Chapter 1 Flashcards
(39 cards)
What is the most famous example of coffee houses that were important centers of social, intellectual, and commercial activity?
Lloyd’s of London which was previously called Edwards Lloyds coffee house
What would people look for going to Lloyds of London?
At the time, a person looking for insurance, or an agent acting as today’s insurance brokers, would circulate in a coffee house a document describing, for example, a ship and its cargo, crew, and designation. Underneath the description of risk and the proposed terms, merchants or other people of means who wanted to assume part of the risk for the buyer would sign their names and the amounts of risk they were willing to assume.
How did the workers of the Lloyds of London become known as an underwriter?
These people came to be known as underwriters for the practice of literally writing their names underneath the documents text. In effect, the insurer and underwriter were the same, with insurance being transacted directly between buyer and seller.
Definition of insurance
A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils
What is the function of underwriting
As the personal element of vying for business disappeared over time, groups of would be risk barriers formed the early insurance companies, and intermediaries arose to negotiate terms between the parties.
How did underwriting evolve
As the modern insurance industry took shape, companies became more specialized in the risks they assume. Accordingly, underwriters themselves became more specialized in the lines of insurance known today, such as property, liability, crime, boiler and machinery, professional liability, automobile, and business interruption insurance, to name a few. The underwriters job has remained essentially unchanged throughout, to access and modify or reject risk.
What is an underwriter?
Essentially, an underwriter is an insurance professional employee to accept or reject risk on behalf of the insurer. The most important way in which to define an underwriter is in terms of risk.
Underwriter defined in book
One - the insurance company or group The underwrites or ensures a particular risk
2 - the individual within an insurance company whose responsibility it is to accept or reject business in a particular line in which what she specializes and, in this way, choose the risk her principles are prepared to underwrite
Risk defined
The chance of loss. Specifically, the possible loss or destruction of property or the possible incurring of liability. Sometimes referred to as the subject of insurance contract
Why are underwriters the heart of insurance?
An insurer assumes a risk on behalf of an insured for a premium period to survive and make a profit, the insurer must offer coverage to ensure that, as a group, are likely to incur Less in losses then pay in premiums for their coverage. Therefore, the insurer must seek in church that pose acceptable risks of losses but avoided church that pose unacceptable risks of loss. And insurer needs trained professionals to choose from among the perspective Insurance presented to it - that is, to accept or reject on behalf of the insurer. Underwriters are those trained professionals
Investor of capital
An underwriter is responsible for investing shareholder capital. The risk of loss to an insurer is the risk that it’s capital may be depleted by a loss for which it must indemnify an insured. Therefore, in accepting our rejecting risk on behalf of an insurer, underwriters are in effect investing the insurers capital in those risks they accept and decline to invest capital in those risks they reject
To survive and make a profit, the insurer must offer coverage to insured that, as a group, are likely to incur less and losses then pay in premiums for their coverage. To build a profitable portfolio such insurds needs a strategic plan. That plan will involve identifying five types of things list them
- types of risk the insurer wants to pursue
- the lines of insurance it wants to underwrite
- The reinsurance it can arrange
- The amount of insurance it will offer for risk of different types and sizes
- The approach it will take to pricing, among other considerations
Define line guide
A listing of the maximum amounts of exposure and insurance companies prepared to accept on various classes of risk
List 7 specific criteria an underwriter must consider in the line guide
- licensing
- types of business
- lines of insurance
- territory
- capacity
- reinsurance
- pricing
In the line guide criteria describe licensing
This is where the Insurer is licensed to accept business.
In the line guide describe types of business
Some inters seek a broad range of business, from homeowners to businesses, from smallest, such as corner grocery stores, to large risks, such as schedules of commercial real estate, and from ordinary occupancies, such as dentist office, to hazardous occupancies, such as chemical manufacturers. Other insurers May expertise in a segment of the broader market and may cater to a specific niche
In the line guide explosion the criteria of lines of insurance
Does the insurer offer all lines of insurance to its insurance or only some? One insurer may offer only automobile insurance, another may offer automobile insurance along with property insurance and liability insurance, still another may not write automobile insurance at all. Some insurers offer charity bonds, some do not. Some insure specialize in aviation insurance, some in boiler and machinery insurance.
The lines of insurance oven ensure or offers are aspects of two criteria or elements of its strategic plan, licensing and types of business. Whether the insurer is federally, provincial, or territorily license, it can offer only those lines of insurance specified in its license. The lines of Insurance underwriters are authorized to offer affect the types of business they pursue.
Explain territory for the criteria of guidelines
One consideration for any underwriter is the geographical area or territory in which a risk is located. Some territories may be more prone than others to certain kinds of environment hazards, such as wind storms are flooding or earthquakes. Some territories are urban, others are rural. For those reasons, there is an overlap and underwriting considerations between territory and types of business. There are also overlaps between territory and other underwriting consideration such as capacity, pricing, and reassurance.
Under the guideline criteria explain capacity
- the occupancy of the risk - the nature of some businesses pose inherently greater risks of loss or damage than others. For example, and explosive manufacturer would be more hazardous than a retail shoe store.
- The level of public fire protection - the fire underwriters survey grades each municipality in Canada on a scale from 1 to 10 based on the availability and affectedness of fire hydrants, the water supply and water pressure, and the expertise and the response time of its fire department. A table of limits might describe Town grades 1-4 as protected and assigned and the category the maximum amount of insurance allowed on the best risks. Town grades of 5-8 might be described as semi-protected and town grades 9-10 are unprotected.
3 type of construction Dash statistics show the chances for a total loss of a building from a fire or natural catastrophe significantly depend on the buildings construction. Wood frame structures for example tend to suffer more frequent and severe losses from such perils then do concrete structures.
Define reinsurance
Reinsurance is Insurance purchased by an insurance company from another insurance company to provide a protection against large losses on cases it has already insured. Essentially, insurance for insurance companies. A transaction in which one party, the reinsurer, and consideration of a premium paid to it, agrees to indemnify another party, the reinsured, for part or all of the liability assumed by the reinsure under a policy of insurance that it has issued. The reinsurance may also be referred to as the original or primary insurer or the ceding company.
Describe facultative reinsurance
Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer
Describe treaty
An agreement between an insurance company and reinsurer. The reinsure automatically accepts a portion of the seating company’s liability for a specified class or classes of business. Terms of the agreement are set forth within, for example, premium payment, loss limits etc
List 3 “special situations” pg. 1-8 exhibit
- Sprinklered risks: increase construction class by one category
- Catastrophe-exposed areas: maximum $5,00,000 any one risk
- Vacant buildings: 50% of table limits, to a maximum of 4,000,000
Book of business
Generally related to joint ventures, the book of business refers to when a smaller brokerage owns its own book of business and enters into partnership with a larger organization. The larger group has access to the new book of business, and the smaller broker retains the right to repurchase the full ownership of the book of business
