Month: July 2021

A peril is a potential event or factor that can cause a loss, such as the possibility of a fire that could engulf a house. A hazard is a factor or activity that may cause or exacerbate a loss, such as a can of gasoline left outside the house door or a failure to regularly have the brakes of a car checked.

Risk, peril, and hazard are terms used to indicate the possibility of loss, and are often used interchangeably, but the insurance industry distinguishes these terms. A risk is simply the possibility of a loss, but a peril is a cause of loss. A hazard is a condition that increases the possibility of loss.

Peril means danger, and it has a connotation of imminent danger. A rockslide is a peril to anyone standing underneath the cliff when the rocks start sliding.

In insurance contracts, the perils that are covered are usually specified. Fire, wind, water, and theft, are the perils that are commonly listed. However, note that the language may indicate that the damage will not be covered in certain circumstances, such as if the insurance company finds that neglect by the insured caused the damage or made it worse.

This is the root cause of many disputes between insurer and insured. For example, the insurer may deny a claim for roof damage after a storm, citing owner neglect in not replacing an old roof.

Speculative risk differs from pure risk because there is the possibility of profit or loss, such as investing in financial markets. Most speculative risks are uninsurable, because they are undertaken willingly for the hope of profit. Also, speculative risk will generally involve a greater frequency of loss than a pure risk, since profit is the only other possibility. So, although many people take precautions to protect their lives or their property, they willingly engage in speculative risks, such as investing in the stock market, to make a profit; otherwise, a person could avoid most speculative risks simply by avoiding the activity that gives rise to it.

Legal risk is a particular type of personal risk that you will be sued because of neglect, malpractice, or causing willful injury either to another person or to someone else’s property. Legal risk is the possibility of financial loss if you are found liable, or the financial loss incurred just defending yourself, even if you are not found liable. Most personal, property, and legal risks are insurable

Personal risks are risks that affect someone directly, such as illness, disability, or death. Property risk affects either personal or real property. Thus, a house fire or car theft are examples of property risk. A property loss often involves both a direct loss and consequential losses. A direct loss is the loss or damage to the property itself. A consequential loss is a loss created by the direct loss. Thus, if your car is stolen, that is a direct loss; if you have to rent a car because of the theft, then you have some financial loss a consequential loss from renting a car.

Pure risk is a risk in which there is only a possibility of loss or no loss there is no possibility of gain. Pure risk can be categorized as personal, property, or legal risk. Pure risk is insurable, because the law of large numbers can be applied to estimate future losses, which allows insurance companies to calculate what premium to charge based on expected losses.

Static and dynamic risks are distinguished by their temporality. The possibility of loss is uniform over an extended period of time for static risks, so static risks are more predictable, and, therefore, more insurable. Dynamic risks change with time, making them less predictable and less insurable. For instance, the risk of unemployment changes with the economy, so it is difficult to predict what unemployment will be next year. On the other hand, the number of houses that burn down within a given year within a specific geographical area is steadier, not cyclical, and so is more predictable.

Triggering moments

A common misperception is life events are point-in-time when, in fact, they are small journeys in a consumer’s life: “marriage,” for example, may begin with the decision to propose and may end with thoughts on future financial decisions (e.g., family planning), with the wedding itself as a step in the journey. Similarly, homeownership may begin with the decision to purchase and potentially end with the resale of the home itself.

To buy or not to buy

The decision to buy or not to buy life insurance goes well beyond life events and the helpfulness of advice. Non-buyers cite a variety of reasons for not purchasing insurance, including unclear benefits, complexity, and lengthy application process. There is a clear disconnect between prospective buyers’ views on short term financial goals and priorities and the potential longer-term financial benefits associated with purchasing life insurance.

Loyalty is good for business. Carriers that win the loyalty of their customers find that they stay longer, buy more products and recommend the company to their friends and colleagues. Higher loyalty means lower churn, and that can help companies reduce costs and expand margins.

Insurers have made concerted efforts in recent years to build customer loyalty. They’ve embraced digital platforms, retrained employees and started to redesign customer episodes. These initiatives can pay off. Our survey shows that insurers that concentrate on building loyalty can gain considerable ground as much as 20 percentage points in Net Promoter Scores over a three-year period. Conversely, insurers that lose focus can find their loyalty scores slipping by similar margins.

Insurer have to adapt the operating hours to service consumers specially in digital channels since users are “always” online and it is minutes of winning, the faster with adequate information respond wins.

Some organizations implemented Chatbot to interact with customers as first tier, some organization has dedicated team who support online customers with all enquiries. This is really depends on interaction and transaction volumes of each company to consider whether it is worth to invest on the dedicate team to support online consumers 24/7.

All these 3 keys behavior has definitely impact and affect insurance company especially at the pre-purchase stages. Moving forward, insurers do have to think ahead in offering products and services specially for online consumers which might also involve KYC, automate-underwriting approval, modular products for consumers to drag and drop, digital identity verification, and etc.

Life assured:

Life assured is the insured person. Life assured is the one for whom the life insurance plan is purchased to cover the risk of untimely death. Primarily, the breadwinner of the family is the life assured.

Life assured may or may not be the policyholder. For instance, a husband buys a life insurance plan for his wife. As the wife is a homemaker, husband pays the premium, thus the husband is the policyholder, and wife is the life assured.

Policyholder:

The policyholder is the one who proposes the purchase of the life insurance policy and pays the premium. The policyholder is the owner of the policy and may or may not be the life assured.

Sum assured (coverage):

Life insurance is meant to provide a life cover to the insured.

The financial loss that may arise due to the passing away of the life assured is generally chosen as a life cover when buying a life insurance plan. In technical terms, ‘Sum Assured’ is the term used for an amount that the insurer agrees to pay on death of the insured person or occurrence of any other insured event.

Policy tenure:

The ‘policy tenure’ is the duration for which the policy provides life insurance coverage. The policy tenure can be any period ranging from 1 year to 100 years or whole life, depending on the types of life insurance plan and its terms and conditions. Many a times, it is also referred to as policy term or policy duration.

The policy tenure decides for how long the company is providing the risk coverage. However, in the case of whole life insurance plans, the life coverage is till the time life assured is alive.

Nominee:

The ‘nominee’ is the person (legal heir) nominated by the policyholder to whom the sum assured and other benefits will be paid by the life insurance company in case of an unfortunate eventuality. The nominee could be the wife, child, parents, etc. of the policyholder. The nominee needs to claim life insurance, if the life assured dies during the policy tenure.

Premium:

The premium is the amount you pay to keep the life insurance plan active and enjoy continued coverage. If you are unable to pay the premium before the payment due date and even during the grace period, the policy terminates.

There are various options on how you can pay the premium; regular payment, limited payment term, single payment.

Policy tenure:

The ‘policy tenure’ is the duration for which the policy provides life insurance coverage. The policy tenure can be any period ranging from 1 year to 100 years or whole life, depending on the types of life insurance plan and its terms and conditions. Many a times, it is also referred to as policy term or policy duration.

Maturity age:

Maturity age is the age of the life assured at which the policy ends or terminates. This is similar to policy tenure, but a different way to say how long the plan will be in force. Basically, the life insurance company declares up front the maximum age till which the life insurance coverage will be provided to the life insured. For instance, you are 30 years old, you opt for a term plan with a maturity age of 65 years. That means the policy will have a coverage till you are 65 years old, which also means, the maximum policy tenure for a 30-year-old is 35 years.

Automobile Insurance Terminology

Requirements regarding auto insurance vary state by state, but the following definitions can be helpful for understanding the basics when shopping for auto insurance:

Insured: The person(s) covered by the insurance policy.

Premiums: The monthly or annual amount that you must pay in order to have the exchange for insurance coverage.

Deductible: The amount of money that you must pay out of pocket for damages sustained, such as in a collision, before your insurance kicks in and starts to make payments.

Collision Coverage: The type of coverage that pays for the damages to your vehicle sustained as a result of a collision with another vehicle or object.

Comprehensive Coverage: The type of coverage that pays for damage to your vehicle sustained as a result of fire, theft, vandalism, or various other stated causes.

Medical Payments Coverage: The type of coverage that pays for medical and funeral expenses for anyone covered under your insurance policy in the event of an accident, regardless of fault.

Uninsured Motorist Coverage: The type of coverage that pays for injuries, including death, which you and/or other occupants of your vehicle sustain as a result of a collision with an uninsured driver who is at fault.

Bodily Injury Coverage: The type of coverage that pays for medical expenses and/or funeral costs of other individuals injured, or killed, in an accident for which you are liable.

Health Insurance Terminology

The Patient Protection and Affordable Care Act enables more Americans to have access to quality, affordable health insurance. The federally facilitated marketplaces are just one place where people can compare plans. Here is some of the basic terminology for health insurance:

• Insured: The person(s) covered by the insurance policy.
• Deductible: The annual amount of money that you must pay out of pocket for medical expenses before your insurance kicks in and starts to make payments.
• Premiums: The monthly or annual amount that you must pay in order to have the insurance coverage.
• Co-payment: A flat fee that you must pay toward the cost of medical visits, your insurance provider pays the remaining balance. For example, you could be responsible for a $10 co-pay for each visit to the doctor.
• Coinsurance: The percentage that you must pay to share responsibility for your medical claims after you meet your annual deductible.

The insurance market has evolved from the establishment of the first automobile insurance policy to the various types of life insurance products that are available today. The insurance market has a structure that involves property and casualty insurers, life insurers as well as health insurers. Each of these types of insurers have regulations that apply to the policies that they provide. Insurers are regulated by a combination of state and federal laws, depending on the type of insurance they offer.

Common Ownership

Many insurance companies are under a common ownership in which one corporation has one or more insurance business that act as independent companies. The most common type of common ownership for an insurance company is when it is established as a captive insurer. A captive insurer can be formed to provide coverage for various types of business risks. The most common type of captive insurer provides reinsurance coverage. This is a type of insurance where multiple insurance companies share the same loss.

Mutual Insurance Companies

A mutual insurance company is a company owned by policyholders. This means that each policyholder is given a vote to decide who will sit on the board of directors. A mutual insurance company can sell types of insurance or only provide one type of product or service to their customers. The earnings from a mutual insurance company are distributed to policyholders in the form of dividends.

Health Insurance

The insurance market also contains companies that provide health insurance policies to individuals as well as employers in the form of a group health insurance policy. Companies that provide a group health insurance policy to an employer are regulated by a combination of federal and state laws. States can also provide health insurance to residents if it is unavailable from a private insurer because of cost or ineligibility.

Life Insurance

Property and casualty insurers can also provide types of life insurance. A life insurance company can be a mutual insurance company or part of a stock insurance company. Companies that provide life insurance usually offer financial products to their policyholders, such as annuities and certain types of mutual funds.

Stock Insurance Companies

A stock insurance company is a company owned by stockholders. Unlike a mutual insurance company, a stock insurer not only needs to protect its policyholders but also maximize profits for the company’s policyholders. A stock insurance company can pay dividends to stockholders but generally do not pay dividends to their policyholders.

Property and Casualty

Property and casualty insurers offer various types of insurance for individuals to purchase, such as automobile and homeowners insurance. A property and casualty insurer can also offer types of commercial insurance, such as a small business package, general business liability, umbrella policies and workers compensation. Property and casualty insurers are regulated by laws in each state where they sell policies.

The Insurance Institute encourages the highest professional and ethical standards in insurance and financial services worldwide.

The Council and membership of The Insurance Institute look to all members to meet these standards and to maintain the reputation of The Insurance Institute by following this Code of Ethics and Conduct (the Code). It sets down the principles which all members should follow in the course of their professional duties.

Members are obliged to comply with this Code. If they do not comply, this may result in the Institute taking disciplinary action against the member.

The key values which set the standards for the behaviour of all members in respect of the key stakeholders in sections 1 to 5 are:

(a) Behaving with responsibility and integrity in their professional life and taking into account their wider responsibilities to society as a whole. Acting in a courteous, honest and fair manner towards anyone they deal with. Being trustworthy and never putting their interests or the interests of others above the legitimate interests of their stakeholders;

(b) Complying with all relevant Laws (including the laws of the Institute) and meeting the requirements of all applicable regulatory authorities, and appropriate codes of practice and codes of conduct.

(c) Demonstrating professional competence and due care including:

Meeting the technical and professional standards relating to their level of qualification, role and position of responsibility;

Completing their duties with due skill, care and diligence;

(d) Upholding professional standards in all dealings and relationships;

(e) Respecting the confidentiality of information;

(f) Applying objectivity in making professional judgements and in giving opinions and statements, not allowing prejudice or bias or the influence of others to override objectivity.

Members should respect the traditions and cultures of each country in which they operate. They should carry out business in any country according to all applicable local Laws, Rules and Regulations. Where there is a conflict between local custom and thevalues stated above, the Code will act as a guide to help members act professionally.

A member operating in a professional capacity has duties, arising from these key values, to a number of different groups. Within these relationships a member should always act ethically and their behaviour and conduct should meet the following principles:

Relations with customers

Members will seek to earn and maintain the trust of their customers at all times and should:

• Give fair and proper consideration and the appropriate priority to the interests and requirements of all customers. Obtain and provide relevant information, including all necessary documentation and respect the confidentiality of information;
• Avoid conflict between personal interests, or the interests of any associated company, person or group of persons, and their duties to all customers;
• Avoid conflict between any competing interests of one or more customer(s), stepping aside in one or all matters if such conflicts cannot be resolved;
• Act at all times with due skill, care and diligence;
• Act only within the limits of personal competence and any limits of authorisation;
• Act in a financially honest and prudent manner, including ensuring the protection of any money and /or property held on behalf of customers;
• Act openly, fairly and respectfully at all times, providing all customers with due respect, consideration and opportunity;
• Be honest and trustworthy with customers and communicate with them in a clear, prompt and appropriate manner;
• Provide suitable and objective recommendations to customers;
• Comply with all Laws and Regulations regarding the supply of goods and services to customers;
• Not provide or accept money, gifts, entertainment, loans or any other benefit or preferential treatment from or to any existing or potential customer or provider, other than occasional gifts, entertainment or remuneration, which are provided as part of accepted business practice, and which are not likely to conflict with duties to customers.

Relations in employment

Members should aim to ensure good relations with their employer and employees and should:

• Avoid conflict between personal interests, or the interests of any associated company or person, and their duty to their employer;
• Not make improper use of information obtained as an employee or disclose, or allow to be disclosed, information confidential to their employer;
• Seek to be a responsible employer or employee and be honest and trustworthy at work;
• Act openly, fairly and respectfully at all times, treating other employees, colleagues, customers and suppliers with equal respect, consideration and opportunity;
• Aim to take every opportunity to improve their professional capability, knowledge and skills;
• Accurately and completely account for and report in employer records all business dealings;
• Not provide or accept money, gifts, entertainment, loans or any other benefit or preferential treatment from or to any existing or potential supplier or business associate, other than occasional gifts, entertainment or remuneration, which are provided as part of accepted business practice, provided this is not likely to conflict with any duty that is owed to their employer.

In addition, where a member holds a position of influence within an organisation they should:

• Provide, or encourage their employer to provide, suitable arrangements for the internal review of decisions, policies and actions where an employee raises concerns of unethical behaviour. (Employees should not be penalized for raising matters of ethical concern even if this results in a loss to the organisation or a customer);
• Incorporate, or encourage their employer to incorporate, ethical standards into the organization’s governance standards, including the development of an ethical code.
• Not disclose any employer/organisational confidential or sensitive information in written assignments.

Insurance Risk Management is the assessment and quantification of the likelihood and financial impact of events that may occur in the customer’s world that require settlement by the insurer; and the ability to spread the risk of these events occurring across other insurance underwriter’s in the market. Risk Management work typically involves the application of mathematical and statistical modelling to determine appropriate premium cover and the value of insurance risk to ‘hold’ vs ‘distribute’.

Risk = Probability x Severity

Probability is the likelihood of an event occurring, and severity is the extent and cost of the resulting loss.

Speculative Risk: Risks where the possible outcomes are either a loss, profit, or status quo. It includes things like stock market investments and business decisions such as new product lines, new locations, etc.

Pure Risk: Risks where the possible outcomes are either a loss or no loss. It includes things like fire loss, a building being burglarized, having an employee involved in a motor vehicle accident, etc.

Steps to Implement Risk Management:

• Quantify and prioritize: Risk mapping is one way to do this. Essentially, you chart all of the identified risks on the map. The map will make you aware of those risks on which you need to focus. Work with your broker to make sure that you are covered for all of the appropriate risks and look for ways to prevent and mitigate these risks. The image on the right is a sample of a common risk map. However, risk maps are often altered to reflect organizational needs.
• Risk identification: It is a good idea to chart your risks in a way that allows you to identify the more common and serious risks so that you know the areas to which you need to commit resources.
• Be risk sensitive, not risk adverse: Being risk sensitive is not the same as being paranoid. Realize that there are risks associated with everything. Take a deliberate and methodical approach to dealing with risk, while at the same time being realistic.
• Identify risk in business decisions: Identifying risks in business decisions is much the same as with the process of identifying any risk. The key is to be thorough and use all the sources available. These risks can be prioritized and mapped in the same way as all other risks.

Property damage

Insurance companies are often concerned with protecting their clients’ physical assets, including their brick and mortar properties. While natural disasters and other events may not destroy property entirely, they always pose a significant threat to a business’ ability to operate normally.

Mitigation options:

• Implement controls for mitigation and prevention.
• Invest in adequate insurance coverage.
• Develop a foolproof business continuity plan that is proactively communicated with your entire organization.

Product or service issues

When customers feel that their product did not meet expectations, challenges and risks are inevitable.

Mitigation options:

• Implement ERM software into your organization to prevent negligence claims.
• Invest in professional liability insurance.
• Conduct vendor due diligence to prevent third party providers from producing products or services that don’t meet your organization’s standards.

Property damage

Insurance companies are often concerned with protecting their clients’ physical assets, including their brick-and-mortar properties. While natural disasters and other events may not destroy property entirely, they always pose a significant threat to a business’ ability to operate normally.

Mitigation options:

• Implement controls for mitigation and prevention.
• Invest in adequate insurance coverage.
• Develop a foolproof business continuity plan that is proactively communicated with your entire organization.