Chapter 4 The Insurer Flashcards
What are captive insurers and how do they operate?
Captive insurers are formed by large industrial/commercial organizations to reduce insurances costs and because certain types of insurance are unavailable or difficult to acquire.
Captive insurers are set-up the same way as any insurance company except that the insured pays its premiums to the captive insurer who also pays losses when they occur.
Define fronting and give examples.
-
is an arrangement whereby an insurer issues a policy at the request of another insurance company with
- the latter carrying the whole or substantial part of the risk and**
** - the former being paid a fee for the use of its name.**
What is the main objective of cooperatives?
Mutual benefit for their members.
Who owns a mutual insurance company?
Owned by its policyholders
How does an assessment mutual insurance company operate?
Original Mutuals operated on the assessment or premium note plan. Policyholders signed a “premium note” which constitutes a reserve to draw upon if required.
How does a reciprocal insurance exchange operate?
-is a contractually-based risk-sharing arrangement that is like a group captive insurer.
-Members are called subscribers who agree to share in the payment of each other’s losses to the extent that these losses are covered by insurance policies issued by the exchange.
How is capital raised to organize a stock insurance company?
A number of individuals (or other corporations) subscribe and pay in capital to form a legal entity known as a corporation. These “shareholders” have an equitable interest in the assets of the corporation and hope to realize a reasonable profit on their investment.
What expenses does an insurance company have?
Working expenses (rent, salaries, supplies)
claims payments.
What are the TWO (2) main sources of an insurer’s revenue?
1. Underwriting gain - excess of premiums collected over loss payments and expenses
2. Investment income - as premiums are collected, they are invested until needed
What is the responsibility of the board of directors?
They are the non-involved overseers of the corporation.
They are responsible for seeing that the company is run according to its by-laws and provincial and federal laws and regulations.
What is the responsibility of the CEO?
The CEO is responsible for the overall operations of the company and its day to day management.
What is the purpose of insurance pools?
Insurance companies join together to form pools so they can take on risks that has a great potential for loss.
Each insurance company agree to pay a fixed proportion of any loss.
Why is the organizational structure of all insurers not the same?
Factors such as size, marketing philosophy and ownership affect management style and structural organization.
What common functions must be carried out by all insurers?
1. Administration
2. Finance, Accounting and Investment
3. Actuarial
4. Branch Operations
5. Marketing, Agency, or Production
6. Underwriting
7. Claims
Who regulates and monitors insurance companies?
(OFSI)