Chapter 1- The commercial insurance Context Flashcards
Why is risk management a key focus of business?
Provides cost savings and allows for transfer and financing of catastrophic financial impacts.
• Commercial insurance exists for the complex risk.
• Professionals, businesses, organizations, and gov’t.
How did Blockbuster adapt to a changing market?
DVD players were introduced, and they adapted for DVD rentals over VHS rentals
- Blockbuster did not recognize the change in technology and the trend towards on demand streaming and in the failed.
What three categories play a major role in evolution of a business?
1) Technological developments
2) Climate risk
3) Globalization
How has technology improved the insurance industry?
- technology has help make policies issurnace, claims handling, and risk anaylsis more efficient!
- Delivery of policies has evolved from handwritten policies to eDocs
• Complex integrated policy management systems and claims handling systems reduce handling times.
- Automated underwriting can be accessed by anyone on the Internet.
- Claims can be reported, analyzed, and paid through an app on a smartphone.
What can cyber insurance protection coverage provide?
- cost of a professional to recover and replace loss data
- loss of business income, while systems are down
- cost of a public relation firm to communicate cyber attack
- defense and liability cost arising from action alleging system failure, including settlement and judgment cost.
What were the four major technological revolutions?
Industrial revolution (1760-1840)
Technical revolution (1870-1920)
Scientific/technical revolution (1940-1970)
Information & telecommunications revolution (1975-present)
Explain the impact of the industrial revolution
- Transitioned to new manufacturing processes spurred by technological innovations
- Productivity increased; many jobs replaced by machines
Explain the impact of the technical revolution
- Improved communication increased distribution of scientific theories
- Advancements in technology began to meet needs faster
Explain the impact of the scientific/technical revolution
- Global events spurred the necessity of technological solutions
- The modern era of computers was triggered
Explain the impact of the information & telecommunications revolution
- Technology has become faster, more efficient and more portable
- The virtual world is ever expanding, bringing the world closer together
What are some factors businesses must consider in relation to climate risk?
- Their physical location and its ability to withstand environmental conditions
- Their business activities and employees
- The length, location, and diversity of their supply chain
- Their customer base
give an example of these factors in relation to climate change:
For example: extreme weather can damage company stocks, workhouse, physical location where they work,
For example, extreme heat can lead to more costly heating and cooling charges
What are some examples of climates that could have a negative impact on business operations?
Supply Chain interruptions due to bad climate:
-If you have a season of colder than normal temperature, your crops won’t grow, then the grocery will have to ratio your crops, restaurant will have to take off your crop from the menu.
Describe how Globalization is leading to the evolution of business
- Globalization means supply chains include products and services from around the world
- Globalization also increases competition in business world, including insurance
Example: The honda civic 4d, is made up of parts all around the world. Car Parts Manufacture in USA, Canada, India, and Japan. Then assemble in Canada
Example: Human genome project, bought many scientists from all around the world together.
List & Describe the Key players in Canadian commercial insurance.
- Insurance companies
- Insurance brokers
- Reinsurance companies
- Regulatory bodies
• Supporting players: (Independent adjusters, Inspection companies/ preferred contractors/restoration companies, Education and data-collection companies)
Describe key components that impact the insurance industry’s market dynamics?
Market cycles between hard and soft markets, determined by industry’s capacity
Soft market
- is an excess of financial capacity, leading to lower rates and relaxed terms and conditions
- A phase of the insurance market cycle in which insurers increase the amount of coverage they are willing to write, causing supply to increase and premiums to fall.
• hard markets,
o return on equity drops and shareholders demand more conservative approach
o reduce the amount of coverage they are willing to write
o can occur as a result of very large unexpected losses that cause a depletion of capital within the insurance and reinsurance sectors.
o A hard market may also arise from a gradual lowering of underwriting standards that occur during a soft market, leading to a greater losses
Underwriters in a Soft market
- Lower premium
- Relax policy terms and conditions
- Relax los prevention and control measures
- Write classes of biz we generally don’t write
Underwriters in a Hard market
- Approach each risk very cautiously before offering to insure it.
- Set more exacting underwriting standards
- Give loss control and loss prevention measurers significant consideration
- Tighten policy terms to limit exposures
- Make substantial rate increases
- Terminate relationships with brokers with unprofitable results or with only a small volume of business
- Withdraw from a class or business, or an individual risk; when market share has not been gained or a portfolio of risk is not profitable
- Withdraw from the market altogether by selling the company to another insurer or placing it into what is known as run-off
