Chapter 4: Insurance Company Operations Flashcards
Adverse Selection
Adverse selection refers to the natural tendency for those who know they are highly vulnerable to loss from a specific risk to be most likely to acquire and retain insurance that covers that risk or to select insurance options that best fit their situations.
Class rates
lass rates are group rates with an average price per unit of insurance that applies to each category or classification of similar insureds.
Specific or Schedule Rates
When class rates do not apply, the rate is said to be specific. A specific rate is created for one particular insured based on that insured’s own risk characteristics. Specific or schedule rates are set for larger mercantile and manufacturing properties, educational institutions, public buildings, and many types of business establishments.
net single premium
To deal with the imbalance of level premiums in traditional life insurance products and rising claim costs, life insurers first compute a net single premium per $1,000 of face amount for the policy. This net single premium is an amount that the insurer would need today from all insureds in a classification, together with future investment earnings, to pay all claims within that class of insureds as those claims arise.
Gross net rate
pure (net) rate + Loading = Gross net rate
Pure net rate - The portion of the rate that is designed to cover future loss costs.
Loading - cover for the insurer’s expected
operating expenses and provides a margin for profit and contingencies.
Staff Adjusters
Independent Adjusters
Public Adjusters
Staff Adjusters - represent the insurers
Independent Adjusters - represent the insurers
Public Adjusters - represent the public
Calculating the insurance premium
The gross rate (composed of the pure rate plus a loading for expenses, profit, and contingencies) is multiplied by the number of units of coverage.
