Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
135 Cards in this Set
- Front
- Back
|
# of P/C Companies |
2,660 |
|
|
Revenues (Net Premiums Written) |
$456 Billion |
|
|
Net Income After Taxes |
$33.5 Billion |
|
|
Assets |
$1.4 Trillion |
|
|
Legal Forms of Ownership |
- Proprietary - Cooperative - Other |
|
|
Licensing Status |
- Admitted (Licensed) - Non-Admitted (Unlicensed) |
|
|
Distribution Systems |
- Independent Agency / Brokerage - Exclusive (Captive) Agent - Direct Writer |
|
|
Proprietary Insurers |
- Stock Insurers - Lloyds |
|
|
Cooperative Insurers |
- Mutual Insurers - Captives - Reciprocal Exchanges |
|
|
Stock Companies primary objective |
increase profit for owners |
|
|
Mutual Company primary objectives |
create lowest-cost insurance |
|
|
Stock Companies are owned by |
Stockholders (SH) |
|
|
Mutual Companies are owned by |
Policyholders (PH) |
|
|
Stock Companies: who elects board? |
Stockholders elect board and appoints mgmt |
|
|
Mutual companies: who elects board? |
Policyholders elects board, it appoints mgmt |
|
|
Stock Company: How are losses paid for? |
surplus from SH funds |
|
|
Mutual Company: How are losses paid for? |
surplus |
|
|
Stock Company: Capital comes from? |
sale of stock or retained profits |
|
|
Mutual Company: Capital comes from? |
advance premium, retained profits, or assessments |
|
|
Stock Companies |
Allstate, Liberty Mutual, Travelers, AIG, GEICO |
|
|
Mutuals |
State Farm, Nationwide, American Family Insurance, Auto-Owners Insurance, FM Global |
|
|
Other Insurers (Private) Pools |
A group of several insurers (not otherwise related) that have joined together to insure risks that the individual members are not willing to cover alone (losses occur too frequently or are potentially too large) |
|
|
Syndicate Pool |
- one policy split up into a certain percent of insurance companies - Issues a joint (syndicate) policy - Insured has a contractual relationship with each member of the pool |
|
|
Reinsurance Pool |
- One insurance company that takes risk & issues policy - One member of the pool issues the policy - Insured has a contractual relationship only with the issuing member |
|
|
National Government Insurance Programs |
- NFIP (National Flood Insurance Program) - TRIA (Terrorism Risk Insurance Act) - Workers Compensation |
|
|
Domestic |
Incorporated in the state |
|
|
Foreign |
Incorporated in another state |
|
|
Alien |
Incorporated in another country |
|
|
Admitted |
Licensed in a state |
|
|
Non-admitted |
Not licensed in the state |
|
|
"Surplus Lines" Market |
- General Rule - Exception |
|
|
General Rule |
Agents/Brokers can only place business with admitted companies |
|
|
Exception |
Surplus line brokers can place business with non-admitted insurers, but only if licensed insurers will not write it |
|
|
Lloyds |
Marketplace for high risk (Equitoss) |
|
|
Captives |
Self insurers (Sears) |
|
|
Reciprocal Exchanges |
a group of insurance companies that hire an attorney to settle claims in a pot |
|
|
Distribution Systems |
The necessary people and physical facilities to support the sale of insurance products and services |
|
|
Types of intermediaries |
- Agents - Brokers |
|
|
Agents |
represent seller |
|
|
Brokers |
represent buyer |
|
|
Primary tasks of intermediaries |
- Selling - Issuing Policies - Collecting Premiums - Adjusting Claims |
|
|
Types of Distribution Systems |
- Independent Agency - Brokerage Systems - Exclusive (Captive) Agency System - Direct Writer System |
|
|
Characteristics |
- Relationship with Insurer - Compensation Methods - Ownership of Expirations |
|
|
Producers |
- Independent Agent - Brokers |
|
|
Independent Contractor |
Has relationship with only one insurer |
|
|
Compensation Methods |
- Flat Percent Commission - Contingent Commission (Volume or Profit) - Same commission rate for new and renewal |
|
|
Ownership of Expirations |
Agent |
|
|
National and Regional Brokers |
Risk control, Appraisal, actuarial, risk management, claim administration and other services |
|
|
Independent Agency Networks |
AKA agent alliances, agent groups, or agent clusters |
|
|
Managing General Agents |
Intermediaries between insurers and agents/brokers |
|
|
Excess and Surplus Lines Brokers |
Place with non-admitted (but licensed) insurers - High limits - Unique exposures - Broad/specialized coverage - Poor loss history |
|
|
4 characteristics of Exclusive Agency System |
- Producer (exclusive agent) - Relationship with insurer (Independent contractor) - Compensation method (flat & contengent) salary during training period - Ownership of expirations Insurer (agent may have limited ownership during contract period) |
|
|
4 characteristics of a Direct Writer System |
- Direct Writer (represents only 1 company) - Employee - Salary, Commissions (Flat & Contingent) Salary+Commission - Insurer |
|
|
Functions of Producer |
- Prospecting - Risk Management Review - Sales - Policy Issuance |
|
|
Prospecting |
Referrals, Advertising, Cold Calling |
|
|
Personal lines |
interview, questionnaire |
|
|
Commercial lines |
risk mapping/profiling |
|
|
Sales |
- primary source of income - Contact client, determine needs, proposal, close sale |
|
|
Policy Issuance |
Usually done by insurer |
|
|
Premium Collection |
- Agency Bill Process - Direct Bill Process |
|
|
Agency Bill Process |
- Item Basis - Statement Basis - Account current basis |
|
|
Item Basis |
Producer remits payment to insurer after collection |
|
|
Statement basis |
Insurer sends agent statement and producer remits payment |
|
|
Account current basis |
Producer statement and remits payment |
|
|
Customer Service |
- Method of differentiation of IA's - Billing inquiries, coverage questions, etc. |
|
|
Claim Handling |
Producer usually contracted first re claims |
|
|
Consulting |
- Offered on fee-for-service basis - State laws are re commissions and fees from same client |
|
|
Distribution Channels def- |
The methods in which insurer/representative contacts and establishes communication with customers |
|
|
Distribution Channels examples: |
- Internet - Call Centers - Direct Response (no agent) |
|
|
Call Centers |
Respond to inquiries, handle claim reporting, answer billing questions, process endorsements |
|
|
Direct Response |
(no agent) Market directly to customers through channels such as mail telephone, or internet - low/no commission, but high advertising expenses |
|
|
Group Marketing (Mass Merchandising) |
- Sell products and services to individuals/businesses that are all members or the same organization - (workplace/university/fraternity) |
|
|
Critical Success Factors |
- Employer/Sponsor support - Discounted Premiums - Treatment of Employees as Preferred Group |
|
|
Underwriting |
the process of selecting policy holdersby recognizing and evaluating hazards, establishing prices and determining policy terms and conditions |
|
|
Purpose of Underwriting |
- to develop and maintain a profitable book of business - guard against adverse selection - enforce underwriting guidelines
|
|
|
Book of Business |
All of the policies that an insurer has in force or some subgroup of those policies |
|
|
Adverse selection |
when people with the greatest probability of loss are the ones most likely to purchase insurance |
|
|
The Underwriting Process |
1. Gather information and evaluate exposures 2. Determine underwriting alternatives 3. Selecting an alternative 4. Determine appropriate premium 5. Implement decision 6. Monitor exposures |
|
|
Underwriting Alternatives |
- Accept submission as is - Reject outright - Counteroffer to accept subject to modifications |
|
|
Experience Rating |
Prospective experience rating and usually mandatory for worker's comp |
|
|
Schedule Rating |
Optional and judgmental |
|
|
Retrospective Rating |
Final premium, a function of actual losses during the year |
|
|
Policy Limits |
Maximizes limits willing to offer |
|
|
Amend Terms |
Use exclusions, deductibles |
|
|
Facultative Reinsurance |
A defensive action |
|
|
Accurate risk classification |
- pooling risks with similar loss dimensions - law of large numbers |
|
|
Types of Underwriters |
- Line - Staff |
|
|
Line |
Responsible for implementing the steps in the underwriting process (branch/ regional offices) |
|
|
Staff |
Assist underwriting management with making and implementing underwriting policy (home office) |
|
|
Underwriting Authority |
A degree of latitude granted individual or groups of underwriters |
|
|
Capacity |
Ratio of premiums to policy holder's surplus |
|
|
Regulatory ratio |
Surplus to premiums ratio has to be less than 3-1 |
|
|
Surplus Drain |
Rapid premium growth increases written premium and reduces surplus |
|
|
Regulation |
- Licenses within state - Rates, rules, and forms must be filed - Underwriting guides may need to be filed |
|
|
Personnel |
- specialists to market, underwrite service, and adjust losses - True specialists exist in some lines - boiler and machinery, aviation, ocean marine |
|
|
Reinsurance factors |
Availability and cost |
|
|
Implementation |
Communication via Underwriting Guides |
|
|
Measuring Underwriting Results |
Combined ratio |
|
|
Hard Market |
High prices, low availability |
|
|
Soft Market |
Low prices, high availability |
|
|
Retention Ratio |
Percent of policies renewed |
|
|
Hit (Success) Ratio |
policies written/ quoted policies |
|
|
Ratemaking primary objective |
Rates low enough to be competitive but high enough to be profitable |
|
|
Ideal characteristics of rates |
- stability - responsiveness - promote loss control - provide for contingencies - reflect differences in risk exposure |
|
|
Stability |
- changes are expensive & produce consumer dissatisfaction - producers and consumers like stable rates |
|
|
Responsiveness |
Being able to change exposures when you want |
|
|
Promote loss control |
lowering rates if insured undertakes loss prevention |
|
|
Provide for contingencies |
- wiggle room - covering an unexpected variation in loss - cost to issue policy |
|
|
Reflect differences in risk exposures |
good standard high |
|
|
Regulatory Rate Objectives |
- Adequate - Not excessive - Not unfairly discriminatory |
|
|
Adequate |
covers a reasonable amount of loss - regulators & policyholders don't want you to go out of business
|
|
|
Guarentee fund |
a fund in which the government agrees to pay out under certain conditions |
|
|
Not excessive |
- does not provide unreasonable profit to insurer - consumer protection - floor and ceiling |
|
|
Not unfairly discriminatory |
- fair rates - selling one person one rate and someone similar a different rate |
|
|
Actuaries |
Excelled in math & creates rates |
|
|
Advisory organizations for ratemaking |
- Insurance Service Office - American Association of Insurance Services - National Council on Compensation Insurance |
|
|
rate |
the price per exposure unit for insurance coverage |
|
|
Premium |
(Rate) x (# of exposure units) |
|
|
Pure Premium |
- Amount in rate to pay losses - Insurance coverage = Expected Loss |
|
|
Expense Loading |
- Covers underwriting expenses |
|
|
Loss Adjustment Expenses |
- Costs that occur to adjust policy - investigatory law |
|
|
Profit and Contingencies |
- Protects insurer against the possibility that actual losses and expenses are greater than projected losses and expenses - gives you wiggle room |
|
|
Ratemaking Factors |
- Estimation of Losses (looking at past losses to determine future loss) - Delays in Data Collection and Use - Change in the Cost of Claims - Insurer's Projected Expenses - Target Level of Profit and Contingencies |
|
|
Loss Reserve Estimation |
- Incurred Losses - Unpaid losses - Loss reserves |
|
|
Incurred Losses |
= paid losses + unpaid losses |
|
|
Unpaid losses |
= reported + non reported |
|
|
Loss Reserves |
- reserves for unpaid losses - deals with money set aside - estimations that effect the premium rates |
|
|
Surplus |
= Assets - Reserves |
|
|
NPW |
= Direct Premiums + Reinsurance Assumed (taking on risk) - Reinsurance Seeding (pushing away risk) |
|
|
Combo Ratio |
= Loss Ratio + Expense Ratio |
|
|
Loss Ratio |
(Incurred losses + Low adjustment expenses)/ (Premiums)
- want low meaning you pay out less |
|
|
Expense Ratio |
(Underwriting Expenses)/(Premiums)
- How much writing the business cost |
|
|
Net Investment Income Ratio |
(Net Investment Incomes)/(Premiums) |
|
|
Operating Ratio |
Combo Ratio - Net Investment Income Ratio |
|
|
Kenney Ratio |
(Surplus)/(Premium) - must be 3:1 - meaning you must have $3 of surplus for every $1 issued |
