Syllabus - Insurance - May 2015 Econ 423 .docx

Syllabus - Insurance - May 2015 Econ 423 .docx - Econ 423...

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Econ 423 outline WHAT IS INSURANCE? In today’s marketplace, it is a valuable protection for families or firms. The insurance company will take the risk for you, in case something (a “covered” cause of loss) happens to you and causes you financial consequences. The insurance policy is a legal contract between two parties for stated causes. A contract is made when something valuable is made in exchange for something else that is valuable….in this case, MONEY! Which insurance companies call PREMIUM (money going to insurance companies) The premium payment made by the client to the insurance company is made in exchange for insurance company’s promise to pay in the event of a covered loss. Brief history: Lloyds of London, how it started
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TWO TYPES OF RISK: Speculative (uncertainty about profit or loss) sometimes known as “hedging” Pure risk (uncertainty about loss or no loss situation) A pure risk always is a chance of loss. What makes an insurable risk An insurable risk has to be a risk that is accidental, insurable (not catastrophic like war or nuclear risk), and definite loss, one that can be pinpointed and specific to a dollar amount. ORGANIZATION OF DIFFERENT TYPES OF INSURANCE IN U.S. Life/health which Chip Holland will address Nonlife/health Personal and commercial First party and third party Following the old English organization of fire and marine, casualty Different Lines of Business LOB in US: Property, General Liability, Inland Marine Property, Crime/Fidelity, Automobile. Relationships between different entities in the insurance industry Reinsurance Company supports the capacity of Primary Insurance Companies, who in turn are solicited by Broker/Agents on behalf of their Clients (personal or commercial)
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HOW INSURANCE WORKS Insurance company takes in premium, in exchange for taking on your defined risk.
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