RMIN 5100S Test 1 Atkinson

Risk Manager

- "insured" buyer of insurance

- Larger companies will have one personal one

- Small to mid-sized companies will have someone else who serves this role

- Must evaluate risks and determine the best approach to manage risks -- including Loss Control, Retention and transfer techniques

Agent or Broker

"Intermediary" Facilitates the purchase of insurance. Advises insured. Negotiates with the insurer.

Independent Agent

- The agent has contracts with several to many companies

- More frequently used in Commercial P&C

Exclusive Agent

- More frequently used in personal lines and very small businesses

- Agents ONLY sell products for this insurance company.

Broker vs Independent Agent

(Brokers) Legally work on behalf of the insurance buyer

(Independent Agent) Legally works on behalf of the insurance company

Underwriter

"insurer" Provides insurance coverage aka the insurance company

Underwriting

refers to the process of selecting, classifying, and pricing applicants for insurance (set terms, conditions, pricing)

Line underwriter

makes daily decisions concerning the acceptance or rejection of business

the Chief Underwriting Officer

who sets the standards and guidelines

Why is it so difficult to figure out what to charge in rating and ratemaking?

With insurance, we do not know the cost of the goods until AFTER the product is sold.

Ratemaking

refers to the pricing of insurance and the calculation of insurance premiums.

rate

price per unit of insurance

Premiums equation

Rate X Exposure units

What are the objectives of the claims settlement process?

- Verification of a covered loss. "Is it covered? Did it happen?"

- Fair and prompt payment of claims

- Personal assistance to the insured

McCarren Ferguson Act of 1945

Insurance is regulated by the individual states, Federal laws may also apply so long as the legislation specifies that it applies to the business of insurance.

Admitted (standard or retail) Insurance companies

Regulated by the state, They often must subscribe to rating and form regulations of that state.

Non-admitted insurance Company (EXCESS & SURPLUS "E&S", SURPLUS LINES, WHOLESALE)

they are simply not regulated in the state for which they are doing business

Captive insurance

SELF INSURED NOT TRANSFER

Reinsurance

insurance for insurance policies; The arrangement by which the primary insurer that initially writes the insurance traders to another insurer part or ALL of the potential losses associated with such insurance.

Why would an insurance company want to reinsure their insurance?

- Increase underwriting

- Provide protection against catastrophic loss

- Stabilize profits

Common property exposures

Fire

Burglary, robbery, and employee theft

Explosion

Windstorm

Flood

Earthquake

Fire

heat, oxygen, fuel, and an unbroken chain

To prevent or control fire, what must you do?

- pull something out of the equation

- Construction materials

- Fire stops, Fire divisions, Fire walls

- Fire departments

Burglary

Theft by forcible entry

Robbery

Violence or threat of violence

Employee Theft

Employee dishonesty or embezzlement

Burglary/robbery prevention

Security guards, locks, alarms, cameras

Employee theft prevention

Accounting controls, access, background checks, separation of duties

Explosion

Extremely rapid combustion

Explosion risk control

Low oxygen atmospheres, venting, maintenance

Windstorm

unusual storm force, including named storms

Windstorm Risk Control

CANNOT PREVENT

- Pre-loss actions

Structure design

Storm shutters

Maintain roofs and walls

Secure outside materials and equipment

Locate trees and utility poles away from structure

Flood

Low Elevation and rising water

Flood Risk Control

- avoid locating in flood zones

- dams, ,channels, sandbags, water removal equipment

- lowest floor above 100 year flood mark

- plan to move property to higher ground

Earthquake Risk control

- Location and Design

- Most Design includes a rigid structure

- Some modern buildings sway

Commercial property loss Exposure

The possibility that a business enterprise or another type of organization will sustain a loss resulting from loss of or damage to property in which the organization has financial interest.

Tangible Property Subdivisions

Real Property

Personal Property

Real Property

Tangible Property consisting of land, all structures permanently attached to the land, and whatever is growing on the land

Personal property

ALL tangible or intangible property that is NOT real property.

Net Income Loss Exposure

the possibility of loss caused by a reduction in Net Income.

The Engineering Approach

attacks hazards by reviewing and improving design and location of properties and equipment to reduce to number of hazards

The Human Behavior Approach

attacks hazards by modifying people's behavior to reduce frequency of unsafe acts

Hostile Fire

A fire that leaves its intended place

Commercial Package policy (CPP)

- a multiline policy composed of two or more coverage parts, each coverage providing a separate line of insurance

- Policy that covers two or more lines of business by combining ISO's commercial line coverage parts

What does each coverage part of a CPP form consist of?

- One or more declarations forms

- One or more coverage forms

- For some lines of insurance, a general conditions form

- Any applicable endorsements

Businessowners Policy (BOP)

- A multiline policy that includes/combines most of the property and liability coverages needed by small and midsize businesses

- Specially designed for such insureds as an economical alternative to regular commercial package policies

Abandonment

- Insurance company may choose to take damaged property and pay insured the value

- Insured CANNOT surrender damaged property to insurance company

Appraisal

If there is a dispute about VALUE of property

- Written Demand

- Each hires an Appraiser who elect an Umpire

- Each pays their own and split the Umpire

Duties in the event of a loss

- Notify police if law may be broken

- Provide prompt notice to insurer as soon as feasible/practical

- Description of loss- how, when, etc.

- Protect property from further loss

- Upon request, provide inventories and allow inspection

- Cooperate with insurer

- Submit signed, sworn proof of loss within 60 days of request

What are the 4 options the insurance company has when it comes to a Loss Payment?

- Pay amount of loss

- Pay the cost of repairing or replacing

- Take ownership of damaged property and pay its agreed or appraised value

- Repair/replace Damaged property with like kind and quality

Insurance company has 30 days to respond

Proof Of Loss

A statement of facts about a loss for which the insured is making a claim

Recovered Property

If property is lost/stolen and later recovered AFTER the insurer has paid insured, the insured has the option to return claims payment and accept property

If a building is vacant for more than 60 days, what will happen?

- No coverage for vandalism, breakage of building glass, water damage, theft, attempted theft, or sprinkler damage

- All other causes of loss will be reduced by 15%

Personal Risk

If YOUR life, health, or income are at risk

Property Risk

YOUR "stuff"

Liability Risk

if you could be responsible for damage to SOMEONE ELSE'S stuff or bodily injury or financial loss to SOMEONE ELSE

Risk Control (Loss Control) options

1. Avoidance

2. Loss Prevention

3. Loss Reduction

4. Separation

5. Duplication

6. Diversification

Risk Financing (Loss Financing) Options

1. Retention

2. Transfer

Active Retention

Identify the loss/risk exposure and really consider the risk itself and all the measures around it. (ex. Should we transfer it, retain it etc.)

Passive Retention

Never really identified the loss exposure or just ignored it

The Total Cost of Risk

Expenses for Loss/Risk Control (to reduce risk) + Expenses for Loss/Risk Financing (to finance potential losses) + Opportunity Cost + Cost of losses not reimbursed

HARD Market

when profitability is declining, underwriting standards are tightened, premiums increase, and insurance becomes more difficult to obtain. (SELLERS MARKET)

SOFT Market

when profitability is improving, standards are loosened, premiums decline, and insurance becomes easier to obtain

The 2 Standard Forms

- Insurance Services Office inc "ISO"

- American Association of Insurance Services "AAIS"

Non-standard forms

- Proprietary Forms

- Broker Forms

Proprietary Forms

When Insurance companies create their own policy forms that differ from ISO forms

Broker Forms

When Brokers create their own policy forms that differ from ISO forms.

Monoline policies

- 1 product line/coverage

- Better Suited for large or complex risk

Multiline policies

- 2+ product lines/coverages

- Fewer gaps in coverage

- Convenient

- Lower costs

- Best suited for Small to mid-sized business

Output policy

- Like a package policy but you ONLY include property forms. NO LIABILITY

- Generally for mid-size to larger businesses

What does ISO require ALL commercial line policies to include?

Common Policy Conditions Form (IL 00 17 form)

Components of common policy conditions

- Cancellation

- Changes

- Examination of books and records

- Inspections and surveys

- Premiums

- Transfer of rights and duties under this policy

Important things on Common Policy Conditions Form

- Name

- Form number

- Version date

- Number of pages