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Tuesday, November 27, 2012

Insurance Standards in the Solvency II Directive

Insurance standards that are to take effect once the Solvency II Directive is implemented in 1 January 2014 must be studied by policy holders, insurance companies, managers, business owners and everyone included in choosing an insurance policy. Insurance standards are also called implementing measures which are basically requirements that will apply to issuers.

The three main pillars of the Solvency II Directive are made to help the framework of the new directive easier to understand. Pillar 1 is the quantitative requirements that an insurer has to abide to; Pillar 1 is all about the technical provisions of the new directive along with the Solvency Capital Requirement with the use of a standard formula developed by the regulators of the Solvency II Directive or a formula from an internal model developed by the insurance or reinsurance company.

The value of the technical provisions for the Solvency II Directive is calculated this way; these are excerpts of the specific prohibitions included in the directive:

The value shall be equal to the sum of a best estimate and a risk margin. The best estimate shall be in accordance to a probability-weighted average of future cash-flows with the time value of money taken into consideration with the use of a relevant risk-free interest rate term structure.

As well as these methods of determining the value of the technical provisions of the new directive "the best estimate shall also be calculated gross without the deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles. Those amounts shall be calculated separately."

Insurance and reinsurance undertakings shall value the best estimate and the risk margin separately. Where insurance and reinsurance undertakings value the best estimate and the risk margin separately, the risk margin shall be calculated by determining the cost of providing an amount of eligible own funds equal to the Solvency Capital Requirement necessary to support the insurance and reinsurance obligations over the lifetime thereof.

The International Actuarial Association has a deep role in developing insurance standards, technical provisions and risk margins. The International Association of Insurance Supervisors has requested help from the IAAA to develop a better formula to assess risk based capital and risk margins for loss reserves. The collaboration of the IAIS with the IAA has led to the development of properties of risk margins which are namely the following:

The less that is known about the current estimate and its trend; the higher the risk margins should be. Risk with low frequency and high severity will have higher risk margins than risks with high frequency and low severity. For similar risks, contracts that persist over a longer timeframe will have higher risk margins than those of shorter duration. Risks with the wide probability distribution will have higher risks margins than those risks with a narrower distribution. To the extent that emerging experience reduces uncertainty, risk margins will decrease and vice versa.

Pillar 2 on the other hand is all about the qualitative requirements for the governance and risk management of insurers. It is also for the effective supervision of insurers. It includes a system of governance together with an ORSA (Own Risk & Solvency Assessment) and a supervisory review process. Insurance firms are asked to make an assessment of their own solvency needs. The ORSA will function as an internal risk assessment process and a supervisory tool for the industry. Assessment of your own risk promises to be the best practice to improve the entire insurance industry; insurance firms who are able to use the ORSA will gain competitive advantage over other companies in the future.

Finally, Pillar 3 focuses on disclosure and transparency requirements of insurers. These include annual publication of each company's solvency and financial condition report. These pieces of information must be disseminated to the firms' supervisors to be able to assess any changes on their system, to implement better governance, etc. Disclosure of solvency reports is made through regulatory publications covering the company's risk profile and the underlying technical provisions. Checks and balances are of course necessary to ensure all published data are accurate. Pillar 3 of the Solvency II Directive will further enforce a transparent relationship between policy holders and insurance companies improving the insurance market all the more.

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Is Going Direct Really Cheaper Than A Broker Or Price Comparison For Small Business Insurance?

The UK media is currently awash with advertising slogans from direct commercial insurance companies targeting small business owners in an attempt to make them switch their provider of business insurance.

'Get 12 months cover for the price of ten' and 'You won't find us on price comparison websites' are typical of the slogans emanating from these companies, in a language more akin to the selling of car insurance than the traditional professional and almost stoic approach to the selling of business insurance cover.

In the current recession, price has become the determining factor in winning the war of market share for all goods and services and insurance is no exception. Prudent small businessmen and women are looking to cut costs in all areas of their business and the large direct insurance companies are well aware of this.

The large insurers are also aware that the UK market has over five million small businesses of which a fifth are sole traders, self-employed and people working from home, many of whom are familiar with purchasing their personal insurance direct with the provider, either by phone or on the Internet.

There are three types of provider in the current market for business insurance in the UK.

Intermediaries such as insurance brokers and agents, price comparison sites and direct commercial and business insurers.

Each has their own advantage and disadvantages, however whether one distribution channel is cheaper than another is often a subjective view from a particular trade, or dependent upon factors many of which cannot be quantified in price.

Direct Insurance companies claim to be able to offer cheaper polices because the cut out the costs of the middleman. It is certainly true that direct insurers do not have to pay an intermediary for the cost of the lead or introduction, however it is questionable whether this cost saving is actually reflected in the prices offered to the public.

Certainly there are economies of scale to be made by centralising the life-cycle of a policy from sales point to claim and renewal, however all those functions that are performed by an intermediary still have to be carried out in-house by the direct company and these have a cost.

Many large composite insurers often have distinct direct divisions with their own target market and premium rates. The same company may also have a broker or intermediary division or channel.

It is quite often the case that a large broker with a large book of business of, for example, small builders liability, will receive much more preferential rates then the same companies direct channel, because that insurance company wishes to retain that brokers clients.

Commercial Insurance brokers then are often able to offer preferential rates because they have more flexible schemes and arrangements than the direct channel.

One of the main benefits of using an insurance broker or intermediary in purchasing commercial insurance for small business, cannot be quantified in price and is worth the commission or fee that they may charge. That is advice, market and product information and knowledge, access to various markets such as Lloyds and some human help if the worst happens to a business and a claim is needed.

A commercial or business insurance broker is often able to negotiate far better claims settlements than if an individual were to deal direct with the insurer. The main reason for this is once again the insurer wishes to retain that brokers share of the total risk pool and will often pay out to a broker on an ex-gratia basis. This cost of this service is not quantifiable at the quote stage where small business cover may well just be valued for the price paid or the covers bought.

The third major way in which small business owners can purchase cover is by visiting a price comparison website. All the major UK comparison sites have recently begun to offer online cover aimed particularly at the small business sector, with under 50 employees. This is in direct competition with the direct insurers for television and media advertising space, aimed in particular at self-employed tradesmen and women who require business liability insurance and perhaps commercial van cover.

The comparison price proposition is that they can compare the market or at least a small section of it, to find the cheapest business insurance. They often do not provide any assistance in the purchasing decision-making process and the reality often is, that the cheapest commercial and small business insurance can be found in one of the other distribution channels.

It is therefore important that a small businessman shops around and takes some time to compare offerings including premiums, covers and services from all three sales channels. Prices tend to vary immensely by trade across the direct, broker and comparison markets and often it is a case of finding the provider or supplier who is the industry leader for a particular business type or trade in order to make large savings.

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Commercial Insurance Combined Policies

Commercial Insurance is a wide genre with many business types, covers and risks.

A commercial insurance combined policy is modular with a basic set of cover options included. This allows various risks and cover options to be added to the policy as desired by an individual business in an incremental fashion or at a later date during the policy term, if business needs require.

The modularity of the underwriting and premium calculation allows proposers to tailor the covers to fit their individual trade or business insurance requirements whilst retaining the widest range of policy options to cover all enterprises requirements, under the same policy wording.

Most commercial and business insurance is packaged in some way, with a basic blanket level of cover and indemnities to which further options can be added. However it is possible to buy standalone commercial insurance cover for public liability and professional indemnity insurance and also for most types of commercial property insurance, for example where just buildings cover is needed.

At the sales and marketing level, commercial insurance combined packages are differentiated and sold by the various trade and business types.

This is because different business types require differing liability and cover limits, depending upon the particular risks in that business sector. For example a shop insurance package may place high value on including window and glass cover in its package, however this wouldn't be much use to a painter and decorator who is just looking for tradesman's public liability and tools cover. Similarly the shop owner would not find much use for a contractors all risk option but requires goods in transit cover for his deliveries.

Good commercial combined packages allow flexibility in their underwriting to cater for all variations of trade risks and online services allow you to freely add and remove options to build up a combination of covers that suits your business risks and pocket.

A combined policy will always contain a liability section as standard. This provides options to add employers and product liability to the basic public liability cover.

If the business owns or rents commercial property then buildings and contents cover can be added if required. Certain combined policies, such as for office insurance will offer office contents as a separate option. Similarly a shop insurance package will offer cover for stock held in the premises.

Commercial packages aimed at various trades usually also offer a plethora of add-on options for an additional premium.

Some of the more popular of these covers include business interruption insurance or loss of profits insurance which covers a businesses losses whilst being unable to trade due to a claim. Professional indemnity insurance which covers negligent advice is available under combined liability policies. Fidelity guarantee insurance protects a business against fraud or theft of money by an employee. Group personal accident cover and income protection is often available on combined policies which cover staff against accident and sickness.

Is Your Venture Protected From Social Media Liability?

As the popularity of social websites like Facebook and Twitter continue to grow, the challenges facing the business industry as well as individuals become a critical issue that must be addressed. Many businesses are ignoring the opportunities and risks at their own peril. Those who decide on a proactive program can multiply their client base, develop new business and increase their brand recognition. Those who do not can be at risk of negative advertising and possible litigation stemming from employee or consumer complaints. A memo dated May 30, 2012 made public by the National Labor Review Board (NLRB) affirms the increasing danger that businesses encounter concerning their social media policies. It is essential that companies adequately check out their risk management policies and insurance coverage to include social media perils.

In regard to employees' online activities, businesses need to figure out what types of control are needed for their individual circumstance. Do staff use online media sites as a part of their job? Are they allowed to use company resources even when posting on personal sites? In the NLRB memo mentioned earlier, many businesses were cited as using unlawful practices to control their employees' social networking activities. Many companies were vague or too broad in the language used and the language could possibly be understood as a violation of their free speech rights. Wal-mart was favored for their social media strategy because they explained any ambiguous language so as not to disregard any associate's First Amendment or state-constitutional free speech rights. Failure to authorize appropriate controls have the potential to lead to illegal employment practices, misleading advertising, discrimination against a legally protected status (e.g. race, gender) or breaking of federal and state laws. There could also be further liabilities to those businesses under the purview or direction of a regulatory association.

In regard to business records management (RM) procedures, Symantec among other security control organizations stress the importance of implementing an official retention plan to cover against risks. A Forbes.com article about social media risks included a comment from Gartner Group figuring that by the end of 2013 half of all corporate litigants "will be asked to produce material from social media websites for e-discovery". Absence of a sanctioned RM policy could stifle the ability to produce records mandated by the court as well as add to the chance of unintentionally releasing material that would otherwise be kept from public exposure. Development of a transparent and executable policy can protect against legal liability or an embarrassing public relation situation.

The public wants the power to connect through online sites like Facebook and Twitter so the business industry needs to respond, adapt or lose an opportunity to see the great gift that comes with these growing technologies. One way some companies are taking advantage of the prospect is by developing "canned" text or pre-approved topics/statements that may be posted by employees. This approach can be a practical way to initiate a proactive social media policy and secure their investment at the same time.

In essence, businesses need to understand the risks and address social media policies in regard to crisis/risk management, intellectual property, client/employee privacy, and compliance with federal and state laws and industry regulatory restrictions. With the increasing use of technologies, companies should also speak to their insurance agents to ensure they have satisfactory insurance coverage - some providers require special riders in order to grant coverage against social media liability.

A Guide to Getting the Best Business Liability Insurance Quote Residential Landlord Insurance Commercial Insurance Quotes Online Pitfalls Maximize Business Coverage By Finding The Right Provider

Builders Insurance and Building Construction Risks

If you are a builder or are one of the many different trades involved in construction it essential that you consider all the risks that may occur on a building site and plan to take measures to avoid them. It is also essential that you have a proper back up plan in the form of insurance, should things go wrong.

Second only to farming, building is the most riskiest business in the UK.

Risks to builders and risks to others through their building activities exist at all stages of a building project no matter the size of the works, except that the larger the size construction the more likelihood for a risk event to occur.

The risks that present themselves to builders, building tradesman and members of the construction industry vary depending upon the stage of the development.

When ground-works are being dug on a new site, it is important to initially secure the site to prevent members of the public and unauthorised personnel straying into the building works area and potentially getting injured. Particular attention should be made to exclude the risk of children or animals gaining entry to the site.

People working on ground-works risk injury from diggers and mechanical equipment and a host of other risks. Large holes for foundations are obvious dangers, but the risk of ground collapse around the hole maybe not so obvious except to the professional. Badly stored materials and concrete deliveries have been known to cause many an accident.

The initial stages of a building works contract are often the most dangerous as there is a constant stream of traffic delivering building materials and the workforce is unfamiliar with its surroundings.

The build stage presents different risks to builders, construction workers and members of the public, all which mostly involve the use of heat or the dangers of working at height. Blow-torches used by plumbers or open boilers used by flat roofers for pitch can ignite buildings or material and cause serious loss through fire.

Bricklayers working at height may easily slip and be seriously injured or knock a wheelbarrow full of cement onto a passer-by. similarly scaffolding has been known to collapse in high winds.

Fortunately for builders and building trades business, specialist builders insurance exists to cover all potential risks that a small builder, medium-sized building firm or large building contractor would face.

All building and construction trades can be covered including Air Conditioning engineers, Electricians, Fabricators, Plumbers, Bricklayers, General Builders, Roofers, Carpenters, Joiners, Ground Workers, Labourers, Window and Door Fitters, Scaffolders, Damp Proofers, Heating & Ventilation engineers, Skip Hirers, Demolition workers, Kitchen Fitter, Bathroom Fitters, Painters and Decorators and Lift Engineers to name but a few of the construction tradesman insurance schemes available.

Builders Insurance covers all liabilities for which the builder may be sued. This includes public liability insurance which covers damage or injury caused to other people or property through the negligence of the builder or one of his employees. Without this cover in place even the biggest builder could face crippling damages and costs awarded against him in a court.

A building trades insurance package will also contain provision to cover against being sued by employees and sub-contractors who may have an accident at work. This is known as employers liability insurance and is required by law if you employ any staff even on a temporary basis, such as labourers.

Aside from liability to the public and employees, the biggest threat that a builder or building tradesman will face on site is the theft of tools and equipment essential to carry out the works. Most builders insurance liability packages contain an option to protect these vital pieces of equipment on a replacement indemnity basis, the appropriate level of which can be set by the builder.

Builders Insurance Explained

Builders Insurance is designed to cover self-employed builders, small building firms and building tradespeople against all potential liabilities they and their staff might face in the daily course of building works.

A typical package will always contain public liability insurance to guard against all claims for loss or injury made against the builder by clients and members of the public.

Additional optional covers include Employers liability, which is a legal requirement if the builder employs full- time staff and bona-fide sub-contractors, tools insurance which covers all the builders tools on or off site and Goods in transit cover which covers damage to goods and materials in transit to and from a building site.

Most policies will include Products liability as standard cover. This covers the builder against any defective materials he may have supplied.

All builders will require public liability insurance because of the numerous amount of accidents and losses that can occur at a builders workplace.

At ground level all sorts of risks present themselves for which the builder could be held liable.

Electric cables, tools, power tools, toolboxes, building materials such as limestone cement, paint and other chemicals, moving machinery, pollution risks and damage to neighbouring property, are all real risks of building activity, from which all too frequently accidents occur injuring other workers on site, clients or members of the public.

All builders insurance polices ask about the types of building work you do and especially about whether you work at height.

Scaffolding, timber, bricks, walls, roof tiles or even paint pots falling from height can seriously injure or even kill members of the public or other site workers.

A typical builders insurance policy or liability package classes the type of risk into different height defined types each with their own policy clauses and restrictions. A further division is made by the type of property that the builder usually works on, either private houses or commercial buildings.

Builders who work on single storey extensions and do groundwork and interior alterations to private houses and buildings, are considered the lowest form of risk by the underwriters. The cheapest policy available on the market would be for a sole-trader builder or handyman who does this type of work and only requires Public liability of one million to cover on-site risks to clients and the public.

A second class of builders insurance is for small building firms or sole traders with or without sub-contractors, who work on private houses and new builds. The height restrictions for this type of cover are usually set at two storeys or ten metres to allow for taller townhouses. This is the most popular form of small builder insurance and covers the majority of firms and sub-contractors working on new housing estates and private self builds.

The commercial builder class covers small to medium-sized building firms who work predominantly on commercial property such as offices, shops, pubs, hotels, government buildings and projects and also large blocks of flats and private condominiums.

Public liability insurance for these companies is usually set at ten million for any one event, as required by the contract conditions for this type of work. An expensive extension to this cover but often necessary one, is that of working in hazardous environments, such as in industrial plant or at extreme heights.

If a builder uses heat in the course of his work, for example using a blow torch on metal pipe work, this presents a much greater risk to the building from fire and quotes and premiums offered will consequently be much higher. Insurers may well also demand higher levels of liability limits to cover heat work.

Aside from any statutory regulations and contract commitments, if a builder employs any labourers, ground workers, bricklayers, carpenters, roofers, glaziers, plumbers or painters and decorators, even on a temporary or part-time basis, they would be foolish not to have employers liability insurance cover.

Unfortunately accidents to workers are all to common on building sites, second only to farms in terms of risk. Workers can be seriously maimed or injured and will undoubtably turn to their employer as responsible.

Finally builders should not forget to cover their tools against theft loss or damage. Replacing a cement mixer will cost more than the average builders insurance policy premium. Most policies allow the proposer to set the level of indemnity cover for the value of the tools. If claims for loss of tools are made the Insurance company will often reduce the claim amount paid, for wear and tear.

An all risks builders liability and tools insurance policy can be purchased relatively cheaply currently as it is a class of business commercial insurance companies want to encourage and offer competitive rates for. For this reason it pays builders to shop around for cover and the Internet provides offers from all the top underwriters and insurance companies with online quotation systems.