Fundamentals of Insurance - Chapter 1 Already Graded A

Fundamentals of Insurance - Chapter 1 Already Graded A Insurance the undertaking by one person to indemnify another person against loss or liability for loss in respect of certain risk or peril to which the object of insurance may be exposed.. or to pay a sum of money or other thing of value upon the happening of a certain event. (Each province provides the meaning in their Insurance Acts) Spread of Risk The losses of the few are shared among the many Risk the chance of financial loss to which the object of insurance may be exposed or the object of insurance ex. building Peril cause of loss, such as fire, wind or hail. Five Functions of Insurance 1. Spread of Risk 2. Basis of Credit System 3. Eliminates Worry - Encourages Entrepreneurship 4. Loss Prevention and Loss Reduction 5. Source of Employment and Investment Capital Five Important Points of Insurance 1. Insurance provides a means of shifting one's financial responsibility for a loss to another party 2. Payment will be made only in the event of the happening of a certain risk or peril. 3. The amount of the payment is restricted to the amount required to indemnify the insured (value right before loss) 4. Insurance covers losses to which the object may be exposed (accidental or future) 5. The indemnity provided can be in the form of a sum of money or other thing of value. (company chooses to settle a claim with repair/replacement vs. money payment) Basis of Credit System Consumer access to insurance frees up credit, the availability of insurance to protect the investments of lenders helps facilitate the granting of credit. Eliminates Worry - Encourages Entrepreneurship By making a small defined expenditure (the premium) to cover large but uncertain future losses, much of the anxiety and worry about the unknown future is reduced. Loss Prevention and Loss Reduction The insurance industry works hard to prevent losses and to reduce their severity. Active partnerships have been formed with communities and public officials to deal with important issues such as road safety, fire prevention, and anti-theft measures. Source of Employment and Investment Capital Insurers are major employers and investors. Canadian insurers employ or contract services from more than 100,000 people. Principle of Indemnity People get the actual amount of their loss, no more and no less. Property and Casualty Insurance (P&C) 1. Automobile Insurance 2. Property Insurance 3. Liability Insurance Organization of Insurance : two distinct groups that distribute insurance? 1. Private Insurers a. Stock companies b. Mutual companies 2. Government Insurers Private Insurers 1. Stock companies - the money to operate a stock company may come from private funds or through a public sale of a stock 2. Mutual companies - a mutual corporation owner by its policyholders Government Insurers Governments in BC, SK, MB & QC provide compulsory auto insurance coverages to residents and may, in most of these provinces, compete directly with private insurers for additional or excess coverages. Three different methods of how insurance is distributed (how insurers sell their products) : 1. Direct Writing System 2. Independent Brokerage System 3. Agency System Direct Writing System - Producers are employees of the insurer and are limited to selling only those products provided by the insurer. - The insurer owns all of the business written and performs all administrative functions. Ex. RBC Insurance, Desjardin Insurance Company Agency System - Like direct writers, agents represent one insurer and the Facility Association, but agents are small business owners Ex. Cooperators General Insurance, State Farm Insurance Independent Brokerage System - Brokerage owners are not employees of insurers and, in most cases, choose to represent more than one insurance company. - The brokerage owns the business it produces and is responsible for providing policy holders with a number of client services which are compensated by the insurer via commission on all business written. Ex. Garriock Insurance, One Insurance, HUB International, Ranger Insurance MOST COMMON