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

3. 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

5. 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’

6. 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

7. 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

8. 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

9. 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…

10. 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

11. 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

12. 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.

13. 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

14. Theft

15. 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.

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

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

19. 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

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

21. 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.

22. 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.

23. 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

24. 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 

25. 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).

26. 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.

27. 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

28. 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

29. 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)

30. 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

31. 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

33. 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

34. 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

35. 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

36. 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  ?

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

38. 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

39. 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

40. 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.

41. 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

42. 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.

43. 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

44. 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

46. 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.

47. 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

48. 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.

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

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

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

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