Myhr & Markham, Boor - Insurance Operations

• Identify exposures
• Analyse exposure
• Investigate the various techniques to address the loss exposures that have been identified
• Select the technique
• Implement the technique selected
• Monitor results and make any necessary changes

• Risk control
• Risk financing
• Loss exposure avoidance

Mathematical principle that says that relative accuracy of predictions about future outcomes increases as the number of similar, but independent, exposure unit increases

• Self-Insurance Programs
• Captives
• Risk Retention Programs

• Legal form of ownership
• Place of incorporation
• Licensing status
• Marketing system used

• Proprietary Insurers
• Cooperative Insurers
• Other Insurers (eg. pools and government insurers)

Formed to earn a profit for their owners

• Stock Insurance Companies
• Lloyds
• Insurance Exchanges

Owned by their policyholder and usually formed to provide insurance protection to their policyholders at minimum cost

• Mutual insurance companies
• Reciprocal exchances
• Fraternal organizations
• Others: captive insurers, risk retention groups, purchasing groups

• Domestic
• Foreign
• Alien

Incorporated in state or formed by the laws of the state

Domestic that is licensed to do business in states other than its domiciled state

Insurer formed in another country

Insurer authorized by the state insurance department to transact business within a particular state

Insurer not authorized by the state insurance department to transact business in that state

• Marketing
• Underwriting
• Claims

• Loss Control
• Reinsurance
• Actuarial
• Investments
• Information Technology
• Premium Audit
• Human Resources
• Legal Services
• Accounting

• Independent agencies and brokerage
• Direct writers
• Exclusive writers

• Contractual relationship between producer and insurer
• Ownership of expirations
• Compensation method

• Insurance marketing system under which:
• Agent is contracted to sell for insurer
• Agent can represent multiple insurers
• Agent owns expirations
• Agent is compensated with commission: flat % on all business submitted; contingent or profit-sharing by meeting volume and/or profit goals

• Insurance marketing system under which:
• Agent is contracted to sell for insurer
• Agent required to represent single insurer
• Expirations are owned by the insurer
• Agent is compensated with commission: guaranteed minium salary; one rate for new business and lower rate for renewals

• Insurance marketing system under which:
• Agent are employees of a single insurer
• Agents can be compensated by salary, commission, or a combination of the two
• Expirations are owned by the insurer

• Product proposal and sales goals
• Situation analysis: SWOT (Strenghts, Weaknesses, Opportunities, and Threats)
• Marketing goal: outline of the proposed target market
• Marketing strategies: plans and proposals for how the product will be developed, priced, promoted, and sold

• Actual Authority: Authority conferred by the principle on an agent under an agency contract
• Apparent Authority: Authority that arises from a 3rd partys reasonable belief based on appearances created by a principal that an agent has authority to act on behalf of that principle

• Independent business organizations that function almost as branch offices for one or more insurers
• Appoint and supervise independent agents and brokers for insurers using independent agency and brokerage system

Persons or firms that place business with insurers not licensed in the state in which the transaction occurs but that are permitted to write insurance because coverage is not available through standard market insurers

• Prospecting
• Risk management review
• Sales
• Policy issuance
• Premium collection
• Customer service
• Claim handling
• Consulting

• Agency Bill:Payment procedure in which a producer sends premium bills to the insured, collects the premium, and sends the premium to the insurer less any applicable commission
• Direct Bill: Payment procedure in which insurer sends premium bills to insured, collects the premium and sends any commissions payable on the premium to the producer

• Referrals from present clients
• Referrals from strategic partners
• Advertising
• Interactive web sites
• Telephone solicitations
• Cold canvass (i.e., solicitation without appointment)

Develop and maintain a protable book of business for the insurer

• Evaluate Loss Exposures
• Determine Underwriting Alternatives
• Select an Underwriting Alternative
• Determine the Appropriate Premium
• Implement the Underwriting Decision
• Monitor the Loss Exposures

• Moral
• Morale
• Physical
• Legal

Condition that increases the likelihood that a person will intentionally cause or exaggerate a loss

Condition of carelessness or indifference that increase the frequency or severity of loss

Tangible condition of property, persons, or operations that increases the frequency or severity of loss

Condition of the legal environment that increases loss severity or frequency

• Require loss control measures
• Change insurance rates, rating plans, or policy limits
• Amend policy terms and conditions
• Use facultative reinsurance

Ratemaking technique that adjusts the insureds premium for the upcoming policy period based on the insureds experience for the current period

Rating plan that awards credits and debits based on specic categories such as the care and condition of the premises

Ratemaking technique that adjusts the insureds premium for the current policy period based on the insureds loss experience during the current period

• U/W Authority - may need to refer to higher authority
• Supporting Business
• Mix of Business
• Producer Relationships
• Regulatory Restrictions

• Line Underwriters
• Staff Underwriters

• Line
• Primarily responsible for implementing the steps in the underwriting process
• Usually located in branch/regional offices
• Staff
• Assist underwriting management with making and implementing underwriting policy
• Usually located at home office

• Assist with determining appropriate coverage
• Provide service to producers and policyholders

• Research the market
• Research and develop coverages
• Evaluate underwriting experience
• Review and revise rating plans
• Formulate underwriting policy
• Develop underwriting guides
• Conducting underwriting audits
• Assisting with education and training

• Frame
• Joisted masonry
• Noncombustible
• Masonry noncombustible
• Modifed fire resistive
• Fire-resistive

• Housekeeping practices
• Heating equipment
• Electrical equipment
• Smoking

• Fire
• Lightning
• Explosion
• Windstorm
• Hail
• Vandalism and Malicious Mischief
• Water Damage
• Flood
• Earthquake
• Collapse

• Torts
• Contracts
• Statutes that impose liability without regard to fault

• Criminal Acts: Crimes against others, which are also offenses against society
• Civil Acts: Violate the rights of individuals by tort or breach of contract

• Negligence
• Intentional Tort
• Strict Liability
• Vicarious Liability

• Legal duty owed to plaintiff
• Failure to conform to the standard of care required by the situation
• Causal connection exists between the negligent act and the bodily injury or physical damage
• Bodily injury or physical damage occurred

• Wrongful act or omission intended to cause harm
• Examples: Assault and battery, Libel, Slander, Invasion of privacy, Copyright violation

• Liability imposed without regard to fault
• Examples: Abnormally dangerous activities, Sale of dangerously defective products

• Liability arising when one party is held liable for the actions of another party
• Examples: Principle-Agent, Employer-Employee, Parent-Child

• Compensatory: Compensate the injured party for the harm caused by the wrongful act
• Punitive: Punish defendants whose conduct is willful, wanton, or grossly negligent

• Premises liability
• Operations liability
• Completed operations

Loss exposures that arise from the ownership or possession of real property

Loss exposures that arise from a policyholders business activities conducted away from its own premises and from uncompleted work

Loss exposures that arise from an organizations finished work

• Common hazards
• Special hazards of the class
• Special hazards of the risk (beyond those anticipated by the standard rates for the class)

• Landlords and Tenants
• Bailors and Bailees
• Mortgagors and Mortgagees

• Real: land and everything attached to it
• Personal: all other property

Cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

Replacement cost minus depreciation

• Provide prompt notice
• Protect property
• Assist with loss adjustment process
• Provide proof of loss
• Submit to examination under oath
• Insured may enlist help of Public Adjuster to handle all duties

• Determine the cause of loss
• Determine the amount of loss
• Document the cause and amount of loss
• Avoid waiver and estoppel
• Determine salvage value and subrogation rates

Voluntary and intentional relinquishment of a known right by the insurer that results in estoppel

Principle that prevents the insurer from asserting a right that it has already waived

• Determine coverage
• Determine legal liability
• Determine damages
• Negotiate and settle claims

• Explain in writing to policyholder what the issues are and how the adjuster will proceed
• Send Reservation of Rights letter or Nonwaiver agreement
• Investigate claim

• Absence of negligence
• Comparative or contributory negligence
• Assumption of risk
• Statute of limitations

• Expenses for Medical Treatment
• Loss of Earnings
• Pain and Suffering
• Permanency/Disfigurement
• Loss of Consortium
• Future Damages
• Wrongful Death

• General - intangible; highly subjective such as pain and suffering;
• Special - tangible; can be quantified such as loss of earnings

• Structured settlements
• Advance payments
• Walk-away settlements

• Insurer must defend an entire claim whenever a plaintiff's allegations for any part of the claim are covered
• Can be more important to the insured than the duty to indemnify
• Especially important in frivolous, fraudulent, or meritless claims (Absent insurer's defense, plaintiff could coerce settlements)
• Insurer's duty is also its right (Insurer can choose attorney and dictate defense strategy)
• When two defense attorneys involved, insurer's attorney has the right to control the case as long as the insurer's money is at stake

• Negotiation
• Mediation
• Arbitration
• Appraisal
• Mini-trial or summary jury trial
• Pretrial settlement conference

• So many buy it out of need:
• Required by law for Auto and WC
• Often required by lender (HO)
• Businessowners protecting company's financial resources (GL)

• Regulation requires all insurers use same WC coverage forms
• Often a propensity to use standardized bureau forms for other lines
• Can lead customers to believe that all insurance companies' products are identical

• Financial strength of the insurer
• Ability to successfully fight third party claims
• Coverage extensions offered in the policy
• Extent of coverage for marginal claims
• Flexibility in customizing insurance programs to meet a customer's needs
• Accessibility of the claims department
• Quality of loss control

• Insurers lose money
• Insurers raise prices
• Period of high protability
• Many new firms enter the market
• Excess Capacity created
• Prices are depressed
• Lower protability results
• Some firms leave the market
• Low supply
• Cycle starts again

• Loss portfolio transfer required by regulators prior to exiting
• Regulator may require the company to maintain a specied level of capital and surplus until all liabilities are paid
• Regulators may design a hurdle to maintain availability in unprofitable lines
• Withdrawal may affect marketing of related lines for the company

• Tendency of insurer to over-reserve during profitable periods and under-reserve during unprofitable periods
• Extends the cycle

Sum of premium goals for all companies in operation exceeds the amount of insurance desired by all potential insureds

Sum of premium goals for all companies in operation is less than the amount of insurance desired by all potential insureds

• Selection criteria to lower-priced company
• Individual risk rating plans
• Manipulate classications

• Riding the Cycle: Maintaining Market Share
• Countercyclical Strategy: Conserving Capital
• Some Combination of 1 and 2

• Attempt to maintain a constant market share through all parts of the cycle
• Match the market price, regardless of how low
• Weak focus on profitability
• More suited for mutual insurance companies
• Greater policyholder persistency
• Companies must be careful that the lack of focus on profitability does not produce insolvency or a greatly weakened surplus

• Attempt to maintain profitability by only selling business that will produce profit
• Write minimal business in soft markets and sell as much as possible in hard markets
• Conserves company capital
• Just write enough business in soft market to maintain infrastructure for the hard market
• High profitability per unit of premium
• Low leverage on surplus