Section 7 : Large accounts Flashcards
(41 cards)
What’s the difference between deductibles in property vs liability insurance?
In property, it reduces the claim; in liability, the insurer pays the full amount and seeks reimbursement from the insured.
What is a per-event deductible?
Applied per claim or per occurrence, depending on policy terms.
What is a time deductible (aka waiting period)?
A delay between the event and when coverage begins (e.g., business interruption).
What’s an aggregate deductible?
A deductible applied collectively to all claims over a policy term.
What is a disappearing deductible?
A deductible that reduces as claim size increases, mixing straight and franchise features.
Why do deductible savings level off as deductible increases?
Because most small claims are already removed; larger deductibles yield smaller marginal savings.
What’s a deductible factor?
A multiplier to adjust premium based on the deductible level chosen.
What’s the goal of a deductible consistency test?
To ensure marginal rate decreases as deductibles increase.
What’s the key difference between SIR and Large Deductible?
Under SIR, insurer is not involved below threshold; with large deductible, insurer is always involved.
Does SIR affect policy limits?
No, losses under the SIR do not erode policy limits.
Do insurers pay claims under large deductible policies?
Yes, they pay and then bill the insured for indemnity and ALAE.
What is replacement cost coverage?
Payment without depreciation.
What are the 3 Actual Cash Value (ACV) methods?
- Replacement cost minus depreciation
- Fair market value
– What someone would reasonably pay for it today - Broad evidence rule
– All relevant info (income value, replacement, market trends, etc.)
What does ILF = LAS(limit) / LAS(base) mean?
It calculates the relativity of severity at a higher limit compared to the base.
What’s the consistency test for ILFs?
Marginal premium per $1,000 should decrease as limits increase.
What is LAS?
Limited Average Severity—the average of capped losses at a given limit.
Why can’t you use 50K policy data to estimate 50–100K LAS?
Because losses above 50K are capped and unobservable in that dataset.
What are common assumptions in ILF calculation?
Frequency is independent of severity and policy limit; all expenses are variable.
What’s the source of ground-up data?
Closed claims with full loss info, before any deductible or limit.
What is a self-insurance fund?
A fund used to finance retained losses without insurer involvement.
What’s a captive insurer?
An insurance company owned by its insureds to finance their own risk.
What’s the goal of pooling in self-insurance?
To share and manage risks among similar participants.
Why do entities choose self-insurance?
For cost effectiveness, control, risk management, and reinsurer access.
How does self-insurance help with risk management?
Encourages proactive risk control and better claims handling.
