Risk is transferred by a person or business to an insurer.

Three Components

• Risk - uncertainity about outcome, possibility of financial loss
• Transfer - exchange of premium for large risk
• Pooling - Insured shares costs

Homeowners

Personal Auto

Personal watercraft

Personal umberella

Commerical Property

Commerical Crime

Commerical General liability

Commerical Auto

Workers compensation

Commercial umbrela

• Paying Losses - biz and personal claims
• Reducing Uncertanity - Increased peace of mind
• Using Resources Efficiently - Ins makes it unnecessary for individual and biz to set aside large amounts of money to pay for finanaical consequences
• Promoting Risk Control- risk control activities can lower potential accidents and lessen severity, less in claim $$
• Satisying legal requirements
• Providing a basis for credit

1. To pay claim insured losses

2. to pay expenses for running the insurance company

3. To invest premium dollars

List 5 insurance functions

• Marketing 
• Underwriting
• Claims
• Risk Control
• Premium audit

Determines the products or services customers want and need and delivering them to those customers

Occurs at the end of a policy period, determines if any adjustments to the premium that may be required based on ins. loss exposures

an insured

insurer

producer  -

(sales rep, agents, brokers)

Types of Marketing systems/Distrub. channels

Independent Agency - not employees of insurer, free to work with as many insurer as they want

Exclusive Agency - not employees, represent only one insurer

Direct writer - Employeess of insured, represent one insurer

Alternative Distriubution channels

• Direct reponse
• Internet
• Call center

Prospecting

Risk Management review

Sales

Policy issue

Premium collection

Customer service

Claim handling

Help insurer to develop and maintain a profitable book of business

Minimize adverse selection - the tendancy of people with greatest possibility of loss be most likely to purchase ins

Protect the insurers capacity - the amount of business an insurer is able to write

Gathering the necessary information

Making the underwriting decision

Implementing the underwriting decision

Monitoring the underwriter decision

Accept the application

Reject the application

Accept with modification

Class rating - all members of a class are charged the same rate for ins, premiums may be different if they have different number of exposure units

Individual rating - ins rate that reflects the unique characteristics of an insured or insured's property

Loss ratio = Incurred losses (including loss adjustment expense)

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Earned premiums

Expense ratio = Underwriter expenses

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written premiums

Combined ratio = loss ratio + expense ratio

Product mix

Pricing

Retention ratio -  % of ins. policies renewed

Sucess ratio - ratio of policies quoted vs writtten

Customer service

Keep the insurer's promise

Supporting the insurer's profit goal

1.  Acknowledging a claim & assigning it to a claim rep

2.  Identifying the policy

3.  Contacting the insured or the insured's rep

4.  Investigate and document the claim

5.  Determine the cause of loss and loss amoun

6.  Concluding the claim

An insurer can recover any payments it has from made from a third party that is legally responsible for the loss

First party claim - Claim made by insured person

Third party claim - claim made against policyholder

claimant - a party that makes a claim and can be either first-party or third party

Claim rep - person responsible for investigating, evaluating, and settling claims

To protect consumers

To maintain insurer solvency

To prevent destructive competition

domestic insurer - doing biz in the state which your are incorporated in

foreign insurer - doing biz in states that you are licensed in, but not incorporated

Alien insurer - an insurer from another country

stock insurer - insurer is owned by stockholders

Mutual insurer - insurer is owned by policy holders

reciprocal Insurance exchange - unincorporated association of subscribers

admitted - insurer that are licensed to do business in a state

nonadmitted - insurers does not have a license, surplus lines

Mandatory rate law - imposes the strictest control of an insurer rate

Prior-approval law - insurer cannot charge a rate until it is approved by state regulators

File and use law - insurer must file proposed rates, but can use the rate while state approval is pending

Use and file law - variation of the file and use that provides more flexibility

Flex rating law - increases the amount of flexibility for insurers in their rate determinations

Open competition - Allows insurers to develop rates without having to file or get approval

declarations

definitions

Insuring agreements

conditions

exclusions

Misc provisions

Insured name address

Policy number

policy inception/expiration dates

coverage summary

premium

mortgagee/lienholder

to determine whether a policy covers a loss

• Declaration
• review the declaration page to determine if policy holder is covered at time of loss
• Insuring Agreement
• review to determine if it covers loss
• Conditions
• review to determine compliance
• Exclusions
• review

Property loss exposure - exists when property can suffer a decrease in value because of peril

Real property - land and buildings

personal property - tangible or intangible that is not real property

Dwelling - house, structures attached to the house

Other Structures - Detached structures

Personal Property - protection for insured's other property

Loss of Use - insurers financial losses that result when part or all of any insured residence being uninhabitable

Personal liability - claims for bodily injury or property damage for which insured is liable

Medical pymts to others - provides pymt for medical expenses to persons other than insured

Liability coverage

Medical pymt coverage

Uninsured /Underinsured motorist coverage

Physical damage coverage

Personal injury protection

Real property - tangible property consisting of land, all structures permanently attached to the land, and what is growing on the land. 

Personal property - all property that is not real property.

Autos, merchandise, furniture

A. Covered Property

• Bldg & Personal property Coverage

B.  Covered Locations

• inland marine ins "floating property"

C. Covered causes of Loss

• Basic Form, named perils
• Broad Form add several perils to Basic
• Special Form, all causes of loss that itsn't excluded

D. Covered Financial Consequences

• Biz income and extra expense

• Premises & Operational
• An accident occuring on premises
• Accident occurs away from premises, but arises out of ongoing operations

• Products & Completed Operations
• legal liability of the manufacturer
• liability of a contractor, repairer for losses

• Automobile Liability

• Worker's Comp & Employer Liability

Coverage A - Bodily Injury & Property Damage liability

Coverage B - Personal & Advertising Injury Liability

Coverage C - Medical Payments

tort law - negligence of the business

Statute - law enacted by legislature

Contracts - business can assume the liability of others by contract