General Insurance Products

[Matthew H]

Hello,

I have a few questions about general insurance products (incl. liability, property damage and fixed benefits).

1.Are they annually renewable?
2.Are they single premium?
3.Do they cease upon claim?
4.There's an ActEd question about describing the net liabilities on public liability insurance business and what assets would be used to match the liabilities.

• What is court award inflation?
• When we talk about the term of the claims being long (bodily injury) or short (property damage) are we referring to the delay between the claim being reported and the claim being settled, or are we suggesting that a longer or shorter series or payments would be made (for example, a one off payment to replace a car vs a series of payments for ongoing medical care)?
• When we talk about matching public liability insurance liabilities, and using ST and LT assets to do so, are the reasons as follow:
  • ST bonds are very liquid and will mature soon and so can either be sold immediately to finance a claim or (b/c the bond and policy are both ST) their maturity will broadly coincide with a claim needing to be paid?
  • And LT assets b/c if there is a long period between the reporting and settlement of a claim then the claim cost will have increased in real terms in the interim and so we need to hold assets that will also increase in real terms in the interim?
• And when we refer to the term of the expenses being dependant on the duration of the claim, do we mean that claims that take longer to resolve will incur more expenses because of things like continual lawyer fees, or do we mean that claims that take longer to resolve will result in the policy being in force longer and so continuing to incur renewal expenses? In this second option I'm assuming that the policy would cease upon payment of benefit.

5.Please could you clarify what is Public Liability Insurance? I have the definition down as being:

• "Indemnifies the insured against the legal liability for the death of, or bodily injury to, a third party or for damage to property belonging to a third party, other than those liabilities covered by other liability insurance".

I took this to mean that public liability insurance was written on bespoke basis and with respect to any other liability insurance (ie, Product Liability, Professional Liability etc.) the policyholder has. So, public liability insurance can only be interpreted (with regards to what it covers) if we also know the other types of liability insurance?

• I'm starting to think I might have got the wrong end of the stick here?
• I've seen a suggestion that public liability insurance might be bought in combination with commercial buildings insurance (which is a "property damage" rather than "liability")? So can public liability interact with property damage type general insurance as well as liability type general insurance?
• Can public liability insurance be considered on its own? If so, what does it cover?

Thank you,
Matthew

 

[Ppan13]

Hi Matthew

1.Are they annually renewable?

Generally, yes. However there are exceptions. Eg. you could buy a one-off travel insurance policy which is just for an individual trip (as opposed to annual coverage). Or a construction policy lasting several years (the duration of the project being insured) which is not renewed once the project is completed.

For annual policies which are renewed, they may be repriced (different premium from prior year's premium) if any of the factors affecting the risk have changed.

2.Are they single premium?

Generally yes, but it doesn't necessarily have to be, e.g. some car insurers may give policyholders the option to pay monthly instead of annually.

Another exception is the "Minimum and Deposit" premium where the insurer may be able to charge additional premium ('adjustment premium') at the end of the policy if it turns out that the client's exposure to risk in the year was higher than had been initially estimated at the outset.

3.Do they cease upon claim?

Generally not, though the claims are subject to a maximum level of benefit (limit) and there may be an aggregate limit (total amount payable across multiple claims). It's possible to have hundreds or even thousands of claims on a single commercial policy, though (e.g. on a motor fleet policy covering all vehicles belonging to a company)

What is court award inflation?

It's a tendency for courts to award increasingly generous compensations to claimants (e.g. for things such as pain and suffering) as time goes by, over and above the general level of inflation that applies to goods and services relevant to the claims (e.g. medical care costs). As the cost of compensation gets passed on to the insurers in the case of liability claims, this is relevant to general insurance. Even liability claims settled via out-of -court negotiations would be benchmarked (in value) against court decisions on other similar claims, so the impact of court award inflation extends beyond claims settled directly in court.

 

[Ppan13]

5.Please could you clarify what is Public Liability Insurance? I have the definition down as being:

• "Indemnifies the insured against the legal liability for the death of, or bodily injury to, a third party or for damage to property belonging to a third party, other than those liabilities covered by other liability insurance".

I took this to mean that public liability insurance was written on bespoke basis and with respect to any other liability insurance (ie, Product Liability, Professional Liability etc.) the policyholder has. So, public liability insurance can only be interpreted (with regards to what it covers) if we also know the other types of liability insurance?

• I'm starting to think I might have got the wrong end of the stick here?
• I've seen a suggestion that public liability insurance might be bought in combination with commercial buildings insurance (which is a "property damage" rather than "liability")? So can public liability interact with property damage type general insurance as well as liability type general insurance?
• Can public liability insurance be considered on its own? If so, what does it cover?

Thank you,
Matthew

The first part of the definition of public liability insurance you quoted correctly: “Indemnifies the insured against the legal liability for the death of, or bodily injury to, a third party or for damage to property belonging to a third party, other than those liabilities covered by other liability insurance” . But there is an additional part to the definition which is “...owing to some form of tort (private or civil wrong, e.g. negligence) on the part of the insured. (i.e. the insured is at fault)”.

Public liability is a bit of a catch-all liability insurance in that it covers liabilities which are not already covered by other types of liability insurance (such as employers liability, or professional indemnity insurance, or environmental liability). The policy is generally not restricted to named perils, though some specific perils may be excluded to avoid overlap with cover already provided by other types of liability insurance, and also to limit the exposure to risk for the insurer – e.g. exclude acts of deliberate harm, libel/ slander, damage/ injury due to pollution. The exclusions for a particular public liability policy should be stated in the policy wording.

As you say, it can be linked to other types of insurance , e.g. for property /residential buildings, a public liability element (or section) of a buildings insurance policy would cover you for the cost of being sued if anyone (including random members of the public, hence the name ‘public liability’) were to be injured or even die, or have their property damage, as a result of something happening at your home. e.g. if a loose tile slipped off the roof of your house and hit someone on the pavement below or their car parked below, and they tried to sue you for causing injury (or damage to their property) on account of not having kept your roof properly maintained.

Public liability can also be stand-alone, e.g. a supermarket chain could buy a public liability policy to cover all it’s branches, so that if a customer (member of the public – hence the name ‘public liability’ again) were to slip on a spillage on its premises and fall and sue the supermarket (for example), the insurance would be in place the indemnify the supermarket’s loss (as a result of being sued). The legal expenses relating to defending against the claim would normally be covered by the policy too. Another example could be if the supermarkets' delivery driver causes injury as a result of negligence whilst on the job (e.g. accidentally dropping a heavy box/crate on a customer’s foot) and the supermarket is sued as a result, that could also be covered. So the specifics of the likely types of insured perils will often depend on insured's industry.

The supermarket could also package the public liability coverage with product liability insurance, with the latter part covering liability due to faulty products.

I think this answers your question on “can public liability interact with property damage type general insurance as well as liability type general insurance?”

Finally, in the US ‘public liability’ tends to be called “general liability”, e.g. https://en.wikipedia.org/wiki/Commercial_general_liability_insurance

 

[Ppan13]

When we talk about the term of the claims being long (bodily injury) or short (property damage) are we referring to the delay between the claim being reported and the claim being settled, or are we suggesting that a longer or shorter series or payments would be made (for example, a one off payment to replace a car vs a series of payments for ongoing medical care)?

I’m inclined to say it’s the first point normally, though the second effect you described could also be part of the overall story (e.g. google 'Compulsory periodic payment orders (PPOs)' which would have the impact of lengthening the time to final settlement)

In respect of the first point you made above, generally bodily injury claims are long-tailed (take a long time to settle) and property damage claims are short-tailed (reported quickly and settled quickly). Settlement delay (period between the notification to the insurer and the payment of the claim) may be longer for injury cases due to possibly waiting for the injured party’s medical condition to stabilise (to see how bad it is), the need to gather more information, and the time taken to establish whether the insurer is liable as well as how much should be paid (which may involve going to court if there are disagreements - again involving delays). Large claims can take years to settle (e.g court awards for liability claims).

Even before encountering settlement delays, you can also consider reporting delays (period between loss event and insurer being notified of it) e.g. on so-called 'latent claims'. In the case of some industrial diseases (e.g. industrial deafness, asbestosis), the policyholders didn’t submit bodily injury claims for many years because the disease didn’t manifest until some time after they had been exposed to the toxic work environment (emergence delay) so they didn’t realise till much later that they could sue their employer (who only then notified their employers’ liability insurer that a claim was forthcoming in respect of exposing their employee(s) to a potentially toxic work environment years ago).

Not sure if I've given you too much detail there! If I had to give a really short answer, if would be "the first option" (of the two options you described in your question).

 

[Ppan13]

When we talk about matching public liability insurance liabilities, and using ST and LT assets to do so, are the reasons as follow:

• ST bonds are very liquid and will mature soon and so can either be sold immediately to finance a claim or (b/c the bond and policy are both ST) their maturity will broadly coincide with a claim needing to be paid?
• And LT assets b/c if there is a long period between the reporting and settlement of a claim then the claim cost will have increased in real terms in the interim and so we need to hold assets that will also increase in real terms in the interim?

I think you've understood it right. Assets should match the liabilities by term, amount, nature and currency. Both property damage and bodily injury claims on public liability are real in nature. Most property damage claims will be short term (1-3 years) , with the bodily injury claims from public liability probably mostly being medium term (4-10 years). So you could consider a mixture of some cash (for liquidity), short-dated government securities/ bonds and medium-dated index-linked bonds to match the liabilities.

If you relied only on short-dated bonds even for the longer term liabilities, you’d have to keep reinvesting the asset proceeds on future (currently) unknown terms (reinvestment risk) whereas matching by term avoids this uncertainty.

Also, longer-term investments are likely in the long run to provide higher yields than short-dated assets (which allows the insurer to charge lower premium – making it more competitive) so this is another reason to match medium term liabilities with medium-dated assets if available.

(I haven't seen the exact ActEd question you are talking about so I hope what I have written doesn't confuse the issues here).

 

[Ppan13]

And when we refer to the term of the expenses being dependant on the duration of the claim, do we mean that claims that take longer to resolve will incur more expenses because of things like continual lawyer fees, or do we mean that claims that take longer to resolve will result in the policy being in force longer and so continuing to incur renewal expenses? In this second option I'm assuming that the policy would cease upon payment of benefit.

I haven't seen the original context / the ActEd question you're referring to, but generally if your claim is taking a long time to settle, it means the insurers' claims department have to continue monitoring its progress, which is likely to increase the over-all claims-handling expenses (including paying internal claims staff, lawyers, external investigators/experts, arbitrators, mediators etc and possibly some associated allocation of overheads).

So I agree with the first explanation you mentioned. I don't think it's the second explanation you proposed, and generally the policy wouldn't just cease after a single claim.