Insurance

Insurance companies pay for damage to any part of the plumbing installation in your home caused by freezing or bursting, but not

if the installation is outside or in an outbuilding;

loss or damage due to rust, corrosion or wear and tear;

after your home has been unoccupied for more than 30 consecutive days;

Service Pipes and Cables

Insurance companies pay for accidental damage for which you are legally responsible to underground drains, pipes, cables and tanks providing services to or from your home.

Insurance companies pay in addition to any other amount recoverable under this section

if you occupy your home the cost of reasonable alternative accommodation for you, your family anddomestic pets;

if your home is lent or let, while your home is unfit to live in following damage recoverable under this section.

Any claim payment will not be more than 20% of the sum insured by this section

Sale and Purchase

if you are selling your home the purchaser will have the benefit of the insurance by this section up to the date of completion provided the buildings are not otherwise insured

if you are purchasing another private dwelling your new dwelling will be insured by this section for up to three months from the date contracts to purchase are exchanged or in Scotland the date of the acceptance of offer but not,

if it is otherwise insured,

after completion of the purchase,

for more than 125% of the sum insured by this section.

Model of profit making in insurance

The insurance model can be reduced to a simple equation: Profit = earned premium + investment income — incurred loss — underwriting expenses

Insurers make money in two ways:

1. Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks;

2. By investing the premiums they collect from insured parties.

T he most complicated aspect of the insurance business is the underwriting of policies. U sing a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. T o this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them.

D ata is analyzed to fairly accurately project the rate of future claims based on a given risk. A ctuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer’s overall exposure. U pon 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. Of course, from the insurer’s perspective, some policies are «winners» (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are «losers» (i.e., the insurer pays out more in claims and expenses than it receives in premiums and investment income); insurance companies essentially use actuarial science to attempt to underwrite enough «winning» policies to pay out on the «losers» while still maintaining profitability.

An insurer’s underwriting performance is measured in its combined ratio which is the ratio of losses and expenses to premiums. A combined ratio of less than 100 percent indicates underwriting profitability, 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, at 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. 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.

Property and casualty insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the United States, due to unpredictable natural catastrophes, have exacerbated this trend.

Claims and loss handling is the materialized utility of insurance; it is the actual «product» paid for, though one hopes it will never need to be used. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form such as those produced by ACORD.

Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes a thorough investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment. Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside «house» counsel or outside «panel» counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.

I n some sense we can say that insurance appears simultaneously with the appearance of human society. W e know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). T

he second type is a more ancient form than the first. I n such an economy and community, we can see insurance in the form of people helping each other. F or example, if a house burns down, the members of the community help build a new one. S hould the same thing happen to one’s neighbour, the other neighbours must help.

O therwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread.

Conclusion

As we see insurance involves dealing with certain types of risk. Insurance companies do help others to avoid economic risk and stimulate business sustainability.

Insurance companies are generally classified as either mutual or stock companies. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies provide information and rate the financial viability of insurance companies.

Bibliography

Collins English Dictionary. 8th Edition. HarperCollins Publishers, 2006.

Credit Insurance Training Module 1 — www. insurance-institute.ie/…/AndrewPetherbridge.

4.6.

09.ppt

Gollier C. (2003). To Insure or Not to Insure?: An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory. ;

http://dhenriet.perso.centrale-marseille.fr/gollier.pdf.

Gollier C. (2003). To Insure or Not to Insure?: An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory. ;

http://dhenriet.perso.centrale-marseille.fr/gollier.pdf.

Insurance ;

http://en.wikipedia.org/wiki/Insurance.

Irish Brokers Association. Insurance Principles ;

https://www.iba.ie/development2009.

Kulp C. & Hall J., Casualty Insurance, Fourth Edition, 1968.

Kunreuther H. (1996). Mitigating Disaster Losses Through Insurance. Journal of Risk and Uncertainty. ;

http://opim.wharton.upenn.edu/risk/downloads/archive/arch167.pdf.

UK Insurance Directory — www.ukinsurancedirectory.com

Vaughan, E. J., 1997, Risk Management, New York: Wiley.

Collins English Dictionary. 8th Edition. HarperCollins Publishers, 2006.

Insurance ;

http://en.wikipedia.org/wiki/Insurance

Insurance ;

http://en.wikipedia.org/wiki/Insurance

Gollier C. (2003). To Insure or Not to Insure?: An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory. ;

http://dhenriet.perso.centrale-marseille.fr/gollier.pdf

Vaughan, E. J., 1997, Risk Management, New York: Wiley.

Irish Brokers Association. Insurance Principles ;

https://www.iba.ie/development2009

Gollier C. (2003). To Insure or Not to Insure?: An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory. ;

http://dhenriet.perso.centrale-marseille.fr/gollier.pdf

C. Kulp & J. Hall, Casualty Insurance, Fourth Edition, 1968, p. 35.

Kunreuther H. (1996). Mitigating Disaster Losses Through Insurance. Journal of Risk and Uncertainty. ;

http://opim.wharton.upenn.edu/risk/downloads/archive/arch167.pdf

UK Insurance Directory — www.ukinsurancedirectory.com

Credit Insurance Training Module 1 — www. insurance-institute.ie/…/AndrewPetherbridge.

4.6.

09.ppt