3.4 Classes of General Insurance, Contract Types and Group Insurance
Key Takeaways
General insurance products are classified broadly as personal general insurance, bought by individuals, and commercial general insurance, bought by businesses.
Most general insurance contracts are contracts of indemnity; valued contracts pay an agreed value, and benefit contracts pay a fixed sum regardless of financial loss.
Group insurance covers members of a group formed for a purpose other than buying insurance, under one master contract held by the employer or organisation.
Group cover usually costs less than individual cover because of group underwriting, experience rating and lower administration costs.
A compulsory (non-contributory) group plan covers all eligible employees with the premium paid by the employer, whereas a voluntary (contributory) plan needs minimum participation.
3.4 Classes of General Insurance, Contract Types and Group Insurance
Quick Summary: General insurance is divided into personal and commercial lines, which can be grouped further into property, liability, motor, health, financial and marine and aviation classes. Contracts settle claims in one of three ways: indemnity (actual loss), valued (agreed value) or benefit (fixed sum). Many covers can be sold on an individual or a group basis, and group insurance has its own features.
Personal versus Commercial General Insurance
- Personal general insurance is bought by individuals to protect themselves in non-commercial situations, or to meet legal requirements such as compulsory motor insurance and foreign domestic worker insurance.
- Commercial general insurance is bought by businesses to protect against risks arising from their business activities.
This split matters elsewhere in the syllabus. The PPF Scheme protects specified personal lines issued to individuals (Section 2.2). The Premium Payment Framework applies the Payment Before Cover Warranty to personal lines and the 60-day warranty to commercial lines (Section 2.3). SCI's PGI and ComGI modules follow the same division.
Main Classes of General Insurance
| Class | What it covers | Examples |
|---|---|---|
| Personal lines | Risks faced by individuals and families | Private motor car and motorcycle; houseowner's (building); householder's (contents); packaged household; valuable articles; personal accident; travel; personal liability; foreign domestic worker; golfer's; electrical protection; pet; personal mobility device |
| Financial lines | Monetary loss rather than physical damage | Business interruption; professional indemnity; directors' and officers' liability; fidelity guarantee and crime; credit insurance; insurance bonds; cyber; contingency (event cancellation); extended warranty; card protection; identity theft |
| Health | Benefits after illness or hospitalisation | Hospital cash (income); critical illness; hospital and surgical |
| Property | Physical loss of or damage to tangible property | Fire (with extended perils); theft or burglary; money in transit; glass; electronic equipment; commercial and industrial all risks; terrorism; contractors' and erection all risks; boiler and pressure vessel; machinery breakdown |
| Commercial motor | Business ownership or use of vehicles | Commercial vehicles such as lorries, vans, buses and taxis; motor trade |
| Liability | Legal liability to pay damages and costs to others | Work Injury Compensation; public liability; products liability; carriers' and bailees' liability; commercial general liability |
| Marine and aviation | Ships, cargo, goods in transit and aircraft | Marine cargo; marine hull; aviation hull and liability |
How Contracts Decide What Is Paid
The SCI study text distinguishes three types of insurance contract.
1. Contracts of Indemnity
Most general insurance contracts are contracts of indemnity: the amount paid is based on the actual loss suffered, worked out after the loss. A fire insurer pays for the actual damage, even if the sum insured is higher than the property's value (Section 5.1).
2. Valued Contracts
In a valued contract, insurer and insured agree the value of the property before the policy is issued. If the property is lost or destroyed, the agreed value is paid. Valued policies are used for paintings, sculptures, antiques and jewellery, whose value is hard to establish after a loss. The insurer may ask for the purchase receipt or a professional valuation first. Marine policies are generally issued on an agreed-value basis.
3. Benefit Contracts
A benefit contract pays a fixed sum when a specified event happens, whether or not the insured suffers a matching financial loss. Examples are personal accident cover for accidental death and permanent total disablement, critical illness, hospital income and most life policies. Because a life or a limb cannot be valued, indemnity and contribution do not apply to these benefits.
Individual versus Group Insurance
General insurance can be sold to individuals or to groups.
| Feature | Individual insurance | Group insurance |
|---|---|---|
| Who is covered | Only the person who applies | Members of the group, often only those actively at work |
| Contract | Each insured gets a policy | One master contract issued to the employer or organisation |
| Amount of cover | The individual chooses | Often set by the employer, especially in employer-paid plans |
| Underwriting | Individual health and financial status assessed (for accident and health) | The group assessed as a whole: age and gender mix, size, occupations, claims experience |
| Continuity | Continues until the individual or insurer ends it | Cover stops when the member leaves the group; the plan continues for the others |
| Cost | Higher, because of individual underwriting and administration | Lower, because of group underwriting and administration savings |
| Eligibility | The individual need only be insurable | Members must meet the eligibility rules in the group policy |
Characteristics of Group Insurance
- Master contract: one group policy is held by the policy owner, such as the employer. When a member leaves or dies, only that member's cover ends, as long as the group stays above the insurer's minimum size.
- Minimal underwriting: especially for group accident and health cover, insurers may accept large groups with only a health declaration, or none, relying on a pre-existing condition exclusion to manage anti-selection.
- Experience rating: premiums reflect the group's past claims, and some insurers pay an experience refund when claims are better than expected.
- Cost-effectiveness: issuing one policy saves administration costs.
- Plan continuation: plans are usually renewed every year, and the intermediary should help the employer review whether the cover is still adequate.
- Eligibility rules: policies often limit cover to full-time employees in specified classes. Many have an actively-at-work clause, so an employee off work for medical reasons on the start date is covered only on returning to work in good health. Some employers also set a probationary period before new staff join the plan.
The group must exist for a purpose other than buying insurance, such as an employer, club, professional association, trade union or uniformed group.
Compulsory versus Voluntary Plans
| Plan type | How it works | Main advantages |
|---|---|---|
| Compulsory (non-contributory) | All eligible employees are covered and the employer pays the premium | Simple administration with no payroll deductions; lower cost from a larger pool; employer controls the benefit design |
| Voluntary (contributory) | Employees choose to join and pay part of the premium; insurers require a minimum number or percentage of participants | Employer shares the cost; employees value cover they help pay for and can choose to join |
An art collector and an insurer agree before the policy starts that a sculpture is worth S$80,000, and that sum is paid if it is destroyed. What type of contract is this?
A contract of indemnity
A benefit contract
A valued contract
A group master contract
Which feature is typical of group insurance rather than individual insurance?
Each member receives a separate policy contract
Each member's health is underwritten individually
Cover continues after the member leaves the group
The group is rated as a whole on its claims experience
An employer covers all eligible employees under a group plan and pays the whole premium. What kind of plan is this, and what is one advantage of it?
A compulsory plan, which is easy to administer with no payroll deductions
A voluntary plan, which lets employees share the cost
A contributory plan, which always needs a minimum level of employee participation
An individual plan, which allows tailored underwriting
Sections you finish are checked off in the contents.