Accidents will happen (William H. Watson, 1922) is
a slapstick silent film about the methods and mishaps of an insurance broker.
Collection EYE Film Institute Netherlands.
Underwriting and investing
The business model is to collect more in premium and investment income than
is paid out in losses, and to also offer a competitive price which consumers
will accept. Profit can be reduced to a simple equation:
Insurers make money in two ways:
- Through underwriting, the process by which insurers select the risks
to insure and decide how much in premiums to charge for accepting those
risks
- By investing the premiums they collect from insured parties
The most complicated aspect of the insurance business is the actuarial
science of ratemaking (price-setting) of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After
producing rates, the insurer will use discretion to reject or accept risks
through the underwriting process.
At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the
expected average payout resulting from these perils. Thereafter an insurance
company will collect historical loss data, bring the loss data to present
value, and compare these prior losses to the premium collected in order to
assess rate adequacy ;, Loss
ratios and expense loads are also used. Rating for different risk characteristics
involves at the most basic level comparing the losses with "loss
relativities"—a policy with twice as many losses would therefore be
charged twice as much. More complex multivariate analyses are
sometimes used when multiple characteristics are involved and a univariate
analysis could produce confounded results. Other statistical methods may be
used in assessing the probability of future losses.
Upon termination of a given policy, the amount of premium collected minus
the amount paid out in claims is the insurer's underwriting profit on that
policy. Underwriting performance is measured by something called the
"combined ratio", which is the ratio of expenses/losses to premiums.
A combined ratio of less than 100% indicates an underwriting profit, while
anything over 100 indicates an underwriting loss. A company with a combined
ratio over 100% may nevertheless remain profitable due to investment earnings.
Insurance companies earn investment profits on "float". Float, or available reserve, is the amount
of money on hand at any given moment that an insurer has collected in insurance
premiums but has not paid out in claims. Insurers start investing insurance
premiums as soon as they are collected and continue to earn interest or other
income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has
almost 20% of the investments in the London Stock Exchange.[25]
In the United States, the underwriting loss of property and casualty insurance companies
was $142.3 billion in the five years ending 2003. But overall profit for the
same period was $68.4 billion, as the result of float. Some insurance industry
insiders, most notably Hank Greenberg, do not
believe that it is forever possible to sustain a profit from float without an
underwriting profit as well, but this opinion is not universally held.
Naturally, the float method is difficult to carry out in an economically depressed period. Bear
markets do cause insurers to shift away from investments and to toughen up their
underwriting standards, so a poor economy generally means high insurance
premiums. This tendency to swing between profitable and unprofitable periods
over time is commonly known as the underwriting,
or insurance, cycle.
Claims
Claims and loss handling is the materialized utility of insurance; it is
the actual "product" paid for. Claims may be filed by insureds
directly with the insurer or through brokers
or agents. The insurer may require that the claim be filed on its own proprietary
forms, or may accept claims on a standard industry form, such as those produced
by ACORD.
Insurance company claims departments employ a large number of claims
adjusters supported by a staff of records management and data
entry clerks. Incoming claims are classified based on
severity and are assigned to adjusters whose settlement authority varies with
their knowledge and experience. The adjuster undertakes an investigation of
each claim, usually in close cooperation with the insured, determines if
coverage is available under the terms of the insurance contract, and if so, the
reasonable monetary value of the claim, and authorizes payment.
The policyholder may hire their own public
adjuster to negotiate the settlement with the insurance company on their behalf.
For policies that are complicated, where claims may be complex, the insured may
take out a separate insurance policy add on, called loss recovery insurance,
which covers the cost of a public adjuster in the case of a claim.
Adjusting liability insurance claims is particularly difficult because
there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and
may in fact regard the insurer as a deep
pocket. The adjuster must obtain legal counsel for the insured (either inside
"house" counsel or outside "panel" counsel), monitor
litigation that may take years to complete, and appear in person or over the
telephone with settlement authority at a mandatory settlement conference when
requested by the judge.
If a claims adjuster suspects under-insurance, the condition of average may come
into play to limit the insurance company's exposure.
In managing the claims handling function, insurers seek to balance the
elements of customer satisfaction, administrative handling expenses, and claims
overpayment leakages. As part of this balancing act, fraudulent
insurance practices are a major business risk
that must be managed and overcome. Disputes between insurers and insureds over
the validity of claims or claims handling practices occasionally escalate into
litigation (see insurance bad faith).
ليست هناك تعليقات:
إرسال تعليق