Insurance Products: Commercial Chapter 6 Insurance Products: Commercial 3 questions = 4% of the exam

Learning Objectives: After studying this chapter, you should be able to: Describe the basic features and typical policy cover of the insurance types detailed Explain the underwriting approach and considerations for various classes of insurance

Fire and Special Perils Fire is the basis for almost all business insurance Extra perils are then added to the policy, these are known as ‘Special Perils’

Fire and Special Perils Standard fire policies have 3 sections: Fire – Exclusions: Explosion resulting from fire Earthquake or subterranean fire Spontaneous ignition Lightning Limited Explosion – Exclusions: Restricted to boilers and gas containers used for domestic purposes

Fire and Special Perils Explosion Subsidence, Landslip and Heave Aircraft Riot and Civil commotion Sprinkler Leakage Malicious Damage Escape of Water Earthquake Impact Subterranean Fire Flood Storm Spontaneous Fermentation

Fire and Special Perils Standard market exclusions: Riot and Civil Commotion War Risks Radioactive Contamination / Explosive Nuclear Assemblies Northern Ireland excluded perils Terrorism Pollution or Contamination Marine Policies More specific Insured Clauses & Consequential loss exclusions

All Risks The needs and demands from customers and intermediaries led insurers to introduce policies that have a much wider cover. These are knows as All Risk policies and cover everything except…

Exclusions which are absolute exclusions, such as War All Risks Exclusions that sometimes maybe included with careful underwriting, such as cover for Unoccupied Properties Exclusions which are absolute exclusions, such as War Exclusions relating to aspects of cover which can be written into the policy, such as Money Exclusions relating to risks covered by another class of insurance, such as Motor Vehicles

FAVE Theft = Forcible and violent entry or exit “to dishonestly appropriate property belonging to another with the intention of permanently depriving the other of it.” Theft Act 1968 This definition is too wide for insurers. So they will include the requirement of Force and Violence being used to Enter or Exit the premises FAVE = Forcible and violent entry or exit

Theft No cover provided for entry by: Key Trick Hiding on the premises Unless…. Underinsurance: You can be under insured on a theft policy so the condition of Average will be applied to a claim.

Theft Optional extensions These could be covered as a standard: Breakage of Glass Replacement Locks Temporary Removal Index Linking These could be covered for an additional premium: Collusion Extended or Full Theft Robbery and Aggravated Burglary

Theft

Glass Covers all kinds of fixed glass Damage or Destruction Damage to lettering and frames Costs to secure property Damage by scratching and chipping is often excluded Insurers have the option to settle by cash, repair, replace, or reinstatement.

Glass Optional extensions: Damage caused to contents from broken glass Damage to washbasins and sanitary fittings

Money Definition of Money varies insurer to insurer: Cash Bank Notes Currency Notes Cheques Postal Money orders Postage Stamps National Insurance Cards Luncheon Vouchers

Money Cover is for an ALL RISKS basis, damage to safes is part of the cover Each possible situation would come with a different limit: In transit On premises during operation hours In Bank In locked safe out of hours not in safe but in insured premises In private residence of employee of an insured company In custody of collectors or travellers whilst in transit In custody of professional carrier or security company Money policies are not subject to AVERAGE, based on Annual Carryings

Money Optional extensions Personal Accident Assault – Clothing and personal effects can be covered Credit Cards – Cover for fraudulent use can be covered

Money Specific limitations Error is accounting/counting/book keeping Dishonesty of employee not discovered in 7 days Loss or destruction outside GB, NI, Isle of man or channel Isles Loss resulting from safe being opened with key or combination whilst business closed. Limits of liability will differ from insurer to insurer and dependant on circumstances, e.g. limit of £250 out of safe overnight, however there would be a limit of say £5,000 for money in transit.

Business Interruption Insurance (BI) Provides cover if the business is unable to operate where the damage is caused by an insured peril. This will also help restore the business to how it was before the peril occurred.

Business Interruption Insurance (BI) Monetary amount to be insured Time that the interruption will affect business (Indemnity Period) “the period beginning with the occurrence and ending not later than the maximum indemnity period thereafter, during which time the business is affected by the interruption occasioned by the damage” Maximum length of indemnity is up to the insured: 12, 24, 36 months

Business Interruption Insurance (BI) Raw materials are purchased Value is added in the process Items are made Goods are sold generating turnover Turnover: is the total income from the activities of the business, but insurance is not there to replace the whole of the turnover. There are three categories of costs: Profit  Variable Charges  Fixed Charges 

Business Interruption Insurance (BI) During a business interruption some expenses may increase these are known as ICOW (Increase in/increased cost of working): Rent for new premise, advertising to reassure customers Sub-contracting work Accounts/auditors fees (BI is the only insurance that offers payment for preparing a claim) The above are covered as long as there is equivalent saving as if the business can operate it will reduce claims payments (won’t give blank cheque or money to spend).

Business Interruption Insurance (BI) Material Damage Warranty: Business interruption insurance requires cover to be in place for physical damage leading to loss of earnings before the Business Interruption policy comes into force. The requirement is known as a Material Damage Warranty.

Business Interruption Insurance (BI) Specified Suppliers Unspecified Suppliers Specified Customers Property in Transit Prevention of access Public Utilities Disease, vermin, defective sanitary, murder and suicide

Legal Expenses Insurance Basic features Provide indemnity for legal advice costs arising from the need to pursue or defend against civil action Civil actions are not prosecuted in criminal courts and offer things like compensation for injury or damages Cover differs in what is a relatively specialist market. Originally cover was only available for individuals; however in recent years cover has been made available for companies, which we will concentrate on

Legal Expenses Insurance There are 2 types of policies: Group legal benefits policy Commercial legal protection policies Insurer will offer various levels for customer to choose from however: Cover is usually limited to an amount per claim (no overall limit per policy)

Group legal benefit policies Cover is for: A group of people such as employees and their immediate families Employment Cover Personal Cover Motor Cover Conveyancing cover

Commercial Legal protection policies Employment Cover Criminal Prosecution Defence Cover Property Disputes Cover Motor Cover Patents, registered designs, copyright and trademark. Cover is for: A business to protect itself and are more common than group legal policies

Employers Liability Insurance Covers any sum employer liable to pay employees in respect of death, injury, illness or disease caused during course of employment + covers claimants costs and expenses £5 Million Vs. £10 Million What changed about E.L. in 2008

Employers Liability Insurance Legal Liability – Not pure accidents Damages + Costs and expenses – Vicarious liability Definition of employee In the course of employment Trade or Business – Ancillary activities Territorial limits Period of Insurance – Long tail claims

Employers Liability Insurance Optional Extension: Indemnifies the insured for their costs as well when defending a claim. Defence costs and expenses Indemnity to directors and employees who have action brought against them personally Additional persons insured

Public Liability Insurance Covers business for legal liability to pay third parties (public or other businesses) for injuries and property damage Legal costs and expenses of claimant covered Q. What is the normal limit on a public liability policy? £1 million  £2 million  £5 million  £10 million  ?

Public Liability Insurance Standard Cover Injury to person Property damage Consequential loss Financial loss

Public Liability Insurance Injury to employee War, Radioactive contamination Property belonging to the insured Lifts, elevators and boilers Product liability Vessels and crafts Contractual liability Where another policy is in force Motor vehicles Any deliberate act Costs of rectifying defective work Professional negligence

Products Liability Insurance This cover is usually sold as part of a combined liability policy or can be an extension of public liability cover. All sellers of goods whether manufacturers or intermediaries may incur liability due to loss or damage arising from the supply of goods Example: Electrical appliances: e.g. Faulty materials or incorrect assembly of kettles may result in personal injury

Products Liability Insurance Bodily Injury Property damage Consequential loss Financial loss Policy Cover Injury / damage must occur during the period of insurance The yearly and one occurrence figure is usually the same.

Products Liability Insurance Limitations Contractual Liability A market exclusion so it is NOT covered Damage to goods supplied Costs of repair, renovation, replacing or recalling unsuitable or defective goods is NOT covered Faulty design or formula Claims from faulty or defective design or formula Unsuitability or failure to perform Goods failing to perform in the way they were designed to do so

Pollution Liability This type of insurance that covers your liability for loss caused by sudden identifiable, unintended and unexpected event that causes pollution. All pollution arising from one incident is treated as one claim even if many parties are effected. Indemnity limits are an aggregate per period of insurance.

Professional Indemnity Insurance Provides liability cover for injury, damage and financial loss to clients caused by errors / negligent acts Examples of Professional Indemnity situations: An Insurance broker may confirm cover is in force, but then not actually put the customer on cover. A Solicitor giving incorrect advice which results in financial loss

Professional Indemnity Insurance Cover is on a claims made basis… It pays only those claims that occur and are filed during the period covered by the policy (unlike employers, public or product liability) Dishonesty Where there is another policy Claims outside UK

The Theft Act 1968 defines theft as: dishonest appropriation of property belonging to another with the intention of gaining pecuniary advantage. dishonest appropriation of personal items with the intention of permanently depriving another of them. dishonest appropriation of property belonging to another with the intention of permanently depriving the other of it. dishonest appropriation of property belonging to another involving force and violence.

Jacob has a business that is protected by business interruption insurance. In the event of a claim under this policy, a key benefit of this to him is that it: should cover the increased costs of keeping the business operating. help him to replace any destroyed raw materials. help him to replace the machinery in his factory. will continue to meet the gross costs of the business even if savings have been made

Under a fire policy, terrorism cover: is excluded, and cannot be bought back. is excluded, but can be bought back. is automatically included in a standard fire policy. is included provided any claims are made within 14 days.

The aircraft peril specifically excludes: low flying aircraft. mechanical failure. sonic bangs. falling aircraft parts.

Under what type of insurance would you see a public utilities extension given? Business interruption. Public liability. Theft. Products liability.

What is the EML of a risk? Estimated minimum line. Estimated maximum loss. Estimated maximum line. Estimated minimum loss.

What is usually the longest maximum indemnity period you can have under a business interruption policy? 12 months 24 months 36 months 48 months