Liability reinsurance

Liability reinsurance protects insurers from large and long-tail obligations under general, professional and other liability policies. The distinguishing feature of this line is uncertainty: the size of a loss depends on the claims of injured parties, court practice and the time taken to resolve disputes, and claims may arrive years after the event. A single incident can affect many injured parties and several policies at once, so it is important for the insurer to limit its burden per event and for the year as a whole.

Which types of liability are reinsured

  • general civil liability of enterprises to third parties;
  • product liability;
  • professional liability — of auditors, notaries, appraisers, designers, medical organisations and IT companies;
  • directors' and officers' liability;
  • liability of owners of hazardous facilities and environmental liability;
  • employers' and carriers' liability.

Some types of liability in Kazakhstan are insured on a compulsory basis, which forms large homogeneous portfolios that need reinsurance protection.

How protection is structured

Non-proportional reinsurance is widely used for liability portfolios — excess of loss per risk and per event, with limits in several layers. Quota share treaties are used when launching new classes or to relieve capital. Large corporate programs, liability towards international counterparties and risks with high limits are placed on a facultative basis. It is important to agree the basis: cover on a claims-made basis during the policy period or on an occurrence basis for events in that period — the tail of liability and the settlement procedure depend on it.

Underwriting features

The reinsurer assesses the type of activity, the nature of possible harm, the number and type of counterparties, the territory of operation and applicable law, the clients' contractual insurance requirements, the risk management system and the quality of control. For professional liability, the qualifications of specialists and the procedures for checking work are important; for products, the geography of sales and quality control; for directors, the financial position and corporate governance. Claims statistics are analysed separately, including claims notified but not yet settled.

What is usually excluded

  • intentional acts, fines, penalties and punitive sanctions;
  • contractual liability in excess of liability under the law;
  • gradual pollution, unless specially included;
  • claims known to the policyholder before the start of insurance, and events before the retroactive date;
  • certain jurisdictions with a heavy litigation burden — unless agreed.

Key terms

  • limits per claim and in the aggregate for the period, the cedent's retention;
  • basis of cover, retroactive date, extended reporting period for claims;
  • inclusion or exclusion of legal and defence costs within the limit;
  • territorial scope and applicable law;
  • the definition of an event and the procedure for aggregating serial losses;
  • reporting, settlements and the reinsurer's participation in the settlement of large claims.

What data is needed for a quotation

  • the type of activity and the nature of the liability;
  • the territory of operation and contractual insurance requirements;
  • the desired limits and retention;
  • the existing terms and claims statistics for several years.

How Polis Re helps

The Polis Re broker analyses the exposure, helps choose the basis and limits, prepares materials and selects reinsurers with liability experience on the domestic and international market, and supports claims settlement. For liability insurance for business see the calculator. To get an offer, send a reinsurance request.