Personal Lines And Commercial Lines Analysis

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Personal lines and commercial lines are the two major categories of insurance coverage. Personal lines cover individuals and families while commercial lines protect business firms, nonprofit organizations and government agencies. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another in exchange for a payment. Any risk that can be quantified can potentially be insured. Life insurance, health insurance and property and casualty insurance are several types of insurance that are available today.
An insurer, or insurance carrier, is a company selling the insurance. It can be classified according to its organizational form such as stock insurers, mutual insurers, reciprocal of exchanges and Lloyd’s of
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One of it is by determining the pricing of an insurance using the company’s past loss experience and industry statistics. Besides rate making, insurance company also underwrites insurance. A statement of underwriting policy establishes policies that are consistent with the company 's objectives, which is to produce a profitable book of business. Other than that, insurance company also operates through sales and marketing, which consists of agents or brokers who sell insurance to support the sales function. An agent is someone who legally represents the insurer and has the authority to act on the insurer 's behalf while a broker represents the insurance buyer legally to obtain price quotes, make recommendations and advise on insurer financial security. If the risk is too big, too unusual or substandard, then a surplus line broker, who is a specially licensed broker, will get involved. There are several types of marketing systems in the property and liability insurance. One of it is the independent agency system, which is an independent business firm that normally represents several unrelated insurers. The independent agent is compensated by commissions that vary by line of insurance. Exclusive agency system on the other hand represents only one insurer or group of insurers under common ownership. Besides that, there are other types of systems as well. A direct writer is an insurer in which the salesperson is an employee of the …show more content…
The fair premium can be determined by calculating the expected claim costs, administrative costs, investment income and fair profit loading. Administrative costs occur at varying times and consist of underwriting expenses and loss adjustment expenses. Expenses ratios usually rise as premium growth slows. In determining investment income, fair premium is reduced to reflect the fact that investment income is expected to be earned on the premiums before claims must be paid out. The present value of the costs should be calculated using an appropriate discount rate. Uncertainty can have an effect on profit loading. Hence, insurers hold capital to reduce the likelihood of insolvency, which enable capital providers to bear the risk associated with insurance

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