Insurance and Risk Management
Insurance, in law and economics, is a form of risk management primarily used against the risk of a contingent loss.
The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly loss.
History of Insurance
Insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: Money Economies (with markets, money, financial instruments and so on) and non-money or Natural Economies (without money, markets, financial instruments and so on).
Insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: Money Economies (with markets, money, financial instruments and so on) and non-money or Natural Economies (without money, markets, financial instruments and so on).
Insurance Companies
Insurance Companies are risk bearers; in other words, they bear risk that individuals are willing to pay to avoid the risk of death, disability, property loss, investment fluctuation etc.
Insurance companies receive premiums in exchange for underwriting risks invest premiums to meet future liabilities and make profit. insurance company liabilities are contingent liabilities they depend on the certain events in future time and amount of liabilities are uncertain depending on type of insurance an insurance company’s
The Term Paper on Reinsurance Insurance Company Losses
... risks often are spread among even more companies than the number shown here.Insurance insurance reinsurance retrocession Policyholder Insurance Reinsurance Reinsurance company company company Figure 1: Insurance, ... "bear" stock market, US economy now in recession, other large catastrophe losses in 2001 - Tropical ... broker where the broker has received claims moneys from the reinsurer but has failed ...
Profit/loss = Premiums + Investment income – Claims – Overhead.
Insurance companies may be classified into two groups:
life insurance companies:
Which sell life insurance, annuities and pensions products.
Non-life insurance companies:
General or Property/Casualty insurance companies which sell other types of insurance.
General insurance companies can be further divided into these sub categories:-
Standard Lines
Excess Lines
Standard line
These insurance companies are the mainstream insurers. These are the companies that typically insure autos, homes or businesses. They use pattern policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies.
Excess line
These insurance companies typically insure risks not covered by the standard lines market. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the admitted carriers do. However, they still have substantial regulatory requirements placed upon them.
Classification
Insurance companies are generally classified as either mutual or stock companies.
Mutual companies are owned by the policyholders while stockholders who may or may not own policies own stock insurance companies.
Reinsurance Companies
These are those insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies & are mostly observed in foreign countries, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.
The Essay on Mutual Insurance Company of Iowa
The Mutual Insurance Company of Iowa has experienced a significant growth in sales within the last year, and in turn, has experiences a significant increase in insurance claims. After careful consideration and evaluation, the Mutual Insurance Company has elected to incorporate significant operational changes to meet the demands of the increased volumes. Specifically, incorporation of a lean ...
Performance of Insurance Companies
The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the visibility of the insurance carrier is very important.
In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses. A number of independent rating agencies provides the information and rate the financial viability of insurance companies.
Types of Insurance
Auto Insurance
Home Insurance
Health Insurance
Life Insurance
Property Insurance
Credit Insurance
Auto Insurance
Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage.
Home Insurance
Home insurance provides compensation for damage or destruction of a home from disasters. In some geographical areas, the standard insurances excludes certain types of disasters, such as flood and earthquakes, that require additional coverage. Maintenance-related problems are the homeowners’ responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.
Health Insurance
Health insurance policies will cover the cost of medical treatments. Dental insurance, like medical insurance, is coverage for individuals to protect them against dental costs. In some countries, dental insurance is often part of an employer’s benefits package, along with health insurance.
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Health insurance also includes the casualty such as accidental treatmentas as well as disability costs.
Life Insurance
Life insurance provides a monetary benefit to a decedent’s family or other designated beneficiary, and may specifically provide for income to an insured person’s family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires.
Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.
Property Insurance
Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.
Credit Insurance
credit insurance repays some or all of a loan when certain things happen to the borrower such as unemployment, disability, or death.
Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt.
Claims
Claims and loss handling is the materialized utility of insurance; it is the actual “product” paid for, though one hopes it will never need to be used. Claims may be filed by insured’s directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form such as those produced.
The Essay on Healthy Life Food Company
Healthy Life Food Company acquired equipment for $42 million in 2007 for use in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a useful life of 10 years with nil residual terminal value. After two years, in 2009, it has become apparent that the asset will only be used till 2011 and will be retired at nil salvage value. In addition, there is impairment in ...
Insurance company claim departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes a thorough investigation of each claim, usually in close cooperation with the insured, determines its reasonable monetary value, and authorizes payment.
Complexity of Insurance policy contracts
Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms.
In response to these issues, many countries have enacted detailed regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.
Some Criticism on Insurance Companies
Some people believe that modern insurance companies are money-making businesses which have little interest in insurance. They argue that the purpose of insurance is to spread risk so the reluctance of insurance companies to take on high-risk cases e.g. houses in areas subject to flooding, or young drivers runs counter to the principle of insurance.