ch.1- Intro to General insuance Flashcards
6 Functions of Insurance (SALSAS)
- Spread of Risk
- Aide in Secruity
- Loss Prevention
4) Source of Capital
5) Aide in Credit
6) Source of Employment
Definition of insurance: 5 IMPORTANT POINTS
5 important points:
- shifting financial responsibility
- pmt only if risk/ peril occurs
- amt of pmt is amt req to indemnify/compensate victim
- covers losses to which object of insurance MAY be exposed
- indemnity- sum of money or other thing of value (repair/replace)
DEFINITION OF INSURANCE
Undertaking by 1 person to indemnify anther against loss/liability for loss in respect of a certain risk/peril to which the object of insurance may be exposed
or
to pay a sum of money or another thing of value upon the happening of a certain event
types of p+c insurance (3)-APL
- Auto: LARGEST single class of p+c
- Property: habitational + business properties
- Liability insurance: insured financially responsible for injury/damage to others
organization of insurance (2)- list
- private insurance
- government insurers
private insurers (2 types- list)
- stock companies:
- mutual companies:
Private insurers- 2 types + define
-stock companies:
- get money from private funds/public sale
- owned by shareholders
- main purpose: profit
-mutual companies:
- owned by policyholders
- main goal: provide insurance as low a cost possible
Government insurers
- federl/provincial
- various plans: medical, emplpyment, workers comp
- in BC/SK/MB/QC: provides compulsory auto ins. + competes w/ private insurance
How insurance distributed (3 ways)
- direct writing systems
- independent brokerage system
- Agency system
Direct writing system
- producers = employees -sell only products of insurer -salary, commission, or salary + bonys -insurer owns all business
Independent brokerage system
- brokerage are owners- not emplpyees
- owns all the business
- represents multiple insurance co’s
- paid commissions by insurer
Agency system
- similiar to direct writers- rep 1 insurer
- small biz owners
- have onwers in the biz
- commissions + bonus
Lloyd of london
- not an insurance company
- doesnt transact any business itsself
- its a group of companies + individuals that assume risk thrmselves
- syndicates: composed of underwriting members/names
- underwriting agent: manages affairs of each syndicate + appoints expert underwriter
- slip: producer provides broker w/ underwriting info in folded sheet of paper
Define:
risk
peril
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3 types of insurance incl in property and casualty (p and c) insurance
Auto
property
liability
Insurance agency and broker contracts- 5 segments
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- brokers authority
- ownership of expirations
- commissions
- expenses
- termination
brokers authority
ownership of expirations + billing procerues
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- firm that retains ownership of client file controls placement of insurance for those clients
pemiums due to insurer 3 ways:
- account warrant
- insurer stmt
- direct bill
commissions
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- schedule vary
- most btwn 10-20%
- contingent profit of bonus commission:
- based on performance+loss ratio
- rewasrds broker for profitable book of biz
- lower ratio, higher pay
expenses
- brokers usually responsible for ownership expenses
- ins co MAY share in advertising
Termination
- require notice
- usually 90-180 days
Departments of isnurance company
- Administration
- claims
- finance
- Marketing
- Underwriting
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Reinsurance definition
1 insurer transfers/cedes to another insurer some/all obligation
4 resons insurer would want reinsurance
- inreased underwriting capacity
- maintain proper reserves
- catastrophe protection
- retirement from a class of business
capacity
amount of coverage insurer can reasonably assume
premium capacity
aggregate premium volume insurer can safely write
Risk
chance of financial loss
Peril
an event that MAY cause a loss to occur
Indemnity
to put you back in same financial position just prior to loss, no more, no less, no profit
