C16 Business of Insurance -Practice Exam Questions Rated 100% Correct!! | 2024 Update
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Course
C16 Business of Insurance
Institution
C16 Business Of Insurance
C16 Business of Insurance -Practice Exam Questions
Rated 100% Correct!! | 2024 Update
5 Ways Insurance companies spread risk - --Share risk with other insurance
companies (for very large risk, several insurers subscribe to percentage of risk)
-Reinsure the risk
-deductible
-spread risk over d...
C16 Business of Insurance -Practice Exam Questions
Rated 100% Correct!! | 2024 Update
5 Ways Insurance companies spread risk - --Share risk with other insurance
companies (for very large risk, several insurers subscribe to percentage of risk)
-Reinsure the risk
-deductible
-spread risk over diverse geographical region (soften risk of localized disasters)
-form risk pools (syndicates of insurance and reinsurance companies, organized to
underwrite particular risk)
Two principles of insurance - -1. Premiums of the many are used to pay the losses of
the few
(risk transferred to insurer, deductible, company shares and spreads risk, geographic
spread of risk, forming risk pools)
Premium shall be commensurate with the risk
(Capital meets probabilities of loss, premiums must be adequate to pay future claims,
fierce competition, adverse selection, long and short tail lines, time gaps in pricing)
Short tail and Long tail compared - -Tail refers to the amount of time between the
incident and the determination of claim
,-Short tail-lines are those where the injury or other harm becomes known quickly (relatively
short period of time between event and resolution)
-Long tail-lines feature claims separated from the circumstances that caused it by 10, 15,
20 yrs or more
-to price risks time gaps must be considered for long-tail lines
-to pay claims from many years ago
-to pay for claims in the future with today's premium
Negative consumer perceptions of industry and how to improve - --prices go
up/down as capacity tightening
-left customers with poor opinion
-media portrays negative image (politicatians promise to do something about rates)
-insurers want to educate insurance people about how insurance industry works
-can provide more information on questions like (good risk vs bad, how is a risk priced, why
rates go up, why a profitable industry benefits everyone0
-feel if a claim not made, premium should be returned/reduced
-present services in postitive light
-insurance protection intangible
-
,10 ways insurance affects society and economy - --banks willing to issue mortgages
on buildings that are insured
-developers willing to advance funds to building contractors on projects guaranteed by
surety bonds
-retailers more willing to accept commercial risks with liability insurance
-professionals more willing to provide services when insured against risk of malpractice
-manufacturers more willing to accept risks associated with shipping goods (when insured)
-members of society more willing to use automobiles
-peace of mind
-provides employment
-contributes to economy
-investments help finance governments
-claim payments boost local economies and create jobs
Goal of reinsurance - --gives peace of mind to insurers
-confidence instilled that financial ruin will not occur is a major unplanned event were to
occur
, Four basic functions of Insurance - -Financing - offers a unique method of financing
to insurance companies, frees up capital that would be otherwise tied up, meet solvency
regulations, expansion of operations
Stabilization - keep insurer's growth and development, used to keep operational results
reasonable without fluctuations, can help maintain confidence from stakeholders, attract
new capital
Capacity - require ability to insure businesses beyond their resources, take on risks higher
than they would normally write, may not want to be limited to small lines, cater to needs of
big producers
Reinsurance used to protect against catastrophic loss - look to protect resources such as
their capital and surplus,their loss ratio and their investment position
Five areas of challenge facing insurance industry - -Globalization
Rapid advances in technology
Public image issues
Volatile investment markets
Increasingly severe weather
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