Insurable Loss Exposures Introduction – Not all exposures to loss are insurable - Which ones are?...
-
Upload
juliet-porter -
Category
Documents
-
view
215 -
download
1
Transcript of Insurable Loss Exposures Introduction – Not all exposures to loss are insurable - Which ones are?...
Insurable Loss ExposuresIntroduction – Not all exposures to loss are insurable -
Which ones are?What criteria is used to produce a financially
viable and sustainable result?
Characteristics of Ideal Insurable Loss ExposuresPoint of view of the insurance company
Large number of homogeneous unitsAccidental and unintentional losses Definite in time and in place, measurable and
of sufficient severity to cause economic hardship
Non-catastrophic
Characteristics of Ideal Insurable Loss ExposuresPoint of view of the insured
Does the exposure warrant protection?Is the probability of loss low? (How much is the
premium for low probability exposures?)
Insurance Works Well When.....The industry adheres to the above guidelines
resulting in:
A balance that is maintained between the number of insured exposures and the number and severity of the losses in the pool.
Insurance Will Have Difficulties Or Fail To Function When....More and more people collect
Frequency and/or severity increasesPrice must riseFewer people buyRisk premiums increasePool shrinks in size and cycle starts again !
Results in small pools, many collecting and unaffordable premiums
Large LossesRecently Hurricane Andrew (1992) –
$16.3 billionHurricane Katrina (2005) - $60 billion
(est.)Result:
Companies reconsidered exposuresSome did not renew policiesSome went out of business
Catastrophic Insurance Program examplesBeach PlansFederal Flood Insurance
Principles of Risk ClassificationUsed to:
Minimize subsidizationMinimize adverse selection
Goal is to have all pay a "fair" shareProvide a structure for the evaluation of
classification schemes
Adverse Selection and SubsidizationAdverse selection - undisclosed information
caused people to pay less than their ‘fair’ share
Causes subsidization - because included with people paying more than their ‘fair’ share
Self-selection
When Subsidization Is Caused By GovernmentSetting or eliminating classification schemes
prevents competitionCalled mandated subsidizationExample:
Males vs. females Annuity Life insurance Group employee pension benefits
Principles of Risk ClassificationFactors1) Separation and Class Homogeneity
Each classification will have a significantly different chance of loss
Each member (in a classification) will have approximately the same chance of loss
2) ReliabilityInformation is easily obtained and not subject to
manipulationInformation is verifiable
3) Incentive ValueProvides incentive to act in socially and
economically positive ways
Principles of Risk ClassificationFactors4) Social Acceptability
Mathematically fair outcome conflicts with social goals
Some rating criteria is socially or legally unacceptable because it is beyond the insured's control
Important Social Issues and SubsidizationAcquired Immune Deficiency Syndrome
(AIDS)Automobile InsurancePension BenefitsCatastrophes
Branches of Insurance - Successful transactionsPrivate Insurance
Non-life - fire, marine, casualty, bonding Life - life health, annuitiesOther - weather, municipal bond, boiler and
machine, motion picture completion
Liability InsuranceThe (English Common Law) American
legal system is based on the notion that a person should be responsible for the damage caused to others
Types of DamagesBodily InjuryPersonal InjuryProperty Damage
Example Cases:
BB Gun shot into crowd
Home day care operator injures child
Legal LiabilityLegal liability arises out of:
Torts - civil wrong done to anotherBreaches of contractsCriminal wrongs
Which of these are insurable?
Torts - An Insurance CategorizationDeliberate or Intentional Interference
Assault, battery, liable, false arrestCan result in civil as well as criminal actions
Liability Without Fault (Strict and Absolute Liability)Laws or court precedent mandate liability in
some circumstances: explosives, dangerous animals
Worker’s compensation, pure no-fault
Torts - An Insurance CategorizationNegligence
Failing to use reasonable care according to a “reasonable man” standard
A reasonable person thinks before speaking or acting, and is honest and moderate in all activities
Question of factOther parties can be held liable
Vicarious liability Joint-and-several liability
Establishing NegligencePlaintiff must show:
Legal dutyFailure of the dutyInjuryCausal connection between the injury and the
failureJury must weigh the facts based upon “the
preponderance of evidence” not “beyond all or reasonable doubt”
Types of DamagesCompensation for Personal Injuries
Includes medical, lost wages, future wage loss, and pain and suffering
Punitive DamagesCompensation to punish a defendant for
outrageous actsPunitive damages against insurers
When insurers act in bad faith in resisting an insured’s legitimate claim
Other DamagesHedonic damages - loss of life’s pleasuresMental anguish
“Res Ipsa Loquitur”Tactic used in court to shift a legal burden
to the defendantRequires:
The defendant has exclusive use of the instrument or process that caused the loss and the plaintiff did not
Use of the instrument or process does not normally cause injury unless there was negligence
Defenses in a Negligence SuitShow there was no injury, duty, or failureContributory negligence - common lawComparative negligence - statutory
modificationLast clear chance rule - statutory
modificationAssumption of the risk - common law
Legal Liability InsurancePays for a person’s legal liability as outlined
in the insurance contract up to policy limits.Provides a defense for persons who could be
liable under the insurance contract (defense costs).