Chapter 4 Flashcards
1
Q
What are the different types of insurers?
A
1) Government
2) Captive Insurance companies
3) Cooperative Organizations
4) Mutual Insurance companies
5) Assessment mutuals
6) Stock mutuals
7) Co-op Stock mutuals
8) Factory mutuals
9) Reciprocal Insurance exchange
10) Stock companies
11) Insurance pool
2
Q
Define fronting.
A
- an agreement where an insurer issues a policy at the request of another insurance company with the latter carrying/underwriting the whole or a substantial part of the risk and the former being paid a fee for the use of its name.
3
Q
Explain Government insurers.
A
- can remove control
includes: - WSIB
- OHIP
- EI
- auto insurance in some provinces (quebec, BC, saskatchewan)
- types of coverages relating to trade and export
4
Q
Explain captive insurance companies.
A
- owned by the insured
- sometimes administered by a fronting company
- works well for large industrial or commercial organizations
- instead of paying premiums to someone else, they are paid to the captive insurer who also pays losses when they occur
- mainly used because certain types of insurance is unavailable or difficult to acquire
- secondly, because they may be attempting to reduce their insurance costs
- reserves are company assets and surplus is held in reserve
- strengths are reduced costs, insurance availability, and tax shelters
ex) TTC has its own insurer
5
Q
Explain cooperative organizations.
A
- true coops are rare now
- owned by members
- no desire to make a profit
- one objective, to mutual benefit for their members
ex) small farm co-ops
6
Q
Explain mutual insurance companies.
A
- insurance corporations owned by its policyholders
- policyholders take part in operations of company with voting rights and sharing financial gains or losses
- original purpose was to provide for a group of people with similar risk and exposures at a lower cost
- strengths include low operating cost, and community involvement
ex) farms
7
Q
Explain assessment mutuals.
A
- like a mutual company
- purest form of mutual
- members are like policyholders
- operate on an assessment/premium note planned, signed by policyholders
- premium note face value was reduced by cash premium payment balance of which is what the directors make further assessment on if needed for losses
- these mutuals are almost obsolete/non-existent
8
Q
Explain stock mutuals.
A
- start like a pure assessment mutual
- owned by shareholders
- however, recently legislation allowed them to write participating policies with the general public once incorporated
- policyholder is not actually a member of the mutual company
- business is written through shareholders of the stock mutuals/ capital is invested by shareholders
- are focused on making a profit
- surplus is paid to shareholders
9
Q
Explain co-op stock mutuals.
A
- similar to stock companies, capital for the insurers is subscribed by shareholders who are also insureds
- typically no dividends payable but surplus profits when available are distributed via how much business a policyholder brings or buys into the co-op
- operations generally limited to the province they are incorporated in
- reserves consist of capital invested by shareholders
- generally limit their operations to the province in which they were incorporated
10
Q
Explain factory mutuals.
A
- originally founded to write fire insurance for manufacturers, now they provide property and boiler & machinery coverages to industrial, commercial, and institutional risks on a worldwide basis
- they also support research advances surrounding these types of risks and underwrite the same (loss prevention, technology, practices)
- special policies are tailored for policyholders needs
- originally owned by policy holders
- originally non-profit
11
Q
Explain reciprocal insurance exchange.
A
- owned by a group of insurers, members of the exchange
- is a contractually based risk sharing arrangement similar to captive group insurer
- members of exchange (subscribers) agree to share in payment of eachothers losses to the extent of the coverage on policies issued
- reciprocal agreement requires no capitalization
- if there are excess funds available after all losses and operating expenses, members keep the surplus
- if there is a deficit members are reassessed for contribution
- strengths are reduced costs, insurance availability, and tax exempt
- is not a corporation, partnership or proprietorship
12
Q
Explain stock companies.
A
- limited liability organizations incorporated
- shareholders arent personally liable
- owned by stockholders
- capital is arrived at from shareholders who invest in the company
- main purpose is for shareholders to profit on their investment
- insureds pay a fixed premium as their contribution to the communal fund
- security to policyholders is represented by capital already put up by the shareholders and its monitored by regulatory bodies which require the company to maintain sufficient assets liquid, to cover all losses and expenses including unearned premiums
- two main sources of income are underwriting gains, and investment income
STOCK
- any shortfall from premiums paid by policyholders has to be made up by shareholders from their investment income and contributed capital
SHAREHOLDERS
- board of directors elected by shareholders who are mostly uninvolved in the company
- they in turn elect the CEO to manage the day to day operations of the insurer
13
Q
What are sources of revenue for stock companies?
A
1) underwriting profits and gains
2) investment income
14
Q
Explain insurance pool.
A
- owned by a group of insurers
- formed by a number of insurers who pay same amount into a pool for losses that are too big for any one insurer to assume solely
- strength is insurance availability for risks that would otherwise be uninsurable
- joint underwriters are appointed and policies are issued into the pool
- each insurer agrees to pay a fixed proportion of any loss
ex) facility association
15
Q
What are the different departments in an insurance company organization?
A
1) administration
2) finance, accounting, and investments
3) actuarial
4) marketing, agency, or production
5) underwriting
6) claims
