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Chapters 7-- Insurance

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Dental. Disability. Long-Term Care. Insurance Company Benefit. Premiums ... ING (Dutch) bought Aetna and Reliastar. Allianz (German) bought Life USA ... – PowerPoint PPT presentation

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Title: Chapters 7-- Insurance


1
Chapters 7-- Insurance
  • Chapter 7 Insurance Companies
  • Types of Insurance Products
  • Life
  • Term, Whole Life, Universal
  • Health
  • Medical, Dental, Disability and Long-term Care
  • Property and Casualty
  • Auto, House. Boat, Business, etc.
  • Investment Products
  • Annuities and GICs

2
Insurance Risk Transfer
  • Define Risk
  • Uncertainty of outcomes
  • Potential for bad outcome
  • Potential bad outcome is harmful
  • Why Transfer
  • Some one else willing to take on the risk for a
    fee (premium)
  • Fee is really a put contract
  • Buyer of risk has advantagelaw of large numbers

3
Life Insurance
  • Insurance Products Risk Transfer
  • Life Insurance
  • What is the down side?
  • Why buy life insurance? Who benefits?
  • Insurance Companys Risk
  • Term Life Insurance
  • Whole Life Insurance
  • Universal Life
  • Insurance Companys outflow predictable?
  • Premiums (paid up frontprior to payout)

4
Health Insurance
  • Health transfer of risk?
  • Types
  • Medical
  • Dental
  • Disability
  • Long-Term Care
  • Insurance Company Benefit
  • Premiums
  • Other Negotiations (Big Player)
  • False Promises (Deny claims)
  • Insurance Company Costs Predictable?

5
Property Casualty Insurance
  • Property
  • House, Car, Boat, etc.
  • Business
  • Casualty
  • Liability Insurance
  • Harm done by you
  • Harm done on your property
  • Insurance Company Predictable Outflow?

6
Insurance Products Investments
  • Products
  • Guaranteed Investment Contracts
  • Promise to pay lump sum for portfolio at
    maturity date (zero-coupon bond)
  • Purchaser bears risk of repayment by Insurance
    Company
  • Annuities
  • Promise to pay steady stream of payments over
    life of the contract
  • Purchaser bears risk of repayment by Insurance
    Company

7
Types of Companies
  • Grouped by Products
  • Life and Health Companies (LH)
  • Property and Casualty Companies (PC)
  • Multiline if both LH and PC
  • Stock or Mutual
  • Mutual of Omaha owned by policy holders
  • Components
  • Home Office manufactures products
  • Investment Company manages portfolio
  • Sales Company sells products

8
Business Model
  • Actuarial Fair Premiums
  • The expected costs of the policy are the premium
    of the policy
  • Profit from the time value of money premiums
    invested in market and insurance company makes
    money for portfolio gains
  • States legislate some types of insurance
  • Guaranteed market
  • Sets minimum insurance coverage

9
Regulation / Deregulation
  • McCarran Ferguson Act 1945
  • States regulate insurance companies most states
    have insurance boards
  • Rules
  • National Association of Insurance Commissioners
    (NAIC) voluntary organization that propose
    rules
  • Gramm-Leach-Bliley Act
  • Removed separation of investment banks and
    insurance industry

10
International Insurance Companies
  • International companies have expanded into U.S.
    markets by buying domestic insurance companies
  • AXA (French) bought Equitable
  • ING (Dutch) bought Aetna and Reliastar
  • Allianz (German) bought Life USA
  • Zurich (Swiss) bought Kemper
  • Most International Companies are multiline
    companies
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