically involves a physical object (a building, a ship, a laptop) that has a
quantifiable value, and unlike liability, where the loss is the amount required to
satisfy the duty to compensate a victim for the effects of, for example, bodily injury
or property damage, which one can then attempt to quantify.
A typical example of financial loss is the loss of profit resulting from the fact that
a fire has damaged a manufacturing plant and has caused an interruption in the
production activity. This is normally covered as part of commercial property policies
under the heading ‘business interruption’. Examples include:
• Business interruption
• Trade credit
• Mortgage indemnity guarantee
• Fidelity guarantee
Fixed Benefits Insurance
Fixed benefits insurance provides a fixed amount of cover for a given injury (e.g.
loss of limb) or loss of life as a result of an accident. The usual principle of
indemnity, therefore, does not (and cannot) apply.
Fixed benefits are more common in life insurance than in general insurance but by
legal definition fixed benefit insurance is classified as general insurance; it is found
sometimes in isolation but most often as part of another policy, such as private
motor or travel insurance. Examples include:
• Personal accident
