NTUC Income AR 2018

Notes to the Financial Statements For the Financial Year Ended 31 December 2018 4. Management of insurance and financial risks (continued) (b) General Insurance Contracts Risk Management General Insurance Risks Insurance contracts transfer risk to the Group by indemnifying the policyholders against adverse effects arising from the occurrence of specified uncertain future events. The insurance risks arise from the fluctuations in the timing, frequency and severity of claims, as well as the adequacy of premiums and reserves. The majority of the general insurance business is motor insurance. Other insurance business includes personal accident, worker’s compensation, fire, marine and other miscellaneous classes. Terms and Conditions of General Insurance Contracts The General Insurance contracts written by the Group are mostly on an annual coverage and annual premium basis, with the exception of short term policies such as travel insurance which cover only the travel period and marine cargo which covers the duration in which the cargo is being transported. Some of the more common policies which make up a large part of the general insurance portfolio are briefly described as follows: Motor insurance policies cover private cars, commercial vehicles, motorcycles, buses and taxis. Private cars, the largest portion of the motor portfolio, covers losses or damages to the insured vehicle, death or injuries to third parties, damages to third party property and personal accident. Personal accident policies cover death, disablement, medical expenses and emergency evacuation expenses due to accident, hijacking, murder, assault, strike, riot, civil commotion, act of terrorism and natural disasters such as earthquake and flood. Workmen compensation policies cover two legal liabilities. Firstly, the Work Injury Compensation Act provides compensation to workers or their dependants for specified occupational diseases, personal injuries or deaths caused by accidents arising out of and in the course of employment. Secondly, “Common Law” covers an employer’s liability under common law to his workers, due to negligence leading to an accident resulting in death or injury. Fire insurance policies insure properties against physical losses or damages by fire and lightning and extraneous perils such as riot & strike, malicious damage, explosion, aircraft damage, impact damage, bursting & overflowing of water pipes, flood, earthquake, volcanic eruption, hurricane, cyclone, typhoon or windstorm. Objectives of managing risks and policies for mitigating risks The objectives of managing insurance risks are to enhance the long-term financial performance of the business and limit any excessive variability of the insurance results. Underwriting insurance contracts involves the pooling of a large number of uncorrelated risks to reduce relative variability. The Group adopts the following measures to manage the general insurance risks: – underwriting standards – to select risks and control exposure in accordance to established guidelines. – claims control – to pay claims fairly and control claim wastage or fraud. – pricing and reserving standards – to ensure adequate pricing for risks and valuation of insurance liabilities. – reinsurance protection – to limit exposure to large insurance contracts and large claims. Concentration risk is particularly relevant in the case of natural disasters and other catastrophes. The Group’s insurance contracts mostly cover perils and risks in Singapore. As such, the Group’s concentration risk is negligible as Singapore is hardly exposed to natural disasters. Perils like floods, epidemics and terrorism do present a level of variability and correlation in the future claim experience but these concentration of risks are protected by event excess of loss reinsurance. In addition, these risks are not material given the likelihood of such events. 72 HAND IN HAND