Principles of Insurance INS21 - Chapter01

5/28/2008 4:54 PM New Brand FMT-P2_28May08 1
Exam consists of 84 Questions

All of them are multiple choice questions
Part A of the Exam are direct questions
Part B of the Exam are Case Studies
All the chapters are equally important
70% is the pass percentage
70-79% - Grade Pass
80-89% - Grade Good
>=90 - Grade Excellent
Immediate Result

Property and Liability Insurance Principles
Segment A
1) Insurance: What is it?
2) Who provides Insurance and How is it Regulated
3) How is the Financial Performance of Insurers Measured?
Segment B
4) Marketing
5) Underwriting
6) Claims
Segment C
7) Insurance Contracts
8) Property Loss Exposures and Policy Provisions
9) Liability Loss Exposures and Policy Provisions
10) Managing Loss Exposures: Risk Management

Property and Liability Insurance Principles

A contract or device for transferring risk from a
person, business or organization to an insurance
company that agrees, in exchange for a premium,
to pay for losses through an accumulation of
premium.

Insurance : What is it ?
Insurance has three components

A Transfer Mechanism , in which one party - the
insured (a person, a business, or an organization
whose property, life, or legal liability is covered by
an insurance policy) - transfers the chance of
financial loss to another party - the insurance
company, or the insurer.

A Business System , which includes various
operations that must be conducted in a way that
generates sufficient income to pay claims and
provide a reasonable profit for its owners.
A Contract , between the insured and insurer that
states what potential costs of loss is transferred to
the insurer and expresses the insurers promise to
pay for those losses in consideration for a stated
premium.

Insurance as a Transfer System
Insurance is a system of both transferring and
sharing the costs of losses.

Insurance as a Transfer System
The law of large numbers is a mathematical
principle stating that as the number of similar but
independent exposure units increases, the
relative accuracy of predictions about future
outcomes (losses) based on these exposure
units also increases.

An Exposure Unit is a measure of loss
potential and is used in pricing insurance

Types of Loss Exposures
Property loss exposures
Liability loss exposures
Human and Personnel loss exposures

Ideally Insurable Loss Exposures

Large number of similar exposure units
Losses that are accidental
Losses that are definite and measurable
Losses that are not catastrophic
Losses that are economically feasible to
insure

Insurance as a Business

Types of insurers
Private Insurers
Stock Insurance Companies
Mutual Insurance companies
Reciprocal insurance exchanges
Federal Government Insurance Programs
(Social Security Program, National Flood Insurance Program,
Federal Crop Insurance Program, Federal Deposit Insurance
Corporation, National Credit Union Administration)

Types of insurers

State Government Insurance Programs
Workers Compensation Insurance
Unemployment Insurance Plans
Fair Access to Insurance Requirements (FAIR) plans
Automobile Insurance Plans


Insurance Operations
Marketing
Underwriting
Claim handling
Ratemaking


State Insurance Regulation (Rates, Insurer
solvency, and Consumer protection)
Closely monitor the financial condition of insurance companies and take
actions necessary to prevent insurer insolvency
They will approve the policy language
State insurance departments regulate insurance rates to protect
consumers from excessive rating and thereby avoid discriminations

Benefits of Insurance

Payment for the costs of covered losses
Reduction of the insureds financial uncertainty
Loss control activities of insurance companies
Efficient use of resources
Support for credit
Satisfaction of legal requirements
Satisfaction of business requirements
Source of investment funds
Reduction of social burdens

Costs of Insurance

Premiums paid by insureds
Operating costs of insurers
Opportunity costs
Increased losses
Increased lawsuits

Insurance as Contract

Insurance is a contract entered into between two parties
wherein one party viz., the insurer promises to pay the
other viz., insured for a loss which is indemnifiable as per
the policy terms conditions and exceptions for a return of a
consideration viz., premium.
The four basic types of insurance (property, liability, life
and health) are generally divided into two broad
categories:
Property / Liability Insurance
Life / health Insurance


Property Insurance
Fire and allied lines
Business income
Crime
Ocean and inland marine
Auto physical damage


Liability Insurance
Auto Liability
Commercial general Liability (Premises, Business
Operations, Products)
Personal Liability
Professional Liability


LIFE INSURANCE
Whole life insurance
Term Insurance
Universal life insurance
HEALTH INSURANCE
Medical Insurance
Disability Income Insurance



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5/28/2008 4:54 PM New Brand FMT-P2_28May08 1

Exam consists of 84 Questions

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