AINS 21 Segment A Flashcards
What is the role of an attorney-in-fact in a reciprocal insurance exchange?
He acts on behalf of subscribers to market and underwrite insurance coverage, collect premiums, invest funds and handle claims.
2 examples of the similarities between mutual and stock insurers ?
- They both seek to earn profits
- Stock insurers share profits thru dividends. Stock insurers do the same except to policyholders as a portion of premiums paid.
Examples of state government insurance?
What happens when insurance rates become inadequate due to destructive competition?
Workers comp; residual auto plans; beach and windstorm plans
Some insurers might not collect enough money to pay all of their insureds claims and may become insolvent. Other insurers may lose so much profit that they withdraw from the market and stop writing business. Insurance shortage can develop.
How do government insurance programs improve market efficiency ?
3 ways government can participate in an insurance program?
Common examples of government insurance plans?
By reducing the time or resources insureds need to expend to obtain the desired insurance coverage.
As an exclusive insurer; As a partner with a private insurer; As an insurer in direct competition with a private insurer.
NFIP (flood); TRIP (terrorism); Federal Crop Insurance
Why do government insurance programs exist ?
Examples of government insurance programs?
Why are government insurance programs needed to facilitate compulsory insurance purchases?
To fill unmet needs in the private insurance market; to facilitate compulsory insurance purchases; to provide efficiency in the market & convenience to insureds; to achieve collateral social purposes.
TRIP
Because not everyone required to purchase such insurance can obtain coverage at a reasonable price in the private market.
Goal of underwriting?
Purpose of the claims handling process ?
Role of premium auditors?
To charge a premium that is commensurate with the loss exposure?
To achieve a fair and equitable settlement based on the circumstances of the loss.
Can notify underwriters of larger loss exposures than originally contemplated, unacceptable operations, new products and operations or financial problems.
3 reasons why captive insurers became more prevalent in the late 70’s and early 80’s?
Marketing involves what?
- They might provide a lower insurance cost than other private insurers.
- Help ease the problem of availability and affordability for a parent company with loss exposures that might be difficult to insure.
- Provide improved cash flow when the corporation invests funds instead of paying premiums to an unrelated insurer.
Determining the products or services customers want and need and delivering them to the customers.
Why is a stock insurer formed?
What does a stock insurers board of directors do?
To make profit for its owners.
They create and oversee corporate goals / objectives and appoint a CEO to carry out insureds operations.
Explain how the law of large numbers enables insurers to make predictions about losses.
As the number of similar but independent exposure units increases , the relative accuracy of predictions about future outcomes (losses) also increases.
What is an insurance policy?
Examples of property-casualty insurance?
Primary sources of revenue for insurers?
The mechanism thru which individuals/businesses exchange the possibility of a large loss for the certainty of a much smaller, periodic payment.
Homeowners; Auto; commercial general liability insurance
Premiums and investment income
4 general categories of risk management techniques?
How insurance functions as system of both transferring and sharing the costs of a loss?
Loss avoidance; loss prevention; loss reduction; risk transfer
Because the potential financial consequences of certain loss exposure are transferred to an insurer, which, in turn, pays for covered losses, and in effect distributes the costs of losses among insureds
Combined Ratio
Investment income ratio
A profitability ratio that indicates whether an insurer has made an underwriting loss or gain.
Net investment income divided by earned premiums for a given period.
Loss ratio
Expense ratio
Measurement of losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses.
An insurers incurred underwriting expenses for a given period divided by its written premiums for the same period.
Unearned premium reserve
Policyholder surplus
An insurer lilability representing the amount of premiums received from policyholders that are not yet earned.
Under statutory accounting principles (SAP), an insurers total admitted assets minus it’s total liabilities.
Admitted assets
Non-admitted assets
Assets meeting minimum standards of liquidity that an insurer is allowed to report on its balance sheet in accordance with statutory accounting principles.
Types of property, such as office furniture and equipment, that regulators do not allow insurers to show as assets on financial statements because assets can’t readily be converted to cash at or near their market value.
