The Insurance Machine

Table of Contents

Welcome
Chapter One:  Insurers	Page 1
Government Sponsorship	1
Private Sponsorship	1
Private Insurers	2
Stock Companies	2
Financial Soundness	3
Capital Stock, surplus, surplus to policyholders	3
Lloyds of London	5
Transacting Lloyds of London Business	7
Excess business, surplus insurance	8
Self-Insurance	8
Excess loss, share basis	9
Captive Insurance Companies	10
Risk-Retention Groups (RRG)	11
Alternatives	12
Compensating Balance Plans, Paid-loss retro	12
Chapter Two: Controlling Loss	13
Risk/Chance of Loss	13
Loss frequency, loss-severity	13
Loss Control	14
Engineering Approaches	15
Human Approaches	16
Prevention	16
Risk Awareness	19
Application of Loss Prevention	21
Pre-Contact	21
Contact	22
Post-Contact	22
Chapter Three:  Underwriting & Reinsurance	23
Pricing	23
Adverse Selection, actuarial equity	24
Selective Underwriting	26
The First Step in the Selection Process	26
Level of Risk	26
Standard risk	26
Preferred risk, Sub-standard risk	27
Post-Selection	27
Adverse Selection	28
Moral Hazard	28
Morale Hazard	29
Example	29
Competing in the Marketplace	29
Redlining	30
Example	30
The Underwriting Cycle	30
Example	31
What are we Insuring Against?	31
The Economic Burden of Risk	33
Types of Risk	33
Determining degrees of Risk	34
Probability of Loss	35
The Law of Large Numbers	35
Risk Information	35
The Insurer’s View & The Consumer’s View	36
Line limits	37
Deductible Clauses	37
Reinsurance	38
Why is Reinsurance Used?	39
Pro Rata & Excess of Loss	40
Pro Rata	40
Excess of Loss	41
Shopping for Reinsurance	41
Brokers	43
What Else is Available?	43
Chapter Four: Ratemaking	45
What is Ratemaking?	45
A Matter of Class	46
Territory Risk Groupings	47
Special Aspects of Ratemaking	47
Catastrophes	47
Minimum Premiums	48
Merit Rating	48
Prospective Experience Rating	49
Retrospective Experience Rating	50
Fire Insurance	51
Construction	51
Occupancy	52
Exposure	52
Protection	52
Where is the Structure Located?	53
Time of Loss	53
Following Proper Procedures Essential	53
Schedule-rated risks	54
Chapter Five: Insurance Regulation	56
Do We Need So Many Hoops?	56
How Do These Traditions Come About?	59
Paul versus Virginia	60
How Does State Regulation Work?	61
The Commissioner’s Primary Powers Include …	64
Insurance: A Regulated Business	65
What Do the States Do?	65
Insurance Classes	66
Taxation	66
Regulating Agents & Brokers	68
Premium Rates	70
Prior Approval, Modified Prior Approval	71
File-an-Use, Open Competition	71
Insurer Assets	72
Chapter Six: Terrorism Risk Insurance Act	75
Defining “Act of Terrorism”	75
TRIA	75
President Bush Signs the Act	77
The Role of Terrorism Insurance	77
Policy Restrictions	79
Business Interruption Insurance	79
Example	80
Workers Compensation & Other Coverage	80
Coverage Under TRIA	81
Chapter Seven:  Ethics	86
“Agent, Protect Thyself”	86
Why Would an Agent be Sued?	88
What Are the Agent’s Professional Responsibilities?	90
Example	91
E & O Insurance	91
Claims-Made Versus Occurrence Policies	92
Example	92
On the Personal Side of Ethics	93
Example	94
Valuing Human Relationships	95
Truly Ethical or Simply Ethical for Show?	95
Example	96
Example	97
Justice for All	98
Objectivist Ethics: Preserve Life	99
What is Really Ethical?	102
Just the Facts	102
Cultural Relativism, Moral Reformers	103
Moral Skepticism	105
Viewing from a Different Angle	107
Mores	110
Example	110
Relativism	112
“Ought Implies Can”	113
Example	114
Personal Conditioning	115
Example	116
Example	116
Example	117
Example	118
Example	119
The Legal System	120
Example	121
Example	122
Determining Right From Wrong	123
Twisting & Churning	125
Ethics & Premiums	125
Ethics & Redlining	127

United Insurance Educators, Inc.

PO Box 1030

Eatonville, WA 98328

(253) 846-1155

www.uiece.com