UGA RMIN 4000 Final Edmunds

If you loan your car to your roommate...

With permission, they are covered under your personal auto insurance

If you drive someone else's car...

With permission, you are covered under their personal auto insurance

If you hit a deer...

It is covered under comprehensive/other than collision auto insurance

If you hit a tree what insurance will cover the damage?

Collision coverage

Pure Risk

Cannot be controlled, loss/no loss

Speculative Risk

A chance of loss, no loss, or gain.

Agents

Licensed by state, loyal to company, has authority to act on the principal's behalf Agent binding authority -provide temporary insurance until policy is written

Brokers

Licensed by state, Loyal to client, Solicits applications and places coverage with the appropriate insurer, no authority to bind

Worker's Comp.

A form of insurance paid by the employer providing cash benefits to workers injured or disabled in the course of employment.

Regulated at the state level

National Association of Insurance Commissioners (NAIC)

NAIC provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers, 153 years old

IIHS

The Insurance Institute for Highway Safety (IIHS) is an independent, nonprofit scientific and educational organization dedicated to reducing deaths, injuries and property damage from motor vehicle crashes

Frequency

the number of claims an insurer anticipates will occur over a given period of time

Equation: Number of Accidents / Number of exposures

Severity

The cost of the claim

Equation: Total Losses ($) / Number of losses

Rating - Gross Rates

(Replacement Cost / per $) x gross rate

Property Coinsurance

(Amount of insurance carried / Amount of insurance required) x Loss

Health Coinsurance and Deductibles

Deductible plus coinsurance rate of med. bills

Auto Liability "Split Limits"

bodily injury per person / bodily injury per accident / property damage per accident

Peril

Cause of loss (Fire, windstorm, flood, collision, burglary)

Hazard

Condition that creates or increases Freq. and Sev. Of loss

Types of Hazards

Physical, Moral, Morale, Legal

Physical Hazard

A physical condition that increases the freq. or sev. of a loss

Moral

The presence of insurance changes the behavior of the insured (hammer to create hail damage, purposely burning house down)

Morale

Carelessness or indifference to a loss, which increases freq. and/or sev. of loss (leaving keys in unlocked car, tree limb growing over roof)

Legal

Characteristics of legal system that increase the freq. and/or sev.

Techniques for managing risks

Risk Control (Loss Prevention, Loss Reduction, Avoidance) Risk Financing (Retention, Noninsurance risk transfer, Insurance)

Loss prevention

Measures that reduce the freq. of a particular loss, does NOT completely eliminate risk

Loss reduction

Measures that reduce the sev. of a loss, no effect on the freq. of a loss

Avoidance

A certain loss exposure is never acquired (proactive), or an existing loss exposure is abandoned (reactive), Adv: Freq is reduced to 0, Dis: May not be possible, has an opportunity cost, Avoiding one loss exposure may create another

Retention

A firm or individual retains part or all of losses that can occur from agiven risk.

Retention level - the dollar amount of losses that the individual/firm will retain.

Active - Deliberately retaining risk

Passive - Unknowingly retaining risk

Noninsurance Risk Transfer

Methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party (contracts, leases, Hold-harmless agreements)

Basic Characteristics of Insurance

pooling of losses, payment of fortuitous losses, risk transfer, indemnification

Pooling of losses

the spreading of losses incurred by the few over the entire group, purpose is to reduce variation which reduces uncertainty

Payment of fortuitous losses

Unforseen and unexpected by the insured and occurs as a result of chance.

Risk transfer

A pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position

Indemnification

The insured is restored to his or her approximate financial position prior to the occurrence of the loss

Types of Risk within Enterprise Risk Management

Hazard, Operational, Financial, Strategical

Hazard (ERM)

Traditional Risk management types of risk: property/business interruption, liability, personnel (techniques: loss prevention/reduction, financing: retention, non-insurance risk transfer, insurance)

Operational (ERM)

Risks arising from day-to-day business operations (cyber, supply chain, manufacturing defects, customer service)

Financial (ERM)

Risks arising from changing conditions within financial markets: commodity availability and prices, interest rates, credit risk, foreign exchange rates, liquidity

Strategical (ERM)

External, little to no control over risk: must be in position to respond

Private Insurers

Stock, Mutual, Lloyd's of London

Stock insurers

A corp. owned by stockholders, objective is to earn profit for stockholders by increasing value of the stock and paying dividends

Mutual Insurers

A corp. owned by policyholders, profits are distributed to policy holders by dividends or rate reductions

Assessment Mutual

Insurer has the right to assess policyholders an additional amount if the insurer's financial operations are unfavorable

Advance Premium Mutual

Insurer does not issue assessable policies

Fraternal Insurer

Provides life and health insurance to members of a social or religious organization

Lloyd's of London

World's leading market that provides services, not an insurance company, "Names" are high net worth individuals

Surplus line broker

Work with both agents and brokers as a wholesaler, Licensed to place business with a "non-admitted" insurer, surplus lines - refer to any type of insurance for which there is no market in the state, non-admitted insurer - not licensed to do business in the state

Managing General Agent

Specialty producer that has underwriting authority from an insurer

Functions of Reinsurance

Increase underwriting capacity.

Stabilize profits.

Reduced the unearned premium reserve.

Provide protections against a catastrophic loss.

Retire from a line of business.

Obtain underwriting advice on a line for which the insurer has little experience.

McCarran-Ferguson Act (1945)

States regulate and tax insurers

Financial Modernization Act (1999)

Insurance and Banks can work together

Dodd-Frank Wall Street Reform and Consumer protection act (2010)

Work with the NAIC to regulate

Goals of Insurance Regulation

-maintain insurer solvency

-educate consumers

-ensure reasonable rates

-make insurance available

Legal principles of insurance

Principle of Indemnity

Principle of Insurable Interest

Principle of Subrogation

Principle of Utmost Good Faith

Principle of Indemnity

The insurer agrees to pay no more than the actual amount of the loss, prevent insured from profiting from the loss

Principle of Insurable Interest

The insured must be in a position to lose financially if a covered loss occurs

Principle of Subrogation

Substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance, does not cover life insurance

Principle of Good Faith

A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

Exclusions in Medical Policies

- Acupuncture

- Cosmetic surgery

- Dental care

- Long-term care

- Weight loss programs

Attractive Nuisance

A dangerous place, condition, or object that is particularly attractive to children (pool, playground)

legal defenses for negligence

contributory negligence

comparative negligence

last clear chance rule

assumption of risk

Contributory Negligence

A plaintiff is completely barred from recovering compensation if they were negligent in any way, even if they were 1% to blame

Comparative Negligence

Able to recover damages, reduced by plaintiff's % of fault

Last Clear Chance Doctrine

A negligent plaintiff may recover damages if they can show that the defendant had the last clear chance to avoid the accident.

Assumption of Risk

Foul ball at a game, having a house on a golf course

Homeowners Policy Coverages

SECTION I

Coverage A: Dwelling

Coverage B: Other Structures

Coverage C: Personal Property

Coverage D: Loss of Use

SECTION II

Coverage E: Personal Liability

Coverage F: Medical Payments to Others

ISO Personal Auto Policy

Part A: Liability Coverage

Part B: Medical Payments Coverage

Part C: Uninsured Motorists Coverage

Part D: Coverage for Damage to Your Auto

Part E: Duties after an Accident or Loss

Part F: General Provisions

PAP Coverage Territory

United States, Canada, Puerto Rico

Who is an Insured in PAP

Named insured, resident family member, anyone with permission

Exclusions to Coverages A and B

Collapse (except as covered in Additional Coverages)

Freezing of pipes if building is not heated

Theft of materials from building under construction

Vandalism if vacant more than 60 days

Mold, fungus, or rot unless caused by covered loss

Wear and tear, mechanical breakdown

Birds, rodents, insects; nesting or infestation

Rating Variable for PAP

Territory / GaragingLocation

Age, Gender, Marital Status

Vehicle Use

Type of Vehicle

Driving Record (MVR)

Number of Vehicles

Limits / Deductibles

Insurance Score /Credit

Good Student Discount

Driver Education

Can you assign homeowner's policies to others?

No