1 Welcome To The IEI-Sponsored Insurance Workshop MTSU June 4-6, 2007.
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Transcript of 1 Welcome To The IEI-Sponsored Insurance Workshop MTSU June 4-6, 2007.
1
Welcome To The IEI-Sponsored
Insurance WorkshopMTSU
June 4-6, 2007
2
Overview of Insurance Operations
Insurance Regulation Evaluation of Insurance Regulation Reasons for Insurance Regulation Insurance Regulators Regulatory Activities Unofficial Regulators McCarran-Ferguson Act (Public Law 15)
3
Overview of Insurance Operations (con’t)
Identify Loss Exposures Analyze Loss Exposures Examine the Feasibility of Risk Management
Techniques Select the Most Appropriate Techniques Implement the Risk Management Techniques Monitor Results and Make Changes as
Needed
Risk Management Process
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Overview of Insurance Operations (con’t)
Classification Type
Legal FormOf
Ownership
—
Place Of
Incorporation
StockMutualOther
—DomesticForeignAlien
Classifications and Types of Insurers
5
Overview of Insurance Operations (con’t)
Earn a Profit Meet Consumer Needs Comply with Legal Requirements Fulfill Duty to Society
Goals of Insurance Companies
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Overview of Insurance Operations (con’t)Constraints on Achieving Goals
Internal Constraints Efficiency Expertise Size Financial Resources Other Internal Constraints
External Constraints Regulation Public Opinion Competition Economic Conditions Marketing Systems Other External Constraints
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Overview of Insurance Operations (con’t)
Measuring ProfitsPremiumsExpense RatioLoss RatioCombined RatioOperating Profit or Loss
Measuring Insurance Performance
8
Overview of Insurance Operations (con’t)Measurement of Profits
Property-Casualty Insurance Combined Ratio, 1996 to 2001
Year Combined Ratio1996 106.1
1997 101.9
1998 106.0
1999 107.8
2000 110.3
2001 115.9
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Overview of Insurance Operations (con’t)Measurement of Profits
Property-Casualty Insurance Operating Ratio in the United States From 1992 to 2001
Year Combined Ratio Net Investment Operating Ratio Ratio
1992 115.7 14.9 100.8
1993 106.9 13.9 93.0
1994 108.4 13.8 94.6
1995 106.4 14.5 91.9
1996 105.8 14.4 91.4
1997 101.6 15.5 86.4
1998 105.6 14.6 91.3
1999 107.8 14.0 93.8
2000 110.1 14.1 96.2
2001 115.9 12.2 103.7
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Core Functions Marketing Underwriting Claims Actuarial
Other Functions Loss Control (and Premium Audit) Reinsurance Investments Information Technology Human Resources Legal Services Accounting
Interdependence Among Functions
Overview of Insurance Operations (con’t)Insurance Functions
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Insurance Marketing
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Insurance Marketing
Legal Status of Agents Duties Owed to Customers
The Marketing Plan Product Proposal and Sales Goal Situational Analysis Marketing Goals Marketing Strategies
Unique Characteristics
Overview of Insurance Product Marketing
13
Independent Agency and Brokerage Marketing System
Direct Writers Exclusive Agents Convergence of Traditional Marketing Systems Alternative Distribution Channels
Internet Call Centers Direct Response Group Marketing Financial Institutions
Insurance Marketing (cont’d)Insurance Distribution Channels
14
Insurance Marketing (cont’d)Independent Agency System
Independent Contractor Represents Many Companies Owns Policy Expirations Compensation Methods
Commission Contingent Commissions Bonuses Fees Combination
15
Independent Contractor Represents One Company Does Not Own Expirations Compensation Methods
Commissions (higher for new business)Salary (while in training)
Insurance Marketing (cont’d)Exclusive Agency System
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Underwriting
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Underwriting
Profitable Book of Business Avoid Adverse Selection
Purpose
Underwriting Process Evaluating Loss Exposures Determining Underwriting Alternatives Selecting an Underwriting Alternative Determining the Appropriate Premium Implementing the Underwriting Decision Monitoring the Loss Exposures Owns Policy Expirations
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Underwriting (cont’d)
Line Staff
Types of Underwriters
Underwriting Results
Financial Measures Non-financial Measures
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Underwriting (cont’d)
Accept the Submission As Is Reject the Submission Make a Counteroffer to Accept the Submission Subject to
Certain Modifications
Underwriting Alternatives
Major Modifications
Require Loss Control Measures Change Insurance Rates, Rating Plans, or Policy Limits Amend Policy Terms and Conditions Use Facultative Reinsurance
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The Claim Function
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The Claim Function
Comply With the Contractual Promise Support the Insurer’s Profit Goal
Goals
Types of Adjusters Staff Independent Public Producers
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Claims Adjusting Process Determine Whether the Loss is Covered by the Applicable
Policy Determine the Cause of Loss and Legal Liability, if
Necessary. Determine the Amount of Damages or Extent of Loss Settle the Claim
The Claim Function (cont’d)
Determining Coverage Insuring Agreement Exclusions Conditions Response to Coverage Issues
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The Claim Function (cont’d)Determining Legal Liability
Property Bodily Injury (Compensatory, Punitive)
Sources Torts Contracts Statutes
Determining Amount of Damages
Settlement Claims Reports Reserving
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Actuarial Function
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Duties Make Rates Determine Reserves
Actuarial Function
Ratemaking Goals Be Stable Be Responsive Provide for Contingencies Promote Loss Control Be Simple
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Rate Components Prospective Loss Costs (Pure Premium) Expenses Profit and Contingencies
Actuarial Function (cont’d)
Ratemaking Methods Pure Premium Method Loss Ratio Method Judgment Method
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Reinsurance
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Definitions Primary Insurer Reinsurer Ceding Commission Retrocession
Reinsurance
Reinsurance Functions Stabilize Loss Experience Improve Large-line Capacity Provide Catastrophe Protection Provide Surplus Relief Provide Underwriting Guidance Facilitate Withdrawal From a Territory or Type of Business
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Types of Reinsurance Facultative Treaty
Reinsurance (cont’d)
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Conclusions