1. General Insurance Markets
The Major Providers
Marketing Strategies
Regulatory and Fiscal Regimes
Professional Guidance

2. The major providers 1. Direct Insurers
Direct insurance companies provide insurance for individuals and companies.
Composite insurance companies
Insurance Companies specialize in writing business in only a few classes of general insurance
Insurance companies that write all classes of general insurance

3. Corporate structure of general insurers
Proprietary (i.e. owned by shareholders in order to make profit
Mutual (i.e owned by policyholders).
General Insurance companies

4. 2. Reinsurance Companies
The major providers
2. Reinsurance Companies
Provide cover for insurance providers.
Some specialize in only writing some types of reinsurance, while others write all types of reinsurance.
Some insurance groups write both direct insurance and reinsurance.

5. The London Market
Insurance and reinsurance business is carried out on a face-to-face basis in the city of London.
Tend to be physically located close to each other.
Concentrates mainly on providing insurance and reinsurance cover to companies

6. The London Market PARTICIPANTS captives
UK subsidiaries or branches of overseas insurance or reinsurance companies
captives
small professional reinsurance companies set up by large broking firms for the specific purpose of transacting London Market business
P&I Clubs
Pools
reinsurance departments of UK composite companies, or reinsurance subsidiaries of such companies
Lloyd’s syndicates

7. Non-UK markets
All markets tend to be made of similar participants i.e mutual and joint stock insurance companies.
However markets can differ in:
Concentration of market shares of major insurers
If business is written directly with policyholders or with brokers
Importance of mutual companies
Whether or not composite insurance is permitted

8. Bermuda
Most developed insurance markets tend to be in large developed economies, notably the USA, Japan, Canada, France, Germany, Italy and Spain.
However Bermuda stands out being one of the international centers for insurance despite not being among the lead economically.
The reasons for this may include:
A favorable tax environment.
Regulatory advantage because it meets international standards.
A government that encourages growth of the financial industry.
It is a major tourist attraction
Strong historical and cultural links to UK thus attracting business from UK based companies and LLOYD’S businesses.

9. Non-traditional markets
This involves the transfer of insurance risk to banking and capital markets (securitization)
The capital markets are increasingly involved in taking insurance risk through Industry Loss Warranties (ILWs), catastrophe bonds, sidecars and traditional reinsurance contracts.

10. Non traditional markets: Advantages
The advantages of securitization are:
Uncorrelated with other risks that capital markets are exposed to
No reinsurance default risk
May be cheaper than conventional reinsurance
Provide cover that reinsurers may not be willing to, or have the capacity to accept
More effective or tailored provision of risk management
Source of capital
Tax advantages.

11. Marketing strategies
This section explains how insurance business is obtained in:
Non-London Market business
London Market business
Independent brokers
Tied agents
Direct marketing
The slip system

12. Marketing strategies: Non-London
Brokers
They act as intermediaries between the buyer and the seller of the insurance or reinsurance contract without being tied to either party.
They are paid by commission by the insurer. However, under the “law of agency”, they are agents of the insured when placing business.
Exception: when operating binding authorities; and when operating line slips.
Binding authorities allow the broker to enter into contracts of insurance and issue documents in behalf of the insurance company
Line slips will be explained in detail in the next sextion: quick definition: where underwrite delegate authority to accept a predetermined share of coinsured risks

13. Marketing strategies: Non-London
ii. Tied agents
they are tied to a particular insurer and sell that insurer’s products alongside their own.
Include organizations such as banks and building societies.
Exclusivity
Binding authorities allow the broker to enter into contracts of insurance and issue documents in behalf of the insurance company
Line slips will be explained in detail in the next sextion: quick definition: where underwrite delegate authority to accept a predetermined share of coinsured risks
Insurer A
Insurer B
Motor Insurance =
Motor Insurance
Other eg. Property, marine etc
Tied Agent

14. Marketing strategies: Non-London
iii. Direct marketing
Employees who are paid by fixed salary, commission or a combination of both.
It involves advertising, telephone, internet and cold call sharing.
The method employed varies by country and line of business. Eg.
Mass advertising is used for personal lines and small commercial lines
With large commercial lines, direct contact with the insurer’s sales force is preferred or employment of specialist brokers.

15. Marketing strategies: Non-London
Monitoring of the efficiency of sales channels is done by observing:
Number of sales made through the sales outlet
Expenses incurred e.g. through commissions
And, most importantly, the quality of business sold

16. Marketing strategies: London market
London market insurance providers acquire business through specialist brokers using the slip system.
The slip system involves;
Insured
Specialist broker
Lead underwriter
Following underwriters
Each underwriter acts as a coinsurer with several liability.
Adjustment of risk
If more than 100% is placed…
If less than 100% is placed…

17. Regulatory and Fiscal Regimes
THE NEED:
One of the reasons is that there is more scope for the purchaser to lose out financially.
However, with insurance, you pay the price at the start of the contract and you have to trust the insurer to pay valid claims as and when they arise in the future (basically selling a promise, unlike other cases where a good/service is exchanged)
The insurer may be very well meaning, but if the insurer’s business is not soundly managed, you may find that the insurer has collapsed by the time you need to make a claim.

18. Effect of the regulatory regime
Restrictions on the type of business that a general insurer can write or classes for which the insurer is authorised.
Limits or controls on the premium rates that can be charged.
Restrictions on the information that may be used in underwriting and premium rating.
A requirement to deposit assets to back claims reserves.
requirement that the general insurer maintains a minimum level of solvency, measured in some prescribed manner
Restrictions on the types of assets or amount of a particular asset that the GI can take into account for the purposes of demonstrating solvency.
Legislation to protect policyholders if a general insurer fails.

19. Effect of the regulatory regime
Restrictions on individuals holding key roles in companies
Licensing agents to sell insurance and methods of sale
A requirement to pay levies to consumer protection bodies
Legislation to protect p/hs if a general insurer fails.
Requirement to purchase reinsurance

20. Effect of the fiscal regime
In most countries the taxation of general insurers broadly follows that for other businesses although there may be special features, such as allowing equalisation reserves to be held to allow for the uncertain nature of general insurance business.
For example, transfers to equalisation reserves or catastrophe reserves may be allowable against taxable profit.
Some countries impose a tax on general insurance premiums for some or all classes of business.

21. Professional guidance
For example, for IFOA members there are 5 Guidance notes relating to General Insurance;
Guidance Note 12,18, 20,33 and 50
The Guidance notes are to be replaced by Technical Actuarial Standards (TASs). These are more principles based than the Guidance Notes.
The following TASs have been published;
TAS D (Data) TAS R (Reporting) TAS M (Modelling)
An actuary should also bear in mind guidance on professional standards, i.e Actuarial Code
Furthermore, the professional body may issue advice from time to time on specific issues

22. 01 02 03 04 05 Actuarial Code Integrity Impartiality
Competence and care 03
Communication 05
Impartiality 02
Compliance 04