Chapter 2 - history and functions of insurance Flashcards
What is a surety bond?
- the underwriting of Corporate Surety Bonds is not necessarily an insurance process but closer in nature to banking, but insurers are licensed to write this form of guarentee in Canada
- guarantees that the principal will perform the obligation or undertaking he or she has with a third party.
What are the categories of insurance?
1) social insurance
- provided by the government
EXAMPLES:
- hospitalization, medical plans, unemployment, workers compensation
2) life and health insurance
- provided mostly by life insurers
- provide life, accident, sickness, and disability insurance, pension and other financial services
3) general insurance/ property and casual insurance
- auto, property, business interruption, boiler and machinery, crime, liability, marine, aviation, floater, personal property, commercial property, inland transportation aka inland marine
Define automobile insurance.
- largest single class of general insurance sold in Canada
- provides coverage for legal liability to third parties, accident benefits for the insured, or direct damage to vehicle
- combo of liability, accident and disability, prop damage
Define property insurance.
- insures against loss of or damage to property, both personally owned and commercial.
- can be a multi-risk or all risk policy
Define business interruption insurance.
- provides coverage against loss of income while the property which has been damaged or destroyed by an insured peril is being rebuilt or restored.
- extra expense insurance provides for extra expenses incurred after a loss has occurred.
Define boiler and machinery insurance.
- specialized type of property insurance
- covers types of heating/AC installations, industrial machinery and equipment that standard property policies don’t
- also provides business interruption coverage for such property
Define crime insurance.
includes:
- burglary, robbery, theft, fidelity insurance
(fidelity insurance relates to dishonest acts of employees from stealing cash from the till, to bookkeeping fraud)
Define liability insurance.
- insurance against claims arising out of bodily inury or death of another person or loss/damage ro property of others
Define marine insurance.
- provides both hull (ship) and cargo insurance
- and liability arising out of bodily injury or death of person or loss of/damage property of others.
Define aviation insurance.
- provides hull (plane) insurance and liability arising out of bodily injury or death of person or loss of/damage property of others.
- also aviation general liability policy which covers liability risks arising out of the ownership, maintenance, or operation of airports.
Define floater policies.
- refers to policies which cover items of property that are portable and could be found at different locations.
Define personal property insurance.
- may be insured on individual floaters but its more common to attach a special form called an endorsement to a residential policy
EXAMPLES: - furs, jewellery, sports equipment, electronics, fine arts.
Define commercial property floaters.
- portable items of a commercial nature
EXAMPLES: - contractors equipment, electric or neon signs, patterns, tools, livestock
Define inland transportation insurance.
aka inland marine insurance
- insures against loss of/damage to goods while in transit on land, or during delay incidental to transit.
EXAMPLES: - parcel post, registered mail, trip transit, salespersons’ samples
BUT ALSO INCLUDES: - bridges, wharves, power transmission lines, tunnels, radio, television, and micro-wave transmission towers aka instruments of transportation or communication.
How do you spread the risk?
1) Diversity of type of risk
- large loss in one area, hope that another area offsets or profits in another
2) Volume
- insure large numbers of risks
- maximizes profit
3) Diversity of location
- different geographic locations
(so that one natural disaster doesn’t result in a lot of claims at the same time)
How does insurance benefit society?
1) Security - provides peace of mind
2) Credit - protects both insureds and lenders interest
3) Capital - stimulates economy
4) Employment - provides direct employment and supports many insurance related businesses
5) Loss prevention - lobbies safer products and practices
What are some loss prevention activities?
1) Fire
2) Safe driving
3) Crime and Fraud
Give examples of how the industrys involvement aid with fire prevention.
- improve building codes
- promotion of sprinklers and smoke/fire detectors
- guidelines for municipal firefighters and water supplies
- testing and accrediting of electrical appliances
- procedures for storing and transporting dangerous substances
- activities promoted in schools to make children more safety conscious
- physical inspections of property and suggestions how to make it safer
- educational material supplied to homeowners, children, specific industries
Give examples of how the industrys involvement aid with safe driving.
- pressure on auto manufacturers for safer vehicles and safety features: seat belts, air bags, head rest, better bumpers
- pressure on legislators for laws relating to childrens car seats, seat belts, safety tests for vehicles
- pressure on authority for safer highways, better signing and lighting, speed limits, grading of curves
- pressure for stricter laws and penalties relating to D and D
- lobbied for graduated license
Give examples of how the industrys involvement aid with crime and fraud prevention.
- strong publicity campaign to alert public that fraud results in higher premiums for everyone
- supports block watch, neighbourhood watch, crime stoppers
- promotes anti-crime devices like alarms, safes, and procedures and allows premium discounts for such
- supports Insurance Bureau of Canada which provides investigation and consultation services with respect to suspicious losses
- works closely with authorities in investigating suspicious losses
- pressure to help make it easier to prosecute suspected arsonsists
- uncovered auto theft rings, fradulent auto body shops, building construction operations, and staged injury accident conspiracies
How does insurance help stimulate the economy?
- invest heavily into federal and provincial gov bonds, municipal and utility bonds, other secure investments
- having such a large pool of capital available within a country is a positive influence on the economy
- insurers are helping gov to finance capital works projects and other businesses to get established and to expand
