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Unformatted text preview: RMI 2301
INSURANCE COMPANY OPERATIONS Professor Richard L. Bennett, RPLU, CPCU, ARM, ARe,
AIC, AMIM, AU, AIM, AIA, API, ARC Key Insurance Company Functions
Underwriting Claims Production Reinsurance Loss Control Investments 2 The Underwriting Function In many companies, the underwriting function is divided into two specific areas:
Staff Underwriting Line Underwriting Selecting insureds Classifying risk Determining proper coverage Determining appropriate rate or price Providing service to producers and policyholders Formulating U/W policy Researching and developing coverages and forms Preparing U/W guides Conducting U/W audits Conducting education and training
3 Underwriting Results Loss Ratio Expense Ratio Combined Ratio Overall Operating Ratio Incurred Losses Earned Premiums Underwriting Expenses Written Premiums Loss Ratio + Expense Ratio Combined Ratio Investment Income Ratio 4 Property vs. Liability Underwriting
Property Emphasis COPE Factors Measures of Potential Severity Policy Amount Amount Subject Probable maximum loss 5 Property vs. Liability Underwriting Liability Emphasis Basis in Torts Auto Liability Personal Liability Factors Include General Liability Factors: Age of operator Premiums Use of auto Operations Driving record Contractual Territory Liability Sex Products Marital status Occupation
6 Claims Function
The Claim Environment: Objectives of Claim Department Use of Claim Information Structure of Claim Depts. Complying with contractual promise "pay, defend, indemnify" Achieve "profit objective" of insurer Marketing (customer satisfaction, timely settlements) Underwriting (evaluation of loss history) Actuarial (losses paid information plus reserves, IBNR's) Claim managers Examiners Supervisors Adjusters (staff independent, public)
7 Process of Claims Handling
A. B. Coverage is the loss covered? Liability is the policyholder "legally liable" for the loss? C. D. What are the specific damages? Ultimate decision making?
8 Sources of Legal Liability
Breach of a statute (e.g., workers compensation) Contracts
Breach of which may impose legal liability Torts
Intentional Unintentional (negligence) Strict liability Absolute liability Damages: Special (out-of-pocket expenses) General (pain and suffering) Punitive (to punish for flagrant egregious conduct) Loss of Consortium (action belongs to spouse of injured party)
9 Production Function
Refers to those that sell insurance products to the ultimate consumer. Included in this listing of individuals would be brokers, agents, employees of insurance companies or other independent contractors. Generally, each type of individual has unique rights and responsibilities and often the roles can be interchangeable. 10 Reinsurance Function Definition: "A contractual arrangement under which one insurer known as the primary insurer (ceding insurer, cedent, or ceding company) transfers to another insurer, known as the reinsurer, some or all of the loss exposures under insurance contacts it has issued or will issue." "Insurance of Insurance Companies"
11 Purpose of Reinsurance
Stabilization of loss experience Large-line capacity Financing (surplus relief) Catastrophe protection Withdrawal from a territory or class of business 12 Typical Breakdown of Reinsurance R e in s u r a n c e T r e a ty P r o -ra ta Q u o ta S h a r e S u r p lu s S h a r e P e r R is k P e r P o lic y E xcess of L oss P er O ccurrence C a ta stro p h e F a c u lta tiv e P ro -R a ta A g g re g a te E x cess F in a n c ia l E x cess o f L oss 13 Loss Control Services Function Physical Surveys (building construction, fire
protection, site diagrams) Risk Analysis and Improvement (formal
recommendations on how to reduce hazards) Safety Management Programming (intention
here is to raise awareness of loss exposures and appropriate safety behaviors).
14 Investment Function This function is predicated on the idea that a portion of invested funds must go to meet future claims so "safety of principal" is essential.
Property & Liability Insurers 19.6 39.8 Types of Investments
1. 2. 3. 4. 5. 6. 7. 8. Corporate Bonds Government Bonds Corporate Stocks Mortgages Real Estate Policy Loans Receivables from Agents Miscellaneous 59.4% 15 ...
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- Spring '08