Insurers and the Consumer

Table of Contents

Introduction
Table of Contents	1
Welcome	5
Chapter One:  Insurers	Page 7
Government Sponsorship	7
Private Sponsorship	8
Private Insurers	8
Stock Companies	8
Financial Soundness	9
Capital Stock, surplus, surplus to policyholders	10
Lloyds of London	12
Transacting Lloyds’ of London Business	14
Excess business, surplus insurance	16
Self-Insurance	16
Excess loss, share basis	17
Captive Insurance Companies	19
Risk-Retention Groups (RRG)	20
Alternatives	21
Compensating Balance Plans, Paid-loss retro	21
Chapter Two: Controlling Loss	Page 22
Risk/Chance of Loss	22
Loss frequency, loss-severity	23
Loss Control	24
Engineering Approaches	25
Human Approaches	25
Prevention	26
Risk Awareness	30
Application of Loss Prevention	32
Pre-Contact	32
Contact	33
Post-Contact	33
Chapter Three:  Underwriting & Reinsurance	Page 35
Pricing	35
Adverse Selection, actuarial equity	36
Selective Underwriting	39
The First Step in the Selection Process	39
Level of Risk	40
Standard risk, Preferred risk, Sub-standard risk	40
Post-Selection	41
Adverse Selection	42
Moral Hazard	42
Morale Hazard	43
Competing in the Marketplace	43
Redlining	44
Example	44
The Underwriting Cycle	45
Example	45
What are we Insuring Against?	46
The Economic Burden of Risk	48
Types of Risk	49
Determining degrees of Risk	49
Probability of Loss	50
The Law of Large Numbers	51
Risk Information	51
The Insurer’s View & The Consumer’s View	52
Deductible Clauses	54
Reinsurance	55
Why is Reinsurance Used?	56
Pro Rata & Excess of Loss	57
Pro Rata	58
Excess of Loss	58
Shopping for Reinsurance	59
Brokers	61
What Else is Available?	62
Chapter Four: Ratemaking	Page 63
What is Ratemaking?	63
A Matter of Class	64
Territory Risk Groupings	65
Special Aspects of Ratemaking	66
Catastrophes	66
Minimum Premiums	67
Merit Rating	67
Prospective Experience Rating	69
Retrospective Experience Rating	69
Fire Insurance	70
Construction	71
Occupancy	72
Exposure	72
Protection	72
Where is the Structure Located?	73
Time of Loss	73
Following Proper Procedures Essential	74
Schedule-rated risks	75
Chapter Five: Insurance Regulation	Page 77
Do We Need So Many Hoops?	77
How Do These Traditions Come About?	82
Paul versus Virginia	82
How Does State Regulation Work?	83
The Commissioner’s Primary Powers Include …	87
Insurance: A Regulated Business	89
What Do the States Do?	89
Insurance Classes	90
Taxation	90
Regulating Agents & Brokers	93
Premium Rates	95
Prior approval	96
Modified prior approval, file-and-use	97
Insurer Assets	98
Chapter Six: Terrorism Risk Insurance Act	Page 101
Defining “Act of Terrorism”	101
TRIA	102
President Bush Signs the Act	103
The Role of Terrorism Insurance	104
Policy Restrictions	106
Business Interruption Insurance	106
Example	108
Workers Compensation & Other Coverage	108
Coverage Under Terrorism Insurance	109
Key Benefits	112
Chapter Seven:  Ethics	Page 115
“Agent, Protect Thyself”	115
Why Would an Agent be Sued?	117
What Are the Agent’s Professional Responsibilities?	120
Example	121
E & O Insurance	122
Claims-Made Versus Occurrence Policies	123
Example	123
On the Personal Side of Ethics	125
Example	126
Valuing Human Relationships	126
Truly Ethical or Simply Ethical for Show?	127
Example	129
Justice for All	131
Objectivist Ethics: Preserve Life	132
Value & Virtue	134
What is Really Ethical?	136
Just the Facts	137
Viewing From a Different Angle	143
Mores	146
Example	146
Relativism	148
“Ought Implies Can”	149
Example	151
Personal Conditioning	153
Example	154
Example	155
Example	156
Example	157
The Legal System	159
Example	160
Example	162
Determining Right From Wrong	163
Last Page	165

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