Types of Isurers

 The insurance industry is a huge financial industry with over a thousand insurance companies

operating in the United States today. Insurance companies are categorized according to how they

are organized and operated.

Stock Company

A stock insurer is owned by a group of stockholders who are not necessarily policyholders.

Shareholders or stockholders purchase shares of an insurance company’s stock. By owning company

stock, the stockholders are allowed to participate in company earnings. Similar to most other publicly

traded companies, if the insurer makes money, then the stockholders benefit with increased stock

values and stock dividends (not the same as mutual company surplus dividends).

In return, the shareholder pays taxes on those dividends as it is a return on their investment.

In most cases a stock company does not yield any direct surplus monies (dividends) to

policyholders, so they are considered a nonparticipating insurance company which issues

nonparticipating (nonpar) policies.

Mutual Companies

There are no stockholders in Mutual companies. Instead, the owners of a mutual insurance

company are the policyholders.

Mutual companies generally sell participating (par) policies that pay policy dividends to the

policyowner when declared by the company. Dividends are simply surplus company profits at year

end that the insurer divides up among the policyholders. The decision to pay dividends or not each

year rests with the company’s board of trustees.

Note that participating policies generally have somewhat higher premiums than nonparticipating 

policies due to an allowance for future dividends.

There are other possible forms for an insurance company to operate under. Let’s take a closer look

at a few more

Fraternal Benefit Societies

Fraternal societies have memberships based on religious, national, or ethnic affiliations. They are

well-known for their social, charitable, and benevolent activities. These companies primarily sell life

insurance.

Before you can purchase insurance from a fraternal company, you must become a member of the

fraternal organization. The membership application is normally completed along with the application

for insurance.

Fraternal societies are regulated somewhat differently from stock and mutual companies, but they

closely resemble mutual companies in their organization and operation. These societies are for the

benefit of their members, and have no stockholders, yet they pay dividends to policyholders.

Reciprocals

This is an unincorporated group of individuals or organizations (called subscribers) that agree to

pool their risks together for the purpose of paying losses and purchasing reinsurance. They are

managed by an attorney-in-fact--someone who is authorized to act for the group. Subscribers have

a responsibility for paying the losses of the reciprocal.

Risk Retention Groups

A Risk Retention Group will allow members who engage in similar or related business or activities to

write liability insurance for all or any portion of the exposures of group members.

For example, if liability insurance premiums for building contractors in a specific state go through

the roof, all the building contractors in that state may join together and form a RRG. Each of the

contractors will pay money into a common pool which would pay any liability claims filed against

any member contractor.

Lloyd’s Associations

Lloyd’s is the world’s best known, but probably least understood insurance brand. This is because

Lloyd’s is not an insurance company but rather a society of members, both corporate and

individual, who underwrite in syndicates on whose behalf professional underwriters accept risk.

Lloyd’s provides a meeting facility and administrative services to its members. Capital is provided

by investment institutions, specialist investors, international insurance companies, and individuals.

Together, the syndicates underwriting at Lloyd’s form one of the world’s largest commercial insurers

and a leading reinsurer

Lloyd's is best known for insuring most any risk for the right premium. Lloyd's underwriters have

agreed to insure everything from the first airplane to the legs of famous movie stars. From shipwrecks

and piracy to kidnap and ransom, Lloyd's can often find a way to cover those risks.

Private vs. Government Insurers

The federal and state governments provide social insurance programs in those areas where private

insurers either cannot or will not write insurance. The U.S. government is the largest insurer in the

world today.

Examples of government insurance programs include Social Security, Medicare, Medicaid, and

state worker’s compensation programs. Additionally, there are insurance programs available to the

military and their families such as Service members Group Life Insurance (SGLI) and Tricare.

Other coverages include the National Flood Insurance Program (NFIP) to help provide flood insurance

for catastrophic flood losses which insurers would not cover without government support.

Note that government insurance programs are primarily funded with taxes and serve national and

state public interest.

In comparing social insurance programs with private insurance, there are four primary areas

that differ:

1. Participation in government insurance programs is mandatory and automatic for all citizens.

2. The government does not provide benefits under an insurance contract or policy.

These benefits are in place as the result of the passage of certain laws. The only way to

change any of these benefits is to change the laws that affect them.

3. Social insurance programs are designed to be adequate enough to meet public needs

rather than equitable. As the government redistributes income through the system,

individuals who contribute the least amount into the system (the indigent, elderly, and

those with a large number of dependents) receive greater benefits.

4. The government has a clear and strong monopoly as an insurance provider

Authorized and Non-authorized Companies (Admitted and Non-admitted)

Beforeaninsurermaytransactbusinessinaspecificstate,theymustapplyforandreceiveaCertificate

of Authority from the Insurance Commissioner and meet the capital and surplus requirements

required by that state. Insurers who meet these financial requirements and are approved to transact

business in the state are considered authorized or admitted into the state as a legal insurer.

Those insurerswho have not been approved to do business inthe state are consideredunauthorized

or non-admitted.

Note that once a certificate of authority is issued, it belongs to the state rather than to the insurer.

Domicile

Domestic Company - This is the state where the insurer's home office is located. The insurer is

considered to be a domestic company in their home state.

Foreign Company - This is a state—other than the insurer's home state—where the insurer is

admitted to conduct business. The insurer is considered to be a foreign company in those states.

Alien Company - This is an insurer whose home office is located in a different country. Canada Life

would be an alien company in Colorado, or any other state

Read More

Insurance Concepts

 Risk Management Methods

Risk management refers to the methods you can use to deal with the uncertainty of loss (risk). You

are exposed to various types of risks each day, whether you are consciously aware of it or not.

Many risks are small in nature and do not present a serious or substantial financial impact; however,

losses such as automobile accidents, serious health conditions, or loss of life can have a financially

devastating effect. So, how can you manage (not prevent) risk? Here are five basic methods:

(Acron ym STARR)

1. Sharing Risk

Sharing risk distributes risk among a particular number of individuals. Each individual is responsible

for a portion of the risk in direct relation to what that specific individual has invested. If you and I

decide to jointly buy a boat together and pay $10,000 cash for it. We agree that I will pay $4,000 and

you will pay $6,000. Instead of paying insurance premiums, we decide to self-insure the boat. I will

be responsible for 40% of any loss that occurs and you will be will responsible for 60%.

2. Transfer Risk

Insurance is the most common way—but not the only way—to transfer risk. When you purchase

insurance of any type, you are transferring your risk to an insurance company. You purchase auto or

homeowners insurance—you are transferring the risk of loss on your car or home to an insurer.

Another risk transfer method used in some circumstances is a hold-harmless agreement. This is

an agreement or contract in which one party agrees to hold the other free from the responsibility

for any liability or damage that might arise out of the transaction involved. For example, I agree to

allow your janitorial company to provide cleaning services to our office building, but require you to

sign a hold-harmless agreement indemnifying (securing against loss) me if you negligently leave a

dangerous condition that injures a visitor. I have transferred that risk to you.

3. Avoid Risk

To keep it uncomplicated, just do not perform an activity that could carry risk. You can avoid the risk

of being in an automobile accident, for example, by never getting into an automobile. You won't

have to worry about losing value in your retirement portfolio if you stick with fixed rate investments.

You are avoiding the riskier investments

4. Reduce Risk

Since risk cannot be completely avoided, the possibility or severity of a loss can be reduced by using

risk control techniques. For example, while you may not be able to completely prevent a fire from

occurring in your home, the possibility or severity of a fire can be greatly reduced by installing a fire

suppression system. Or, you can reduce your risk of dying from a sky-diving accident by giving up

your hobby of sky-diving.

5. Retain Risk

Risk retention is choosing to be financially responsible for all or part of a risk. It's on you if a loss

occurs. A good example is the boat that you and I just bought. While we shared the risk of loss with

each other, we each retained an amount equal to what we invested when purchasing the boat.

Another common example of retaining risk is when you choose to buy insurance with a deductible.

You retain or self-insure the amount of the deductible.

Reinsurance

Reinsurance is a risk management tool used by most insurance companies to lessen their risk

exposure. Companies (insurers) purchase insurance from another insurance company (reinsurer) to

transfer some risk from the insurer to the reinsurer. The reinsurer has the company's back when

losses occur. Here is how it works...

The reinsurer and the insurer enter into a reinsurance agreement which details the conditions

upon which the reinsurer would pay the insurer's losses (either in excess of a certain amount or a

percentage). The reinsurer is paid a reinsurance premium by the insurer, and the insurer then issues

thousands of policies.

As an example, assume Large Insurance Company sells 1,000 policies with an average policy limit of

$1 million to American Re (the reinsurer). Theoretically, the insurer could lose $1 billion (1,000 x $1M).

It may make more sense for Large to transfer some of their risk to American Re to help minimize their

risk. So in basic terms, a reinsurer is an insurance company's insurance company.

Principle of Indemnity

Associate the word "restore" with indemnity as it relates to a covered loss. The principle of indemnity

states that the insurance company will restore you to the same financial position you were in before

the loss occurred—no profit, no loss. To indemnify means to secure against loss and make whole

after a loss occurs. However, you should not be compensated by the insurance company in an

amount exceeding your economic loss. There should be no gain from your pain...just restoration.

For example, if your house burns down, the insurance company will pay to rebuild your house to

the same level it was priorto yourloss. They will not build a larger, more elaborate house for you. If

you remember, we discussed earlier that insurance companies will only insure pure risks. There is no

opportunity for gain or profit with pure risks.

Insurable Interest

Insurable interest usually results from property rights, contract rights, and potential legal liability.

You cannot directly benefit from any insurance unless you would lose money or value if the

insured property suffers a loss. Insurable interest is the extent of your financial interest at the time of

loss.

For example, if your house is damaged by fire, its value will be reduced; therefore, you have an

insurable interest in your home since there would a financial loss resulting from the fire. On the other

hand, if your neighbor's house is damaged by fire, you will not suffer a financial loss. You have an

insurable interest in your own house but not in your neighbor's house.

You also have an insurable interest in our boat equal to 60% of the actual cash value, while I have a

40% insurable interest.

What about your bank or mortgage company? Do they have an insurable interest in your home? If

they hold a mortgage on your house, you bet they do. Just cancel your homeowners policy and see

what happens. The insurance company is directed to notify the bank/mortgage company, as the

mortgage holder, of the cancellation. If this becomes an issue, the bank/mortgage company will

purchase insurance to cover their insurable interest in your house and send you the bill. This

coverage may not be nearly as inexpensive as the coverage you just cancelled.

When you take out a mortgage, the bank/mortgage company will usually require you to insure the

home and name the bank/mortgage company as an additional insured on your Homeowners

policy.

Coinsurance/Insurance to Value

Coinsurance describes a splitting or spreading of risk among the insurance company and the insured.

It rewards you when you buy adequate amounts of coverage; however, it can be brutal if you do not.

The issue in this case is called the coinsurance penalty. The good news is the coinsurance penalty

in a property and casualty policy can be avoided altogether if you purchase the right amounts of

insurance.

For example, let's say that you purchased a new house—the house of your dreams. Your insurance

company determines that it has a replacement value of $750,000. Your insurance policy has an 80%

coinsurance requirement, so you must insure it for at least 80% of the $750,000 ($600,000) if you

want all partial losses to be paid without a coinsurance penalty. Of course, if you only insure for

$400,000, then you will be responsible for any loss amount exceeding that amount.

Even though most losses are partial losses, it may not be a good idea to insure less than what the

coinsurance amount. In this case, if you insured your house for $400,000 to save a few premium

dollars, what would happen if you were to have a $100,000 partial loss? Would you collect $100,000?

The answer is NO...too bad, so sad. You will be penalized by the coinsurance clause. Since you only

purchased 67% of the coverage you should have, the company will pay only 67% of your claim—

with a $100,000 loss, this would be only $67,000 minus your deductible. You will have to come up

with an extra $33,000 out-of-pocket for repairs to your dream home. That's a stiff penalty for being

a tightwad!

To make sure you understand how we arrived at these numbers, let's take a closer look at the

numbers.

(Amount of Insurance Carried ÷ Amount of Insurance Required) x Amount of Loss = Claim Payment

(400,000 ÷ 600,000 = .67) x 100,000 = $67,000, minus your deductible.

Step #1: Determine minimum amount of insurance you should buy: $750,000 x 80% = $600,000

Step #2: Amount of insurance purchased: $400,000

Step #3: Actual loss amount: $100,000

Step #4: Divide the amount purchased by the amount that should have purchased, and then

multiply that percentage by the amount of loss

Loss Valuation

This is simply a method insurance companies use to decide how much to pay you for a loss. There 

are several methods companies use.

Actual Cash Value (ACV)

ACV is computed by subtracting depreciation from the replacement cost. The depreciation is

usually calculated by establishing a useful life of the item and determining what percentage of that

life remains. This percentage multiplied by the replacement cost equals the ACV. For example, the

television set you purchased five years ago for $2,000 was recently destroyed in a house fire. Your

insurance company calculates that all televisions have a useful life of 10 years. A similar television

today costs $2,500. The destroyed television had 50% (5 years) of its life remaining. The ACV equals

$2,500 (replacement cost) times 50% (useful life remaining) or $1,250.

Replacement Cost Value (RCV)

Replacement costistheactual costtoreplace anitemor structureatitspre-loss condition.Thismaynot

be the "market value" of the item and is typically distinguished from

the ACV method which includes a deduction for depreciation. For

example, what happens if a burglar steals your six-year old television

set? With actual cash value coverage, you get only what you would

expect to pay for a six-year-old television set. With replacement cost

coverage, the insurance company pays to replace your TV with a new

set similar to the stolen one.

Market Value

Market value is what the property could be sold for. This is different from

replacement value. The replacement value is what the insurance company would

pay to rebuild the home in case of a total loss. As an example, if you purchased

a home in a depressed market for $200,000 and the house burned down, it may

take $275,000 in building materials and labor costs to replace it. The market value

is currently $200,000, but you would want to insure the house for the full $275,000

to replace it.

Stated Value

Stated value coverage pays the cost to repair an insured item or the stated value of the insured item,

whichever is less. For example, when you purchase a homeowners policy, you will be asked the value

of your personal items such as furniture, clothing, appliances, lawn mower, tools, etc.

If you report a value of $100,000, that becomes your stated value. But, if a loss occurred, you will

have to show proof that you lost that much and the insurance company certainly has the right to

dispute your figures.

Salvage Condition

This condition allows the insurance company to settle with you by taking possession of the damaged

property, then paying the full loss amount. After the insurance company sells the salvaged property,

the proceeds can reduce the cost of the claim to the insurance company.

For example, you have an auto accident that totals your car. Your insurance company considers it a

total loss. After the company pays the claim, they sell the car to a salvage dealer. The proceeds from

the sale will help offset the claim paid.

Adverse Selection

Oneofthefunctionsoftheunderwritingdepartmentistoprotecttheinsurerfromadverseselection.

The concept of adverse selection suggests that the people who are poor risks are more likely to

purchase insurance than average risks.

For example, someone just diagnosed with cancer would probably want to purchase a cancer policy

if possible. If the person's doctor tells them that they will die from the cancer within 6 months, the

person may want to purchase additional life insurance too. In these cases, the insurance company

would not sell a policy to the person for obvious reasons.

Conversely, healthy people tend to delay purchasing insurance, or shop less often.

Read More

Lines of Insurance

 Property

Property Insurance includes various types of insurance designed to insure property from financial

loss. The typical types of property items insured would be your house, auto, furniture, jewelry,

business property or any type of physical property. The perils covered will depend on the type 

of property contract that you purchase; however, the basic perils typically covered include fire, 

hail, windstorm, etc.

The following types of insurance are generally considered to be property insurance:

1. Dwelling

2. Homeowners

3. Commercial Property

4. Inland Marine

5. Ocean Marine

6. Crime

There are two parties involved with a property insurance contract: (1) the insured, and (2) the

insurance company. With property insurance, any insurance benefit payments by the insurance

company will be paid directly to the insured or other specifically named interests.

Casualty (Liability)

Casualty insurance mainly protects you against legal liability for bodily injury (BI) and/or property 

damage (PD) you cause to other people. In other words, liability or casualty coverage will pay for

accidental damage you cause to another person or their property. There are three parties to a

liability insurance contract— 1) the insured (you), 2) the insurer (insurance) company, and 3) the 

injured party

Casualty Insurance includes various unrelated insurance products, such as:

1. Aviation

2. Auto

3. Liability

4. Workers Compensation

5. Surety Bonds

Personal Lines Insurance

Personal lines refer to property and casualty insurance for an individual as opposed to a business.

Coverages would include homeowners, renters, auto, and personal umbrella to name a few. These

policies include both property and casualty coverages. For example, coverage is available in

auto policies to cover damage to your car (property) and accidental damage you cause to another

person's car (casualty or liability).

Commercial Lines Insurance

Commercial lines refer to property and casualty insurance to cover a business as opposed to

personal lines, which cover personal risks. Examples include commercial general liability, workers'

compensation, and commercial property insurance

Read More

How does insurance works

 Purchasing Insurance

So How Does It Work?

When you complete an insurance application, you will normally pay an initial amount of money with the application. In legal jargon, the money that you pay in exchange for insurance

coverage is called the consideration. In insurance jargon, it is called the premium. Actually, the statements that you make in the application along with payment of the initial premium are part of the consideration. Of course, your statements must be truthful

The premium amount is set by the insurance company and is based on a number of factors related

to what is being insured. In return for the premium, the insurance company agrees to pay for losses

according to the terms of the insurance policy.

Deductible

While the agent is discussing coverage details with the applicant, various deductible amounts will be

presented to the applicant. As the deductible, the lower the premium will be.

A deductible is the portion of a covered loss that is not paid by the insurance company. Therefore,

the insured is responsible for any deductible amount at the time of loss. The insurance company will

pay the remaining portion of any covered loss up to the policy limits.

The insurance company is accomplishing two objectives by requiring a deductible:

1. Deductibles help minimize frequent claims; and

2. Deductibles help eliminate small claims.

By having a $250, $500, or even a $1,000 deductible or higher, an insured will not usually report any

claims up to the deductible amount.

Binder

After completing the application for insurance, the agent should issue a binder to the applicant. A

binder is an oral or written agreement that provides temporary evidence of insurance until a

policy can be issued. Note, that a binder does not guarantee that a policy will be issued. It only

provides temporary coverage while the application is underwritten at the home office. No

binder can be valid beyond the issue date of the policy or beyond its effective date, whichever

periodis shorter.

Once completed, the agent will forward the application and any initial premium to the insurance

company for underwriting. Insurance underwriting is the process of classification, rating, and

selectionofrisks.Inotherwords,it's theprocessofdeterminingwhethertoacceptariskornot.Ifthe

riskisacceptable,theunderwriterswilldeterminetheamountofcoveragetoissueandthepremium 

amounttocharge.

WhoAreInsured’s

It's important to know who is insured underthe policy.

The person or entity that is listed first on the declarations page is referred to as the first named

insured. The first named insured is the primary insured and holds the highest rank among all insureds

and has broader rights and obligations under the contract than any other insured.

Examples of additional rights of the first named insured are the right to cancel the policy, the right

to initiate policy changes, and the receipt of any return premiums.

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jane do unhe hindi poem | जाने दो उन्हें

जाने दो उन्हें, जो चले गए, समय की रेत में छूट गए। 

दिल की धड़कनों के साथी, वे भूल गए हमारी बातें। 

जाने दो उन्हें, जो दूर चले, उनकी यादों में हम खो गए। 

कितने प्यारे थे वो पल, जिन्हें अब हम भूल गए। 

समय के साथ होता यही है, बदलते हैं लोग, और जगह। 

मिलने-जुलने का है नियम, बिना कहे कभी विचार किया नहीं।

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जीवन की यही लहर है, बहुत कुछ सिखाती जाती है। 

जाने दो उन्हें, जो चले गए, और हमें भी धीरे-धीरे चलने दो। 

क्योंकि ज़िंदगी का यही नियम है, आगे बढ़ना और भूलना जाने दो।

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