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31 Cards in this Set
- Front
- Back
Alien insurer
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An insurer incorporated or formed in another country
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Avoidance
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Eliminating an existing loss exposure or making the decision to not incur the loss exposure
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Combined ratio
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combined ratio = expense ratio + loss ratio
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Cooperative insurers
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Owned by policyholders and formed to provide insurance to members at minimum cost; risk is transferred to the corporation
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Domestic insurer
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Insurer incorporated in or formed under the laws of the state in which the insurer is operating
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Expense ratio
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expense ratio = expenses / premiums
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Fair Access to Insurance Requirements (FAIR) plans
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Provide property insurance to qualified property owners unable to obtain insurance from an insurer
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Financial basis combined ratio
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Incurred loss and expenses divided by earned basis premiums
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Foreign insurer
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An insurer incorporated in or formed under the laws of a state other than the state in which the insurer is operating
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Insurance
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Risk management method in which all or a portion of financial consequences resulting from specified loss exposures is transferred from the insured to the insurance company
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Law of large numbers
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Principle in mathematics stating that the accuracy of predictions increases as the number of independent yet similar exposure units increases
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Licensed (or admitted) insurer
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An insurer that has been granted a license to operate in a given state
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Loss ratio
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Ratio of incurred losses to earned premiums; may be calculated with or without loss adjustment expenses
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Operating profit or loss
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The total of investment profit or loss plus underwriting profit or loss
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Pool
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Formed by several insurers joined together to insure risks that the individual insurers (members) are not willing to cover alone
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Proprietary insurers
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Insurance companies established to generate a profit for the owners
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Risk control
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Reducing or eliminating the frequency or severity of a loss
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Risk financing
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Providing a way to pay for losses that are incurred
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Trade basis combined ratio
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Incurred losses and loss adjustment expenses are divided by earned premiums; underwriting expenses are divided by written premiums; addresses weakness in statutory combined basis ratio
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Unlicensed (or nonadmitted) insurer
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An insurer that has not been granted a license
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Highlight
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Insurance is a risk management method in which all or a portion of financial consequences resulting from specified loss exposures is transferred from the insured to the insurance company
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List the six steps in the risk management process
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1. All possible loss exposures must be identified
2. The identified loss exposures must be analyzed 3. Examine the techniques available to address the loss exposures 4. Choose the appropriate risk management method 5. Implement the appropriate risk management method 6. Monitor the risk management plan and make adjustments as necessary |
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List the four ways to classify insurers
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1. By ownership
2. By location of incorporation 3. By licensing status 4. By marketing distribution system |
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List five characteristics of mutual insurance companies
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(Memory aid: ABODE)
1. Advance premium mutuals: policyholders pay an initial premium and a premium at each renewal 2. Board-appointed officers and employees conduct business 3. Owned by policyholders 4. Dividends: profits in excess of those added to surplus are returned to policyholder as dividends 5. Elected board of directors: policyholders elect board of directors to direct the operations |
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List the four objectives or insurers
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1. Generate a profit
2. Meet the needs of customers 3. Compliance with legal requirements 4. Fulfill the duties owed to society |
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List the internal constraints (five reasons insurers may not meet objectives or may become insolvent)
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1. Market recognition
2. Financial resources 3. Expertise is not sufficient 4. Efficiency is not maxmized 5. Size |
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External constraints
(six reasons insurers may not meet objectives or may become insolvent) |
1. Regulation
2. Public opnion 3. Competition 4. Economic conditions 5. Marketing operations 6. Other external constraints: legislative changes, catastrophic losses, and riots and civil unrest |
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List the twelve functions of the insurer
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Three core functions:
1. Marketing 2. Underwriting 3. Claims Nine additional functions 4. Actuarial 5. Premium audit 6. Reinsurance 7. Investments 8. Legal services 9. Human resources 10. Accounting 11. Information technology 12. Loss control |
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List the three ways in which underwriting and marketing work together
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1. Underwriting determines which applications will be accepted; the applications are developed based on marketing information.
2. Underwriting and marketing must identify ways to make applications that are marginable be acceptable 3. Feedback obtained by the marketing department can be used to assist the underwriting department in developing products |
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List the two ways in which IT and other departments work together
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1. Information technology enables all departments to exchange information
2. Data is gathered and stored by the information technology department |
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List the three sources of operating profit or loss
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1. Investment income
2. Realized capital gains or losses 3. Unrealized capital gains or losses |