Characteristics of an Ideally Insurable Loss for a Commercial Insurance Company
Essay Preview: Characteristics of an Ideally Insurable Loss for a Commercial Insurance Company
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Chapter 9
Topic nine: Characteristics of an Ideally Insurable loss for a commercial insurance company
Pure, not speculative risk
Random, accidental loss
A large number of similar, yet independent, exposure units (specialty insures cover such exposures)
Definite in time, place and is measureable
Most insurance claims are paid “in cash” (we get a check)
Flat or stated amount (such as life insurance or jewelry): use to determine actual amount going to person/claim
Ex: such as life insurance ($100,000) or jewelry (15,000); this stated amount is listed on the first page; the customer must monitor that the amount is still appropriate
Formula, such 66.7 percent of your salary in a disability insurance policy; retail store inventory
Fair market value: willing seller and willing buyer, each ahs a good knowledge of the market for some particular asset 9 car, house). What price would they agree upon? Works best when a lot of the same asset gets sold.
Replacement cost ( get a new item)
Not all insurance claims get paid in cash
Repair and replace an item (watch replacement example)
Retail store window replacement (glass window of store example
Health maintenance organization ( HMO); many of the doctors in a network of doctors get paid a set amount per month ( such as $60) for each of the people on a list who select them as their primary care doctor (for example, 100 people); we refer to this as “service”
Legal services: such as for defense in products liability case
The loss cannot be a catastrophe to the insurance company ( yet it often is to the customer)
The premium must be economically feasible for the insurer and the customer