III Exam|IC 74, Liability Insurance|One Liners|Chapter 3

III Exam|IC 74, Liability Insurance|One Liners|Chapter 23

The Liability Insurance (IC – 74) is a paper in III exam  for Non Life Insurance. The Liability Insurance (IC 74) is a optional paper and it comprises of 30 Points. This is the most important paper in III Examination, and most people prefer this paper.
This paper comprises of 100 Multiple Choice Questions. Aspirants need to score 60% in this paper to qualify for Licentiate.

We are providing Chapter 3: Liability Underwriting one-liners of this paper practice of Non Life Insurance (IC – 74) which will be very important from exam point of view. This one-liners is very easy to understand.

Chapter 3: Liability Underwriting

  • Liability Policies Are Normally Termed As “Long Tall” Policies. There Is Time Gap Between Creation, Discovery & Settlement Of Liability.   If The Liability Has Been Incurred But Not Reported(Ibnr).

Underwriting Trigger: 

  1. Causation
  2. Occurrence
  3. Manifestation
  4. Losses Discovered
  • Claims Made Policy Can Be Extended To Cover Losses Which Occurred Before The Inception Of The Policy.
  • The Major Difference Between The Claims Made And Occurrence Is That Occurrence Contracts Are Forward Looking Whereas Claims Made Contract Are Retrospective.
  • Loss Occurrence Basis Policies Allow The Insured To Go Back To Old Policies, Years After They Have Expired And Put A Claim Against Them For The Loss That Happened While They Were In Force.
  • Disadvantage:-Insurance Co Who Accepted The Risk Many Years Ago May No Longer Be In Business
  • Claim Made Policies: Limits Can Be More Accurately Predicted Thus There Is Less Chance Of Being Under Insured.
  • Disadvantage Coverage Is Triggered By An Actual Claim For Damage, Not A Notice Of An Occurrence Or incident.
  • Defence Cost And Expenses: All Liabilities Policies For Insurer To Provide Cover Against  Legal Expenses, Underwriter Offers Two Different Bases For Coverage
  1. Cost To Addition To The Limit Of Liability
  2. Cost Included In The Limit Of Liability
  • Admitted Policy Is One Which Will Respond To And Defend Claims In A Given Territory Or Group Of Territories.
  • Non Admitted Policies Is The One Issued In The Insured, S Territory And Will Not Respond To Or Defend Claims In Another Territory.
  • Globalization Of Various Sectors Has Resulted In Opening Of Operations By Insurance Co. In Various Territories Including One Which Has Regulated Insurance Regime.
  • Admitted Policies Provide Limited Coverage As Their Rating Structure Is Approved Under State Regulations Whereas Non Admitted Policies Are More Flexible As Their Policy Form And Rating Structure Are Not Required To Be Approved By State Regulations, Both Are Required To Obtain License In The State They Are Providing Insurance.
  • In case The Financial Positions And Solvency Of Insurance Industries On Those Regulated Territories Are Sound, The Insured Will Opt To Insure Locally, Or Else They Would Prefer A Non-Admitted Policy In Their Home Territory.
  • All Claims Under Non Admitted Policies Would Be Dealt By The Insured Locally.

Difference In Conditions (Dic)/Difference In Limit Policies(Dil)

  • In Some Of Regulated Markets The Terms Of Coverage And /Or The Indemnity Provided Is Restrictive.  This Coverage May Not Be Sufficient To The Insured Needs, The Insured Arranges Additional Cover Normally In Their Home Territory To Top Up The Local Policies.  These Policies Are Known Dic/Dil Policies.
  • Dic/Dil Policies Can Be Issued On Eighter On Admitted Basis Or Non Admitted Basis.
  • Dic/Dil Policies Can Be Issued Separtely, However Often Preferred As An Extension To The Master Policy That Covers Insureds Domestic Operations.   Dic/Dil Policies Donot Follow The Conditions Of The Local Policy And Hence Said To Be Covered On Standalone Basis.
  • Umbrella Policies: Umbrella Policies Are Akin To Dic/Dil Policies With The Difference That  It Covers More Than One Class Of Business.  It Has Its Origin In Usa And Was Designed To Provide Uniform Standard Of Cover Amongst Various Statates Having Different Regulations.

Umbrella Policies Operates In Two Parts:

  1. First Part Is Follow Form Dil Cover Over The Schedule Of Underlying Policies.
  2. The 2nd Part Of Umbrella Policy Is A Broad Form General Liability Cover That Stands Alone And Operates On Dic Basis Around The First Part Of Umrella Policy.
  • Rating- General Guidelines:  An Underwriter Is To Develop An Appropriate Pricing Strategy For The Company Which Will Ensure Profitability Of Each And Every Portfolio.  A Portfolio Is Said To Be Profitable If The Net Combined Operating Ratio Is Within 100%.

Three Important Factors For Determining The Combined Operating Ratios Are:

  1. Expense Ratio : Includes All Overhead Costs Such As Salaries,Premises It Cost Etc
  2. Commission Ratio: It Will Include Brokerage/Commission Paid To The Intermediaries For Procuring The Business Less Commission Earned From R.I.
  3. Incurred Claim Radio: Include The Claim Paid & Loss Reserve Incl. Ibnr
  • Provision For Ibnr Is Determined On Portfolio Basis.
  • A Liability Underwriter Take Into Account The Annual Wages For Rating And Pricing The Premium For The Employers Liability Policies.
  • For Public And Products Liability Policies Turnover Will Be Considered
  • For Professional Indemnity (Lawyers, Architects Etc) Fees/Revenues Will Be Taken Into Account.
  • The Pricing Of Liability Proposals Also Depends Upon The Indemnity Limits
  • In Liability Insurance, Coinsurance Method Or Risk Sharing Is Not Common On The Primary Layer. This Method Is Often Preferred In Layered Program.
  • Facultative Reinsurance: Proposals Where Additional Indemnity Required Is Relatively Small And Layering Of The Program Is Cumbersome, Facultative Method Is Used. It Is Also Used To Provide Co Verage For Certain Part Of Risk/ Extensions Which The Primary Insurer Is Not Comfortable With.
  • Layered Program: In Layered Programs, One Insurer Takes The Primary Layer And Balance Indemnity Is Provided In Layers ‘In Excess Of’ Or ‘Over’ The Primary Insurance.
  • The Monetary Value At The Bottom Of The Layer That This Insurer Is Writing Is Referred As ‘Attachment Point’ The Excess Of Loss Layers Normally Uses The Follow-Form Of Primary Layer.

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