Insurance
Saturday, December 10, 2011
Insurers' business model - wiki
Underwriting and investing
The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation: Profit = earned premium + investment income - incurred loss - underwriting expenses.
Insurers make money in two ways:
Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks;
By investing the premiums they collect from insured parties.
The most complicated aspect of the insurance business is the actuarial science of ratemaking (price-setting) of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process.
At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value, and compare these prior losses to the premium collected in order to assess rate adequacy.[8] Loss ratios and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities" - a policy with twice as many losses would therefore be charged twice as much. More complex multivariate analyses are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.
Upon termination of a given policy, the amount of premium collected and the investment gains thereon, minus the amount paid out in claims, is the insurer's underwriting profit on that policy. Underwriting performance is measured by something called the "combined ratio"[9] which is the ratio of expenses/losses to premiums. A combined ratio of less than 100 percent indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.
Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange.[10]
In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.
Naturally, the float method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards, so a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting, or insurance, cycle.[11]
¶ 11:05 PM 1 Comments
insurance -legal aspects
When a company insures an individual entity, there are basic legal requirements. Several commonly cited legal principles of insurance include:[3]
Indemnity – the insurance company indemnifies, or compensates, the insured in the case of certain losses only up to the insured's interest.
Insurable interest – the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons.
Utmost good faith – the insured and the insurer are bound by a good faith bond of honesty and fairness. Material facts must be disclosed.
Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method.
Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for insured's loss.
Causa proxima, or proximate cause – the cause of loss (the peril) must be covered under the insuring agreement of the policy, and the dominant cause must not be excluded
Mitigation - In case of any loss or casualty, the asset owner must attempt to keep the loss to a minimum, as if the asset was not insured.
¶ 11:01 PM 0 Comments
Insurability from wiki
Insurability
Main article: Insurability
Risk which can be insured by private companies typically share seven common characteristics:[2]
Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd's of London, which is famous for insuring the life or health of actors, sports figures and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates.
Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks or even purchasing a lottery ticket, are generally not considered insurable.
Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.
Affordable premium: If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the US Financial Accounting Standards Board standard number 113)
Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in hurricane zones. In the US, flood risk is insured by the federal government. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer's capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.
¶ 11:00 PM 0 Comments
Insurance from wiki
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
¶ 10:59 PM 0 Comments
Monday, December 24, 2007
new deals on dealsinsured.com
In this new year I am sure that there will be many new deals made with this company dealsinsured.com
¶ 1:03 AM 0 Comments
Saturday, November 24, 2007
myspace proxy list and orkut proxy list for you
If you haven't heard of the proxylistserver, it is high time to check it out. well see what the internet users of the world is doing right now. Thousands are using proxylistserver which has both myspace proxy list and orkut proxy list. Check the site for yourself.
¶ 12:08 PM 0 Comments
Saturday, October 20, 2007
History of Africa continued
The domestication of cattle in Africa precedes agriculture and seems to have existed alongside hunter-gathering cultures. It is speculated that by 6000 BC cattle were already domesticated in North Africa.[13] In the Sahara-Nile complex, people domesticated many animals including the pack ass, and a small screw horned goat which was common from Algeria to Nubia.
Agriculturally, the first cases of domestication of plants for agricultural purposes occurred in the Sahel region circa 5000 BC, when sorghum and African rice began to be cultivated. Around this time, and in the same region, the small guinea fowl became domesticated.
According to the Oxford Atlas of World History, in the year 4000 BC the climate of the Sahara started to become drier at an exceedingly fast pace.[14] This climate change caused lakes and rivers to shrink rather significantly and caused increasing desertification. This, in turn, decreased the amount of land conducive to settlements and helped to cause migrations of farming communities to the more tropical climate of West Africa.[14]
By 3000 BC agriculture arose independently in both the tropical portions of West Africa, where African yams and oil palms were domesticated, and in Ethiopia, where coffee and teff became domesticated. No animals were independently domesticated in these regions, although domestication did spread there from the Sahel and Nile regions.[15] Agricultural crops were also adopted from other regions around this time as pearl millet, cowpea, groundnut, cotton, watermelon and bottle gourds began to be grown agriculturally in both West Africa and the Sahel Region while finger millet, peas, lentil and flax took hold in Ethiopia.[16]
The international phenomenon known as the Beaker culture began to affect western North Africa. Named for the distinctively shaped ceramics found in graves, the Beaker culture is associated with the emergence of a warrior mentality. North African rock art of this period depicts animals but also places a new emphasis on the human figure, equipped with weapons and adornments. People from the Great Lakes Region of Africa settled along the eastern shore of the Mediterranean Sea to become the proto-Canaanites who dominated the lowlands between the Jordan River, the Mediterranean and the Sinai Desert.
By the 1st millennium BC ironworking had been introduced in Northern Africa and quickly began spreading across the Sahara into the northern parts of sub-saharan Africa[17] and by 500 BC metalworking began to become commonplace in West Africa, possibly after being introduced by the Carthaginians. Ironworking was fully established by roughly 500 BC in areas of East and West Africa, though other regions didn't begin ironworking until the early centuries AD. Some copper objects from Egypt, North Africa, Nubia and Ethiopia have been excavated in West Africa dating from around 500 BC, suggesting that trade networks had been established by this time. ¶ 1:36 AM 0 Comments
Agriculturally, the first cases of domestication of plants for agricultural purposes occurred in the Sahel region circa 5000 BC, when sorghum and African rice began to be cultivated. Around this time, and in the same region, the small guinea fowl became domesticated.
According to the Oxford Atlas of World History, in the year 4000 BC the climate of the Sahara started to become drier at an exceedingly fast pace.[14] This climate change caused lakes and rivers to shrink rather significantly and caused increasing desertification. This, in turn, decreased the amount of land conducive to settlements and helped to cause migrations of farming communities to the more tropical climate of West Africa.[14]
By 3000 BC agriculture arose independently in both the tropical portions of West Africa, where African yams and oil palms were domesticated, and in Ethiopia, where coffee and teff became domesticated. No animals were independently domesticated in these regions, although domestication did spread there from the Sahel and Nile regions.[15] Agricultural crops were also adopted from other regions around this time as pearl millet, cowpea, groundnut, cotton, watermelon and bottle gourds began to be grown agriculturally in both West Africa and the Sahel Region while finger millet, peas, lentil and flax took hold in Ethiopia.[16]
The international phenomenon known as the Beaker culture began to affect western North Africa. Named for the distinctively shaped ceramics found in graves, the Beaker culture is associated with the emergence of a warrior mentality. North African rock art of this period depicts animals but also places a new emphasis on the human figure, equipped with weapons and adornments. People from the Great Lakes Region of Africa settled along the eastern shore of the Mediterranean Sea to become the proto-Canaanites who dominated the lowlands between the Jordan River, the Mediterranean and the Sinai Desert.
By the 1st millennium BC ironworking had been introduced in Northern Africa and quickly began spreading across the Sahara into the northern parts of sub-saharan Africa[17] and by 500 BC metalworking began to become commonplace in West Africa, possibly after being introduced by the Carthaginians. Ironworking was fully established by roughly 500 BC in areas of East and West Africa, though other regions didn't begin ironworking until the early centuries AD. Some copper objects from Egypt, North Africa, Nubia and Ethiopia have been excavated in West Africa dating from around 500 BC, suggesting that trade networks had been established by this time. ¶ 1:36 AM 0 Comments
