Tuesday, July 22, 2008
Limited purpose Insurance
Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100 percent subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate.
Valability Insurance
Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.
The financial stability and strength of an insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies
The financial stability and strength of an insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies
Valability Insurance
Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.
The financial stability and strength of an insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies
The financial stability and strength of an insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies
Self-Insurance
In the United Kingdom The Crown (which, for practical purposes, meant the Civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.
which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.
which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.
Policy Contracts
Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.
Many institutional insurance purchasers buy insurance through an insurance broker. Brokers represent the buyer (not the insurance company), and typically counsel the buyer on appropriate coverages, policy limitations. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.
Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. An agent can represent more than one company.
Many institutional insurance purchasers buy insurance through an insurance broker. Brokers represent the buyer (not the insurance company), and typically counsel the buyer on appropriate coverages, policy limitations. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.
Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. An agent can represent more than one company.
Denying Coverage
Redlining is the practice of denying insurance coverage in specific geographic areas, purportedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.[11]
In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.
In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.
Insurance patents
Further information: Insurance patent
New insurance products can now be protected from copying with a business method patent in the United States.
A recent example of a new insurance product that is patented is telematic auto insurance. It was independently invented and patented by a major U.S. auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134 ) and a Spanish independent inventor, Salvador Minguijon Perez (EP patent 0700009).
The basic idea of telematic auto insurance is that a driver's behavior is monitored directly while he or she drives and the information is transmitted to the insurance company. The insurance company uses the information to assess the likelihood that a driver will have an accident and adjusts premiums accordingly. A driver who drives great distances at high speeds, for example, might be charged a different rate than a driver who drives short distances at low speeds. The precise effect on charges is not known as it is not clear that a high speed long distance driver incurs greater risk to an insurance pool than the slow around-town driver.[citation needed]
New insurance products can now be protected from copying with a business method patent in the United States.
A recent example of a new insurance product that is patented is telematic auto insurance. It was independently invented and patented by a major U.S. auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134 ) and a Spanish independent inventor, Salvador Minguijon Perez (EP patent 0700009).
The basic idea of telematic auto insurance is that a driver's behavior is monitored directly while he or she drives and the information is transmitted to the insurance company. The insurance company uses the information to assess the likelihood that a driver will have an accident and adjusts premiums accordingly. A driver who drives great distances at high speeds, for example, might be charged a different rate than a driver who drives short distances at low speeds. The precise effect on charges is not known as it is not clear that a high speed long distance driver incurs greater risk to an insurance pool than the slow around-town driver.[citation needed]
Telematic
The basic idea of telematic auto insurance is that a driver's behavior is monitored directly while he or she drives and the information is transmitted to the insurance company. The insurance company uses the information to assess the likelihood that a driver will have an accident and adjusts premiums accordingly. A driver who drives great distances at high speeds, for example, might be charged a different rate than a driver who drives short distances at low speeds. The precise effect on charges is not known as it is not clear that a high speed long distance driver incurs greater risk to an insurance pool than the slow around-town driver.[citation needed]
A British auto insurance company, Norwich Union, has obtained a license to both the Progressive patent and Perez patent. They have made investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.
A British auto insurance company, Norwich Union, has obtained a license to both the Progressive patent and Perez patent. They have made investments in infrastructure and developed a commercial offering called "Pay As You Drive" or PAYD.
Independent Visitors
Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70 percent of the new U.S. patent applications in this area.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
Insurance Industry
Certain insurance products and practices have been described as rent seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products. Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.
Criticism
Some people believe that modern insurance companies are money-making businesses which have little interest in insurance. They argue that the purpose of insurance is to spread risk so the reluctance of insurance companies to take on high-risk cases (e.g. houses in areas subject to flooding, or young drivers) runs counter to the principle of insurance.
Effeciencey
SMART Assure offers the customer a choice of allocating up to 100% of premium paid beyond specified premium bracket. As the premium amount goes up, the allocation charges keep decreasing with no allocation charges levied on premiums upward of Rs. 3 lakhs. This strengthens the value proposition of the plan incentivising the customer to move to higher investments and get better returns.
Loyalty units on maturity- The plan allocates guaranteed Persistency Units to the customer s Fund Value at maturity. The persistency units will be equal to a percentage of fund value at maturity.which increases with the term of the plan and thus promoting long-term saving behaviour.
Loyalty units on maturity- The plan allocates guaranteed Persistency Units to the customer s Fund Value at maturity. The persistency units will be equal to a percentage of fund value at maturity.which increases with the term of the plan and thus promoting long-term saving behaviour.
Affordable
Increasing premium Option: SMART Assure offers an increasing premium option under which the customer has the choice to increase the annual premium by 5% of the initial premium on each policy anniversary and accordingly the sum assured also increases @ 5% per annum without any additional underwriting. This feature not only takes care of the inflation and future value of money but also enables the customer achieve a much larger fund value through a minimal increase in the premium amount each year.
Flexibility
Dynamic Fund Allocation- SMART Assure strikes the right balance between risk and return with respect to years remaining for year to maturity of the policy. When the policy is in its early stages, the fund would be more risk prone and the nature of the allocation changes to more secure options as the policy approaches maturity. All this happens automatically for the customers who opt for this feature and frees them from doing any manual switching of funds. Even more the asset allocation gets automatically rebalanced at every policy anniversary to ensure the asset allocation is in the right proportion at all times.
Wide Coverage- SMART Assure caters to wide customer segment with the entry age ranging from as low as 91 days to as high as 75 years and the maximum age at maturity of 85 years which makes it an ideal proposition for Senior Citizens seeking insurance coverage along with investments.. The customer has the flexibility to choose any policy term between 10 years to 30 years with regular payment terms. The minimum premium which can be paid under this plan iis Rs. 20,000/-.
New Dynamic Opportunities Fund Introduction The company has introduced a new fund called the Dynamic Opportunities fund through which the funds will be allocated according to the market movements allowing the funds to be exposed 100% in equity when the markets are high and visa versa and thus offers stability in investments with an opportunity to harness market upsides
Wide Coverage- SMART Assure caters to wide customer segment with the entry age ranging from as low as 91 days to as high as 75 years and the maximum age at maturity of 85 years which makes it an ideal proposition for Senior Citizens seeking insurance coverage along with investments.. The customer has the flexibility to choose any policy term between 10 years to 30 years with regular payment terms. The minimum premium which can be paid under this plan iis Rs. 20,000/-.
New Dynamic Opportunities Fund Introduction The company has introduced a new fund called the Dynamic Opportunities fund through which the funds will be allocated according to the market movements allowing the funds to be exposed 100% in equity when the markets are high and visa versa and thus offers stability in investments with an opportunity to harness market upsides
Features
The plan empowers customers to manage their investments by allowing
Free switching up to six times a year.
Premium redirection flexibility, free of cost up to three times a year
High quality of advice
Free switching up to six times a year.
Premium redirection flexibility, free of cost up to three times a year
High quality of advice
Certified Agent Advisors
Announcing the launch, Max New York Life Managing Director and CEO Mr. Gary Bennett commented: We are excited to offer insurance products that respond realistically to consumers needs. With the growing need for adequate financial planning to meet requirements at different life stages it is important that people invest in instruments that are bundled with features which help in maximising their returns
With a range of flexible products backed by best in class services we have emerged as a leader in setting quality benchmarks, offering the most transparent documentation for our life insurance products with outstanding claims ratio. Launching SMART Assure is a natural progression in our journey to offer the consumer a complete choice of protection and wealth creation plans to suit their various needs. He further added.
Max New York Life has always focused on high quality of advice. To help customers better understand and manage their needs, the company has developed a special training programme for its agent advisors and employees. This certification course enables agent advisors to understand better the complex financial products, thus ensuring ethical selling and offering appropriate advice to customers based on their risk-return profile.
With a range of flexible products backed by best in class services we have emerged as a leader in setting quality benchmarks, offering the most transparent documentation for our life insurance products with outstanding claims ratio. Launching SMART Assure is a natural progression in our journey to offer the consumer a complete choice of protection and wealth creation plans to suit their various needs. He further added.
Max New York Life has always focused on high quality of advice. To help customers better understand and manage their needs, the company has developed a special training programme for its agent advisors and employees. This certification course enables agent advisors to understand better the complex financial products, thus ensuring ethical selling and offering appropriate advice to customers based on their risk-return profile.
Max New York Life Insurance
Max New York Life is a joint venture between Max India Ltd., one of India s leading multi-business corporate and New York life, a Fortune 100 company. Max New York Life Insurance, incorporated in 2000, is one of India s leading private life insurance companies. The company offers both individual and group life insurance solutions. It has established a wide distribution network across India. Through its wide network of highly competent life insurance agent advisors and flexible product solutions, Max New York life Insurance is creating a partnership for life with its customers in India.I moderate a message board for the pet-sitting industry and frequently get asked how our members can handle on-the-job injuries that prevent them from working. Injuries are not uncommon and can happen from falls, eager and rambunctious client pets, attacks from stray animals, and bites from poisonous insects. Most pet-sitting business owners have no employees.
Disability Insurance
A self-employed person is more likely to find coverage for serious injuries by purchasing an individual insurance plan [BusinessWeek.com, 5/16/07] that includes both medical and disability insurance. However, there are a couple of wrinkles your members could face trying to get disability insurance.
One is that both disability insurance and health insurance normally exclude work-related injuries and illnesses under the assumption those problems will be covered by workers' comp. "If a self-employed person was using this coverage for work injuries and illnesses, that exclusion would need to be removed, which will increase their cost," Klein says.
One is that both disability insurance and health insurance normally exclude work-related injuries and illnesses under the assumption those problems will be covered by workers' comp. "If a self-employed person was using this coverage for work injuries and illnesses, that exclusion would need to be removed, which will increase their cost," Klein says.
Insurance Broker
The second potential problem is that disability insurance is typically tougher for self-employed people to buy and more expensive as well. That goes double for people whose income may be tough to document and those who work in fields perceived to be high-risk, such as jobs involving animals.
"The best thing to do is work with an insurance broker, submit an application, and see what happens. Some companies that are easygoing provide up to $2,500 in maximum disability coverage that could be relatively easy to get, though I'm not sure how much it would cost," says Dave Ortolf, a broker with Adams Avenue Insurance Agency.
"The best thing to do is work with an insurance broker, submit an application, and see what happens. Some companies that are easygoing provide up to $2,500 in maximum disability coverage that could be relatively easy to get, though I'm not sure how much it would cost," says Dave Ortolf, a broker with Adams Avenue Insurance Agency.
Growup Rates
When shopping for an individual insurance plan, make sure you identify the applicable waiting period before disability benefits begin, Hagemeier says. Instead of deductibles, many policies require an "elimination period" [a waiting period before disability benefits are paid out that can range from 30 to 365 days]. Anyone shopping for a disability policy should also make sure they know what degree of injury or disability will trigger the coverage and how long the benefits would be paid out before they expire. "They pay for up to a specific period of time called the benefit period. This is one, two, or five years, or to age 65 or 67," says Barry A. Sikov, a financial adviser with Belair Insurance Services. "The shorter the elimination period and the longer the benefit period, the greater the premium would be."
Your pet-sitter's association might consider working with an insurance company to offer some form of group insurance to its members, either through a worker's comp or a disability insurance group plan, Klein suggests. Such a plan could be marketed through your association without it having to get involved in financing or bearing any risk, and it would provide a valuable benefit for current and new members who may be struggling to get individual insurance. "An association could negotiate much better terms for its members with an insurer that would group-market a plan through the association," he says.
Finally, the dangers inherent in pet-sitting, and the difficulty and cost of getting insurance, make it very important for your members to tuck away a financial cushion that will get them through at least a few months of expenses in case a bite or other injury keeps them from serving clients temporarily.
Your pet-sitter's association might consider working with an insurance company to offer some form of group insurance to its members, either through a worker's comp or a disability insurance group plan, Klein suggests. Such a plan could be marketed through your association without it having to get involved in financing or bearing any risk, and it would provide a valuable benefit for current and new members who may be struggling to get individual insurance. "An association could negotiate much better terms for its members with an insurer that would group-market a plan through the association," he says.
Finally, the dangers inherent in pet-sitting, and the difficulty and cost of getting insurance, make it very important for your members to tuck away a financial cushion that will get them through at least a few months of expenses in case a bite or other injury keeps them from serving clients temporarily.
Nri Services
Every Indian, whether resident in India or an NRI, looks forward to the need to feel secure, to care for the loved ones and to provide for old age. The need is felt more when you’re away from your homeland.
We, at SBI Life, understand this need. The feeling to do something for your loved ones. The urge to let them know that you care. Just why we’ve introduced the NRI Insurance Services. Now, you can wisely invest your hard - earned money in India. This will ensure smooth and safe future for your family
At SBI Life, we endeavor to set a benchmark in the liberalized life insurance industry in India by ensuring high standards of customer satisfaction and world-class efficiency offering our customers a comprehensive range of life insurance and pension products at competitive prices.
Our policies are formulated keeping in mind your needs at various stages of life; whether it is security for your family, higher education for your children, regular saving cum protection plan or life long pensions. This ensures smart investment of your hard earned money.
We, at SBI Life, understand this need. The feeling to do something for your loved ones. The urge to let them know that you care. Just why we’ve introduced the NRI Insurance Services. Now, you can wisely invest your hard - earned money in India. This will ensure smooth and safe future for your family
At SBI Life, we endeavor to set a benchmark in the liberalized life insurance industry in India by ensuring high standards of customer satisfaction and world-class efficiency offering our customers a comprehensive range of life insurance and pension products at competitive prices.
Our policies are formulated keeping in mind your needs at various stages of life; whether it is security for your family, higher education for your children, regular saving cum protection plan or life long pensions. This ensures smart investment of your hard earned money.
Other Types
Insurance financing vehicles
Insurance companies
* Standard Lines
* Excess Lines
* heavy and increasing premium costs in almost every line of coverage;
* difficulties in insuring certain types of fortuitous risk;
* differential coverage standards in various parts of the world;
* rating structures which reflect market trends rather than individual experience;
* insufficient credit for deductibles and/or loss control efforts.
Insurance insulates too much
Closed community self-insurance
Complexity of insurance policy contracts
Redlining
Insurance patents
The insurance industry and rent seeking
Criticism of insurance companies
Insurance companies
* Standard Lines
* Excess Lines
* heavy and increasing premium costs in almost every line of coverage;
* difficulties in insuring certain types of fortuitous risk;
* differential coverage standards in various parts of the world;
* rating structures which reflect market trends rather than individual experience;
* insufficient credit for deductibles and/or loss control efforts.
Insurance insulates too much
Closed community self-insurance
Complexity of insurance policy contracts
Redlining
Insurance patents
The insurance industry and rent seeking
Criticism of insurance companies
Insurace History
In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies and non-money or natural economies The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread .
A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.
Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing
A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.
Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing
Loss of Property
In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held. Naturally, the “float” method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums.
Investment
Insurance companies also earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out.
Business Model
Profit = earned premium + investment income - incurred loss - underwriting expenses.
Insurers make money in two ways: (1) through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insureds.
The most complicated aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Of course, from the insurer's perspective, some policies are winners (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are losers
Insurers make money in two ways: (1) through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insureds.
The most complicated aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Of course, from the insurer's perspective, some policies are winners (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are losers
Large Policies
The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable
Insurance
Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurers appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon
Subscribe to:
Posts (Atom)