RM357E Exam 2

5 steps to improve corp gov

increase diversity, appoint competent directors, ensure timely info flow and approp distrib, prioritize risk manage activities, eval senior and board perf

requirement for contract

offer and acceptance, consideration, competent parties, legal purpose, writing required

offer and acceptance

meeting of the minds

consideration

actual payment

competent parties

indiv and biz

legal purpose

illegal purposes not enforceable (not in society’s interest)

writing required

parol evidence rule

parol evidence rule

contract>oral or written agreements

4 corners rule

look only at contract

8 corners rule

look only at contract and then insur policy

insur contract characteristics

aleatory, unilateral, conditional, personal, contract of adhestiona

aleatory contract

unequal value

unilateral contract

one party has right to enforce (policyholders)

conditional contract

must satisfy certain conditions

personal contract

cant transferc

contract of adhesion

one party effectively in control (insur)

doctrine of reasonable expectations

ensures coverage reasonably expected from contract is honored

tie goes to policyholder

look at what policyholder reasonably expected

waiver

voluntary relinquishment of known righte

estoppel

A made representation leading B to believe smthm, B reasonably relies on assumption, Unfair to B if A changed original position

waiver and estoppel doctrines cause

insur to pay unexpected claims

basic parts of insur contract

declaration page, definitions, insuring agreement, exclusions, conditions, coinsuranceco

conditions

notice of loss, proof of loss, preserve and protect property, assist insur in defense of claim

coinsur

ensure that prop owners purch adequate insur. Condition often overlooked by policyholder and can result in passive retention

geico not insuring cybertrucks as priv passenger autos

cost of repair (glass spontaneously shattering in sun) and liability (repairs for third party damage). difficult to estimate approp premium

Private insurers

stock insurance, mutual insurers, risk retention groups, risk purchasing groups, captives, lloyds of london

stock insurers

owned and governed by stockholders/board of directors, policy owner is customer, historically dominant in prop and casualty industry

mutual insurers

owned and governed by policyholders, historically dominant in health science industry, types: assessment, advance premium, and fraternal

assessment

policyholders charged for their share of company expenses

advance premium

fixed premiums in advance

fraternal

member of org

risk retention groups

groups of similar biz who agree to share losses by contract

risk purchasing groups

groups of similar biz who agree to purch insur by contract

captives

insur companies owned by noninsur biz

lloyds of london

provides a meeting place, has great financial strength, major lines are biz are ocean marine reinsur and surplus lines, names historically indiv but some corps today

agent

represent insur (principal) to a contract, sources of authority: express, implied, apparent

retail agents

work with clients

wholesale (general) agents

work with retail agents

express authority

granted by insurer through written contract

implied authority

not explicitly stated by necessary

apparent authority

appears to be granted based on insurer’s actions

brokers

represent clients (insureds), marketing system (provide services: risk manage, loss control, knowledge)

claim settlement objectives

prove covered loss happened, prompt payment for covered loss, provide personal assistance to claimant

reinsurance

insurance for insur companies

ceding company

insur company getting insured

reinsurer

insur company insuring ceding company

net retention

risk retained by ceding companyr

retrocession

reinsurance for reinsurers

reasons for reinsurance

increase underwriting capacity (gain reinsurer’s expertise), stabilize profits (decrease volatility), avoid CAT loss (another approach: CAT bonds)

types of reinsurance

facultative, treaty

facultative reinsurance

case-by-case situation

treaty reinsurance

pre-negotiated btwn insurance carriers

types of treaty reinsurance

quota share, surplus share, excess of loss, reinsur poolq

quota share

fixed % of every risk/insur policy

surplus share

reinsur when insurance is over limit set by what insurance company will retain

excess of loss

reinsur when losses exceed limit

reinsur pool

group of reinsurers combine efforts to reinsure larger risks

reasons for insurance regulation

maintaining insurer solvency, inadequate consumer knowledge, ensuring reasonable rates, making insurance availablem

maintaining insurer solvency

contract for future delivery, possible financial insecurity if insurers fail

inadequate consumer knowledge

complex product, difficult to compare and determine monetary value, protection needed against unethical agents

history of insurance regulation early efforts

state-charted companies and state insur commissions

paul v virgina 1869

insur is not interstate commerce, defeated challenge to state regulation

SE Underwriters Association Case 1944

reversed paul decision: insur is interstate commerce, cast doubt on powers of state to regulate and tax insur industry

Public Law 15-McCarran-Ferguson Act 1945

Reaffirmed states’ responsibility to regulate and tax insur industry, conditionally exempted insur industry from federal antitrust laws

Current issues in insur regulation

convergence of fin services, increase in m&a, growth of tech/AI/ecom, insolvency of insurers, quality of insur regulation, deregulation of commercial lines

regulated areas

formation and licensing of insurers, fin regulation (investments\bank accounts), rate regulation, policy forms, sales practices and consumer protection

commercial package policy

commercial prop & general liability coverage (easier for biz: 1 set of definitions and conditions)

commercial prop coverage form

covered prop and biz inc from dependent properties

covered prop

bldg, bldg personal prop, personal prop of others, additional coverages (debris removal, fire department service charge, electronic data), extensions of coverage (newly acquired prop, valuable papers and records)

biz inc from dependent properties

contributing location, recipient location, manufacturing location, leader location

other commercial prop coverage

builders risk insur (losses during constructions), equip breakdown insur, difference in conditions insur (filling in gaps or insuring unusual/cat exposures)

transportation insurance

ocean marine, inland marine

ocean marine insurance

particular average vs general average.

1. interests insured: hull/cargo/liability

2. implied warranties: seaworthy vessel/legal purpose/no deviation

3. perils covered: fire/perils of the sea/enemies/piracy/jettison

4. exclusions: losses due to delay/war/strikes/riot/civil commotion

particular average

loss falls on specified party rather than shared by all owners of cargo on vessel

general average

loss falls on all owners of cargo on vessel

general average requirements

necessary/voluntary/successful/claimant non-involvement

both particular average and general average policies

may be written on specified peril or all-risks basis

inland marine insurance

typical common coverage: transportation risk (power transport, equip), catch all

businessowners policy (BOP)

small-med firms eligible, coverage (bldg, bldg personal prop, covered causes of loss, biz liab insur)

commercial umbrella policy

excess liability insurance: required underlying coverages (CGL-1m, business auto-1m, employers liab-500k)

self insured retention

losses not covered by any underlying insur but is covered by umbrella policy

general liab exposures for biz

premises and operations, products liab, completed operations

premises and operations

liab bc unsafe workplace, unsafe actions of company or employees

product liab

defective manu, design, notice

completed operations

typical insureds are repair companies, coverage for losses that occur after work done

commercial general liability policy

occurrence and claims-made policy

occurrence policy

accident with continuous or repeated exposure to same general harmful conditions, coverages A,B,C,supplementary payments

Coverage A

bodily injury and prop damage liab

Coverage B

personal and advertising injury

Coverage C

medical payments

Supplementary payments

coverages A and B: covers bail bonds and pre and post judgement interest

claims made policy

policy only covers claims made during policy term and occurring after retroactive date, rationale (long-tail problem), retroactive date, extended reporting periods, same coverages as occurrence policy

rationale for claims-made policies

exposure to insurer never ends

retroactive date/critical date

agreed upon date for losses to have occurred on or after

extended reporting periods

2 periods: if occurrence reported during policy terms (5 years), if not (90 days after policy expiration)

2 questions

was notice of loss made during policy period? if yes, did loss occur on or after retroactive date?

workers comp and employers liab insur

big biz liab is employee injuries, employer inaction to provide safe workplace

3 rules to protect employers

follow the servant, contributory negligence, assumption of risk

follow the servant

if coworker caused harm, company not responsible

contributory negligence

if victim was even slightly responsible, company not responsible