General insurance products, markets and the operating environment
This domain tests whether you can place a general insurance product in its commercial, distribution and regulatory context, and explain how that context changes pricing, reserving and capital outcomes.
Core concepts
- Product design: indemnity versus valued policies; occurrence versus claims-made cover; per-risk, aggregate and annual aggregate limits; deductibles, warranties and conditions.
- Distribution: brokers, direct writers, aggregators, MGAs with delegated authority, mutuals and Lloyd's syndicates. Commission and delegated-authority costs sit in the expense base.
- Regulation: the PRA/FCA dual regime, UK Solvency II, FCA Consumer Duty, sanctions, contract law and conduct rules. Permissions and approved persons matter before a product can be sold.
- Market cycle: capacity, catastrophe losses, investment returns and reserve adequacy drive soft and hard markets. A soft market can hide deteriorating loss ratios.
Worked example
A gadget insurance product has gross premium £120 per policy. Expected claims are £60, claims handling £6, broker commission 25% (£30) and administration £18. Underwriting result = 120 − 60 − 6 − 30 − 18 = £6, a combined ratio of 114/120 = 95%. If commission rises to 30%, the combined ratio becomes 100%. The product only looks profitable because investment income and volume assumptions are doing work that the underwriting margin does not.
Traps that cost marks
Ignoring Insurance Premium Tax, commission and claims-handling costs; treating a market cycle as a smooth trend; assuming delegated authority removes the insurer's regulatory responsibility; and quoting a combined ratio without saying whether it is gross or net of reinsurance.
Exam tip
Link every product feature to a cash-flow or risk consequence. A claims-made policy changes the reserving tail; an aggregate limit changes the reinsurance and capital profile; a deductible changes the frequency-severity mix.