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{Insurance:- A system by which a risk is transferred by a

Person, Business or Organization to an insurance company,
which reimburses the insured for the covered losses and
provides for sharing the costs of losses among all insured's.

{Personal Insurance:- Insurance coverage's that are purchased

by individuals and families covering non-business
exposures.

{Commercial Insurance:- Insurance coverage's purchased for

business purposes.

{Insurer: Insurer (Insurance Company), sells insurance

policies that protect insured·s against financial hardship
against financial losses.

&<.=&>?@@
{Insured : Is a person ,business or Organization that is covered by an
insurance policy. Insurance premium : Is a periodic payment by the insured
to the insurance company in exchange of insurance coverage.

{Risk: Is the possibility of financial loss.

{Peril: A cause of loss. (Ex:- fire)

{Insurance policy : Is a contract that states the right·s and duties of the
insurance company and the insured.

&<.=&>?@@
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{Property insurance: Cover·s accidental loss resulting from the damage to the property
of the insured.

{Liability insurance: Cover·s accidental loss resulting from injury to the body or
damage to the property for which the insured is legally responsible.

{Health insurance: Provides payment for covered medical costs and disability income.

{Life insurance: Pays funds to ease the financial problems that might arise from
uncertainty regarding the time of death.

Other plans:-
{Social Security Program : Is a federal insurance program funded by taxes that are
paid by employees, employers and the self ² employed.

{Private retirement plans:-

Includes employer ² Sponsored pension plans and individual annuities and
provide an income for people who retire. These are run by life insurance companies.

&<.=&>?@@
   
 

  

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{To get the insurance coverage started.

{To pay all covered claims.

{To provide service during policy period.

{To renew the policy when coverage expires.

&<.=&>?@@
 
    

{BrokerR Representatives of insurance buyers. They resemble agent except for the fact
that ,in the legal sense, they represent the party seeking insurance.

{Producer: The person who sells insurance policies. Also known as insurance
agent/broker/sales representative.

Qualities of a good producer:-

Thorough Technical knowledge
Sound customer service skills
Good public image

&<.=&>?@@
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{Identifying a potential Prospect
m
 is a person, business or organization to which a producer hopes to sell
insurance. After the conclusion of the sale ² the prospect would be termed as an
insured/account/customer/client.

{Advising on the kind of insurance that should be purchased by analyzing the need of
the prospect and identifying the Loss exposure involved.

‡The producer and the insurance buyers use the survey form as a check list of
possibilities. Survey questionnaire is a form that lists large number of p


  often found in businesses.
‡ Loss Exposures are situations that could lead to an accidental loss.
‡After identifying the loss exposures, the application would be filled with the
help of the customer service rep
‡An application, is used to gather information that will be used by the
Underwriters.
(Ex:- An auto insurance app would ask for specific info on each vehicle, make,
model, year of manufacture etc.,)

&<.=&>?@@
‡ Customer Service representative is a person who supports the sales efforts of the
producer. -

{Risk Analysis:-Risk analysis plays an important role in premium determination.

Based on the possible risk associated with the prospect and their safety measures so
far, the risk manager/agent determines the premium to be charged.

‡Risk manager:- Is responsible for preserving a firm·s assets against accidental

losses of various kinds. They buy insurance, promote loss control measures for
their organizations. Large firms usually have a risk management department
whereas in a small firm a person (risk manager) performs the risk management
duties.

{Preparing a Quote with the help of the risk manager / Underwriter of the insurer.
(Complete details of the prospect should be collected)

‡Quotation:- A quote/quotation is a statement regarding the premium that will

be charged for certain type of coverage.

&<.=&>?@@
 Before determining the premium, the agent would look for deductible if the
insured is willing to bear.

‡Deductible:- Is that portion of an insured loss that is not paid by the insurance
company.

‡Limits/ Limits of liability:-Indicate in an application how much insurance is

requested. Once the policy is issued, the limits in the policy set the maximum
dollar amount the insurance company will pay.

{Coverage acceptance of the prospect:- A binder will be issued after the

prospect·s acceptance

Binder:- Is a statement that coverage is in force until the actual policy is issued.
A binder need not be in writing, it can also be a statement given over phone.

{Catering to the needs of the insured during the period of coverage and during
renewal.

Account Selling:- Is trying to handle all of a client·s insurance needs, rather than
providing for only a portion of those needs.

&<.=&>?@@
 0
   
  R

@. Independent agency system: An independent agent sells insurance for several

unrelated insurance companies.

2. Exclusive agency system: An Exclusive agent has a contract to sell insurance for
one insurance company.

3. Direct Writing system: Insurance company that sells insurance through their
employees.

4. Direct Response marketing system: Sales done by mail or by the phone.

&<.=&>?@@
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&<.=&>?@@
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{An underwriter evaluates request for insurance and decide which applicants for
insurance are accepted and which are rejected.

{If an applicant is accepted the underwriter also determines how much coverage the
insurer is willing to provide at what price.

Goal of an Underwriter:-
Adverse selection is the increasing likelihood that consumers will purchase
insurance when the premium is low relative to the risk.

It is the goal of the UW to sell insurance when the risk is low relative to the
premium.

&<.=&>?@@
§ 
  




{Gathering necessary information.

{Analyzing the information.
{Identifying the options.
{Evaluating the options.
{Choosing the best solution.
{Acting on the decision.

&<.=&>?@@
Step I:-
Gathering the necessary information:-

: Contains information like name, address, type of coverage
requested and the amount. It would also ask for specific details like MVR (motor
vehicle report ) or VIN (vehicle id number in case of Automobile insurance.



 : Identifying the loss control measures taken by the
prospect to prevent a potential loss that might occur.


 
‡ To make sure maintenance program's do not suffer a cut back.
‡ To make sure prospects are able to pay the premium.

Step II:-
Analyzing the Information
‡Identifying the veracity.
‡Using the UW guide to analyze the various types of applicants that they might
encounter.
‡Determining the coverage value having their UW Authority in mind.
UW Authority: The limit on decision an UW can make without receiving
approval from someone at a higher level.

&<.=&>?@@
Step III:-
Identifying UW Options
‡Loss Control Program: Suggesting loss control measures that would reduce the risk of a
potential loss.
‡Modifying Coverage: Providing coverage different from what was requested, usually
restricted coverage.
‡Modifying Price: Determine the price considering the market, the risk involved and the
chances of future businessQ

Step IV:-
Evaluating Options: Understanding and analyzing the various options in hand and
determining the pro·s and con·s of the different options.

Step V:-
Choosing the best option : While choosing the best option it should be determined in
such a way that it does not affect the insurer (e.g.: better premium options with help of
Deductible's, premium financing if any)

Premium Financing: Allows the insured to pay a part the premium when coverage starts
and the remainder is spread throughout the policy period.

&<.=&>?@@
Step VI:-
Acting on the Decision: Provide the best quote to the Prospect keeping the above
mentioned criteria·s in mind. If required forward proposal to the superior·s for approval.
Supervisor also determines the need of reinsurance.

S,*(451.(6,R Is an agreement with another insurer with which the risk is shared. This is
done to reduce uncertainty by reducing the risk and sharing the loss.

UW·s use the following to determine the premium:-

‡Rating manual: Is usually a book or computer programs used for calculating premium.
ë
 pm 
 :- Is the premium determined from the rating manual, not including
discounts or surcharges.

Once the decision is taken, the insurance proposal would be sent to the prospect for
acceptance.

‡The Insurance Proposal:

Usually a booklet that highlights important features of the coverage ,related services
and states the premium, also mentions premium financing if any.

&<.=&>?@@
 

  

Underwriting guideRA A book or computer database that communicates staff UW·s

guidelines to the line UW who must follow them.

It details the underwriting practices of the insurance company and provides

specific guidance about ho underwriters should analyze all of the various types of
applicants they might encounter.

How is an UW guide developed??

UW guides are developed by Staff UW and followed by Line UW. UW guides are
used to determine the kind of insurance to be sold ,the price and whom the insurance
has to be sold to.

&<.=&>?@@
-
  
 


   
  r  

{Regulation:- Includes state regulations and other Underwriting restrictions.

{Price competition:-Carefully studying the competition is an important function of

the staff UW in developing the UW guide.

{Competition & need for new insurance products:- Introducing new insurance products
as per the competition & need in the current market and loss exposures involved.

{Feed back from the field:- Staff UW·s would make change to the UW guide as per the
feedback from producers and insured.

&<.=&>?@@
     
 

  
Loss Ratio:- Refers to the percent of premiums that goes to pay claims.
G

pp   
 
pp  G
 



 


{Expense Ratio:- Refers to the percent of premiums that goes to pay the insurance
companies operating expenses.


pp   
 
pp  
 



 


{Combined Ratio:- Is the sum of loss ratio and the expense ratio.
G
 


 




 

{Underwriting Loss:- Occurs when the combined ratio is greater that @ %

{Underwriting gain:- Occurs when the combined ratio is less than @ %

If an insurance company collected $@, , in home insurance premiums where

$75 , was paid for claims, $2 , was spent for operating expenses -
determine if there is an Underwriting gain or loss??

&<.=&>?@@
   
 

 !

Voluntary Market : UW·s for an insurance company voluntarily decide whether to

accept or reject an insurance application. Business accepted in this way is
considered to be a part of Voluntary Market.

Residual Market: Applicants rejected by the Voluntary market may find insurance
available through one of the residual market program's.

Residual Market Programs:-

‡Automobile insurance plans: For people who are not able to obtain auto
insurance in the voluntary market apply for coverage in the State Automobile
Insurance Plan. State assigns it to the insurance company .

‡FAIR Plans: ´Fair Access to Insurance Requirementsµ- For property insurance

with restricted coverage and on specific conditions (loss control measures)

&<.=&>?@@
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w 
{A claim is a demand by a person or business seeking to recover for a loss.

A claim can be made against an individual.

A claim can be made against an insurance company when the insured asks for
the insurance company to pay for a loss that might be covered by an insurance
policy.
{Claimant: Is a person or business who presents a claim.

{For liability insurance: The claimant is a person or business that has suffered a loss
and seeks to collect for the loss from an insured. The insurance company is involved
because it has promised in a liability insurance policy to pay covered losses on
behalf of the insured.

{For property insurance :The claimant is the insured that wants the insurance
company to pay for repairing or replacing his or her damaged property

&<.=&>?@@
Claims Adjuster: Person directly responsible for investigating and
settling the claims that might be covered by insurance.
Other names for claims adjusters are Claims Handler,
Claims Representative and Claims Examiner.

The claim is assigned to a claims adjuster by a claims clerk.

Claims clerk is a person who has the job of taking claims reports
over the telephone and doing other things including
documentation that help the adjustor in the process of
adjusting claims.
Role of a claims adjuster:-
{ The claims adjuster investigates the fact surrounding
each claim and examines the following two things
initially. If the claim satisfies the following two
conditions only the adjuster proceeds to the next stage:-

&<.=&>?@@
 {Factors influencing initial Investigation:-
Is the claim resulting from the accident covered by the insurance policy.
(exclusion·s or restrictions)
How much will be paid according to the policy:
a. Policy limits : max amount that may be paid.
b. Valuation clause: A method used to place a value on damaged property
covered by the policy
c. Deductibles:

{Before proceeding to the next level, loss reserve is set up.:-

Loss reserve:- is the insurance companies best current estimate of the dollar
amount that will be paid in the future for an accident that has already occurred.

{Factors influencing next Investigation:-

Accident report form: Is used to record key information about the accident.
Physical evidence: Is any tangible thing that is relevant in determining the facts
concerning the accident.
Oral evidence: Involves statements from people who have witnessed the
accident.
Civil authority reports(police reports) if any.

&<.=&>?@@
 0
   
  


{Subrogation - When the insurer pays the insured for loss, the insurer takes over the
insured·s right to collect damages from the other party responsible for the loss
through a process called subrogation. The insurance company subrogate against the
party directly responsible for the loss. The insurance companies take away the right
of the insured to recover for any loss from the person responsible. The process of
recovering these payments is called Subrogation.

{Litigation: Is the process of carrying on a lawsuit. This is generally carried out when
the facts surrounding the accident is not clear ² cut.

{Out-of-court settlement: Is when people negotiate and reach agreement without

having a court handle the case. It saves time and money.

{Drive in claim service:-

A facility for providing repair estimates on damaged cars that are still drivable.
An evaluation of the cost to repair a damaged car usually known as an estimate is
given by a physical damage appraiser/material damage appraiser.

&<.=&>?@@
  % 
{Insurance company claims representative:- Claims are adjusted by
full time employees of the insurance company.

{Independent adjusters:- Independent contractors who provide

claims services to various insurance companies. Independent
adjusters charge insurance companies a fee for each claim that
they handle.

{Producers as adjusters:- In some cases, the producers themselves

act as draft authority.
Draft authority: A producer with draft authority is permitted
to handle small claims and issue drafts (check·s issued on the
insurance company·s checking account) for paying certain
types of covered claims that are within the dollar limit of the
draft authority.

{Inside adjusters: Are telephone adjusters who process claims

over the phone itself when the claim is clearly covered in the
policy.

&<.=&>?@@
 -
  



      
 
{Replacement Cost:- Is the amount it would cost to construct the damaged building
today using materials of the same kind and quality.

{Acquisition Cost:- The price for which the building was originally built or purchased.
Market Value:- Is the price at which it could be sold.

{Actual Cash Value:- Is figured by determining what it would cost to replace the
property and then adjusting this replacement cost by subtracting an amount that
reflects depreciation.
{Depreciation:- Is loss in value that develops as items age, wear out, or become
obsolete.
Coinsurance clause:- Is a provision in many property insurance policies that reduces the
amount that will be paid for a loss occurring when property is underinsured.
A coinsurance clause sets a ´penaltyµ for underinsurance when the policy limit is
substantially lower than the value of the covered property.

&<.=&>?@@
Responsibilities in settling claims:-

{Insured responsibility:- Has the responsibility to notify the incident ASAP to the
insurer.

{Producer responsibility:- Decides whether the insurance company must be told

about this or not base on three categories: (accident report form).

The loss is not covered.

The amount of the damage is within the deductible.
The loss is (or might be covered)

{Insurer responsibility:- Is to make sure that the claim is investigated

properly and settled within the timeline.

&<.=&>?@@
 § 
  

  


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Policy renewal is continuing the policy in force or another period after the expiration
of its current term.

The insured and the insurer may take any one of the following three options:-

{Expiration:- An insurance policy·s coverage ceases, or expires, at the end of the

policy term or policy period. The expiration date is also known as the x-date.

{Cancellation:- Stopping coverage during the policy period is cancellation. Insured

can cancel the policy at any time, but the insurer can cancel the policy only at the
renewal.
Unearned premium:- On a policy is the money an insurer would have to give
back if the policy were cancelled.
{Nonrenewal:- When an insurer decides not to renew a policy at the end of a policy
period, it is non-renewal.

!&<.=&>?@@
‡ The Underwriters Perspective on policy renewal:
UW·s at renewal would re evaluate the risk and all the information's that was
provided during policy issue and take according actions.

‡ The Producers Perspective on policy renewal:-

Agents would get the feedback from the insured regarding his experience during
the policy term, decides any addition/deletion to the current policy is needed ² Will
make sure that the insured has complete confidence in his service.

‡ The Insured·s Perspective on policy renewal:-

At renewal the insured takes a decision whether to continue with the insurer or
not.

‡ Premium Auditing: Policy holders record·s are examined at the end of the year to
determine the audited premium.

‡ Renewal Questionnaire:- Usually questions about changes during the past coverage
period.
UW·s gets feedback from the insured using the renewal questionnaire.

"&<.=&>?@@
 


@.Producer Billing (Agency Billing):
2.Direct Billing::

‡ Agency Billing: Bill for the insured is prepared in the producers office showing the
insurance premium that is due. The insured pays the premium directly to the
producers office. The insurance bills the producer for all policy the insured has sold.
The producer collects the premium and remits them to the insurance company after
deducting the producer·s commission.

‡ Direct Billing: When the insurance company bills the insured directly and the insured
sends the payment directly to the insurer. The insurance company pays commission
or other compensation for producing new business and servicing renewal business
directly to the producer in a monthly check for all business produced or renewed
during a one month period.

‡ Account Current:- Is the billing statement an insurance company sends to its producer.

#&<.=&>?@@
    
  


Any statement in a policy is referred to as policy provision.

There are six types of policy provisions:
@.Declaration
2.Insuring agreement·s
3.Exclusions
4.Conditions
5.Definitions
6.Miscellaneous provisions

{Declaration: Declarations personalize a printed policy and tailor it to fit a particular

policy holder for his or her insurance needs. It also includes the information that the
insured declared on the application of the policy.

{Insuring agreement: Is the insurance policy provision that states, in broad terms, the
promises made by the insurance company. An insurance policy provides coverage
only if the claim is within the scope of the promises expressed in an insurance
agreement .

$&<.=&>?@@
{Exclusions: Policy provisions that restricts the broad terms of the insuring
agreement by the stating some exceptions to coverage ²certain activities, loss
causes, property, persons and places for which insurer does not provide coverage.

{Conditions: Explains the duties ,rights and options of the insured and the insurance
company. Conditions cover a broad range of topics including
@.Policy holders duty to pay premium
2.Steps the insured must take after accident.
3.The geographical are within which coverage applies.
4.How disagreements between insurer and insured can be resolved
5.The producer to be used by the policy holder or the insurance company top
cancel the policy.

%&<.=&>?@@
{Definitions: Is the provision that explains the meaning of a word or term that is used
elsewhere in the policy.

{Miscellaneous provisions: Are policy provisions that do not fit into any other policy
provisions like an endorsement.

‡ Endorsement: Is used to amend coverage in the otherwise completed policy.

‡ Form:- Is a standard pre-printed wording that makes up bulk of the insurance

agreement.

&&<.=&>?@@
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(&<.=&>?@@ 

 
    


Part A:- Liability coverage

The Liability coverage of the PAP covers losses due to the insured·s liability for
bodily injury or property damage of others caused by an auto accident.

Part B:- Medical Payments coverage:-

Medical payments coverage of the PAP covers the medical expenses of the
insured as well as to the injury of the person for which the insured is legally
responsible, if the expenses are the result of an auto accident.

)&<.=&>?@@
Part C:- Auto Physical damage coverage:-
Is a property insurance covering disappearance/damage/destruction of the auto.
Also known as ´Coverage for damage to your autoµ.
There are 2 sets of physical damage coverage:-

Collision:- Coverage applies to losses involving a collision. Collision

coverage is available only when ´Other than collisionµ coverage is also
purchased.

Other than collision:- Coverage applies to losses by perils other than

collision. Also known as comprehensive coverage.

Part D:- Uninsured motorist coverage

Coverage applies to accidents caused by a hit and run driver/ driver causing the
accident doesn·t have insurance.

*&<.=&>?@@
’"4 /R$
‡ Part A:- Coverage on the dwelling building:-
This part of the homeowners policy covers the house itself.

‡ Part B:- Coverage on other buildings or structures:-

This part of the homeowners policy covers other building structures in the insured·s
premises.

‡ Part C:- Coverage on personal property:-

This part of the homeowners policy covers all other personal property inside the
house.

+&<.=&>?@@
Part D:- Coverage on Loss of use of the dwelling building:-
This part of the homeowners policy pays the insured for additional living
expenses during recovery of a damaged property by a covered peril.

Theft/Burglary/Robbery:-
Theft is an act of stealing.
Burglary is a type of theft committed by someone who breaks into
something and illegally removes money or other property.
Robbery is a type of theft committed by someone who threatens a
person and forces him or her to give money or other property to the thief.

Part E:- Personal Liability coverage:-

This part of the homeowners policy pays for bodily injury or property damage
of someone else for which the insured is legally responsible.

Part F:- Coverage for medical payments to others:-

Covers medical payments of others(not the insured) who are injured because of
the insured·s premises, activities or pets.

,&<.=&>?@@
 & 
 
 

  


{Umbrella Policy:- An Umbrella policy is a liability insurance

policy that takes over where basic liability is insurance
policies leave off.
SIR ² Self Insured Retention, is a kind of deductible in an
umbrella policy. When a liability claim is covered by an
umbrella, but not by another policy that covers liability, the
insurer with the umbrella subtracts the SIR before paying the
claim.
{Personal Articles floater policy:- Is usually available as a
scheduled endorsement to homeowners policies, provides
broad coverage for specified items such as jewellery, furs,
silverware and guns.
{National Flood Insurance Policy:-

-&<.=&>?@@
‡ Do you know?? ² What is difference between Coverage's for medical payments to
others(homeowners policy) and medical payments coverage(PAP).

The auto policy covers injuries to an insured, as well as others occupying the insured·s
auto- but the home coverage does not cover the medical expense of an insured, but
only those of other people who are injured because of the insured.

.&<.=&>?@@
Rental reimbursement coverage: - Pays the cost of renting a substitute car if the
insured·s car is disabled in an accident
Towing and labor coverage:- Pays for road service and towing.
Tapes or CD coverage:- Covers stereo tapes or compact discs in the car.

All Risks, Specified perils, Burden of proof:-

Burden of proof:- The challenge of proving a loss is covered or not covered. It is very
important in cases in which a loss is obvious but its cause is not obvious.
´All risksµ property policy:- Covers any loss unless it is caused by an excluded peril
described in the policy. Also known as ´Specialµ or ´Open perilsµ policy. In this type,
the burden of proof is on the insurer.
Specified perils property policy:- Covers any loss that is caused by one or more of the
covered perils that is named in the policy. In this type, the burden of proof is on the
insured.

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‡ Personal Property - Except Land and Building & other structures (ex: Store room,
Furniture and fixtures)
‡ Real Property - Land and Buildings

{Accounts receivable insurance: Pays for the cost of reconstructing accounts receivable
records that have been damaged or destroyed by a covered peril. It covers any
payments that cannot be collected because records cannot be reconstructed.

{Business Auto Policy:- Covers liability from accidents involving the insured·s
commercial vehicle. It doesn·t provide coverage for accident involving employees who
might use the insured·s vehicle and for rented vehicles.

{Auto Physical damage/Auto Liability coverage:- An auto insurance covering

disappearance/damage/destruction of the auto and the bodily injury and property
damage of others for the which the insured is legally responsible.

1&<.=&>?@@
{Business Income Insurance: Indemnifies a business for its loss in profits caused by
the interruption and also pays the business expenses that continue during the
interruption.

{Boilers and machinery Insurance:- Covers explosions of boilers and other pressure
vessels as well as breakdown of various types of machinery.

{Bailee Customers Insurance:- Covers losses to customers property in the custody of

the bailee. (Ex: Dry cleaners, warehouse)

{Reporting Policy:- A reporting policy can be ideal for a business with property
values that fluctuate a lot during the year because a business with a reporting policy
pays for only the amount of insurance it actually needs.
A provisional premium is collected at the beginning of the year and the final
premium is computed based on the average of the monthly values reported.

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Direct Loss:- Almost instantaneous reduction in value of property resulting
directly from damage to that property.
Ex:-Building and contents insurance covers the direct losses resulting from
damage to that property.

Indirect Loss:-Loss of earnings or extra expenses taking place over a period of

days, weeks, or months following a direct loss, increases with the passage of time.
Ex:- Business income insurance covers indirect losses resulting from the damage
to the covered property.
Since the passage of time in indirect losses cannot be determined, and recovery of
loss depends on the time element ² business income insurance and other similar
types of indirect losses are sometimes called as time element insurance.

3&<.=&>?@@
Types of Coverage's under General Liability Insurance (Commercial):-

{General Liability Insurance: Covers some of the major liability exposures of a business
including liability related to the premises, operations in progress, products and
completed operations.

‡Completed Operations Liability coverage pays for bodily injury or property

damage caused by work that the insured has completed.

‡Premises and operations Liability coverage pays for bodily injury or property
damage caused due to the conditions and ongoing operations in insured·s premises.

‡Products Liability coverage pays for bodily injury or property damage that takes
place away from the insured·s premises and is caused by a product sold by the
insured.

4&<.=&>?@@
‡ Workers Compensation Insurance :-Pays certain benefits required by law to
employees who are injured in the course of their employment.

‡ Commercial Umbrella policy :- Will provide excess coverage in the event of a

liability claim that is big enough to exhaust the limits of general liability policy.

‡ Employee dishonesty coverage:- Applies to theft of money or other property by an

employee. Also known as fidelity coverage.

‡ Electronic Data Processing coverage(EDP):- Covers damage to electronic items like

computer disks, tapes etc due to covered peril.

‡ Package Policy:- Is a combination of number of property and liability insurance

coverage's into a single insurance policy.

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Insurance Rating System is an orderly method for arriving at an appropriate
premium.
Types of Insurance rating system:-

{Class Rating: Places similar insured's into categories and applies same rate to all
insured's in the same class.
² Homogeneity is used to describe similarity among insured's in the same rating
class.
Perfect homogeneity is impossible. But workable homogeneity is feasible for many of
type of insurance.

{Individual Rating: Every Insured is unique that reflects its own unique characteristics.

{Judgement Rating :-Is a type of individual rating used to develop a premium for
exposures for which there is no established premium determining system.
Underwriter sets the premium based on his experience.

7&<.=&>?@@
{Schedule rating:- Is used when UW·s are permitted to schedule ´creditsµ or debits if
they can identify some characteristics that are not considered in the established
rating system but that affect the loss potential of a particular insured.

{Experience rating:- Is a process by which the insurance premiums of larger

businesses can be modified to some degree based on their past loss records.

Insurance Rate:- An Insurance rate is the price of insurance for each unit of exposure.
The rate is multiplied by the number of exposure units to arrive at a premium.

Exposure Units: Are standard units used in insurance rating.

{Loss Costs
i) Historical Loss Costs:- Involves only past losses, indicate the dollar losses
relating to each exposure unit in the past.
ii) Perspective Loss Costs:- Are based on past losses plus some adjustments,
indicate the dollar losses relating to each exposure unit that can be expected in
the future.

8&<.=&>?@@
Examples of Insurance rating plans:-
{Personal Auto Insurance:-
Is usually class rated(ex- territory, age, young drivers, students, age of the car etc.,)

{Homeowners Insurance:-
Also class rated based on the following 2 categories:-
Construction type:- Generally frame or brick, since wood frame houses burn more
readily and therefore higher premiums than solid brick houses

Protection Class:- Is a rating of the local fire department·s capabilities and the
availability of fire hydrants and other water supply sources, usually on a scale of
@ to @ , with @ being best and @ having essentially no fire protection.

{Commercial Building and contents Insurance:-

Can be both class rated and individual rated.

9&<.=&>?@@
{Commercial general liability Insurance:-
This is usually class rated. Each classification describes a particular type of business
operation.
Some commonly used standard exposure units are:- Payroll, gross sales, area etc.,
{Workers compensation:- Is usually class rated. Classification is similar to general
liability insurance. There are nearly 6 classification for workers compensation.
‡Experience modification:- Is adjusting premium for workers compensation
insurance based on the loss experience of he insured employer.
‡Premium discount:- Is applied to workers compensation policies on larger
businesses to reflect the fact some of the expenses of selling and servicing workers
compensation insurance do not vary in proportion to the premium.
{Inland Marine Insurance:-
Can be both class rated and individual rated.

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{Home office RA A typical insurance company·s headquarters.

{Branch/Regional office:- A local insurance company office, usually located away

from the home office, providing service to accounts in a limited geographical area.
{ISO( Insurance Services Offices):- The largest insurance service office in the country,
performing a variety of services such as developing statistical classification systems
and collecting statistical classification data on insured claims from a large number of
insurers, analyze this information and develop loss cost data.
Insurance companies that subscribe to ISO·s services may use this loss cost info to
set their insurance rates.
NCCI(National Council on Compensation Insurance:- Is responsible for developing
workers compensation insurance loss cost data in most states.
(ISO is not involved in Workers comp rating plans)
Actuary:- Is a person who uses complex mathematical methods, usually with the aid of
computers, to analyze loss data and other statistics and develop systems for
determining future premiums.

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Insurance Cycles:-
Insurance cycle is of two phases:-
i) Hard Market:- Insurers become more selective, making it more difficult to get
insurance, even at higher prices

ii)Soft Market:- Insurance prices are lower, and insurance is readily available.

{Insurance Regulation:-
Insurance is regulated by the states, which has an insurance department headed
by an insurance commissioner.
All insurance members of the National Association of Insurance
Commissioners(NAIC) which coordinates insurance regulation among the states.

{Rate Filings:- Are documents submitted to a state insurance department that contain
the proposed rates and also, when necessary the statistics on which the rates are
based.

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Mandatory Rates:- The state insurance department develop insurance rates that must be
used by all insurers.

Prior Approval Law:- States with this law requires the state insurance department·s
approval for rate changes before they are put into effect.

{File and Use Law:- In States with file and use law, insurance companies are permitted to
use new rates as soon as they have been filed with the state insurance department.

(The state insurance dept reserves the right to disapprove rates if it can show that they
violate requirements)

{No-Filing Law :- With a no-filing law, also known as open competition, no rate filing is
required because insurance regulators neither approve nor disapprove insurance rates.

{Flex-Rating Law:- Insurers may raise and lower rates within a certain range(´bandµ)
without specific approval from state regulators.

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Rate Suppression:- Occurs if Government regulators hold insurance rates at a level
below their true economic cost.

Assets and Liabilities:-

Assets are items of value such as cash, stocks, bonds and buildings
Liabilities are financial obligations, These includes debts that have not been paid as
well as expected bills that are in due.

Surplus is the difference between an insurer·s admitted assets and its liabilities.

{Insurance guaranty funds:- Provides a system to pay the claims of insolvent property
and liability insurers.
{Centralization and Decentralization:-
‡Centralization is the process of moving activities to a central location
‡Decentralization is the process of moving activities from a centre to different
locations.

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‡ Unbundling:- Happens when insurance claims adjusting, loss control, risk
management, or other services are sold separately rather than being bundled
together with an insurance policy for which a single insurance premium is charged.

‡ Self Insurance or Retention:-

A business does not transfer its risks to an insurance company or anyone else. It
pays for all losses with its own resources.

‡ Captive Insurance:- Insurance company owned and operated by the corporation it

insuresQ

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{Pay Claims: Pay for the losses that is covered by the policy.

{Pay Expenses: To cover the cost used to sell, issue and service
insurance policies.

{Generate Profits & Contingency allowance: Profits generated by the

investments made by the insurer.
Contingency allowance is a fund for any unpredictable or
extraordinary events that might draw on an insurance company·s
assets. Insurers generally try to retain a portion of their profits to build
a surplus that provides a cushion for contingencies.

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‡ Payment of losses:
Indemnify: To restore the party that has had a loss to the same financial position as
before the loss occurred.

‡ Accident Prevention: By emphasizing on loss control measures.

‡ Investment in the economyR Providing funds to help business to grow and create
jobs.

‡ Support for CreditR In order to avail loan on a property banks ask for proof of
insurance.

‡ Reduction of anxiety: since indemnification is guaranteed by the insurance

company.

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