Activities of an insurer Flashcards
What is insurance?
A contract between insurer and policyholder where insurer will pay policyholder a sum of money if a specified event happens within a specific period of time. For the service, the policyholder pays premiums to the insurer during the term of the contract.
What is sum assured?
The maximum amount that can be paid to the policyholder.
What is actual loss?
The actual amount lost by a policyholder.
What are the two types of insurance?
- Property and Casualty (P&C) a.k.a. General Insurance in the UK
- Life Insurance
What is the main profit streams for an insurer?
- Difference between what is earned in premiums and paid out in claims.
- The profit from investing any premiums received.
How will an insurer know whether it needs to rely on investment income to be profitable?
The Combined Ratio must be below 100%.
How is the Combined Ratio calculated?
Claims Paid + Operating expenses / Premiums received * 100
What is indemnity?
The sum paid by an insurer to a policyholder to compensate for a loss.
What is a Valued Contract?
A contract of insurance that pays out a fixed amount of money regardless of the type of loss suffered by the policyholder. e.g. pay out in the event of death.
What is the Combined Ratio meant to tell an insurance company?
Whether it is able to be profitable by solely relying on premiums received and not having to rely on investment income.
What does it mean if the Combined Ratio is below 100%?
It means that an insurer can rely solely on premiums earned to be profitable and is not reliant on investment income.
