English for the Insurance Business

Avv. Carlo Galantini Studio Legale Galantini Heibron Cocco-ordini Milano

What is insurance

Pool or fund Fire risk 1 Fire risk 2 Fire risk 3

How insurance handles risk

• Underwriting – Assessment – Statistics – Acceptance, exclusion, declinature – Quotation of price • Handling of funds – Investment – Solvency margin • Indemnification – Assessing the damage • Insured peril • Proximate cause • subrogation

Essential features of Insurance

• Possible to calculate chance of loss • Capable of financial measurement • Loss must be fortuitous • Insurable interest • Utmost good faith • Not against public interest • Loss must not be catastrophic

Law of large numbers

• As the number of exposure units increases, the more certain it is that actual loss experience will equal probable loss experience

Insurable Interest

• MUST BE some property, rights, interest, life, limb, or potential liability capable of being insured • This MUST BE the subject matter of the insurance • Insured MUST benefit from its safety and be prejudiced by its loss or damage (equivalent terms used for liability) • The relationship between the insured and the subject matter MUST BE recognised at law

Utmost good faith

• Definition of a material fact – Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk

Some facts requiring disclosure

• Marine – Type of cargo – Carried on deck – Sailing near war zone • Life – Medical history – Hazardous pursuits

Principle of indemnity

• The insured shall be placed by the insurer in the same financial position after the loss as he occupied immediately before the loss

Proximate cause

• If an excluded or uninsured peril caused the loss there will be no cover

Subrogation

• The right of a person to stand in the place of another and avail himself or herself of all the rights and remedies of that person • Insurer indemnifies • Then they have the right to recoup their money through the courts

Types of insurance

• Marine • Fire • Life & accident

Types of insurance

• Insurance of the person • Insurance of property • Insurance of liability • Insurance of interest

Types of insurance

• Every individual or organisation can incur liabilities if others suffer loss to person or property through their careless or negligent acts, defects in their property or goods supplied to them.

Liability

• Public liability • Personal liability • Employers’ liability • Professional liability • Products liability

Functions of reinsurance

• Additional capacity • Protects against catastrophical events • Stabilise results • Financial support • Market intelligence • Advice direct insurer • Improve the margins

Reinsurance

Proposer Original Insured Insurer Reinsurer Risk £ 10M Retains £ 2M Cedes £ 8 M Accepts £ 8M

Reinsurance

• Cession • Retention

Reinsurance

• Facultative Reinsurance • Treaty Reinsurance

The London Market What?

• World’s leading market for internationally traded insurance & reinsurance • Entirely non-life • Emphasis on high cost, high risk, unusual risk • Largely a “subscription market” (handled by brokers)

The London Market The Players • ILU • LIRMA • Fringe companies & contact offices • Protection & Indemnity (P&I) Clubs & other mutuals • Pools • Lloyd’s • Brokers

LLOYD’S

• Edward Lloyd’s coffee house – Clientele – Function – business

LLOYD’S Today • Marketplace • Names • Syndicates • Managing agents • Brokers • Room

LLOYD’S Broker • A Lloyd’s accredited broker • Present a “slip” • A leading underwriter = specialised in a field • Every underwriter takes a lead • Business is struck in utmost good faith

LLOYD’S Members • Names – Unlimited liability – Working Names – External Names • Corporate members – 1994 – Funds – Liability (liable to the full extent of their assets – liability of shareholders is limited to their share) • Managing agents

Names The “storm” • Catastrophes • Asbestosis (employers’ liability) • LMX-spiral (excess of loss reinsurance)

LLOYD’S After the storm • Decrease in syndicates and Names • Larger syndicates • No longer unlimited liability obligation • Introduction and steady increase of corporate capital • An increased level of capacity

LLOYD’S Lloyd’s security • Premium Trust Fund • Members’ fund • Names’ assets & corporate members’ assets • Stop loss fund • Lloyd’s Central Fund • Net assets of the Corporation of Lloyd’s