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Welcome To The IEI-Sponsored Insurance Workshop

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Welcome To The IEI-Sponsored Insurance Workshop MTSU June 4-6, 2007 * * Overview of Insurance Operations Insurance Regulation Evaluation of Insurance Regulation ... – PowerPoint PPT presentation

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Title: Welcome To The IEI-Sponsored Insurance Workshop


1
Welcome To The IEI-SponsoredInsurance Workshop
  • MTSU
  • June 4-6, 2007

2
Overview of Insurance Operations
  • Insurance Regulation
  • Evaluation of Insurance Regulation
  • Reasons for Insurance Regulation
  • Insurance Regulators
  • Regulatory Activities
  • Unofficial Regulators
  • McCarran-Ferguson Act (Public Law 15)

3
Overview of Insurance Operations (cont)
Risk Management Process
  • Identify Loss Exposures
  • Analyze Loss Exposures
  • Examine the Feasibility of Risk Management
    Techniques
  • Select the Most Appropriate Techniques
  • Implement the Risk Management Techniques
  • Monitor Results and Make Changes as Needed

4
Overview of Insurance Operations (cont)
Classifications and Types of Insurers
  • Classification Type
  • Legal Form
  • Of
  • Ownership
  • Place
  • Of
  • Incorporation
  • Stock
  • Mutual
  • Other
  • Domestic
  • Foreign
  • Alien

5
Overview of Insurance Operations (cont)
  • Earn a Profit
  • Meet Consumer Needs
  • Comply with Legal Requirements
  • Fulfill Duty to Society

Goals of Insurance Companies
6
Overview of Insurance Operations (cont)
Constraints on Achieving Goals
  • Internal Constraints
  • Efficiency
  • Expertise
  • Size
  • Financial Resources
  • Other Internal Constraints
  • External Constraints
  • Regulation
  • Public Opinion
  • Competition
  • Economic Conditions
  • Marketing Systems
  • Other External Constraints

7
Overview of Insurance Operations (cont)
Measuring Insurance Performance
  • Measuring Profits
  • Premiums
  • Expense Ratio
  • Loss Ratio
  • Combined Ratio
  • Operating Profit or Loss

8
Overview of Insurance Operations (cont)
Measurement of Profits
Property-Casualty Insurance Combined Ratio, 1996
to 2001
Year Combined Ratio 1996
106.1 1997 101.9 1998
106.0 1999 107.8 2000
110.3 2001 115.9
9
Overview of Insurance Operations (cont)
Measurement of Profits
Property-Casualty Insurance Operating Ratio in
the United States From 1992 to 2001
Year Combined Ratio Net
Investment Operating Ratio
Ratio 1992 115.7 14.9
100.8 1993 106.9 13.9
93.0 1994 108.4 13.8
94.6 1995 106.4 14.5
91.9 1996 105.8 14.4
91.4 1997 101.6 15.5
86.4 1998 105.6 14.6
91.3 1999 107.8 14.0
93.8 2000 110.1 14.1
96.2 2001 115.9 12.2 103.7
10
Overview of Insurance Operations (cont)
Insurance Functions
  • Core Functions
  • Marketing
  • Underwriting
  • Claims
  • Actuarial
  • Other Functions
  • Loss Control (and Premium Audit)
  • Reinsurance
  • Investments
  • Information Technology
  • Human Resources
  • Legal Services
  • Accounting
  • Interdependence Among Functions

11
Insurance Marketing
12
Insurance Marketing
Unique Characteristics
  • Legal Status of Agents
  • Duties Owed to Customers
  • The Marketing Plan
  • Product Proposal and Sales Goal
  • Situational Analysis
  • Marketing Goals
  • Marketing Strategies

Overview of Insurance Product Marketing
13
Insurance Marketing (contd)
Insurance Distribution Channels
  • Independent Agency and Brokerage Marketing System
  • Direct Writers
  • Exclusive Agents
  • Convergence of Traditional Marketing Systems
  • Alternative Distribution Channels
  • Internet
  • Call Centers
  • Direct Response
  • Group Marketing
  • Financial Institutions

14
Insurance Marketing (contd)
Independent Agency System
  • Independent Contractor
  • Represents Many Companies
  • Owns Policy Expirations
  • Compensation Methods
  • Commission
  • Contingent Commissions
  • Bonuses
  • Fees
  • Combination

15
Insurance Marketing (contd)
Exclusive Agency System
  • Independent Contractor
  • Represents One Company
  • Does Not Own Expirations
  • Compensation Methods
  • Commissions (higher for new business)
  • Salary (while in training)

16
Underwriting
17
Underwriting
Purpose
  • Profitable Book of Business
  • Avoid Adverse Selection

Underwriting Process
  • Evaluating Loss Exposures
  • Determining Underwriting Alternatives
  • Selecting an Underwriting Alternative
  • Determining the Appropriate Premium
  • Implementing the Underwriting Decision
  • Monitoring the Loss Exposures
  • Owns Policy Expirations

18
Underwriting (contd)
Types of Underwriters
  • Line
  • Staff

Underwriting Results
  • Financial Measures
  • Non-financial Measures

19
Underwriting (contd)
Underwriting Alternatives
  • Accept the Submission As Is
  • Reject the Submission
  • Make a Counteroffer to Accept the Submission
    Subject to Certain Modifications

Major Modifications
  • Require Loss Control Measures
  • Change Insurance Rates, Rating Plans, or Policy
    Limits
  • Amend Policy Terms and Conditions
  • Use Facultative Reinsurance

20
The Claim Function
21
The Claim Function
Goals
  • Comply With the Contractual Promise
  • Support the Insurers Profit Goal

Types of Adjusters
  • Staff
  • Independent
  • Public
  • Producers

22
The Claim Function (contd)
Claims Adjusting Process
  • Determine Whether the Loss is Covered by the
    Applicable Policy
  • Determine the Cause of Loss and Legal Liability,
    if Necessary.
  • Determine the Amount of Damages or Extent of Loss
  • Settle the Claim

Determining Coverage
  • Insuring Agreement
  • Exclusions
  • Conditions
  • Response to Coverage Issues

23
The Claim Function (contd)
Determining Legal Liability
  • Sources
  • Torts
  • Contracts
  • Statutes

Determining Amount of Damages
  • Property
  • Bodily Injury (Compensatory, Punitive)

Settlement
  • Claims Reports
  • Reserving

24
Actuarial Function
25
Actuarial Function
Duties
  • Make Rates
  • Determine Reserves

Ratemaking Goals
  • Be Stable
  • Be Responsive
  • Provide for Contingencies
  • Promote Loss Control
  • Be Simple

26
Actuarial Function (contd)
Rate Components
  • Prospective Loss Costs (Pure Premium)
  • Expenses
  • Profit and Contingencies

Ratemaking Methods
  • Pure Premium Method
  • Loss Ratio Method
  • Judgment Method

27
Reinsurance
28
Reinsurance
Definitions
  • Primary Insurer
  • Reinsurer
  • Ceding Commission
  • Retrocession

Reinsurance Functions
  • Stabilize Loss Experience
  • Improve Large-line Capacity
  • Provide Catastrophe Protection
  • Provide Surplus Relief
  • Provide Underwriting Guidance
  • Facilitate Withdrawal From a Territory or Type of
    Business

29
Reinsurance (contd)
Types of Reinsurance
  • Facultative
  • Treaty

30
Conclusions
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