Chapter 1 Flashcards
Intro to general insurance (25 cards)
General Insurance Council (GIC)
Responsible for establishing educational standards for various levels of agent and broker licensing.
Insurance
Alberta Insurance Act defines:
the undertaking of one party to indemnify another party against loss or liability for loss in respect to certain risks or perils to which the object of insurance is exposed
or to pay a sum of money or something of value on the occurrence of such an event.
indemnify
to return to the same financial position as before a loss (either by payout or replacement.)
premium
the price of insurance for a specified risk over a specified period of time.
role of insurance companies
- indemnify customers for losses incurred
- spread risk - the premiums of many cover the losses of a few
- make a profit
Benefits to society
-spreads the risk over many so individuals are not responsible for their own property replacement in an unforeseen event.
-provides the opportunity for credit through banks
- stimulate the economy with jobs and investments
-involved in fire prevention, safety standards for construction and electrical equipment, safer highways and drunk driving standards, and initiatives for fraud and criminal activities
4 types of insurance companies
Stock - owned by shareholders interested in return on investment. This is most Canadian insurance companies. Policy holders have no financial interest.
Mutual - co-operative owned by policy holders interested in protecting the group.
Captive - owned by the parent company for the purpose of funding losses. Usually off-shore for tax purposes except for in B.C.
Lloyds Insurance Market - not a company but a market funded by commercial organizations. They specialize in high risk and unusual insurance. (political, nuclear, cyber, terrorism, hail etc.)
Actuary
Analyze data and calculate rates for various classes of insurance. Use statistical data to predict future losses. Determine amount of money to be held in reserves.
reserve
A fund mandated by regulatory bodies that must be set aside by insurance companies in order to meet their financial obligations. They are required for unearned premiums (premiums that have been paid upfront but the term of coverage has not been met) and for unpaid losses (reported losses not yet paid and losses incurred but not reported)
underwriters
For specified departments they work according to head office guidelines determining risk acceptance or rejection on behalf of the insurance company. Premiums will be adjusted based on the severity of risk. They apply rates established by actuaries.
loading
an additional charge added to the base rate of insurance to reflect extra hazards. The final rate is then multiplied by the amount insured to determine the premium.
loss ratio
relationship between incurred losses and earned premium over a specified period expressed as a percentage.
ex. earned premium is $200,000 and incurred losses is $80,000
$80,000 / $200,000 x 100 = 40%
Underwriting profit
When the amount of earned premium exceeds the claims payments and expenses
Adjuster
Claims departments employs adjusters to swiftly and fairly decide if the policy covers the loss. Ensures contract obligations are fulfilled.
Claims Adjuster
Claims Department employs to investigate, negotiate and settle claims.
Salvage
Once the insured is indemnified, any portion of the property left that has value of usefulness (salvage) belongs to the insurance company. Any money received from salvage reduces the cost of the claim.
Subrogation
The right of the insurer (after indemification) to take over the insured’s rights of recovery against the party responsible for the loss or damage.
Types of adjusters
Telephone - for large volume, small losses
Staff/Field - employee of insurance company, claims requiring investigation
Independent - works for an independent adjusting firm, reports facts and handles settlement instructions
Public - hired by the insured to represent thier interests
claims examiner
specialist who directs loss investigations, oversees adjusting work, examines reports, litigation and legal action
Reinsurance
Insurance companies spread the risk by getting their own insurance. The portion of the risk the insurance company transfers to the reinsurer is called cession. The amount they keep for their own account is called retention. Treaty or Facultative (facultative can be used on top of treaty as well.)
Treaty Insurance
Insurer and reinsurer cover risks over a period of time, renewed on an annual basis under the same scope, is less expensive and is automatic (does not need binding instructions)
Facultative Insurance
Risks are on an individual basis on a one-time bases and can be expensive. Binding instructions must be given
2 methods of reinsuring
Proportional - a percentage of the risk is ceded (transferred) to the reinsurer and matches the percentage given to them of the premium collected.
Non-proportional - “excess insurance” has its own agreement of earnings and coverage per case.
Why Reinsurance?
- Increases capacity for insurance companies to increase capacity of clients
- Helps to maintain balance between asset reserves and liabilites
- Reduces the impact of catastrophic events
- Helps to transition an insurance company that is closing operations.
