|Risk Management||A systematic process for dealing with pure risks and the costs which comes from pure risks (Actual losses from perils, fear from perils, less than optimal use of estimating the probability of loss).|
|Deductible||The initial portion of covered losses that is borne by the insured rather than by the insurance co. H.I. deduct typically calendar year, homeowners per event (Eg. 3 events in one year you pay 3 deductibles)|
|Self Insurance||Not risk retention (i.e. you keep the risk) but rather a large business which pools its money for its own risks.|
|Risk Transfer||The loss financing method that shifts as much as possible all the financial consequences of risk to another party, often low loss frequency but high loss severity. Can do this through non insurance transfer (Eg. extended warranty, hold harmless agreement) or insurance transfer.|
|Hold-Harmless Agreement||Most non-insurance transfers to finance risk deal with liability risks. Transferee agrees to hold the transferor harmless in case of legal liability to others.|
|Mortality||Relative incidence of death.|
|Morbidity||Relative incidence of disease.|
|Maximum Possible Loss||The worst that could happen.|
|Maximum Probable Loss||The worst that is likely to happen.|
|Private Insurers- 3 Groups||1. Stock-They are incorporated, capital provided by stockholders. Contracts usually at fixed cost (except for flexible premiums) and pay profits to shareholders as dividends.|
2. Mutual- A not-for-profit company owned by policy owners. Policy owners elect Board, profits returned to policy owners as a dividend.
3. Other- Fraternal, (i.e. Catholic Knights. Most be mutual and must have field of membership Also, others inc. banks, health associations, Lloyd's of London.
|Demutualization||Intentional shifting of mutual companies to stock companies. Typically done for advantage to raise capital quickly by issuing stock, bonds, warrants, and other debt. Also allows for mergers with other companies. Finally, allows for non-cash compensation to key executives and Board members. Mutual companies raise capital by raising premiums or selling more policies.|
|*Agent's Authorities- 3||1. Express Authority- Agents powers defined by his contract with the principal.|
2. Implied Authority- Authority to carry out acts needed to exercise his expressed authority.
3. Apparent Authority- Arises when an agent, contrary to his contract with the principal, performs an act a customer would reasonably believe the power has power to act on.
|Binding Authority||A temporary evidence of insurance and superseded when a written policy is issued. Normally only granted to an agent and not a broker. Typically, binding authority is property-liability insurance but not life insurance agents. Life insurance agents typically collects initial premium and gives applicant a conditional premium receipt.|
|Insurance Brokers||Legally represent the policy owner rather than the insurer. Independent contractor. No authorities as given agents (Eg. Express, Implied, and Apparent).|
|Underwriting||The SELECTION and PRICING of insurance applications that are offered to an insurer.|
|Adverse Selection||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 the risk.|
|Reinsurance||Underwriters ability to accept applications is both broadened and limited by reinsurance available to the insurer. Insurance company transfers some or all the risk it has taken by writing primary insurance. (In background, client will not know, primary insurer is insurer to their knowledge)|
|Treaty Reinsurance (Automatic)||Standing agreements, no process needed, where the primary insurer agrees in advance to cede some types of loss to reinsurer and reinsurer agrees to accept.|
|Facultative Reinsurance||Optional reinsurance for both insurer and reinsurer. It is a negotiated process where insurer sends bid to several reinsurers and accepts the best price. Each party retains the "faculty" or privilege or accepting or rejecting the contract.|
|Claims Settlement Process||Set in motion when NOTICE OF LOSS is filed with insurer.|
|Company Employees||(Eg. Claims Analyst, Claims Examiner, Staff Adjuster). Eg. Drive up center|
|Independent Adjusters||Experts who have made loss adjusting a business. Work for insurers who purchase their services. (Eg. A small rural insurer who doesn't need company employees on staff)|
|Public Adjuster||Public adjuster represents members of the public in settling insurance claims against an insurer. Clients may use a public adjuster if they feel independent adjuster is biased because he is paid by insurer. Eg. Public adjuster helping elderly person with medical bills from insurer.|
|Claims Procedures- 4 Steps|| 1. Notification- The policy owner furnishes a notice of loss to insurer. (Time requirements spelled out in policy, Eg. 30 days).|
2. Claims Investigation- Determines if loss occurred and if so if policy covers loss.
3. Proof of Loss- Eg. Written and Sworn Statement claiming loss, Death Certificate, Medical Bill.
4. Pay or Denial of Claim (Negotiated Amount)
|Rate Making||Process of establishing the price of insurance based upon the cost of the insurance plus a profit. The premium, amount charged for the amount of coverage the policy provides, is based upon the rate which is the price charged for each unit of coverage.|
|Investments for Insurance Companies||Regulated closely by state laws on what an insurer can invest the funds it holds.|