Chapter One Summary Notes
Terms | Definitions |
|---|---|
 What is reinsurance? | reinsurance is the insurance for insurance companies |
| Explain the difference between cession and retention. | cession is the amount of business ceded to another company. Retention is the amount that the original insurer keeps for its own account. |
| Why do insurers reinsure? | - to increase the insurer's capacity to write business - to maintain a proper reserve balance - to reduce the effect of a catastrophic loss - to provide stability in a fluctuating market - to enable a business to cease operations |
| How does reinsurance increase an insurer's capacity to write business? | allows it to write a higher level of risk and enables it to accept large amounts that it might not be able to do on its own |
| How can an insurer deal with a sudden large increase in new business that leaves it with insufficient assets to meet reserve requirements? | the insurer reinsures a greater portion of new business and thus decreases its reserve requirements by transferring liability to the reinsurer |
| How is reinsurance used to reduce the effect of catastrophic losses? | enables an insurer to control losses from a single event |
| How can an insurer limit the amount of its losses in any given year? | plan and determine ahead of time how much it is prepared to pay out in losses under the worst possible loss scenario |
| Explain the difference between proportional and non-proportional reinsurance. | proportional reinsurance by transferring a % of risk for the same % of the original premium non-proportional reinsurance is the insurer pays all of the loss up to an agreed amount called the priority, the reinsurer then pays the rest. |
| What is a priority? | The amount of loss that the insurer will pay. |
| How does a treaty operate? | an agreement between the insurer and the reinsurer which provides for automatic reinsurance without the insurer having to submit each and every risk to the reinsurer. |
| What is facultative reinsurance? | reinsurance is placed on an individual basis. |
| What is the general purpose shared by many insurance industry organizations? | provide services that complement the business of insurance. |
| What are the functions of the Insurance Bureau of Canada (IBC)? | -Issues management - Investigative services - Insurance information |
| What are the most common types of fraud encountered in insurance? | automobile theft and staged automobile accidents |
| What is the purpose of the Facility Association? | provides automobile insurance to high risk drivers |
| What are the goals of the Insurance Brokers' Association of Canada (IBAC)? | Its goals are to elevate the status of independent insurance intermediaries through professional development and safeguard the public interest by establishing improved standards of qualification and ethics |
| What are the goals of the Canadian Independent Adjusters' Association? | is to provide leadership for Canada's independent adjusters through advocacy, education, and recognized professional standards |
| What are the functions of the Canadian Insurance Claims Managers' Association? | promotes a function high standard of ethics in the handling of claims. One of its main functions is to administer the Canadian Inter-Company Arbitration Agreement which exists to arbitrate disputes among the companies who are signatories to the agreement. |
| Why are customers' perceptions of the insurance industry so important? | no customer, no insurance industry. |
More definations
Terms | Definitions |
|---|---|
| What is Reinsurance | To insure again by transferring to another company. All or part of the liability is assumed. |
| What is the difference between cession & retention | Cession is the amount of business that the insurer transfers Retention is the amount the insurer keeps for itself. |
| How does reinsurance increase an insurer's capacity to write business? | Allows them to take on greater risks. |
| How can an insurer deal with a sudden large increase in new business that leaves it with insufficient assets to meet reserve requirements? | An insurance company can reinsure a portion of their assets |
| How is reinsurance used to reduce the effect of catastrophic losses? | An reinsurance company can reinsure on a catastrophic basis |
| How can an insurer limit the amount of losses in any given year? | An insurance company can reinsure to limit the amount of fluctuations in a given year. |
| What is the difference between proportional & non proportional re-insurance? | proportional insurance-a % of the risk is transferred to the reinsurer & the reinsurer receive the same percentage if the original premium & is resp for the same amount of loss. Non proportional no proportional ceding of the risk & non proportional sharing of the premium. |
| What is a priority? | The amount of any loss that the insurer will pay - the insurer's retention. |
| How does a treaty operate? | On a contractual basis - the insurer agree to cede all risks within an agreement & the reinsurer agrees to accept all risks. |
| What is facultative insurance? | The reinsurance placed on an individual basis. |
| What is the general purpose shared by many insurance organizations? | To compliment the business of insurance. |
| What are the functions of the IBC? | -Advocating industry positions w/ consumers, gov, members & stakeholders -Identifying & monitoring issues developing policy positions & responding to legal developments -Staying on top of issues of strategic importance to the industry. |
| What is the VICC, and what are some of it's functions? | Analyzes claims based on vehicle type, sets group rates based on types of vehicles. |
| What are the most common types of fraud encountered in insurance? | -Organized theft -Staged Accidents -False injury claims |
| What is the purpose of the Facility Organization? | A pooling arrangement formed for high risk drivers. |
| What are the goals of the IBAC? | -Develops & maintains licensing courses -Liason with gov't business & consumer groups -Develops brokers |
| What are the goals of the CIAA? | -Provide leadership for Canada's Independent Adjusters. |
| What are the functions of the CICMA? | -Promotes ethics in handling claims -Administers Intercompany Arbitration Agreement. |
| Why are customers perceptions of the insurance industry so important? | Whether they are true or not, we are judged by public perception. |
| The amount ceded in a reinsurance liability agreement is called the a. cession b. retrocession c. proportional reinsurance d. treaty | a. cession |
| The F.T. Insurance Company agreed to write $50 million of liablity insurance for it's client, System Tech. However, to limit it's exposure to a potentially large loss under the plan, F.T approached shield insurance to reinsure $25 million of the coverage. Shield Insurance accepted the amount but reached out to PracticalProtection Insurance to assume $10 million of the risk. What role is Practical Protection Insurance in fulfilling this agreement? a. Reinsurer b. Retention c. Retrocessionaire d. Ceder | c. Retrocessionaire |
| Reinsurance that is placed on an individual-case basis is called: a. Treaty Insurance b. Facultative Insurance c. Reinsurance Brokers d. Priority reinsurance | b. Facultative Insurance |
| The goal of this organization is to elevate the status of independent intermediaries through professional development & to safeguard the public interest by establishing improved standards of qualification & ethics. What is this organization? a. CICMA b. ULC c. IBAC d. SAC | c. IBAC |
| What organization would provide support to policy holders if a property & casualty insurance company were to collapse? a. IBC b. PACICC c. CSIO d. CIAA | b. PACICC |
| List 5 reasons why an insurer would use reinsurance? List examples | -Increase capacity to write business. Instead of refusing risks, an insurer may reinsure so they can take on more business. -Maintain proper reserve liability balance. If an insurer finds itself with a large increase in underwriting volume & increasing premiums & losses,it may reinsure so it can maintain a proper reserve balance. -Reduce effect of a catastrophic loss. A tornado devastates a city block, causing strain on a companies financial resources -Provide stability in a fluctuating market. Insurers are able to know what it's worst case scenario will be in a year. -Enable Insurer to cease operations. If a company wishes to withdraw from the market it can transfer it's risk onto another company. |
| What is IBC's role in managing issues within the insurance industry? | -Commissions public opinion research -Measure effectiveness of communication programs -Campaign to reduce losses -Campaigns to increase public understanding of property & casual insurance -Promotes safety on the road -Promotes safety @ work, & @ home -Works to secure changes in public policy -Secure improvements in the business operating environment -It develops model policy wordings -Helps to design fair & efficient claims-handling protocols -Advocates for better driver training & testing |
| Describe the relationship between the insurance industry & insurance consumers. | Consumers are the lifeblood of the industry. They provide valuable feedback through criticism & comments. Most people are required ti be insurance customers. Consumers often do not understand insurance because it is a highly complex subject. Policies are legal documents which tend to be difficult to understand. Insurers are in a better position to interpret & relay information to consumers. If consumers are properly informed of the coverage they purchase, misunderstandings may be avoided in the future. |