Chapter 4 Flashcards
1
Q
What are the different types of insurers?
A
1) Government
2) Captive Insurance companies
3) Cooperative Organizations
4) Mutual Insurance companies
5) Assessment mutuals
6) Stock mutuals
7) Co-op Stock mutuals
8) Factory mutuals
9) Reciprocal Insurance exchange
10) Stock companies
11) Insurance pool
2
Q
Define fronting.
A
- an agreement where an insurer issues a policy at the request of another insurance company with the latter carrying/underwriting the whole or a substantial part of the risk and the former being paid a fee for the use of its name.
3
Q
Explain Government insurers.
A
- can remove control
includes: - WSIB
- OHIP
- EI
- auto insurance in some provinces (quebec, BC, saskatchewan)
- types of coverages relating to trade and export
4
Q
Explain captive insurance companies.
A
- owned by the insured
- sometimes administered by a fronting company
- works well for large industrial or commercial organizations
- instead of paying premiums to someone else, they are paid to the captive insurer who also pays losses when they occur
- mainly used because certain types of insurance is unavailable or difficult to acquire
- secondly, because they may be attempting to reduce their insurance costs
- reserves are company assets and surplus is held in reserve
- strengths are reduced costs, insurance availability, and tax shelters
ex) TTC has its own insurer
5
Q
Explain cooperative organizations.
A
- true coops are rare now
- owned by members
- no desire to make a profit
- one objective, to mutual benefit for their members
ex) small farm co-ops
6
Q
Explain mutual insurance companies.
A
- insurance corporations owned by its policyholders
- policyholders take part in operations of company with voting rights and sharing financial gains or losses
- original purpose was to provide for a group of people with similar risk and exposures at a lower cost
- strengths include low operating cost, and community involvement
ex) farms
7
Q
Explain assessment mutuals.
A
- like a mutual company
- purest form of mutual
- members are like policyholders
- operate on an assessment/premium note planned, signed by policyholders
- premium note face value was reduced by cash premium payment balance of which is what the directors make further assessment on if needed for losses
- these mutuals are almost obsolete/non-existent
8
Q
Explain stock mutuals.
A
- start like a pure assessment mutual
- owned by shareholders
- however, recently legislation allowed them to write participating policies with the general public once incorporated
- policyholder is not actually a member of the mutual company
- business is written through shareholders of the stock mutuals/ capital is invested by shareholders
- are focused on making a profit
- surplus is paid to shareholders
9
Q
Explain co-op stock mutuals.
A
- similar to stock companies, capital for the insurers is subscribed by shareholders who are also insureds
- typically no dividends payable but surplus profits when available are distributed via how much business a policyholder brings or buys into the co-op
- operations generally limited to the province they are incorporated in
- reserves consist of capital invested by shareholders
- generally limit their operations to the province in which they were incorporated
10
Q
Explain factory mutuals.
A
- originally founded to write fire insurance for manufacturers, now they provide property and boiler & machinery coverages to industrial, commercial, and institutional risks on a worldwide basis
- they also support research advances surrounding these types of risks and underwrite the same (loss prevention, technology, practices)
- special policies are tailored for policyholders needs
- originally owned by policy holders
- originally non-profit
11
Q
Explain reciprocal insurance exchange.
A
- owned by a group of insurers, members of the exchange
- is a contractually based risk sharing arrangement similar to captive group insurer
- members of exchange (subscribers) agree to share in payment of eachothers losses to the extent of the coverage on policies issued
- reciprocal agreement requires no capitalization
- if there are excess funds available after all losses and operating expenses, members keep the surplus
- if there is a deficit members are reassessed for contribution
- strengths are reduced costs, insurance availability, and tax exempt
- is not a corporation, partnership or proprietorship
12
Q
Explain stock companies.
A
- limited liability organizations incorporated
- shareholders arent personally liable
- owned by stockholders
- capital is arrived at from shareholders who invest in the company
- main purpose is for shareholders to profit on their investment
- insureds pay a fixed premium as their contribution to the communal fund
- security to policyholders is represented by capital already put up by the shareholders and its monitored by regulatory bodies which require the company to maintain sufficient assets liquid, to cover all losses and expenses including unearned premiums
- two main sources of income are underwriting gains, and investment income
STOCK
- any shortfall from premiums paid by policyholders has to be made up by shareholders from their investment income and contributed capital
SHAREHOLDERS
- board of directors elected by shareholders who are mostly uninvolved in the company
- they in turn elect the CEO to manage the day to day operations of the insurer
13
Q
What are sources of revenue for stock companies?
A
1) underwriting profits and gains
2) investment income
14
Q
Explain insurance pool.
A
- owned by a group of insurers
- formed by a number of insurers who pay same amount into a pool for losses that are too big for any one insurer to assume solely
- strength is insurance availability for risks that would otherwise be uninsurable
- joint underwriters are appointed and policies are issued into the pool
- each insurer agrees to pay a fixed proportion of any loss
ex) facility association
15
Q
What are the different departments in an insurance company organization?
A
1) administration
2) finance, accounting, and investments
3) actuarial
4) marketing, agency, or production
5) underwriting
6) claims
16
Q
What are the head office and branch office functions for admin?
A
HEAD OFFICE
- legal and gov liaison unit
- HR and staffing, employee records, payroll, employee benefits, training
- systems of work management
- management of premises, equipment, services and supplies
BRANCH OFFICE
- HR
- branch training program
- systems of work management
- management of premises, equipment, services and supplies
17
Q
What are the head office and branch office functions of finance, accounting and investments?
A
HEAD OFFICE
- keep books of account
- financial statements
- income tax returns
- A/P, A/R
- manage cash flow
- maintain records of unearned premiums reserves and loss reserves
- file required statistical reports
- manage investments
BRANCH OFFICE
- premium accounting
- day to day financial transactions
- branch accounts payable/receivable
18
Q
What are the head office and branch office functions of actuarial?
A
HEAD OFFICE
- analyze data to determine prices for various classes of insurance
- determine amounts of money needed to cover requires reserves
- monitor insurers overall financial situation
- alert management if reserves do not meet regulatory requirements
BRANCH OFFICE
- directly supervised by head office
19
Q
What are the head office and branch office functions for marketing, agency or production?
A
HEAD OFFICE
- develop company marketing policies
- study new potential markets
- set sales targets and consult with branch offices to help attain them
BRANCH OFFICE
- appointing/training sales force and keeping them informed of new coverages or policies
- marketing representatives (special agents) act as liaison between insurer and sales force
20
Q
What are the head office and branch office functions for underwriting?
A
HEAD OFFICE
- study market trends, past experiences, stats
- formulate underwriting policies
- set risk and class limits
- has technical service division which includes engineers/specialists available for consultation for:
- inspecting and reporting on risks involving special hazards, assist in rating, loss prevention
BRANCH OFFICE
- underwrite business produced by sales force
- follow guidelines of head office
21
Q
What are the head office and branch office functions for claims?
A
HEAD OFFICE
- establish claims handling practices
- handle claims handling of large claims
- special investigation unit (SIU), investigate suspicious claims and staffed by law enforcement officers, senior adjusters and other specialists
BRANCH OFFICE
- handle all claims within its jurisdiction like investigation, negotiation, settlement, reporting
- appoint staff and independent adjusters
- follow guidelines of head office
22
Q
What is OFSI?
A
- the office of the superintendent of financial institutions
- located in ottawa
- responsible for constant supervision and enforcement of safeguards so that inadequately financed insurance companies are not established and existing ones remain financially healthy
- regulates and monitors federally chartered and foreign insurance companies
- also contains provisions for provincially charted companies to later apply for a federal charter
- in december 1991, new federal insurance companyies act was proclaimed
23
Q
What are the three main components of the supervision of insurance companies?
A
A) establishment of an insurance company
B) Prerequisites of operation
C) Supervision during operation
24
Q
What is required under the establishment of an insurance company?
A
1) incorporation under federal authority has certain requirements for directors, powers of directors, capitalization, shares, and shareholders, meetings, corporate powers, and procedures under the act
- incorporating federally is desirable if you wish to conduct business across canada
2) at least 10 million dollars capitalization is required
- once requirements are met, licenses are granted
25
What are required prerequisites of operation?
1) incorporating documents, proof of necessary capitalization, and any other info required must be submitted to OFSI.
- an order will be made and will outline classes of insurance that the company is permitted to insure with any limitation or conditions included
2) the company must publish a notice, at or near head office of the company
- OFSI will publish in canada gazette that approves the commencement and carrying on of business
26
What is required under the supervision during operation?
1) register of licensed insurers
- open for public inspection
2) maintenance of required assets
- maintain assets as prescribed by regulations
3) investments
- restricted in certain types of investments
4) annual returns
- must prepare annual financial statements for OSFI
5) valuation of assets
- must be valued as prescribed by the act
6) determination of liabilities
- must be determined as prescribed by the act (ex - oustanding claims)
7) duties of actuary
- must file with its annual return a report on reserves
8) duties of auditor
- must file a report with annual return (an external opinion)
9) additional information
- OFSI feels they need
10) inspections
- carried out by OFSI representatives
11) contravention of provisions
- if pursuing unsound business practices that may jeopardize financial situation, OFSI has the power to refrain you from doing so
12) failure to comply with directives
- may result in OFSI taking control of assets and liquidating it.
27
What does the supervision of foreign insurance companies include?
An order from OFSI must be obtained approving types of risk written within requirements:
- assets of a prescribed value has been vested in trust
- an actuary has been appointed
- location of head office has been established
Additional agreements:
1)Reciprocal treatment
- approval to issue an order of commencement cannot be given unless the Minister is satisfied that the applicants home jurisdiction provides treatment as favourable for Canadian insurance companies
(- reciprocal agreement with head office in home jurisdiction)
2) Assets must be approved and vested in trust in Canada
- must be vested in trust in a Canadian financial institution approved by OSFI and assessed valuation shall be satisfactory to OSFI
3) Power of attorney must be kept up-to-date
- every time there is a new attorney/cheif agent appointed in canada or location of head office is changed, a new power of attorney msut be filed in ottawa
4) Release of assets in canada needs superintendents approval
- assets in canada may only be released upon application to the superintendent and upon satisfying him that the requirements of the Act have been fulfilled
(- assets in canada may be realized only if approved by OFSI)
28
Explain Lloyds insurance market.
- used for high risk type of events
- not an insurance company, consists of independent businesses that provide capital
- lloyds does not provide capital
- businesses can be corporate or individual
- underwrites and syndicates
- dates back to 1688, first as a coffee house in london
- is now an insurance market
- syndicates are groups of members who employ professional underwriters to accept risk on their behalf
- each syndicate is run by a managing agent
- syndicates may compete for business or may cover a portion of a risk
