Term
| What are three essential elements necessary for a successful marketing program? |
|
Definition
1. Market research to determine the needs of the potential buyers.
2. Advertising and public relations programs to inform customers about the company's products.
3. Training programs to prepare the company's employees and agents to meet the public's needs.
4. Setting production goals and strategies for achieving them.
5. Effective motivation and management of the producer network. |
|
|
Term
| Explain the significance of the combined ratio in evaluating the profitability of an insurance company. |
|
Definition
| The combined ratio is the sum of the loss and expense ratios. A combined ratio of less than 100% indicates that the insurer earned a profit on its insurance operations. A ratio above 100% is indicative of an insurer losing money on its insurance operations. This ratio is also known as an underwrtiing profit or loss. |
|
|
Term
| Give two examples of risk control measures. |
|
Definition
1. Install smoke detectors
2. Install sprinkler systems
3. Initiate driver safety training programs
4. Install burglar alarms
5. Maintain fire protection equipment |
|
|
Term
| Give an example of using avoidance as a risk management technique. |
|
Definition
| Any valid example of avoiding a loss exposure by not incurring it in the first place (such as deciding not to buy an additional property) or eliminating a loss exposure that already exists (such as selling a property that the organization already owns) |
|
|
Term
| Contrast stock insurers with cooperative insurers. |
|
Definition
Stock insurers are owned by stockholders (investors) whereas cooperative insurers are owned by policyholders. Consequently, the organizational focus of these two types of insurers differs. Stock insurers aim to make a profit for owner-investors.
Cooperative insurers seek to provide low cost insurance protection to its owner-insureds. |
|
|
Term
| What measures, other than profit, are used to determine insurer performance? |
|
Definition
Insurer performance can also be measured by how well the insurer meets:
customer needs, legal requirements , its social responsibilities |
|
|
Term
| Sugartown Insurance Company (SIC) executives became interested in the aviation insurance market when rates increased after several airline disasters occurred. Describe two internal and two external constraints that SIC would have to overcome in order to enter the aviation insurance market. |
|
Definition
Internal constraints:
-Efficiency-poor management
-Expertise-qualified aviation underwriters
-Size-insurer's size affects ability to meet goals
-Financial resources-insufficient resources limits ability to hire and train staff
-Newly established insurer could lack name recognition
External constraints:
-Regulation to monitor solvency and protect policy holders
-Public opinion can have positive or negative effects on the industry
-Competition is driven by either a hard or soft market
-Economic conditions can affect investment operations in economic down-turns
-Marketing systems are systems used to distribute products through sales and service
-Catastrophic losses hinder insurer's ability to meet goals. |
|
|
Term
| Distinguish between licensed (admitted) and unlicensed (nonadmitted) insurers. |
|
Definition
Licensed insurer-authorized by the state insurance department to transact business in a particular state.
Unlicensed insurer-has not been granted authority to operate in a particular state. |
|
|
Term
| Describe three insurer goals. |
|
Definition
-Earn a profit to provide a return on investments
-Meet customer needs by providing products and services
-Comply with legal requirements to promote good reputation and ability to attract capital and customers
-Fulfill duty to society to promote well-being |
|
|
Term
| What is the purpose of the risk management process? |
|
Definition
| To identify loss exposures in order to minimize the potential negative effects of risk and to select the most effective risk management techniques. |
|
|
Term
Malvern Insurance Company (MIC), a mutual insurer, is considering changing its organizational form to that of a stock insurance company.
a) What are the organizational implications of this change for MIC?
b) In what ways, other than through demutualization, could MIC increase its policyholder surplus? |
|
Definition
a) A mutual insurer is owned by its customers, the policyholders. In a change like this, the policyholders would have to turn the ownership of the insurer over to another group that purchases ownership through MIC's sale of stock. It is likely that existing policyholder-owners will be given an opportunity to purchase shares of stock in the new stock insurer. New policyholders, after the demutualization, will not be owners of MIC.
b) Mutual insurers can raise capital by issuing surplus notes. Issuing surplus notes and their repayment must be approved by state insurance department officials. Reinsurance transactions, such as those referred to as financial reinsurance, can increase an insurer's net worth. Profitable operations, while not exactly a "capital infusion," will result in increased amounts of surplus.
MIC could retain more of its funds by curtailing dividend
payments to MIC policyholders.
While a risky alternative, the insurer could invest in stocks or
other securities that appreciate in value.
In some instances, state insurance regulators will approve a bank loan to an insurer. |
|
|
Term
Malvern Insurance Company (MIC), a mutual insurer, is considering changing its organizational form to that of a stock insurance company.
a) What are the organizational implications of this change for MIC?
b) In what ways, other than through demutualization, could MIC increase its policyholder surplus? |
|
Definition
a) A mutual insurer is owned by its customers, the policyholders. In a change like this, the policyholders would have to turn the ownership of the insurer over to another group that purchases ownership through MIC's sale of stock. It is likely that existing policyholder-owners will be given an opportunity to purchase shares of stock in the new stock insurer. New policyholders, after the demutualization, will not be owners of MIC.
b) Mutual insurers can raise capital by issuing surplus notes. Issuing surplus notes and their repayment must be approved by state insurance department officials. Reinsurance transactions, such as those referred to as financial reinsurance, can increase an insurer's net worth. Profitable operations, while not exactly a "capital infusion," will result in increased amounts of surplus.
MIC could retain more of its funds by curtailing dividend
payments to MIC policyholders.
While a risky alternative, the insurer could invest in stocks or
other securities that appreciate in value.
In some instances, state insurance regulators will approve a bank loan to an insurer. |
|
|
