Meeting profitability goals - correct answer. Premiums and investment income.
Underwriting performance:
Loss ratio = incurred losses/earned premiums.
= claims/premiums.
Expense ratio = incurred underwriting expenses/written premiums.
= expenses/premiums.
Combined ratio = loss ratio + expense ratio.
Combined ratio below 100% means you had underwriting profit.
Pure profit.
Overall operating performance:
Investment income ratio = net investment income/earned premiums.
Overall operating ratio = combined ratio = investment income ratio.
Return on equity = net income/owner's equity.
Estimation of loss reserves.
,Meeting customer needs - correct answer. Complaints and praise.
Customer satisfaction data.
Insurer's retention ratio (how many people kept their policy.
Lapse ratio (how many people didn't keep their policy).
Insurer-Producer relationships.
State insurance dept stats.
Consumer reports.
Meeting legal requirements - correct answer. Limit criminal, civil, and regulatory
actions taken against company.
Market conduct oversight.
Financial ratings like A.M. Best, function like regulator as industry watchdog.
Meeting social responsibilities - correct answer. Satisfy customers, employees,
investors, and the community.
Functional View of insurance - correct answer. Core functions:
Marketing and distribution (need risk from marketing/sales).
Underwriting (who gets in risk pool is determined here).
Claims (reason for being in business is to pay claims).
Supporting functions:
Risk control.
Premium auditing.
Actuarial.
Other (Reinsurance, info tech, investments, accounting/finance, customer service, legal
and compliance, HR, Special investigation units).
Key Takeaway:
While insurers vary their structure and exact role of each functional area, the interaction
of core functions and supporting functions is vital to their survival and success.
The Digitalization (Disruption) of Insurance - correct answer. 3 fundamental building
blocks:
Data capture (IoT).
Data Storage (Cloud).
Data Analytics (AI, Machine Learning).
Traditional risk management decisions enhanced through insights from big data.
Risk management is trying to get losses to 0, will never happen.
Trying to get claims down.
Reasons for Insurance Regulation - correct answer. Protect consumers:
Predatory insurance policies (confusing and complex legal contracts).
, Being sold unnecessary insurance.
Producer theft/misuse of insurance funds.
Legitimate claims going unpaid.
Maintain Insurer Solvency:
Make sure insurers can pay claims.
Safeguard funds.
Prevent destructive Competition:
Insurers will underprice to gain market share driving down rate levels.
Bad rates = insolvency = insurance shortage = consumers are unprotected.
Insurance Regulators - correct answer. State insurance depts:
Licensing.
Rate hearings and review rate filings.
Investigating complaints and issuing fines.
Publishing consumer info and preventing fraud.
->
State Insurance Commissioner:
Oversees state insurance dept.
Declare orders and rules to administer insurance laws.
Make licensing decisions.
Take action against law violations.
Maintain records and issue annual reports.
->
National Association of Insurance Commissioners (NAIC):
Coordinates regulation between states.
Develops uniform policy (model law).
Financial regulation standards and accreditation program.
No regulatory authority.
->
Federal Regulators:
Insurance fraud prevention act identifies what constitutes as an insurance crime and
protects consumers against insolvencies cause by fraud.
Insurance Regulatory Activities: Licensing Insurers and Insurance Personnel - correct
answer. When issuing a license to insure, the state indicates the insurer has met
minimum standards of financial strength, competence, and integrity.
Domestic:
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