Intro to Property & Casualty Insurance - New
Content
Intro to P & C Insurance
~ An Overview~
TCS Confidential
Contents: introduction How is insurance sold Underwriting Claims handling Policy renewal & services Types of insurance policies Insurance rating system benefits of insurance
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introduction
Insurance:- A system by which a risk is transferred by a Person, Business or Organization to an insurance company, which reimburses the insured for the covered losses and provides for sharing the costs of losses among all insured's. Personal Insurance:- Insurance coverage's that are purchased by individuals and families covering non-business exposures. Commercial Insurance:- Insurance coverage's purchased for business purposes. Insurer: Insurer (Insurance Company), sells insurance policies that protect insured·s against financial hardship against financial losses.
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Insured : Is a person ,business or Organization that is covered by an insurance policy. Insurance premium : Is a periodic payment by the insured to the insurance company in exchange of insurance coverage. Risk: Is the possibility of financial loss. Peril: A cause of loss. (Ex:- fire) Insurance policy : Is a contract that states the right·s and duties of the insurance company and the insured.
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Common Insurance policies:Property insurance: Cover·s accidental loss resulting from the damage to the property of the insured. Liability insurance: Cover·s accidental loss resulting from injury to the body or damage to the property for which the insured is legally responsible. Health insurance: Provides payment for covered medical costs and disability income. Life insurance: Pays funds to ease the financial problems that might arise from uncertainty regarding the time of death.
Other plans:Social Security Program : Is a federal insurance program funded by taxes that are paid by employees, employers and the self ² employed.
Private retirement plans:Includes employer ² Sponsored pension plans and individual annuities and provide an income for people who retire. These are run by life insurance companies.
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How is insurance sold??
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Insurance policy life cycle:To get the insurance coverage started. To pay all covered claims. To provide service during policy period. To renew the policy when coverage expires.
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initial stages of the sale:Broker: Representatives of insurance buyers. They resemble agent except for the fact
that ,in the legal sense, they represent the party seeking insurance.
Producer: The person who sells insurance policies. Also known as insurance agent/broker/sales representative. Qualities of a good producer: Thorough Technical knowledge Sound customer service skills Good public image
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Role of the Producer in providing Insurance
Identifying a potential Prospect
Prospect is a person, business or organization to which a producer hopes to sell insurance. After the conclusion of the sale ² the prospect would be termed as an insured/account/customer/client.
Advising on the kind of insurance that should be purchased by analyzing the need of
the prospect and identifying the Loss exposure involved. The producer and the insurance buyers use the survey form as a check list of possibilities. Survey questionnaire is a form that lists large number of loss exposures often found in businesses. Loss Exposures are situations that could lead to an accidental loss. After identifying the loss exposures, the application would be filled with the help of the customer service rep An application, is used to gather information that will be used by the Underwriters. (Ex:- An auto insurance app would ask for specific info on each vehicle, make, model, year of manufacture etc.,)
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Customer Service representative is a person who supports the sales efforts of the producer. -
Risk Analysis:-Risk analysis plays an important role in premium determination.
Based on the possible risk associated with the prospect and their safety measures so far, the risk manager/agent determines the premium to be charged. Risk manager:- Is responsible for preserving a firm·s assets against accidental losses of various kinds. They buy insurance, promote loss control measures for their organizations. Large firms usually have a risk management department whereas in a small firm a person (risk manager) performs the risk management duties.
Preparing a Quote with the help of the risk manager / Underwriter of the insurer.
(Complete details of the prospect should be collected) Quotation:- A quote/quotation is a statement regarding the premium that will be charged for certain type of coverage.
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Before determining the premium, the agent would look for deductible if the insured is willing to bear. Deductible:- Is that portion of an insured loss that is not paid by the insurance company. Limits/ Limits of liability:-Indicate in an application how much insurance is requested. Once the policy is issued, the limits in the policy set the maximum dollar amount the insurance company will pay.
Coverage acceptance of the prospect:- A binder will be issued after the
prospect·s acceptance Binder:- Is a statement that coverage is in force until the actual policy is issued. A binder need not be in writing, it can also be a statement given over phone.
Catering to the needs of the insured during the period of coverage and during
renewal. Account Selling:- Is trying to handle all of a client·s insurance needs, rather than providing for only a portion of those needs.
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Different types of marketing system¶s:
1. Independent agency system: An independent agent sells insurance for several unrelated insurance companies. 2. Exclusive agency system: An Exclusive agent has a contract to sell insurance for one insurance company. 3. Direct Writing system: Insurance company that sells insurance through their employees. 4. Direct Response marketing system: Sales done by mail or by the phone.
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First stage of the sale (Prospect ± Agent)
The prospect approaches the agent for insurance coverage
The agent collects all the basic in formations and the information necessary for the type of insurance requested.
Quote is an estimate of how much premium would be charged for a particular type of coverage
(Say for instance if the request is for an auto insurance - DL #, VIN #, prior losses, violations, vehicle type, number of vehicles, number of drivers etc)
The agent with the risk manager or the risk management team - analyses the risk involved and the quote is prepared.
The insurance proposal(application, quote, cover letter of the agent) is sent to the UW for review
Binder is issued
Binder is a temporary coverage until the actual policy is issued
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Underwriting
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Who is an underwriter??
An underwriter evaluates request for insurance and decide which applicants for insurance are accepted and which are rejected. If an applicant is accepted the underwriter also determines how much coverage the insurer is willing to provide at what price.
Goal of an Underwriter:Adverse selection is the increasing likelihood that consumers will purchase insurance when the premium is low relative to the risk. It is the goal of the UW to sell insurance when the risk is low relative to the premium.
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Steps involved in Underwriting:Gathering necessary information. Analyzing the information. Identifying the options. Evaluating the options. Choosing the best solution. Acting on the decision.
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Step I:Gathering the necessary information:Application: Contains information like name, address, type of coverage requested and the amount. It would also ask for specific details like MVR (motor vehicle report ) or VIN (vehicle id number in case of Automobile insurance. Loss Control Report: Identifying the loss control measures taken by the prospect to prevent a potential loss that might occur. Financial Report: To make sure maintenance program's do not suffer a cut back. To make sure prospects are able to pay the premium. Step II:Analyzing the Information Identifying the veracity. Using the UW guide to analyze the various types of applicants that they might encounter. Determining the coverage value having their UW Authority in mind. UW Authority: The limit on decision an UW can make without receiving approval from someone at a higher level.
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Step III:Identifying UW Options Loss Control Program: Suggesting loss control measures that would reduce the risk of a potential loss. Modifying Coverage: Providing coverage different from what was requested, usually restricted coverage. Modifying Price: Determine the price considering the market, the risk involved and the chances of future business. Step IV:Evaluating Options: Understanding and analyzing the various options in hand and determining the pro·s and con·s of the different options. Step V:Choosing the best option : While choosing the best option it should be determined in such a way that it does not affect the insurer (e.g.: better premium options with help of Deductible's, premium financing if any) Premium Financing: Allows the insured to pay a part the premium when coverage starts and the remainder is spread throughout the policy period.
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Step VI:Acting on the Decision: Provide the best quote to the Prospect keeping the above mentioned criteria·s in mind. If required forward proposal to the superior·s for approval. Supervisor also determines the need of reinsurance.
Reinsurance: Is an agreement with another insurer with which the risk is shared. This is
done to reduce uncertainty by reducing the risk and sharing the loss. UW·s use the following to determine the premium:Rating manual: Is usually a book or computer programs used for calculating premium.
Manual Premium:- Is the premium determined from the rating manual, not including discounts or surcharges. Once the decision is taken, the insurance proposal would be sent to the prospect for acceptance.
The Insurance Proposal:
Usually a booklet that highlights important features of the coverage ,related services and states the premium, also mentions premium financing if any.
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Underwriting guide:Underwriting guide:- A book or computer database that communicates staff UW·s
guidelines to the line UW who must follow them. It details the underwriting practices of the insurance company and provides specific guidance about ho underwriters should analyze all of the various types of applicants they might encounter. How is an UW guide developed?? UW guides are developed by Staff UW and followed by Line UW. UW guides are used to determine the kind of insurance to be sold ,the price and whom the insurance has to be sold to.
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Factors influencing development of UW guide:
Regulation:- Includes state regulations and other Underwriting restrictions. Price competition:-Carefully studying the competition is an important function of
the staff UW in developing the UW guide.
Competition & need for new insurance products:- Introducing new insurance products
as per the competition & need in the current market and loss exposures involved.
Feed back from the field:- Staff UW·s would make change to the UW guide as per the
feedback from producers and insured.
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Tools for measuring Underwriting results:Loss Ratio:- Refers to the percent of premiums that goes to pay claims.
Losses(dollars)/ premiums(dollars) = Loss ratio(in percent)
Expense Ratio:- Refers to the percent of premiums that goes to pay the insurance
companies operating expenses. Expenses(dollars) / premiums(dollars) = Expense ratio(in percent)
Combined Ratio:- Is the sum of loss ratio and the expense ratio.
Loss ratio + Expense ratio = Combined ratio
Underwriting Loss:- Occurs when the combined ratio is greater that 100 % Underwriting gain:- Occurs when the combined ratio is less than 100%
If an insurance company collected $1,000,000 in home insurance premiums where $750,000 was paid for claims, $200,000 was spent for operating expenses determine if there is an Underwriting gain or loss??
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Types of Insurance Markets:Voluntary Market : UW·s for an insurance company voluntarily decide whether to
accept or reject an insurance application. Business accepted in this way is considered to be a part of Voluntary Market.
Residual Market: Applicants rejected by the Voluntary market may find insurance
available through one of the residual market program's. Residual Market Programs:Automobile insurance plans: For people who are not able to obtain auto insurance in the voluntary market apply for coverage in the State Automobile Insurance Plan. State assigns it to the insurance company . FAIR Plans: ´Fair Access to Insurance Requirementsµ- For property insurance with restricted coverage and on specific conditions (loss control measures)
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Second stage of the sale ± UW¶s review
If for instance if the ins req is for an autoMVR,CLUE,los s control report, financial rpt would be ordered
UW receives request for proposal
UW orders necessary records as per the insurance requested
UW verifies all the info disclosed by the agent with that of the obtained reports
UW takes a decision of any one of the following 3 options:-
Accept the proposal Accept with certain terms and conditions Insurance would be provided if the prospect accepts the T &C
Reject the proposal
Proposal is sent to the prospect for acceptance
Policy is issued
The prospect needs to find insurance in residual market programs
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CLAIMS HANDLING
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Claims
A claim is a demand by a person or business seeking to recover for a loss. A claim can be made against an individual. A claim can be made against an insurance company when the insured asks for the insurance company to pay for a loss that might be covered by an insurance policy. Claimant: Is a person or business who presents a claim.
For liability insurance: The claimant is a person or business that has suffered a loss
and seeks to collect for the loss from an insured. The insurance company is involved because it has promised in a liability insurance policy to pay covered losses on behalf of the insured.
For property insurance :The claimant is the insured that wants the insurance
company to pay for repairing or replacing his or her damaged property
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Claims Adjuster: Person directly responsible for investigating and
settling the claims that might be covered by insurance. Other names for claims adjusters are Claims Handler, Claims Representative and Claims Examiner. The claim is assigned to a claims adjuster by a claims clerk. Claims clerk is a person who has the job of taking claims reports over the telephone and doing other things including documentation that help the adjustor in the process of adjusting claims. Role of a claims adjuster: The claims adjuster investigates the fact surrounding each claim and examines the following two things initially. If the claim satisfies the following two conditions only the adjuster proceeds to the next stage:-
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Factors influencing initial Investigation:Is the claim resulting from the accident covered by the insurance policy. (exclusion·s or restrictions) How much will be paid according to the policy: a. Policy limits : max amount that may be paid. b. Valuation clause: A method used to place a value on damaged property covered by the policy c. Deductibles: Before proceeding to the next level, loss reserve is set up.:Loss reserve:- is the insurance companies best current estimate of the dollar amount that will be paid in the future for an accident that has already occurred. Factors influencing next Investigation:Accident report form: Is used to record key information about the accident. Physical evidence: Is any tangible thing that is relevant in determining the facts concerning the accident. Oral evidence: Involves statements from people who have witnessed the accident. Civil authority reports(police reports) if any.
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Different methods of claims settling:Subrogation - When the insurer pays the insured for loss, the insurer takes over the
insured·s right to collect damages from the other party responsible for the loss through a process called subrogation. The insurance company subrogate against the party directly responsible for the loss. The insurance companies take away the right of the insured to recover for any loss from the person responsible. The process of recovering these payments is called Subrogation.
Litigation: Is the process of carrying on a lawsuit. This is generally carried out when
the facts surrounding the accident is not clear ² cut.
Out-of-court settlement: Is when people negotiate and reach agreement without
having a court handle the case. It saves time and money.
Drive in claim service:-
A facility for providing repair estimates on damaged cars that are still drivable. An evaluation of the cost to repair a damaged car usually known as an estimate is given by a physical damage appraiser/material damage appraiser.
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Types of adjusters
Insurance company claims representative:- Claims are adjusted by
full time employees of the insurance company.
Independent adjusters:- Independent contractors who provide
claims services to various insurance companies. Independent adjusters charge insurance companies a fee for each claim that they handle.
Producers as adjusters:- In some cases, the producers themselves
act as draft authority. Draft authority: A producer with draft authority is permitted to handle small claims and issue drafts (check·s issued on the insurance company·s checking account) for paying certain types of covered claims that are within the dollar limit of the draft authority.
Inside adjusters: Are telephone adjusters who process claims
over the phone itself when the claim is clearly covered in the policy.
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Factors in calculating value of a damaged property
Replacement Cost:- Is the amount it would cost to construct the damaged building today using materials of the same kind and quality. Acquisition Cost:- The price for which the building was originally built or purchased. Market Value:- Is the price at which it could be sold. Actual Cash Value:- Is figured by determining what it would cost to replace the property and then adjusting this replacement cost by subtracting an amount that reflects depreciation. Depreciation:- Is loss in value that develops as items age, wear out, or become obsolete.
Coinsurance clause:- Is a provision in many property insurance policies that reduces the amount that will be paid for a loss occurring when property is underinsured. A coinsurance clause sets a ´penaltyµ for underinsurance when the policy limit is substantially lower than the value of the covered property.
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Responsibilities in settling claims:-
Insured responsibility:- Has the responsibility to notify the incident ASAP to the insurer. Producer responsibility:- Decides whether the insurance company must be told about this or not base on three categories: (accident report form).
The loss is not covered. The amount of the damage is within the deductible. The loss is (or might be covered)
Insurer responsibility:- Is to make sure that the claim is investigated properly and settled within the timeline.
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Steps involved in claims handling:Claim is reported to the claims dept
Police report forms, physical/oral evidences would be considered during claim settling
Claim is assigned to a claims adjuster
Is the claim covered
Claims adjuster checks the following 3 things before taking a decision
Policy limits Deductibles/valuation clause
If the claim is straightforward the claim would be settled immediately.
Similar services would be provided till policy renewal
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POLICY RENEWAL & SERVICES
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Policy Renewal
Policy renewal is continuing the policy in force or another period after the expiration of its current term. The insured and the insurer may take any one of the following three options:-
Expiration:- An insurance policy·s coverage ceases, or expires, at the end of the policy term or policy period. The expiration date is also known as the x-date. Cancellation:- Stopping coverage during the policy period is cancellation. Insured can cancel the policy at any time, but the insurer can cancel the policy only at the renewal. Unearned premium:- On a policy is the money an insurer would have to give back if the policy were cancelled. Nonrenewal:- When an insurer decides not to renew a policy at the end of a policy period, it is non-renewal.
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The Underwriters Perspective on policy renewal: UW·s at renewal would re evaluate the risk and all the information's that was provided during policy issue and take according actions. The Producers Perspective on policy renewal:Agents would get the feedback from the insured regarding his experience during the policy term, decides any addition/deletion to the current policy is needed ² Will make sure that the insured has complete confidence in his service. The Insured·s Perspective on policy renewal:At renewal the insured takes a decision whether to continue with the insurer or not. Premium Auditing: Policy holders record·s are examined at the end of the year to determine the audited premium. Renewal Questionnaire:- Usually questions about changes during the past coverage period. UW·s gets feedback from the insured using the renewal questionnaire.
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Types of billing
1.Producer Billing (Agency Billing): 2.Direct Billing::
Agency Billing: Bill for the insured is prepared in the producers office showing the
insurance premium that is due. The insured pays the premium directly to the producers office. The insurance bills the producer for all policy the insured has sold. The producer collects the premium and remits them to the insurance company after deducting the producer·s commission.
Direct Billing: When the insurance company bills the insured directly and the insured
sends the payment directly to the insurer. The insurance company pays commission or other compensation for producing new business and servicing renewal business directly to the producer in a monthly check for all business produced or renewed during a one month period.
Account Current:- Is the billing statement an insurance company sends to its producer.
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Types of policy provisions:Any statement in a policy is referred to as policy provision. There are six types of policy provisions: 1.Declaration 2.Insuring agreement·s 3.Exclusions 4.Conditions 5.Definitions 6.Miscellaneous provisions
Declaration: Declarations personalize a printed policy and tailor it to fit a particular policy holder for his or her insurance needs. It also includes the information that the insured declared on the application of the policy. Insuring agreement: Is the insurance policy provision that states, in broad terms, the promises made by the insurance company. An insurance policy provides coverage only if the claim is within the scope of the promises expressed in an insurance agreement .
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Exclusions: Policy provisions that restricts the broad terms of the insuring agreement by the stating some exceptions to coverage ²certain activities, loss causes, property, persons and places for which insurer does not provide coverage. Conditions: Explains the duties ,rights and options of the insured and the insurance company. Conditions cover a broad range of topics including 1.Policy holders duty to pay premium 2.Steps the insured must take after accident. 3.The geographical are within which coverage applies. 4.How disagreements between insurer and insured can be resolved 5.The producer to be used by the policy holder or the insurance company top cancel the policy.
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Definitions: Is the provision that explains the meaning of a word or term that is used elsewhere in the policy. Miscellaneous provisions: Are policy provisions that do not fit into any other policy provisions like an endorsement.
Endorsement: Is used to amend coverage in the otherwise completed policy. Form:- Is a standard pre-printed wording that makes up bulk of the insurance
agreement.
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TYPES OF INSURANCE POLICIES
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Types of Personal Insurance policies:Insurance
Personal Insurance
Personal Auto Policy(PAP) Liability coverage Medical Payments Uninsured Motorist coverage Coverage Personal auto
Homeowners Policy Coverage on house Coverage on other building/structures Coverage on household personal ppty Coverage on Loss of use of the dwelling building
P r o p e r t y
L i a
Personal liability coverage Collision Comprehensive Coverage for medical payments to others
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Personal Auto Policy:Part A:- Liability coverage The Liability coverage of the PAP covers losses due to the insured·s liability for bodily injury or property damage of others caused by an auto accident.
Part B:- Medical Payments coverage:Medical payments coverage of the PAP covers the medical expenses of the insured as well as to the injury of the person for which the insured is legally responsible, if the expenses are the result of an auto accident.
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Part C:- Auto Physical damage coverage:Is a property insurance covering disappearance/damage/destruction of the auto. Also known as ´Coverage for damage to your autoµ. There are 2 sets of physical damage coverage:-
Collision:- Coverage applies to losses involving a collision. Collision coverage is available only when ´Other than collisionµ coverage is also purchased. Other than collision:- Coverage applies to losses by perils other than collision. Also known as comprehensive coverage.
Part D:- Uninsured motorist coverage Coverage applies to accidents caused by a hit and run driver/ driver causing the accident doesn·t have insurance.
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Homeowner¶s Policy: Part A:- Coverage on the dwelling building:This part of the homeowners policy covers the house itself. Part B:- Coverage on other buildings or structures:This part of the homeowners policy covers other building structures in the insured·s premises. Part C:- Coverage on personal property:This part of the homeowners policy covers all other personal property inside the house.
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Part D:- Coverage on Loss of use of the dwelling building:This part of the homeowners policy pays the insured for additional living expenses during recovery of a damaged property by a covered peril. Theft/Burglary/Robbery: Theft is an act of stealing. Burglary is a type of theft committed by someone who breaks into something and illegally removes money or other property. Robbery is a type of theft committed by someone who threatens a person and forces him or her to give money or other property to the thief. Part E:- Personal Liability coverage:This part of the homeowners policy pays for bodily injury or property damage of someone else for which the insured is legally responsible. Part F:- Coverage for medical payments to others:Covers medical payments of others(not the insured) who are injured because of the insured·s premises, activities or pets.
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Other personal insurance policy:Umbrella Policy:- An Umbrella policy is a liability insurance policy that takes over where basic liability is insurance policies leave off. SIR ² Self Insured Retention, is a kind of deductible in an umbrella policy. When a liability claim is covered by an umbrella, but not by another policy that covers liability, the insurer with the umbrella subtracts the SIR before paying the claim. Personal Articles floater policy:- Is usually available as a scheduled endorsement to homeowners policies, provides broad coverage for specified items such as jewellery, furs, silverware and guns. National Flood Insurance Policy:-
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Do you know?? ² What is difference between Coverage's for medical payments to others(homeowners policy) and medical payments coverage(PAP). The auto policy covers injuries to an insured, as well as others occupying the insured·s auto- but the home coverage does not cover the medical expense of an insured, but only those of other people who are injured because of the insured.
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Rental reimbursement coverage: - Pays the cost of renting a substitute car if the insured·s car is disabled in an accident Towing and labor coverage:- Pays for road service and towing. Tapes or CD coverage:- Covers stereo tapes or compact discs in the car.
All Risks, Specified perils, Burden of proof:Burden of proof:- The challenge of proving a loss is covered or not covered. It is very important in cases in which a loss is obvious but its cause is not obvious. ´All risksµ property policy:- Covers any loss unless it is caused by an excluded peril described in the policy. Also known as ´Specialµ or ´Open perilsµ policy. In this type, the burden of proof is on the insurer. Specified perils property policy:- Covers any loss that is caused by one or more of the covered perils that is named in the policy. In this type, the burden of proof is on the insured.
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Types of Commercial Insurance policies:Insurance Commercial Insurance
Bailee Insurance Boiler and machinery insurance Account receivable insurance Business Income insurance Building & Contents insurance Reporting Policy General Liability insurance Business Auto Policy Workers Compensation Employee dishonesty insurance
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COMMERCIAL INSURANCE:
Personal Property - Except Land and Building & other structures (ex: Store room, Furniture and fixtures) Real Property - Land and Buildings
Accounts receivable insurance: Pays for the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril. It covers any payments that cannot be collected because records cannot be reconstructed. Business Auto Policy:- Covers liability from accidents involving the insured·s commercial vehicle. It doesn·t provide coverage for accident involving employees who might use the insured·s vehicle and for rented vehicles. Auto Physical damage/Auto Liability coverage:- An auto insurance covering disappearance/damage/destruction of the auto and the bodily injury and property damage of others for the which the insured is legally responsible.
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Business Income Insurance: Indemnifies a business for its loss in profits caused by the interruption and also pays the business expenses that continue during the interruption. Boilers and machinery Insurance:- Covers explosions of boilers and other pressure vessels as well as breakdown of various types of machinery. Bailee Customers Insurance:- Covers losses to customers property in the custody of the bailee. (Ex: Dry cleaners, warehouse) Reporting Policy:- A reporting policy can be ideal for a business with property values that fluctuate a lot during the year because a business with a reporting policy pays for only the amount of insurance it actually needs. A provisional premium is collected at the beginning of the year and the final premium is computed based on the average of the monthly values reported.
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Direct versus Indirect losses; Time element Insurance
Direct Loss:- Almost instantaneous reduction in value of property resulting directly from damage to that property. Ex:-Building and contents insurance covers the direct losses resulting from damage to that property.
Indirect Loss:-Loss of earnings or extra expenses taking place over a period of days, weeks, or months following a direct loss, increases with the passage of time. Ex:- Business income insurance covers indirect losses resulting from the damage to the covered property. Since the passage of time in indirect losses cannot be determined, and recovery of loss depends on the time element ² business income insurance and other similar types of indirect losses are sometimes called as time element insurance.
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Types of Coverage's under General Liability Insurance (Commercial):General Liability Insurance: Covers some of the major liability exposures of a business including liability related to the premises, operations in progress, products and completed operations.
Completed Operations Liability coverage pays for bodily injury or property damage caused by work that the insured has completed. Premises and operations Liability coverage pays for bodily injury or property damage caused due to the conditions and ongoing operations in insured·s premises. Products Liability coverage pays for bodily injury or property damage that takes place away from the insured·s premises and is caused by a product sold by the insured.
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Workers Compensation Insurance :-Pays certain benefits required by law to employees who are injured in the course of their employment. Commercial Umbrella policy :- Will provide excess coverage in the event of a liability claim that is big enough to exhaust the limits of general liability policy. Employee dishonesty coverage:- Applies to theft of money or other property by an employee. Also known as fidelity coverage. Electronic Data Processing coverage(EDP):- Covers damage to electronic items like computer disks, tapes etc due to covered peril. Package Policy:- Is a combination of number of property and liability insurance coverage's into a single insurance policy.
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INSURANCE RATING SYSTEM
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Insurance Rating System:
Insurance Rating System is an orderly method for arriving at an appropriate premium. Types of Insurance rating system:-
Class Rating: Places similar insured's into categories and applies same rate to all insured's in the same class. ² Homogeneity is used to describe similarity among insured's in the same rating class. Perfect homogeneity is impossible. But workable homogeneity is feasible for many of type of insurance. Individual Rating: Every Insured is unique that reflects its own unique characteristics. Judgement Rating :-Is a type of individual rating used to develop a premium for exposures for which there is no established premium determining system. Underwriter sets the premium based on his experience.
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Schedule rating:- Is used when UW·s are permitted to schedule ´creditsµ or debits if they can identify some characteristics that are not considered in the established rating system but that affect the loss potential of a particular insured. Experience rating:- Is a process by which the insurance premiums of larger businesses can be modified to some degree based on their past loss records.
Insurance Rate:- An Insurance rate is the price of insurance for each unit of exposure. The rate is multiplied by the number of exposure units to arrive at a premium. Exposure Units: Are standard units used in insurance rating. Loss Costs i) Historical Loss Costs:- Involves only past losses, indicate the dollar losses relating to each exposure unit in the past. ii) Perspective Loss Costs:- Are based on past losses plus some adjustments, indicate the dollar losses relating to each exposure unit that can be expected in the future.
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Examples of Insurance rating plans:Personal Auto Insurance:Is usually class rated(ex- territory, age, young drivers, students, age of the car etc.,)
Homeowners Insurance:Also class rated based on the following 2 categories:Construction type:- Generally frame or brick, since wood frame houses burn more readily and therefore higher premiums than solid brick houses Protection Class:- Is a rating of the local fire department·s capabilities and the availability of fire hydrants and other water supply sources, usually on a scale of 1 to 10, with 1 being best and 10 having essentially no fire protection. Commercial Building and contents Insurance:Can be both class rated and individual rated.
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Commercial general liability Insurance:This is usually class rated. Each classification describes a particular type of business operation. Some commonly used standard exposure units are:- Payroll, gross sales, area etc.,
Workers compensation:- Is usually class rated. Classification is similar to general liability insurance. There are nearly 600 classification for workers compensation.
Experience modification:- Is adjusting premium for workers compensation insurance based on the loss experience of he insured employer. Premium discount:- Is applied to workers compensation policies on larger businesses to reflect the fact some of the expenses of selling and servicing workers compensation insurance do not vary in proportion to the premium.
Inland Marine Insurance:Can be both class rated and individual rated.
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Home office :- A typical insurance company·s headquarters. Branch/Regional office:- A local insurance company office, usually located away from the home office, providing service to accounts in a limited geographical area. ISO( Insurance Services Offices):- The largest insurance service office in the country, performing a variety of services such as developing statistical classification systems and collecting statistical classification data on insured claims from a large number of insurers, analyze this information and develop loss cost data.
Insurance companies that subscribe to ISO·s services may use this loss cost info to set their insurance rates. NCCI(National Council on Compensation Insurance:- Is responsible for developing workers compensation insurance loss cost data in most states. (ISO is not involved in Workers comp rating plans) Actuary:- Is a person who uses complex mathematical methods, usually with the aid of computers, to analyze loss data and other statistics and develop systems for determining future premiums.
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Insurance Cycles:Insurance cycle is of two phases:i) Hard Market:- Insurers become more selective, making it more difficult to get insurance, even at higher prices ii)Soft Market:- Insurance prices are lower, and insurance is readily available.
Insurance Regulation:Insurance is regulated by the states, which has an insurance department headed by an insurance commissioner. All insurance members of the National Association of Insurance Commissioners(NAIC) which coordinates insurance regulation among the states. Rate Filings:- Are documents submitted to a state insurance department that contain the proposed rates and also, when necessary the statistics on which the rates are based.
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Mandatory Rates:- The state insurance department develop insurance rates that must be used by all insurers. Prior Approval Law:- States with this law requires the state insurance department·s approval for rate changes before they are put into effect.
File and Use Law:- In States with file and use law, insurance companies are permitted to use new rates as soon as they have been filed with the state insurance department.
(The state insurance dept reserves the right to disapprove rates if it can show that they violate requirements)
No-Filing Law :- With a no-filing law, also known as open competition, no rate filing is required because insurance regulators neither approve nor disapprove insurance rates. Flex-Rating Law:- Insurers may raise and lower rates within a certain range(´bandµ) without specific approval from state regulators.
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Rate Suppression:- Occurs if Government regulators hold insurance rates at a level below their true economic cost. Assets and Liabilities:Assets are items of value such as cash, stocks, bonds and buildings Liabilities are financial obligations, These includes debts that have not been paid as well as expected bills that are in due. Surplus is the difference between an insurer·s admitted assets and its liabilities.
Insurance guaranty funds:- Provides a system to pay the claims of insolvent property and liability insurers. Centralization and Decentralization:Centralization is the process of moving activities to a central location Decentralization is the process of moving activities from a centre to different locations.
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Unbundling:- Happens when insurance claims adjusting, loss control, risk management, or other services are sold separately rather than being bundled together with an insurance policy for which a single insurance premium is charged. Self Insurance or Retention:A business does not transfer its risks to an insurance company or anyone else. It pays for all losses with its own resources. Captive Insurance:- Insurance company owned and operated by the corporation it insures.
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What does insurance company do with the premium they collect???
Pay Claims: Pay for the losses that is covered by the policy. Pay Expenses: To cover the cost used to sell, issue and service insurance policies. Generate Profits & Contingency allowance: Profits generated by the investments made by the insurer. Contingency allowance is a fund for any unpredictable or extraordinary events that might draw on an insurance company·s assets. Insurers generally try to retain a portion of their profits to build a surplus that provides a cushion for contingencies.
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BENEFITS OF INSURANCE
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How does insurance help the society???
Payment of losses: Indemnify: To restore the party that has had a loss to the same financial position as before the loss occurred. Accident Prevention: By emphasizing on loss control measures. Investment in the economy: Providing funds to help business to grow and create jobs. Support for Credit: In order to avail loan on a property banks ask for proof of insurance. Reduction of anxiety: since indemnification is guaranteed by the insurance company.
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Insurance Policy ± Life cycle
Application sent to UW¶s review
Policy Renewal
Underwriting Activities
Insurance Policy Life cycle
Claims Handling/ Claims settling
Policy Issuance/ Coverage Starts
Policy Servicing
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THANK YOU
TCS Confidential
~ An Overview~
TCS Confidential
Contents: introduction How is insurance sold Underwriting Claims handling Policy renewal & services Types of insurance policies Insurance rating system benefits of insurance
May 2011
introduction
Insurance:- A system by which a risk is transferred by a Person, Business or Organization to an insurance company, which reimburses the insured for the covered losses and provides for sharing the costs of losses among all insured's. Personal Insurance:- Insurance coverage's that are purchased by individuals and families covering non-business exposures. Commercial Insurance:- Insurance coverage's purchased for business purposes. Insurer: Insurer (Insurance Company), sells insurance policies that protect insured·s against financial hardship against financial losses.
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Insured : Is a person ,business or Organization that is covered by an insurance policy. Insurance premium : Is a periodic payment by the insured to the insurance company in exchange of insurance coverage. Risk: Is the possibility of financial loss. Peril: A cause of loss. (Ex:- fire) Insurance policy : Is a contract that states the right·s and duties of the insurance company and the insured.
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Common Insurance policies:Property insurance: Cover·s accidental loss resulting from the damage to the property of the insured. Liability insurance: Cover·s accidental loss resulting from injury to the body or damage to the property for which the insured is legally responsible. Health insurance: Provides payment for covered medical costs and disability income. Life insurance: Pays funds to ease the financial problems that might arise from uncertainty regarding the time of death.
Other plans:Social Security Program : Is a federal insurance program funded by taxes that are paid by employees, employers and the self ² employed.
Private retirement plans:Includes employer ² Sponsored pension plans and individual annuities and provide an income for people who retire. These are run by life insurance companies.
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How is insurance sold??
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Insurance policy life cycle:To get the insurance coverage started. To pay all covered claims. To provide service during policy period. To renew the policy when coverage expires.
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initial stages of the sale:Broker: Representatives of insurance buyers. They resemble agent except for the fact
that ,in the legal sense, they represent the party seeking insurance.
Producer: The person who sells insurance policies. Also known as insurance agent/broker/sales representative. Qualities of a good producer: Thorough Technical knowledge Sound customer service skills Good public image
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Role of the Producer in providing Insurance
Identifying a potential Prospect
Prospect is a person, business or organization to which a producer hopes to sell insurance. After the conclusion of the sale ² the prospect would be termed as an insured/account/customer/client.
Advising on the kind of insurance that should be purchased by analyzing the need of
the prospect and identifying the Loss exposure involved. The producer and the insurance buyers use the survey form as a check list of possibilities. Survey questionnaire is a form that lists large number of loss exposures often found in businesses. Loss Exposures are situations that could lead to an accidental loss. After identifying the loss exposures, the application would be filled with the help of the customer service rep An application, is used to gather information that will be used by the Underwriters. (Ex:- An auto insurance app would ask for specific info on each vehicle, make, model, year of manufacture etc.,)
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Customer Service representative is a person who supports the sales efforts of the producer. -
Risk Analysis:-Risk analysis plays an important role in premium determination.
Based on the possible risk associated with the prospect and their safety measures so far, the risk manager/agent determines the premium to be charged. Risk manager:- Is responsible for preserving a firm·s assets against accidental losses of various kinds. They buy insurance, promote loss control measures for their organizations. Large firms usually have a risk management department whereas in a small firm a person (risk manager) performs the risk management duties.
Preparing a Quote with the help of the risk manager / Underwriter of the insurer.
(Complete details of the prospect should be collected) Quotation:- A quote/quotation is a statement regarding the premium that will be charged for certain type of coverage.
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Before determining the premium, the agent would look for deductible if the insured is willing to bear. Deductible:- Is that portion of an insured loss that is not paid by the insurance company. Limits/ Limits of liability:-Indicate in an application how much insurance is requested. Once the policy is issued, the limits in the policy set the maximum dollar amount the insurance company will pay.
Coverage acceptance of the prospect:- A binder will be issued after the
prospect·s acceptance Binder:- Is a statement that coverage is in force until the actual policy is issued. A binder need not be in writing, it can also be a statement given over phone.
Catering to the needs of the insured during the period of coverage and during
renewal. Account Selling:- Is trying to handle all of a client·s insurance needs, rather than providing for only a portion of those needs.
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Different types of marketing system¶s:
1. Independent agency system: An independent agent sells insurance for several unrelated insurance companies. 2. Exclusive agency system: An Exclusive agent has a contract to sell insurance for one insurance company. 3. Direct Writing system: Insurance company that sells insurance through their employees. 4. Direct Response marketing system: Sales done by mail or by the phone.
May 2011
First stage of the sale (Prospect ± Agent)
The prospect approaches the agent for insurance coverage
The agent collects all the basic in formations and the information necessary for the type of insurance requested.
Quote is an estimate of how much premium would be charged for a particular type of coverage
(Say for instance if the request is for an auto insurance - DL #, VIN #, prior losses, violations, vehicle type, number of vehicles, number of drivers etc)
The agent with the risk manager or the risk management team - analyses the risk involved and the quote is prepared.
The insurance proposal(application, quote, cover letter of the agent) is sent to the UW for review
Binder is issued
Binder is a temporary coverage until the actual policy is issued
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Underwriting
May 2011
Who is an underwriter??
An underwriter evaluates request for insurance and decide which applicants for insurance are accepted and which are rejected. If an applicant is accepted the underwriter also determines how much coverage the insurer is willing to provide at what price.
Goal of an Underwriter:Adverse selection is the increasing likelihood that consumers will purchase insurance when the premium is low relative to the risk. It is the goal of the UW to sell insurance when the risk is low relative to the premium.
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Steps involved in Underwriting:Gathering necessary information. Analyzing the information. Identifying the options. Evaluating the options. Choosing the best solution. Acting on the decision.
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Step I:Gathering the necessary information:Application: Contains information like name, address, type of coverage requested and the amount. It would also ask for specific details like MVR (motor vehicle report ) or VIN (vehicle id number in case of Automobile insurance. Loss Control Report: Identifying the loss control measures taken by the prospect to prevent a potential loss that might occur. Financial Report: To make sure maintenance program's do not suffer a cut back. To make sure prospects are able to pay the premium. Step II:Analyzing the Information Identifying the veracity. Using the UW guide to analyze the various types of applicants that they might encounter. Determining the coverage value having their UW Authority in mind. UW Authority: The limit on decision an UW can make without receiving approval from someone at a higher level.
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Step III:Identifying UW Options Loss Control Program: Suggesting loss control measures that would reduce the risk of a potential loss. Modifying Coverage: Providing coverage different from what was requested, usually restricted coverage. Modifying Price: Determine the price considering the market, the risk involved and the chances of future business. Step IV:Evaluating Options: Understanding and analyzing the various options in hand and determining the pro·s and con·s of the different options. Step V:Choosing the best option : While choosing the best option it should be determined in such a way that it does not affect the insurer (e.g.: better premium options with help of Deductible's, premium financing if any) Premium Financing: Allows the insured to pay a part the premium when coverage starts and the remainder is spread throughout the policy period.
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Step VI:Acting on the Decision: Provide the best quote to the Prospect keeping the above mentioned criteria·s in mind. If required forward proposal to the superior·s for approval. Supervisor also determines the need of reinsurance.
Reinsurance: Is an agreement with another insurer with which the risk is shared. This is
done to reduce uncertainty by reducing the risk and sharing the loss. UW·s use the following to determine the premium:Rating manual: Is usually a book or computer programs used for calculating premium.
Manual Premium:- Is the premium determined from the rating manual, not including discounts or surcharges. Once the decision is taken, the insurance proposal would be sent to the prospect for acceptance.
The Insurance Proposal:
Usually a booklet that highlights important features of the coverage ,related services and states the premium, also mentions premium financing if any.
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Underwriting guide:Underwriting guide:- A book or computer database that communicates staff UW·s
guidelines to the line UW who must follow them. It details the underwriting practices of the insurance company and provides specific guidance about ho underwriters should analyze all of the various types of applicants they might encounter. How is an UW guide developed?? UW guides are developed by Staff UW and followed by Line UW. UW guides are used to determine the kind of insurance to be sold ,the price and whom the insurance has to be sold to.
May 2011
Factors influencing development of UW guide:
Regulation:- Includes state regulations and other Underwriting restrictions. Price competition:-Carefully studying the competition is an important function of
the staff UW in developing the UW guide.
Competition & need for new insurance products:- Introducing new insurance products
as per the competition & need in the current market and loss exposures involved.
Feed back from the field:- Staff UW·s would make change to the UW guide as per the
feedback from producers and insured.
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Tools for measuring Underwriting results:Loss Ratio:- Refers to the percent of premiums that goes to pay claims.
Losses(dollars)/ premiums(dollars) = Loss ratio(in percent)
Expense Ratio:- Refers to the percent of premiums that goes to pay the insurance
companies operating expenses. Expenses(dollars) / premiums(dollars) = Expense ratio(in percent)
Combined Ratio:- Is the sum of loss ratio and the expense ratio.
Loss ratio + Expense ratio = Combined ratio
Underwriting Loss:- Occurs when the combined ratio is greater that 100 % Underwriting gain:- Occurs when the combined ratio is less than 100%
If an insurance company collected $1,000,000 in home insurance premiums where $750,000 was paid for claims, $200,000 was spent for operating expenses determine if there is an Underwriting gain or loss??
May 2011
Types of Insurance Markets:Voluntary Market : UW·s for an insurance company voluntarily decide whether to
accept or reject an insurance application. Business accepted in this way is considered to be a part of Voluntary Market.
Residual Market: Applicants rejected by the Voluntary market may find insurance
available through one of the residual market program's. Residual Market Programs:Automobile insurance plans: For people who are not able to obtain auto insurance in the voluntary market apply for coverage in the State Automobile Insurance Plan. State assigns it to the insurance company . FAIR Plans: ´Fair Access to Insurance Requirementsµ- For property insurance with restricted coverage and on specific conditions (loss control measures)
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Second stage of the sale ± UW¶s review
If for instance if the ins req is for an autoMVR,CLUE,los s control report, financial rpt would be ordered
UW receives request for proposal
UW orders necessary records as per the insurance requested
UW verifies all the info disclosed by the agent with that of the obtained reports
UW takes a decision of any one of the following 3 options:-
Accept the proposal Accept with certain terms and conditions Insurance would be provided if the prospect accepts the T &C
Reject the proposal
Proposal is sent to the prospect for acceptance
Policy is issued
The prospect needs to find insurance in residual market programs
Policy is issued May 2011
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CLAIMS HANDLING
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Claims
A claim is a demand by a person or business seeking to recover for a loss. A claim can be made against an individual. A claim can be made against an insurance company when the insured asks for the insurance company to pay for a loss that might be covered by an insurance policy. Claimant: Is a person or business who presents a claim.
For liability insurance: The claimant is a person or business that has suffered a loss
and seeks to collect for the loss from an insured. The insurance company is involved because it has promised in a liability insurance policy to pay covered losses on behalf of the insured.
For property insurance :The claimant is the insured that wants the insurance
company to pay for repairing or replacing his or her damaged property
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Claims Adjuster: Person directly responsible for investigating and
settling the claims that might be covered by insurance. Other names for claims adjusters are Claims Handler, Claims Representative and Claims Examiner. The claim is assigned to a claims adjuster by a claims clerk. Claims clerk is a person who has the job of taking claims reports over the telephone and doing other things including documentation that help the adjustor in the process of adjusting claims. Role of a claims adjuster: The claims adjuster investigates the fact surrounding each claim and examines the following two things initially. If the claim satisfies the following two conditions only the adjuster proceeds to the next stage:-
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Factors influencing initial Investigation:Is the claim resulting from the accident covered by the insurance policy. (exclusion·s or restrictions) How much will be paid according to the policy: a. Policy limits : max amount that may be paid. b. Valuation clause: A method used to place a value on damaged property covered by the policy c. Deductibles: Before proceeding to the next level, loss reserve is set up.:Loss reserve:- is the insurance companies best current estimate of the dollar amount that will be paid in the future for an accident that has already occurred. Factors influencing next Investigation:Accident report form: Is used to record key information about the accident. Physical evidence: Is any tangible thing that is relevant in determining the facts concerning the accident. Oral evidence: Involves statements from people who have witnessed the accident. Civil authority reports(police reports) if any.
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Different methods of claims settling:Subrogation - When the insurer pays the insured for loss, the insurer takes over the
insured·s right to collect damages from the other party responsible for the loss through a process called subrogation. The insurance company subrogate against the party directly responsible for the loss. The insurance companies take away the right of the insured to recover for any loss from the person responsible. The process of recovering these payments is called Subrogation.
Litigation: Is the process of carrying on a lawsuit. This is generally carried out when
the facts surrounding the accident is not clear ² cut.
Out-of-court settlement: Is when people negotiate and reach agreement without
having a court handle the case. It saves time and money.
Drive in claim service:-
A facility for providing repair estimates on damaged cars that are still drivable. An evaluation of the cost to repair a damaged car usually known as an estimate is given by a physical damage appraiser/material damage appraiser.
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Types of adjusters
Insurance company claims representative:- Claims are adjusted by
full time employees of the insurance company.
Independent adjusters:- Independent contractors who provide
claims services to various insurance companies. Independent adjusters charge insurance companies a fee for each claim that they handle.
Producers as adjusters:- In some cases, the producers themselves
act as draft authority. Draft authority: A producer with draft authority is permitted to handle small claims and issue drafts (check·s issued on the insurance company·s checking account) for paying certain types of covered claims that are within the dollar limit of the draft authority.
Inside adjusters: Are telephone adjusters who process claims
over the phone itself when the claim is clearly covered in the policy.
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Factors in calculating value of a damaged property
Replacement Cost:- Is the amount it would cost to construct the damaged building today using materials of the same kind and quality. Acquisition Cost:- The price for which the building was originally built or purchased. Market Value:- Is the price at which it could be sold. Actual Cash Value:- Is figured by determining what it would cost to replace the property and then adjusting this replacement cost by subtracting an amount that reflects depreciation. Depreciation:- Is loss in value that develops as items age, wear out, or become obsolete.
Coinsurance clause:- Is a provision in many property insurance policies that reduces the amount that will be paid for a loss occurring when property is underinsured. A coinsurance clause sets a ´penaltyµ for underinsurance when the policy limit is substantially lower than the value of the covered property.
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Responsibilities in settling claims:-
Insured responsibility:- Has the responsibility to notify the incident ASAP to the insurer. Producer responsibility:- Decides whether the insurance company must be told about this or not base on three categories: (accident report form).
The loss is not covered. The amount of the damage is within the deductible. The loss is (or might be covered)
Insurer responsibility:- Is to make sure that the claim is investigated properly and settled within the timeline.
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Steps involved in claims handling:Claim is reported to the claims dept
Police report forms, physical/oral evidences would be considered during claim settling
Claim is assigned to a claims adjuster
Is the claim covered
Claims adjuster checks the following 3 things before taking a decision
Policy limits Deductibles/valuation clause
If the claim is straightforward the claim would be settled immediately.
Similar services would be provided till policy renewal
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POLICY RENEWAL & SERVICES
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Policy Renewal
Policy renewal is continuing the policy in force or another period after the expiration of its current term. The insured and the insurer may take any one of the following three options:-
Expiration:- An insurance policy·s coverage ceases, or expires, at the end of the policy term or policy period. The expiration date is also known as the x-date. Cancellation:- Stopping coverage during the policy period is cancellation. Insured can cancel the policy at any time, but the insurer can cancel the policy only at the renewal. Unearned premium:- On a policy is the money an insurer would have to give back if the policy were cancelled. Nonrenewal:- When an insurer decides not to renew a policy at the end of a policy period, it is non-renewal.
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The Underwriters Perspective on policy renewal: UW·s at renewal would re evaluate the risk and all the information's that was provided during policy issue and take according actions. The Producers Perspective on policy renewal:Agents would get the feedback from the insured regarding his experience during the policy term, decides any addition/deletion to the current policy is needed ² Will make sure that the insured has complete confidence in his service. The Insured·s Perspective on policy renewal:At renewal the insured takes a decision whether to continue with the insurer or not. Premium Auditing: Policy holders record·s are examined at the end of the year to determine the audited premium. Renewal Questionnaire:- Usually questions about changes during the past coverage period. UW·s gets feedback from the insured using the renewal questionnaire.
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Types of billing
1.Producer Billing (Agency Billing): 2.Direct Billing::
Agency Billing: Bill for the insured is prepared in the producers office showing the
insurance premium that is due. The insured pays the premium directly to the producers office. The insurance bills the producer for all policy the insured has sold. The producer collects the premium and remits them to the insurance company after deducting the producer·s commission.
Direct Billing: When the insurance company bills the insured directly and the insured
sends the payment directly to the insurer. The insurance company pays commission or other compensation for producing new business and servicing renewal business directly to the producer in a monthly check for all business produced or renewed during a one month period.
Account Current:- Is the billing statement an insurance company sends to its producer.
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Types of policy provisions:Any statement in a policy is referred to as policy provision. There are six types of policy provisions: 1.Declaration 2.Insuring agreement·s 3.Exclusions 4.Conditions 5.Definitions 6.Miscellaneous provisions
Declaration: Declarations personalize a printed policy and tailor it to fit a particular policy holder for his or her insurance needs. It also includes the information that the insured declared on the application of the policy. Insuring agreement: Is the insurance policy provision that states, in broad terms, the promises made by the insurance company. An insurance policy provides coverage only if the claim is within the scope of the promises expressed in an insurance agreement .
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Exclusions: Policy provisions that restricts the broad terms of the insuring agreement by the stating some exceptions to coverage ²certain activities, loss causes, property, persons and places for which insurer does not provide coverage. Conditions: Explains the duties ,rights and options of the insured and the insurance company. Conditions cover a broad range of topics including 1.Policy holders duty to pay premium 2.Steps the insured must take after accident. 3.The geographical are within which coverage applies. 4.How disagreements between insurer and insured can be resolved 5.The producer to be used by the policy holder or the insurance company top cancel the policy.
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Definitions: Is the provision that explains the meaning of a word or term that is used elsewhere in the policy. Miscellaneous provisions: Are policy provisions that do not fit into any other policy provisions like an endorsement.
Endorsement: Is used to amend coverage in the otherwise completed policy. Form:- Is a standard pre-printed wording that makes up bulk of the insurance
agreement.
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TYPES OF INSURANCE POLICIES
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Types of Personal Insurance policies:Insurance
Personal Insurance
Personal Auto Policy(PAP) Liability coverage Medical Payments Uninsured Motorist coverage Coverage Personal auto
Homeowners Policy Coverage on house Coverage on other building/structures Coverage on household personal ppty Coverage on Loss of use of the dwelling building
P r o p e r t y
L i a
Personal liability coverage Collision Comprehensive Coverage for medical payments to others
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Personal Auto Policy:Part A:- Liability coverage The Liability coverage of the PAP covers losses due to the insured·s liability for bodily injury or property damage of others caused by an auto accident.
Part B:- Medical Payments coverage:Medical payments coverage of the PAP covers the medical expenses of the insured as well as to the injury of the person for which the insured is legally responsible, if the expenses are the result of an auto accident.
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Part C:- Auto Physical damage coverage:Is a property insurance covering disappearance/damage/destruction of the auto. Also known as ´Coverage for damage to your autoµ. There are 2 sets of physical damage coverage:-
Collision:- Coverage applies to losses involving a collision. Collision coverage is available only when ´Other than collisionµ coverage is also purchased. Other than collision:- Coverage applies to losses by perils other than collision. Also known as comprehensive coverage.
Part D:- Uninsured motorist coverage Coverage applies to accidents caused by a hit and run driver/ driver causing the accident doesn·t have insurance.
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Homeowner¶s Policy: Part A:- Coverage on the dwelling building:This part of the homeowners policy covers the house itself. Part B:- Coverage on other buildings or structures:This part of the homeowners policy covers other building structures in the insured·s premises. Part C:- Coverage on personal property:This part of the homeowners policy covers all other personal property inside the house.
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Part D:- Coverage on Loss of use of the dwelling building:This part of the homeowners policy pays the insured for additional living expenses during recovery of a damaged property by a covered peril. Theft/Burglary/Robbery: Theft is an act of stealing. Burglary is a type of theft committed by someone who breaks into something and illegally removes money or other property. Robbery is a type of theft committed by someone who threatens a person and forces him or her to give money or other property to the thief. Part E:- Personal Liability coverage:This part of the homeowners policy pays for bodily injury or property damage of someone else for which the insured is legally responsible. Part F:- Coverage for medical payments to others:Covers medical payments of others(not the insured) who are injured because of the insured·s premises, activities or pets.
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Other personal insurance policy:Umbrella Policy:- An Umbrella policy is a liability insurance policy that takes over where basic liability is insurance policies leave off. SIR ² Self Insured Retention, is a kind of deductible in an umbrella policy. When a liability claim is covered by an umbrella, but not by another policy that covers liability, the insurer with the umbrella subtracts the SIR before paying the claim. Personal Articles floater policy:- Is usually available as a scheduled endorsement to homeowners policies, provides broad coverage for specified items such as jewellery, furs, silverware and guns. National Flood Insurance Policy:-
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Do you know?? ² What is difference between Coverage's for medical payments to others(homeowners policy) and medical payments coverage(PAP). The auto policy covers injuries to an insured, as well as others occupying the insured·s auto- but the home coverage does not cover the medical expense of an insured, but only those of other people who are injured because of the insured.
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Rental reimbursement coverage: - Pays the cost of renting a substitute car if the insured·s car is disabled in an accident Towing and labor coverage:- Pays for road service and towing. Tapes or CD coverage:- Covers stereo tapes or compact discs in the car.
All Risks, Specified perils, Burden of proof:Burden of proof:- The challenge of proving a loss is covered or not covered. It is very important in cases in which a loss is obvious but its cause is not obvious. ´All risksµ property policy:- Covers any loss unless it is caused by an excluded peril described in the policy. Also known as ´Specialµ or ´Open perilsµ policy. In this type, the burden of proof is on the insurer. Specified perils property policy:- Covers any loss that is caused by one or more of the covered perils that is named in the policy. In this type, the burden of proof is on the insured.
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Types of Commercial Insurance policies:Insurance Commercial Insurance
Bailee Insurance Boiler and machinery insurance Account receivable insurance Business Income insurance Building & Contents insurance Reporting Policy General Liability insurance Business Auto Policy Workers Compensation Employee dishonesty insurance
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COMMERCIAL INSURANCE:
Personal Property - Except Land and Building & other structures (ex: Store room, Furniture and fixtures) Real Property - Land and Buildings
Accounts receivable insurance: Pays for the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril. It covers any payments that cannot be collected because records cannot be reconstructed. Business Auto Policy:- Covers liability from accidents involving the insured·s commercial vehicle. It doesn·t provide coverage for accident involving employees who might use the insured·s vehicle and for rented vehicles. Auto Physical damage/Auto Liability coverage:- An auto insurance covering disappearance/damage/destruction of the auto and the bodily injury and property damage of others for the which the insured is legally responsible.
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Business Income Insurance: Indemnifies a business for its loss in profits caused by the interruption and also pays the business expenses that continue during the interruption. Boilers and machinery Insurance:- Covers explosions of boilers and other pressure vessels as well as breakdown of various types of machinery. Bailee Customers Insurance:- Covers losses to customers property in the custody of the bailee. (Ex: Dry cleaners, warehouse) Reporting Policy:- A reporting policy can be ideal for a business with property values that fluctuate a lot during the year because a business with a reporting policy pays for only the amount of insurance it actually needs. A provisional premium is collected at the beginning of the year and the final premium is computed based on the average of the monthly values reported.
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Direct versus Indirect losses; Time element Insurance
Direct Loss:- Almost instantaneous reduction in value of property resulting directly from damage to that property. Ex:-Building and contents insurance covers the direct losses resulting from damage to that property.
Indirect Loss:-Loss of earnings or extra expenses taking place over a period of days, weeks, or months following a direct loss, increases with the passage of time. Ex:- Business income insurance covers indirect losses resulting from the damage to the covered property. Since the passage of time in indirect losses cannot be determined, and recovery of loss depends on the time element ² business income insurance and other similar types of indirect losses are sometimes called as time element insurance.
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Types of Coverage's under General Liability Insurance (Commercial):General Liability Insurance: Covers some of the major liability exposures of a business including liability related to the premises, operations in progress, products and completed operations.
Completed Operations Liability coverage pays for bodily injury or property damage caused by work that the insured has completed. Premises and operations Liability coverage pays for bodily injury or property damage caused due to the conditions and ongoing operations in insured·s premises. Products Liability coverage pays for bodily injury or property damage that takes place away from the insured·s premises and is caused by a product sold by the insured.
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Workers Compensation Insurance :-Pays certain benefits required by law to employees who are injured in the course of their employment. Commercial Umbrella policy :- Will provide excess coverage in the event of a liability claim that is big enough to exhaust the limits of general liability policy. Employee dishonesty coverage:- Applies to theft of money or other property by an employee. Also known as fidelity coverage. Electronic Data Processing coverage(EDP):- Covers damage to electronic items like computer disks, tapes etc due to covered peril. Package Policy:- Is a combination of number of property and liability insurance coverage's into a single insurance policy.
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INSURANCE RATING SYSTEM
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Insurance Rating System:
Insurance Rating System is an orderly method for arriving at an appropriate premium. Types of Insurance rating system:-
Class Rating: Places similar insured's into categories and applies same rate to all insured's in the same class. ² Homogeneity is used to describe similarity among insured's in the same rating class. Perfect homogeneity is impossible. But workable homogeneity is feasible for many of type of insurance. Individual Rating: Every Insured is unique that reflects its own unique characteristics. Judgement Rating :-Is a type of individual rating used to develop a premium for exposures for which there is no established premium determining system. Underwriter sets the premium based on his experience.
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Schedule rating:- Is used when UW·s are permitted to schedule ´creditsµ or debits if they can identify some characteristics that are not considered in the established rating system but that affect the loss potential of a particular insured. Experience rating:- Is a process by which the insurance premiums of larger businesses can be modified to some degree based on their past loss records.
Insurance Rate:- An Insurance rate is the price of insurance for each unit of exposure. The rate is multiplied by the number of exposure units to arrive at a premium. Exposure Units: Are standard units used in insurance rating. Loss Costs i) Historical Loss Costs:- Involves only past losses, indicate the dollar losses relating to each exposure unit in the past. ii) Perspective Loss Costs:- Are based on past losses plus some adjustments, indicate the dollar losses relating to each exposure unit that can be expected in the future.
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Examples of Insurance rating plans:Personal Auto Insurance:Is usually class rated(ex- territory, age, young drivers, students, age of the car etc.,)
Homeowners Insurance:Also class rated based on the following 2 categories:Construction type:- Generally frame or brick, since wood frame houses burn more readily and therefore higher premiums than solid brick houses Protection Class:- Is a rating of the local fire department·s capabilities and the availability of fire hydrants and other water supply sources, usually on a scale of 1 to 10, with 1 being best and 10 having essentially no fire protection. Commercial Building and contents Insurance:Can be both class rated and individual rated.
May 2011
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Commercial general liability Insurance:This is usually class rated. Each classification describes a particular type of business operation. Some commonly used standard exposure units are:- Payroll, gross sales, area etc.,
Workers compensation:- Is usually class rated. Classification is similar to general liability insurance. There are nearly 600 classification for workers compensation.
Experience modification:- Is adjusting premium for workers compensation insurance based on the loss experience of he insured employer. Premium discount:- Is applied to workers compensation policies on larger businesses to reflect the fact some of the expenses of selling and servicing workers compensation insurance do not vary in proportion to the premium.
Inland Marine Insurance:Can be both class rated and individual rated.
May 2011
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Home office :- A typical insurance company·s headquarters. Branch/Regional office:- A local insurance company office, usually located away from the home office, providing service to accounts in a limited geographical area. ISO( Insurance Services Offices):- The largest insurance service office in the country, performing a variety of services such as developing statistical classification systems and collecting statistical classification data on insured claims from a large number of insurers, analyze this information and develop loss cost data.
Insurance companies that subscribe to ISO·s services may use this loss cost info to set their insurance rates. NCCI(National Council on Compensation Insurance:- Is responsible for developing workers compensation insurance loss cost data in most states. (ISO is not involved in Workers comp rating plans) Actuary:- Is a person who uses complex mathematical methods, usually with the aid of computers, to analyze loss data and other statistics and develop systems for determining future premiums.
May 2011
Y
Insurance Cycles:Insurance cycle is of two phases:i) Hard Market:- Insurers become more selective, making it more difficult to get insurance, even at higher prices ii)Soft Market:- Insurance prices are lower, and insurance is readily available.
Insurance Regulation:Insurance is regulated by the states, which has an insurance department headed by an insurance commissioner. All insurance members of the National Association of Insurance Commissioners(NAIC) which coordinates insurance regulation among the states. Rate Filings:- Are documents submitted to a state insurance department that contain the proposed rates and also, when necessary the statistics on which the rates are based.
May 2011
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Mandatory Rates:- The state insurance department develop insurance rates that must be used by all insurers. Prior Approval Law:- States with this law requires the state insurance department·s approval for rate changes before they are put into effect.
File and Use Law:- In States with file and use law, insurance companies are permitted to use new rates as soon as they have been filed with the state insurance department.
(The state insurance dept reserves the right to disapprove rates if it can show that they violate requirements)
No-Filing Law :- With a no-filing law, also known as open competition, no rate filing is required because insurance regulators neither approve nor disapprove insurance rates. Flex-Rating Law:- Insurers may raise and lower rates within a certain range(´bandµ) without specific approval from state regulators.
May 2011
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Rate Suppression:- Occurs if Government regulators hold insurance rates at a level below their true economic cost. Assets and Liabilities:Assets are items of value such as cash, stocks, bonds and buildings Liabilities are financial obligations, These includes debts that have not been paid as well as expected bills that are in due. Surplus is the difference between an insurer·s admitted assets and its liabilities.
Insurance guaranty funds:- Provides a system to pay the claims of insolvent property and liability insurers. Centralization and Decentralization:Centralization is the process of moving activities to a central location Decentralization is the process of moving activities from a centre to different locations.
May 2011
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Unbundling:- Happens when insurance claims adjusting, loss control, risk management, or other services are sold separately rather than being bundled together with an insurance policy for which a single insurance premium is charged. Self Insurance or Retention:A business does not transfer its risks to an insurance company or anyone else. It pays for all losses with its own resources. Captive Insurance:- Insurance company owned and operated by the corporation it insures.
May 2011
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What does insurance company do with the premium they collect???
Pay Claims: Pay for the losses that is covered by the policy. Pay Expenses: To cover the cost used to sell, issue and service insurance policies. Generate Profits & Contingency allowance: Profits generated by the investments made by the insurer. Contingency allowance is a fund for any unpredictable or extraordinary events that might draw on an insurance company·s assets. Insurers generally try to retain a portion of their profits to build a surplus that provides a cushion for contingencies.
May 2011
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BENEFITS OF INSURANCE
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How does insurance help the society???
Payment of losses: Indemnify: To restore the party that has had a loss to the same financial position as before the loss occurred. Accident Prevention: By emphasizing on loss control measures. Investment in the economy: Providing funds to help business to grow and create jobs. Support for Credit: In order to avail loan on a property banks ask for proof of insurance. Reduction of anxiety: since indemnification is guaranteed by the insurance company.
May 2011
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Insurance Policy ± Life cycle
Application sent to UW¶s review
Policy Renewal
Underwriting Activities
Insurance Policy Life cycle
Claims Handling/ Claims settling
Policy Issuance/ Coverage Starts
Policy Servicing
May 2011
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