Pricing in General Insurance

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4

The Insurance Markets

This is a short chapter in which we describe the major participants in the insurance mar-

ket. This is important for many reasons: rst, because products are not entities in a vac-

uum but are offered by a limited number of participants (as an example, most trade credit

policies are sold by a handful of large insurance companies); second, when you design a

product and you price it, you need to know the business context you are operating in (e.g.

the competition and the organisations you need to deal with) and the clients that are going

to buy it, whether they are private individuals, non-insurance companies (possibly through

their risk management department), public organisations or other insurance/reinsurance

companies.

Last but not least, you are probably working (or are going to work) for one of these

participants!

4.1 Major Participants in the Insurance Market

The insurance market, and specically the UK insurance market, is made up of three

groups of participants: the buyers, the intermediaries and the insurers (Thoyts 2010).

4.1.1 Buyers of Insurance

As we have seen in Chapter 3, the buyers of insurance can be private individuals, corporate

organisations (companies, public bodies, charities, etc.) or other insurers.

Private individuals will buy personal lines insurance products such as (to mention the

most common) car insurance, travel insurance, home insurance and extended warranty.

Depending on their lifestyles, they may also be interested in other products such as pay-

ment protection insurance, pet insurance or private aviation insurance.

Most corporate companies and public bodies in the United Kingdom will buy these four

basic commercial lines insurance products, which may well be bought in a single package

by sole traders and small companies:

• Employers’ liability (compulsory)

• Public and product liability

• Commercial property (possibly with business interruption)

• Commercial motor

Depending on their specic trade, territories, size and anything else affecting their risk

prole, these organisations will also be interested in other, more specic products.

62 Pricing in General Insurance

Figure 4.1 gives a list of industrial sectors (according to the Industry Classication

Benchmark [ICB] introduced by Dow Jones & Co. and FTSE Group – two providers of

stock market indices – in 2005) and illustrates a few insurance products that are either

specically for that sector (such as the operator extra expenses insurance for oil and gas

companies) or are particularly important and may need to be tailored for that sector (such

as product liability for pharmaceutical companies).

Oil and gas

Industry sector

Specific products (examples)

Onshore/offshore property

Exploration and production, equipment and

service, pipelines, renewable energy...

Control of well (OEE)

Removal of wreckage

Loss of production income (LOPI)

Basic materials

Chemicals, forestry, paper, metals, mining

Business interruption cover is essential

Environmental liability

Political risks insurance (trade-related cover, assets’ protection)

Specie insurance

Fidelity and crime guarantee (especially for precious

materials, such as gold or pearls)

Financials

Banks, insurers, real estate…

Professional indemnity, D&O, Financial Institutions

(a package of PI and D&O)

Bankers’ blanket bond (banks)

Cyber risks insurance

Reinsurance (insurers)

Information technology

Software and services (e.g. software

developers, internet providers), technology

hardware and equipment…

Telecommunication services

Fixed line TC, mobile TC

Utilities

Electricity, gas, water…

Environmental liability

Section 209 liability for water companies (this refers to a

section of the Water Industry Act 1991, dealing with losses

caused to third parties by escapes of water from pipes)

Industrials

Construction, aerospace, defence, electronic

equipment, industrial transportation

(rail, marine, trucks…)…

Construction all risks

Business interruption

Satellite cover (aerospace)

Consumer goods

Cars and parts, food and beverage, personal

and household goods

Product liability has of course special emphasis

Medical liability (a type of PI) for health care providers

Health care

Health care providers, medical equipment,

pharmaceuticals…

Consumer services

Retailers (including food), media, travel and

services (airlines, hotels, restaurants, gambling…)

Aviation (airlines)

Weather derivatives (hotels)

IT All Risks, e.g. if a technology company offers data

warehousing capabilities

Satellite cover

Product liability is especially important for pharmaceutical

companies and is sometimes rebranded as ‘pharma liability’

and amended to reflect the special nature of the risk

FIGURE 4.1

A list of industrial sectors according to the ICB introduced by the Dow Jones and FTSE in 2005, with a few

examples (not meant to be exhaustive) of relevant insurance products.