Insurance

Shobha Nagaraj

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 1. Insurance Overview Types Of Risks

2. Policy Life Cycle Types of Insurance Policies

Content 3. Premium / Deductibles / Perils

4. Document Types In Insurance

5. Insurance Industry Structure & Regulations

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Insurance Overview - What is Insurance?

• An arrangement by which a company or the state undertakes to provide a guarantee of

compensation for specified loss, damage, illness, or death in return for payment of a specified
premium.

• Insurance is a Legal Contract that transfers risk from a policyholder to an insurance provider.

• Insurance is a way of managing risks

• One can transfer the cost of a potential loss to the insurance company in exchange for a fee,
known as the premium.

• Insurance companies invest the funds securely, so it can grow, and pay out when there’s a claim.

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Why Insurance?

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Risks & Types
Risk implies future uncertainty about deviation
from expected earnings or expected outcome.
Risk measures the uncertainty that an investor is
willing to take to realize a gain from an
investment.

 Personal Risk – Possible Losses that involve income and

personal standard of living. Example :- Health, Disability

 Liability Risk - Possible Losses cause by error of judgement or

negligence. Example:- Driving Accidents, Personal Injuries,
Business Mistakes

 Property Risk - Possible Losses cause that could harm personal

or real property. Example :- Fire, theft, wind, rain, floods.

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HOW DO WE HANDLE RISK?

1. Avoidance
Choosing not to participate in an activity because of the risk involved, e.g. not getting a driver’s
license;

2. Retention
Saving money in case of future losses, e.g. putting $1000 in a savings account in case of a car
accident;

3. Transfer
Passing the risk on to an insurance company, e.g. paying a monthly fee for an insurance policy and
expecting the insurance company to protect your assets.

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Policy Life Cycle

1. Customer approaches an Insurance company for an Insurance policy

directly or through a agent/broker
2. Insurance company will assess the customer need and provide the
quote and coverage details
3. Customer negotiates with the broker/insurance company
4. Add on’s are included in the policy as required like Flood, Hazard
etc.
5. Deductibles are finalised.
6. Premium is agreed and payment is made
7. Issuance of policy
8. Servicing of policy
9. Processing of Claims
10. Renewal of policies

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Types of Insurance Policies

Casualty/
Property
Liability
Insurance
Insurance

Auto Insurance Health Insurance

Mortgage
Life Insurance
Insurance

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What Is Property and Casualty Insurance?

Property and casualty insurance, commonly referred to

as P&C insurance, is a broad term that refers to various
types of insurance. In simple terms, it's insurance
coverage that helps protect your assets, including the
property you own.

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Types of Insurance Policies

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Insurance Premium

Insured transfer the cost of a potential loss to the insurance company in exchange for a
fee, known as the premium.
A specified amount of money which calculated basis certain rules that the insured must
pay to an insurance company to get insurance coverage.

Premium = Exposure Units (Sum Insured) * Premium Rate

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 Deductible

A specified amount of money that the insured must pay before an insurance company will pay a claim.

Dollar amount deductible:

A dollar amount deductible is the fixed dollar amount the homeowner pays out-of-pocket when they file a claim for a covered loss.

If you have a $1,000 deductible and you file a claim because a tree fell on your house and it's determined it costs $6,500 to fix the
damages, you will pay the first $1,000 of the repair costs and your insurance company will pay you the remaining $5,500 to cover the
remaining costs.

Percentage deductibles:

Percentage deductibles are specific to homeowners policies and are calculated based on the percentage of your home’s insured value.
That means if your house is insured for $200,000 and your policy has a 1% deductible, $2,000 is the amount the homeowner is
responsible for. If your total loss was $15,000, the amount the insurance company would pay is $13,000.

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Perils

A peril is an event, like a fire or break-in, that may damage your home or belongings. The perils covered by your homeowners
insurance are listed in your policy.

The list of mishaps you're protected against ("perils" in industry speak) is actually pretty broad. Here's a look at what the
Insurance Information Institute says are some of the most common perils covered by a typical homeowners insurance policy:

Weight of ice, snow or Damage from an Water damage Vandalism and Windstorms and Fire and smoke,
sleet aircraft, car or malicious hail, explosion lightning strikes
vehicle, Theft, mischief
falling objects

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Document Types

1. Quotation/Binder: A binder is an offer issued to the customer by the insurance company. It’s an insurance
contract and used temporarily until the policy is issued.

2. Cancellation Requests : The Policy might get cancelled by wish of Insured/ Insurance company due to below
mentioned reasons.

3. Certificate of Insurance : A COI is a statement of coverage issued by the company that insures your
individual and business also which provides a summary of the coverage.

4. Mid-Term Amendments : Any change/correction requests to the policy during policy period

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Document Types

5. Deletion/Termination of Interest : Once the loan is been satisfied or required change in Mortgage by the
Insured then a notice of DOI will be raised.

6. Invoice/Payments : Invoice is a bill raised to the Insured with the details of due date and due amount which
provides a summary of the pending balances.

7. Reinstatement Requests: Any Cancellation/ Pending policy which can be renewed/reactivated after a lapse is
known as reinstatement.

8. New Business/Renewals/Declarations : Once the Insured chooses to continue the policy with the same
insurance company before the policy period expires would be considered as renewal.

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 Insurance Industry Structure &
Regulations

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Insurance Industry Structure & Regulations
Insurance companies are generally organized in five broad departments:

 Sales marketing
 Underwriting
 Finance
 Claims
 Legal

Sales & Marketing : Establish sales & development of Insurance Product & Develop new Product & revise
existing plans
Policy Admin: This is an important area with customer servicing – dealing with customers after the policy has
been issued
Responsible for All policy administration/ service
Premium Auditing: Review of policyholder’s records & operations to ensure that the coverage information is
accurate
Premium audits are essential to asses the risk exposure

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Insurance Industry Structure & Regulations

Underwriting Department
• Insurance underwriters evaluate the risk exposure of potential customers
• The role of underwriting team is to determine what is a loss exposures of insured, for what
amount of coverage, at what price & under which conditions/terms risk will accepted

Underwriting Activities
• Required Information Collection of Risk
• Making a Underwriting Decision
• Implementing A Underwriting Decision
• Monitoring a Underwriting Decision

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Insurance Industry Structure & Regulations

Actuaries

• A actuary is a professionally qualified person/company who applies statistical theory to

data pertaining to insurance, investments & risk management

• They assemble & analyze data to estimate the probability and likely cost of the occurrence

of an event such as death, sickness, injury, disability or loss of property

• Most important function of actuary is to determine Insurance Premium Rates

• The actuarial department also work in other function like analyzing and verifying loss

reserves, participating in the company’s short & long term planning and analyzing

reinsurance needs

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Insurance Industry Structure & Regulations
Claims
• Role of Claims department is – Review, evaluate & process claim settlements

• Issuing claims forms

• Review if all required premiums are paid before settling a claim

• Investigation & documentation of claim

• Determination of clause of loss

• Special Investigations units

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Insurance Industry Structure & Regulations
• Primary Insurers

- When Insurance company sell insurance policies directly to public

- They sell insurance to individuals, non-insurance business & other organizations

• Reinsurer

- Reinsurance is insurance for insurance companies.

- It is a way of transferring or “ceding” some of the financial risk insurance companies assume in
insuring cars, homes and businesses to another insurance company, the reinsurer.

- Reinsurance, a highly complex global business, accounted for about 9 percent of the U.S.
property/casualty insurance industry premiums in 2008, according to the Reinsurance Association of
America

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Insurance Industry Structure & Regulations

• Producers/Brokers

- Person/Company who sells insurance products for one or more insurers

- These are intermediaries between insured & insurance company

• Government Regulations

- Federal Regulations

- State Regulations

- Both level of Government have regulatory power in Insurance Industry

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 Thank You…!!

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