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42 Cards in this Set

  • Front
  • Back

INSURANCE

it is a way of sharing the losses of a few people among many.

Insured

the first party

Insurer

the second party

People who claim against the policy are

third party

Insurable risk falls into three categories:

1. personal,


2. property,


3. liability.

Three classes of insurance:

personal lines,


commercial lines,


special risks.

Risk:

can be eliminated


reduced by using preventive methods


by transferring it to an insurance policy.


assuming the risk by waiting for the event to happen or retaining the risk by self-insuring. Large organization use this method.

A pure premium

is the premium required to meet the losses that occur.

What is the primary function of insurance?

Is to spread risk, however, there are a number of supplementary functions which also enhance the economy.



1. Spread of Risk - Insurers aim to achieve a balance of premiums to losses and expenses by having a good spread of risk. This can be achieved by:


i. Volume - insuring a large number of risks


ii. Diversity of type of risks - writing insurance on as many different kinds of risk as possible. iii. Diversity of location - writing insurance in as many different locations as practicable.


2. Aid to Security - Insurance gives peace of mind by substituting a certain premium payment in place of an uncertain loss payment.


3. Aid to Credit - It is virtually impossible to obtain credit without having insurance on the item concerned, for example a leased car or home mortgage.


4. Loss Prevention Activities - Insurers are not only in the business of spreading risk and paying losses when they arise, but also vitally interested in reducing or preventing losses. Some examples of loss prevention include: i. Fire Prevention ii. Safe Driving


5. Source of Capital - The insurance business invests large amount of money in the Canadian economy, in bonds and stocks and certain other securities, as well as buildings and land for their own use.


6. Source of Employment - The insurance industry is a source of employment for many Canadians who range from self-employed owners of insurance agencies or adjusters to employees who work in company offices of insurers, agents, brokers and adjuster

Insurance is divided into two basic catergories:

Life Insurance


General Insurance

Fire Insurance Policy


Includes cover for losses resulting from fire, lighting, and limited explosion

Extended Coverage (E.C.)

covers losses resulting from explosion, falling object, impact by aircraft or land vehicle, lighting damage to electrical appliances, riot, water escape, rupture, freezing, smoke, vandalism or malicious acts, wind storm and hail.

Business Interruption

covers loss of income while property insured under the Fire and E.C. insurance is being rebuilt or the business restored after a loss.

Surety Bonds

are usually required by contractors or by law as, for example, for various types of licencees, executors of estates, bonded warehouses

Liability Insurance

covers the entire spectrum from personal liability to liability resulting from ownership of premises, operations, products, rendering of professional services, libel, slander, and virtually any other situation where one individual might hold another responsible for some action or lack of action which resulted in injury or damage to that individual or his or her property.

Automobile Insurance

covers combinations of liability to third parties, bodily injury benefits to insureds as defined by the policy and damage to the insured automobile.

Accident Insurance

provides benefits for losses as a result of bodily injury.

Crime Insurance

(Burglary and Fidelity) covers loss resulting from various criminal activities.

Floater

refers to policies which cover items of property that are portable and could be found at different locations. There are numerous personal and commercial floaters.

Commercial Property Floaters

cover portable items of a commercial nature, such as Contractors equipment, electric and neon signs, installation floaters and livestock floaters.

Inland Transportation

provides coverage on goods in transit on land such as motor truck cargo, parcel post insurance, salesperson's samples and registered mail.

Personal Articles and Personal Effects

floaters provide coverage for specific properties and occasions, such as jewellery, televisions, fine arts, musical instruments, cameras and sports equipment.

Home owners', Tenants', Condominium Unit Owners' .

a few of the numerous package policies covering the property(building and contents) and liability of a private dwellings.

Aviation

covers aircraft of all types as well as liability associated with the operations of aircraft, airstrips and airfields.

Marine

covers both the hull(the vessel itself) and cargo

Real Property

covers instrumentalities of transportation and communication, such as dams, bridges, tunnels, pipelines and power transmission lines.

Casualty Insurance

It is applicable particularly to bodily and personal injury forms of insurance but generally also includes crime insurance, robbery, burglary, aviation, and in many instances surety bonding.

There are four main points to consider when discussing the regulation of insurance agents/brokers:

1. Qualification


2. Licensing


3. Operating Requirements


4. Renewal of Licence

Generally, there are five areas of vital concern in the operation of an insurance agency or broker’s office:

1. Finances,


2. Production, or Service


3. Marketing


4. Accounting,


5. Claims handling.

Profit commission

is extra commission paid annually to brokers/agents for business that produced a certain level of profitability for an insurer. Terms are stipulated in the agency/brokerage agreement.

To ensure prompt and efficient service for Claims handling, brokers must inform:

1. must inform the insurer of all losses,


2. appoint an adjuster promptly if their authority permits it,


3. use a follow-up system,


4. inform the exact coverage,


5. protect the client and insurer at all times.

Insurers are divided into three basic groups:

1. Organizations operating for profit of their owners such as stock companies and Lloyd's Underwriters.


2. Cooperative organizations operating for the benefit of their members only such as mutuals and reciprocals.


3. Government insurance organizations, which can take the form of a government department or a crown corporation.

Who run Stock Companies?

Shareholders

Stock insurance companies achieve profit from two main sources:

1. Underwriting gain, that is, excess of premiums collected over loss payments and expenses.


2. Interest on investments.

Lloyd's is made up of :

  1. Syndicates.
  2. An underwriting agent manages each syndicate and appoints an expert underwriter for each class of business written.
  3. Only authorized Lloyd's brokers may bring business to Lloyd's underwriters.
  4. The most important feature of the Lloyd's system is that of individual liability.

Marketing Department:

1. Corresponds to the sales department.


2. Responsible for securing applications, for the flow of business into the company, promoting new types of policies.


3. Engaged in advertising, sales, appointing and training agents/brokers to represent the insurer.


4. Involved in sales promotion, providing assistance to agents/brokers and acting as liaison between the insurer and its agents/brokers.

Underwriting Department:

1. Select the risks, this means deciding which risks to reject and which ones to insure.


2. Accepting or rejecting a risk is based on personal information, details of exposures and special factors pertaining to the class or risk or type of insurance.


3. Acquires an understanding for the terms of use such as: retention, reinsurance, a line, risk, application and a fleet policy

Claims Department :

  1. Responsible for the investigation and settlement of claims.
  2. Assess the validity of claims. Investigate the scene of the loss.
  3. Estimate the amount of loss and set up claim reserves. Interpret and apply the provisions of the contract to the loss.
  4. Determine the actual amount payable for the loss.
  5. Approves payment of the claim.
  6. An adjuster is a person who investigates and determines the amount of a loss.

Accounting Department :

  1. Responsible for the recording, summarizing and analyzing of the company's financial transactions, details for the premiums on policies issued and the time payment due are recorded
  2. billed monthly to the agent or the insured. If an account overdue, action is taken with the Agency department and sometime the underwriting department.
  3. Claims payments, payroll, operating expenses, taxes and assessments, budgets, receipt and disbursement of funds, administration of the investment program.
  4. Deal with net worth, assets and liabilities. Terms of use: Liabilities and reserves.

Service Department :

  1. Data processing, purchasing, policy issuing, office services, human resources, printing, research, and engineering.
  2. Policy issuing, human resources, printing and research must also all work together to produce effective products for the consumers. Departmental interrelationships exist as the service departments are very important to the overall success of the business.
  3. A team environment is necessary to the overall smooth operation of this department.

Statistical Department :

  1. Preparation of statistics.
  2. Receives and inputs data from the underwriting, claims, agency and accounting departments pertaining to premiums, losses, remittances, payments made and adjustments.
  3. Produces various statistical reports and records.
  4. Reports monthly agency accounts for each agency/brokerage, by policy number, premiums gross, net and commission rates. Terms of use: coding and net premiums.

Line:

Classification of a catergory of insurance.