Friday 30 January 2009

A.M. Best Assigns Ratings to PT Asuransi Jasa Indonesia (Persero)

A.M. Best Assigns Ratings to PT Asuransi Jasa Indonesia (Persero)

CONTACTS:

Analyst(s)

Terrence Wong
+852-2827-3403
terrence.wong@ambest.com

Arina Tek
+852-2827-3424
arina.tek@ambest.com

Public Relations

Jim Peavy
+(1) 908 439 2200, ext. 5644
james.peavy@ambest.com

Rachelle Morrow+(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK, N.J., JANUARY 29, 2009A.M. Best Co. has assigned a financial strength rating of B++ (Good) and an issuer credit rating of "bbb" to PT Asuransi Jasa Indonesia (Persero) (Jasindo) (Indonesia). The outlook for both ratings is stable.The ratings reflect Jasindo's solid track record of operating performance, sound liquidity, diversified short-tailed insurance book and sound overall operating profitability. The ratings also acknowledge the company's market presence in Indonesia and initiative in expanding its personal lines book. Jasindo is entirely owned by the government of the Republic of Indonesia. Given its long operating history, the company has accumulated a diversified book of business. In addition to using the conventional intermediary channels, Jasindo disseminates its risk products through banking institutions as well as direct channels, which include 50 branch offices and 39 sales representative offices spread throughout Indonesia and one overseas branch office in Labuan, Malaysia. Jasindo achieved an average premium growth of 14.3% over the past five years from 2003 to 2007, notwithstanding a slight premium contraction in 2007. With its leading position in aviation, energy and marine hull, the company has captured more than 10% market share, ranking it second in the Indonesian non-life market. Jasindo's risk-based capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), is commensurate with the assigned ratings, although further business growth could potentially put a strain on the company's financial strength. Jasindo maintains sound liquidity within its invested assets to support potential claims arising from its insurance book. Approximately 30.8% of Jasindo's total assets in 2007 were allocated in cash and time deposits. In light of the recent financial turmoil, Jasindo's investments remained sound for the first nine months of 2008, partially due to its prudent asset mix.Offsetting factors include volatile net claim experience, a relatively high expense ratio and concentration risk associated with its dependence on several key clients. The ratings also recognize the exposure to catastrophe perils and the intensifying market competition.Claims experience from aviation, marine hull, energy and property has exacerbated the company's underwriting volatility over the past five years. The company's overall net loss ratio consistently trended upward from 36.9% in 2003 to 52.9% in 2007. Regardless of the inflow reinsurance commission from reinsurers, Jasindo's expense ratio was high relative to that of its Asian peers. A high cost structure along with a volatile underwriting result undermined the stability of Jasindo's underwriting profitability, although a favorable investment return enhanced the company's overall operating profitability in recent years. Jasindo is subject to the concentration risk in terms of premium source associated with its reliance on a few major corporate clients. Nonetheless, to achieve a better spread of risk and mitigate potential underwriting volatility in relation to its corporate book, Jasindo plans to further expand its retail book going forward. In view of the current competitive market landscape, Jasindo's ability to grow its personal lines book with a profitable result will be crucial in determining the sustainability of its underwriting margin.As with other non-life market participants in Indonesia, the company is exposed to various catastrophic perils such as volcanic eruptions and tsunamis. Jasindo is heavily dependent on reinsurance coverage as a means to protect its capital base against undue catastrophic risk. For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center. The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at Best's Rating Methodology. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

View a list of companies related to this press release. The list will include Best's Ratings along with links to additional company specific information including related news and reports.

A.M. Best’s credit ratings are independent and objective opinions, not statements of fact. A.M. Best is not an Investment Advisor, does not offer investment advice of any kind, nor does the company or its Ratings Analysts offer any form of structuring or financial advice. A.M. Best’s credit opinions are not recommendations to buy, sell or hold securities, or to make any other investment decisions. A.M. Best receives compensation for interactive rating services provided to organizations that it rates. A.M. Best may also receive compensation from rated entities for non-rating related services or products offered by A.M. Best. A.M. Best does not offer consulting or advisory services. For more information regarding A.M. Best’s rating process, including handling of confidential (non-public) information, independence, and avoidance of conflicts of interest, please read the A.M. Best Code of Conduct.

Copyright © 2008 by A.M. Best Company, Inc.

ALL RIGHTS RESERVED No part of this report may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. Refer to our terms of use for additional details.

***
Our mother earth is in need of help.
We actually can do a little help.
Think twice before printing this message.
-
http://www.belajar-asuransi.tk
***

Bapepam Ubah Syarat Kelulusan Direksi dan Komisaris Asuransi

Source: detikfinance.com

Bapepam LK mengubah aturan syarat kelulusan direksi dan komisaris perusahaan asuransi. Dengan perubahan ini perusahaan asuransi diharapkan akan dikelola dan diawasi oleh prefesional yang memiliki kompetensi dan integritas yang tinggi.

Selain itu, perubahan ini dimaksudkan agar penilaian kemampuan dan kepatutan anggota direksi dan dewan komisaris asuransi lebih efektif, efisien dan obyektif dan selaras dengan Peraturan Menteri Keuangan Nomor 78/PMK.O5/2007 tentang Penilaian Kemampuan dan Kepatutan bagi Direksi dan Komisaris Perusahaan Perasuransian.

Perubahan peraturan ini tertuang dalam menyempurnakan sekaligus menggantikan Keputusan Direktur Jenderal Lembaga Keuangan Nomor 3603/LK/2004 tentang Pedoman Penilaian Kemampuan dan Kepatutan bagi Direksi dan Komisaris Perusahaan Perasuransian.

Ketua Bapepam LK Fuad Rahmany dalam siaran persnya, Kamis (29/1/2009) menjelaskan, aturan ini mengubah syarat kelulusan direksi dan komisaris asuransi. Setiap pihak bisa lulus bila memperoleh penilaian:

a. untuk direksi, memperoleh minimal nilai faktor kompetensi sebesar 65% dari total nilai faktor kompetensi dan hasil penilaian faktor integritas sebesar 65% dari total nilai faktor integritas serta hasil penjumlahan nilai faktor kompetensi daan nilai faktor integritas minimal sebesar 65 dan tidak terdapat nilai 0 pada faktor integritas.

b. untuk kornisaris, memperoleh minimal nilai faktor kornpetensi sebesar 60% dari total nilai fak'tor kompetensi dan hasil penilaian faktor integritas sebesar 75 % dari total nilai faktor integritas serta hasil penjumlahan nilai faktor kompetensi dan nilai faktor integritas minimal sebesar 65 dan tidak terdapat nilai 0 pada faktor integritas.

Sementara karakteristik kelulusan bagi direksi dibagi menjadi:

1. Bagi pihak yang dinilai yang menjabat sebagai direktur yang membidangi teknik diklasifikasikan Lulus apabila telah memenuhi 100% dari persyaratan seperti tertulis di atas.

2. Bagi pihak yang dinilai yang menjabat sebagai direktur utama diklasifikasikan Lulus apabila telah memenuhi 95% dari persyaratan sebagaimana dimaksud pada huruf a.

3. Bagi pihak yang dinilai yang menjabat sebagai direktur yang membidangi keuangan atau akuntansi diklasifikasikan Lulus apabila telah memenuhi 90% dari persyaratan sebagaimana dimaksud pada huruf a.

4. Bagi pihak yang dinilai yang menjabat sebagai direktur yang membidangi pemasaran, kehumasan, personalia, SDM atau umum diklasifikasikan Lulus apabila telah memenuhi 85% dari persyaratan.

***
Our mother earth is in need of help.
We actually can do a little help.
Think twice before printing this message.
-
http://www.belajar-asuransi.tk
***

Tuesday 27 January 2009

Asuransi Jasindo Menargetkan Peningkatan Premi di tahun 2009

PT Asuransi Jasa Indonesia (Jasindo) Menargetkan Peningkatan Premi pada 2009. Menurut Direktur Utama Jasindo Eko Budiwiyono, peningkatan laba itu didasari naiknya class of busines Jasindo, dan perolehan laba sektor ritel yang cukup memberikan kontribusi.

Pada 2008, laba Jasindo mencapai Rp. 106 miliar atau naik 18 persen. Hal itu disebabkan oleh kenaikan premi yang lebih tinggi 18 persen dari 2007 dan pertanggungan lebih baik sehingga tingkat klaim bisa dikendalikan. ”Kita juga melakukan proses efisiensi sehingga lebih menghemat baya,” katanya. Ke depan, Jasindo akan lebih menggenjot segmen ritel yang selama ini mencapai 25 persen dari yang dtangani Jasindo, dan sisanya tertanggung korporasi sebesar 75 persen. Dalam lima tahunke depan, porsi ritel akan ditingkatkan menjadi 35 persen. ”Korporasi risikonya besar sekali, oleh karena itu korporasi kita akan reasuransikan ke perusahaan luar negeri,” katanya. Dalam mengantisipasi kondisi krisis global, yang diduga akan berimbas pada perseroan, Jasindo akan lebih berhati – hati pengelolaan risiko. Dia menyontohkan untuk penutupan satu perusahaan penerbangan, membutuhkan jutaan dollar sehingga harus dicover dengan reasuransi. ”Kita memilih rating tinggi untuk perusahaan reasuransi,” katanya.

Dapat ditambahkan bahwa produksi premi Jasindo di tahun 2008 lalu mencapai Rp.2,58 triliun.

Source: www.jasindo.co.id @ 27/01/2009

***
Our mother earth is in need of help.
We actually can do a little help.
Think twice before printing this message.
-
http://www.belajar-asuransi.tk
***

Monday 26 January 2009

Premi Asuransi Jasindo tahun 2008 sebesar Rp. 2,56 Triliun

PT Asuransi Jasa Indonesia (Persero), atau yang lebih dikenal sebagai Asuransi Jasindo, berhasil membukukan kenaikan premi bruto sebesar 18,5%. Pada tahun 2007 Jasindo membukukan premi sebesar Rp. 2,16 triliun, sedangkan di tahun 2008 Jasindo berhadil membukukan premi sebesar Rp. 2,56 triliun. Kenaikan ini bersumber dari tiga pos perushaan tersebut yaitu korporasi, ritel dan syariah.

Direktur Utama Asuransi Jasindo Eko Budiwiyono mengutarakan pertumbuhan premi paling tinggi masih di pasar korporasi yang naik sebesar 20,6% menjadi Rp. 2,04 triliun, sedangkan untuk pasar ritel hanya sekitar Rp. 518 miliar atau tumbuh sebesar 10,5%.

"Saat ini, komposisi premi memang masih dominan di korporasi karena sejak awal perusahaan fokus di sana. Namun ke depan porsi ritel akan diperbesar agar menjadi lebih seimbang," demikian pernyataan Dirut yang juga terpilih sebagai salah satu CEO terbaik di Indonesia, saat jumpa pers di Kantor Pusat Asuransi Jasindo di Jakarta.

Eko menuturkan pihaknya juga mengalami peningkatan klaim asuransi menjadi Rp. 1,1 triliun dari 2007 sebesar Rp. 950 miliar. Kenaikan ini umumnya bersumber dari klaim akibat bencana alam dan kebakaran.inimalnya tumbuh sebesar 18% menjadi Rp. 106 miliar dari sebelumnya sebesar Rp. 90 miliar. Pertumbuhan ini menunjukkan kinerja baik yang dilakukan Manajemen Jasindo, utamanya dalam hal pengelolaan risiko.

Direktur Keuangan Jasindo Solihah mengatakan pengembangan investasi pada tahun lalu mencapai Rp850 miliar dengan komposisi terbesar masih pada deposito sekitar 45% dan sisanya dikembangkan dalam produk reksa dana, obligasi dan penyertaan langsung.

Hasil pengembangan investasi pada akhir 2008, ujarnya, mengalami penurunan menjadi Rp65 miliar dibandingkan dengan tahun sebelumnya sebesar Rp107 miliar karena pasar modal yang bergejolak.

"Tahun ini, perseroan masih akan memperbesar pengembangan investasi pada deposito menjadi sekitar 55% menyusul instrumen investasi yang masih sangat fluktuatif sehingga perlu lebih konservatif."

Pada kesempatan itu, Asuransi Jasindo secara resmi melakukan pemisahan unit syariahnya dengan membentuk Unit Usaha Takaful dalam rangka menggenjot pertumbuhan premi di pasar syariah pada tahun ini yang ditargetkan sebesar Rp50 miliar. Walaupun saat ini UUT masih dibentuk setara Biro di Kantor Pusat Jasindo, namun ke depannya diharapkan mampu mengembangkan diri menjadi sebuah Divisi, atau menjadi sebuah SBU tersendiri.

Eko mengatakan selama ini perseroan menggarap pasar asuransi syariah melalui Takaful Jasindo yang masih terintegrasi dengan konvensional sehingga perlu dipisahkan untuk memaksimalkan kinerja bisnisnya.

"Kami melihat permintaan pasar asuransi syariah semakin besar sehingga perseroan perlu lebih fokus menggarapnya. Untuk itu, pada 10 November 2008 dibantuk Unit Usaha Takaful untuk memaksimalkan bisnis asuransi syariah khususnya di sektor ritel," ujarnya.

Eko mengutarakan pertumbuhan bisnis asuransi syariah sampai akhir 2008 mencapai Rp22,5 miliar dan sampai pada 2010 diproyeksikan bisa mencapai Rp100 miliar.

Dia menuturkan pihaknya telah menyuntikkan modal kerja untuk Takaful sebesar Rp. 9,66 miliar melebihi ketentuan modal minimal yang ditetapkan dalam PP No.39/2008 sebesar Rp. 5 miliar per akhir tahun 2008 lalu.

"Selama kurun waktu 4 tahun, Jasindo Takaful telah berkembang menjadi 33 kantor cabang dari sebelumnya sebanyak 19 kantor cabang, dengan pertumbuhan bisnis rata-rata 27,4% per tahun," ujar Eko.

Dikutip dari berbagai sumber: Press Release Asuransi Jasindo, Bisnis Indonesia, Kontan.

Climate Change Risk is Highest for Jakarta

The Indonesian capital, Jakarta, is the most vulnerable to climate change of all cities in Southeast Asia, reports The Jakarta Post citing the Singapore-based Economy and Environment Program for Southeast Asia (EEPSEA).

The EEPSEA report, prepared by economists Arief Anshory Yusuf and Herminia Francisco, reveals Jakarta is vulnerable to all types of climate-change related disasters except for tropical storms. "It is frequently exposed to regular flooding but most importantly, it is highly sensitive because it is among the most densely-populated regions in Southeast Asia."

The study also shows that all regions in the Philippines, Vietnam's Mekong River Delta, Cambodia, North and East Laos and Bangkok are vulnerable.

Thailand and Malaysia are the most capable of adapting to the impact of climate change, according to the report. "Overall, the areas with relatively high adaptive capacities are in Thailand, Malaysia and Vietnam."

EEPSEA, established in 1993, supports research and training in environmental and economics studies. It is backed by several overseas development agencies.

Source: Asia Insurance Review

Sunday 25 January 2009

Peluang Asuransi Syariah masih Terbuka

Bisnis keuangan berbasis syariah terutama untuk asuransi masih menjadi salah satu jalur usaha yang berpeluang besar memanfaatkan situasi krisis keuangan global.

Pasalnya, bisnis itu dituntut untuk membuat produk yang taylor-made dan terjangkau dengan daya beli masyarakat. Selain itu, produk asuransi syariah yang mengandung unsur saving, protection, transparan, selalu dilakukan dengan prinsip kehati-hatian.

Presiden Direktur PT Asuransi Syariah Mubarakah, Salim Al Bakry mengatakan, di tengah krisis keuangan global, dunia sedang mencari alternatif solusi atas krisis yang dialami akibat kapitalisme yang sudah bangkrut. Alternatif itu dengan merambah bisnis syariah.

"Ini ditandai dengan berdirinya institusi syariah di Inggris, Jerman, Hongkong, Kanada, Singapura, dan berbagai negara lainnya," kata Salim di Jakarta.

Sebagai satu-satunya asuransi syariah yang murni syariah dan sahamnya dimiliki 100 persen modal dalam negeri, menurut Salim, PT Asuransi Syariah Mubarakah melihat peluang tersebut cukup baik untuk dimanfaatkan dalam upaya membesarkan asuransi berlandaskan syariah.

"Makanya, kami optimistis target premi tahun ini sebesar Rp 1,6 triliun bisa tercapai," ujar Salim.

Sedangkan Direktur Marketing PT Asuransi Syariah Mubarakah, Parmin S Wijoyo menambahkan, saat ini asuransi tersebut memiliki 32 cabang di seluruh Indonesia dengan 11 kantor pelayanan.

Tahun ini, perusahaan asuransi Syariah Mubarakah menargetkan menjadi asuransi terbesar se-Asia Tenggara.

"Target itu bisa tercapai pertama karena penduduk Indonesia mayoritas Muslim yang juga terbanyak di dunia, dan kedua pertumbuhan ekonomi yang Insya Allah akan membaik di masa depan serta ketetapan hati para pemegang saham yang tak akan menjual sahamnya kepada pihak asing," kata Parmin.

Sumber: Surya

Saturday 24 January 2009

Perhitungan Baru BTSM (Batas Tingkat Solvabilitas Minimum)

Badan Pengawas Pasar Modal dan Lembaga Keuangan (Bapepam-LK) menerbitkan aturan baru tentang Perhitungan Batas Tingkat Solvabilitas Minimum (BTSM). Ketentuan yang termuat dalam Peraturan Ketua Bapepam-LK Nomor PER-0 02/BL/2009 tersebut, berlaku untuk perusahaan asuransi dan perusahaan reasuransi.

BTSM merupakan jumlah minimum tingkat solvabilitas yang harus dimilik.i Nilainya harus memadai untuk menutup potensi kerugian, baik yang muncul dari resiko akibat penyimpangan atau deviasi pengelolaan kekayaan maupun kewajiban.

Ketua Bapepam-LK Fuad Rachmany mengatakan, aturan ini sudah dipersiapkan sebelum krisis. "Aturan ini bertujuan memastikan perhitungan BTSM lebih akurat," tutur Fuad, kemarin (21/1).

Dalam siaran pers Bapepam-LK disebutkan, penyesuaian perhitungan dan jumlah dana yang dibutuhkan untuk menanggulangi risiko atas komponen BTSM berlaku untuk perusahaan asuransi konvensional, perusahaan asuransi yang menjual produk terkait investasi, serta perusahaan asuransi syariah.

Ada lima komponen dalam perhitungan BTSM perusahaan asuransi konvensional. Masing-masing adalah kegagalan pengelolaan kekayaan, ketidakseimbangan antara nilai kekayaan dan kewajiban dalam tiap jenis mata uang. Berikutnya, perbedaan antara beban klaim perkiraan dan yang sesungguhnya. Terakhir, kurangnya premi akibat perbedaan asumsi hasil investasi dan hasil sesungguhnya.

Adapun penyesuaian perhitungan dalam asuransi syariah hanya berlaku untuk perusahaan asuransi yang sudah memisahkan pencatatan dana perusahaan dan dana tabaru. Komponen perhitungan dana tabaru yang mengalami perubahan.

Peraturan tersebut mulai berlaku untuk penyusunan laporan keuangan perusahaan asuransi dan reasuransi per 31 Desember 2008.

Ketua Umum Asosiasi Asuransi Syariah Indonesia (AASI) M. Shaifie Zein belum bersedia mengomentari aturan asuransi dan reasuransi yang baru ini. "Nanti saja, kalau saya sudah memegang peraturan itu," tutur Shaifie.

Dikutip dari KONTAN - Magdalena Sihite

Saturday 17 January 2009

AAUI Cabut Uji Materi PP 39 / 2008

Jumat, 16/01/2009

AAUI cabut uji materi PP No. 39/2008

AAUI cabut uji materi PP No. 39/2008JAKARTA: Asosiasi Asuransi Umum Indonesia (AAUI) akhirnya mencabut uji materi atas PP No. 39/2008 di Mahkamah Agung pascapenerbitan PP No. 81/2008 walaupun tidak sepenuhnya mengakomodasi keberatan asosiasi terkait dengan dana jaminan. (lihat tabel)

PP No. 81/2008 tentang Penyelenggaraan Usaha Perasuransian mengubah jadwal pemenuhan persyaratan permodalan untuk perusahaan asuransi dan reasuransi yang diatur dalam PP No. 39/2008.

Usulan dan keptusan penahapan permodalan (Rp miliar)
Tahun	PP 39/2008		Usulan AAUI		PP 81/2008
	Asuransi	Reasuransi	Asuransi	Reasuransi	Asuransi	Reasuransi
2008	40	100
2009	70	150
2010	100	200			40	100
2011			40	100
2012					70	150
2013			70	150
2014					100	200
2015			100	200

“Dengan perubahan ini maka tim ad hoc dan AAUI hari ini akan mencabut uji materi di MA,” tutur Ketua AAUI Kornelius Simanjuntak dalam jumpa pers di Jakarta, kemarin.

Kornelius mengatakan PP No. 81/2008 itu telah mengakhiri kekhawatiran dan kecemasan terjadinya likuidasi terhadap perusahaan asuransi kecil dan juga meningkatnya pengangguran.

Dia mengakui uji materi yang diajukan asosiasi bukan hanya menyangkut besaran dan penahapan permodalan yang tercantum dalam PP No. 39/2008 pasal 6A ayat 1, Pasal 6B ayat 1, dan pasal 6B ayat 2, tetapi juga sejumlah pasal lain.

Pasal lain yang menjadi keberatan AAUI adalah pasal 7 ayat 1 tentang kewajiban perusahaan asuransi dan reasuransi memiliki dana jaminan sekurang-kurangnya 20% modal disetor minimum sebagaimana yang dimaksud dalam pasal 6A ayat 1.

Meski PP No. 81/2008 tidak mengakomodasi dana jaminan, AAUI memutuskan mencabut uji materi di MA.

“Dengan mundurnya pelaksanaan pemenuhan modal maka pemenuhan dana jaminan juga mundur jadi 2010, sehingga kami punya cukup waktu untuk mengamati perkembangan,” ujarnya.

AAUI mengharapkan agar pemerintah tidak terburu-buru dalam membuat kebijakan terutama yang berdampak serius terhadap pelaku bisnis khususnya di bidang keuangan.

“Kami tidak keberatan dibina, tetapi tentu aturan itu tidak menyulitkan kami,” ujar Ketua Tim Ad Hoc PP No.39/2008 bentukan AAUI Syarifuddin Harahap.

Oleh Hanna Prabandari
Bisnis Indonesia

Tuesday 13 January 2009

Tahukah anda..... aktifitas pertama reasuransi?

Tahukah anda, di tahun 1370 sudah terjadi transaksi reasuransi pertama.

Menurut catatan sejarah, tercatat pada tahun tersebut sudah terjadi kontrak Reasuransi (facultative) untuk kali pertama di dunia. Ketika itu, Tertanggung membeli polis asuransi pengangkutan (cargo) ke sebuah perusahaan asuransi di Italia (Pengasuh tidak berhasil mendapatkan nama perusahaan asuransi tsb - red). Polis ini memberikan pertanggungan atas pengiriman harta-benda yang akan dikirim dari kota Genoa (Genova) - Italia menuju Sluys di wilayah Flanders (sekarang di wilayah Belanda - Belgia).

Perusahaan asuransi tadi (sebut saja ITL) kemudian menyadari tingginya tingkat risiko yang akan dihadapi dalam perjalanan laut dari Genoa ke Sluys. ITL secara dasar memikirkan tingkat risiko yang akan dihadapi dan dilakukan pemilahan risiko, untuk selanjutnya membeli proteksi reasuransi secara individual (baca: facultative - red). Proteksi ini hanya untuk menjamin risiko ini dan hanya untuk menjamin sebagian risiko saja.

Risiko perjalanan laut dari Genoa sampai ke wilayah Cadiz di Spanyol, relatif masih dianggap aman (catat bahwa ini masih laut dangkal dan bukan merupakan open sea - red). ITL untuk itu masih berani menanggung sendiri risiko pengangkutan samapi wilayah ini.

Untuk perjalanan selanjutnya, dari Cadiz ke Sluys, yang harus melalui samudra terbuka (open sea) dan laut dalam, jelas mengandung risiko lebih tinggi, ITL membeli proteksi reasuransi (facultative) di atas.

Dari peristiwa di atas, tercatat bahwa Asuradur sudah menerapkan sebuah prinsip manajemen risiko dengan baik, dimana Asuradur sudah melakukan selection of risk dan menentukan degree of rizk / hazard.

Untuk risiko yang lebih baik (relatif aman), Asuradur berani (dan confident) untuk menanggung sendiri risiko tsb. Sedangkan untuk risiko yang lebih tinggi (hazardous) dan tidak terukur, Asuradur tidak berani untuk menanggungnya sendiri, ia mengalihkannya ke pihak lain (dalam hal ini Reasuradur).

Prinsip ini terus berlaku hingga masa kini. Sebagai reminder, proses manajemen risiko merupakan dasar dari aktifitas industri asuransi dan reasuransi.

EHN

Wednesday 7 January 2009

History of Insurance - Wikipedia

History of insurance

From Wikipedia, the free encyclopedia

History of insurance refers to the development of a modern laws and market in insurance against risks. In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future.

Ancient world

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Nowruz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."

A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Early modern

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.

Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance..This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina in 1732, but it provided only fire insurance.

Industrial revolution

Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.

The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized a similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived.

Prior to the American Civil War, many insurance companies in the United States insured the lives of slaves for their owners. In response to bills passed in California in 2001 and in Illinois in 2003, the companies have been required to search their records for such policies. New York Life for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation.

Modern health insurance

Accident insurance was first offered in the United States by the Franklin Health Assurance Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad and steamboat accidents. Sixty organizations were offering accident insurance in the US by 1866, but the industry consolidated rapidly soon thereafter. While there were earlier experiments, the origins of sickness coverage in the US effectively date from 1890. The first employer-sponsored group disability policy was issued in 1911.

Before the development of medical expense insurance, patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.

Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations.The predecessors of today's Health Maintenance Organizations (HMOs) originated beginning in 1929, through the 1930s and on during World War II.

In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks.

Source: Wikipedia - the free encyclopedia, http://en.wikipedia.org/wiki/History_of_insurance

Tuesday 6 January 2009

Reinsurance - from Wikipedia

Reinsurance

From Wikipedia, the free encyclopedia

Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Individuals and corporations obtain insurance policies to provide protection for various risks (hurricanes, earthquakes, lawsuits, collisions, sickness and death, etc.). Reinsurers, in turn, provide insurance to insurance companies.

Functions of reinsurance

There are many reasons why an insurance company would choose to reinsure as part of its responsibility to manage a portfolio of risks for the benefit of its policyholders and investors.

Risk transfer

The main use of any insurer that might practice reinsurance is to allow the company to assume greater individual risks than its size would otherwise allow, and to protect a company against losses. Reinsurance allows an insurance company to offer higher limits of protection to a policyholder than its own assets would allow. For example, if the principal insurance company can write only $10 million in limits on any given policy, it can reinsure (or cede) the amount of the limits in excess of $10 million.

Reinsurance’s highly refined uses in recent years include applications where reinsurance was used as part of a carefully planned hedge strategy.

Income smoothing

Reinsurance can help to make an insurance company’s results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage.

Surplus relief

An insurance company's writings are limited by its balance sheet (this test is known as the solvency quota share basis and is an efficient way of not having to turn clients away or raise additional capital. margin). When that limit is reached, an insurer can do one of the following: stop writing new business, increase its capital, or buy "surplus relief" reinsurance. Buying reinsurance is usually done on a

Arbitrage

The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than what they charge the insured for the underlying risk.

Reinsurer's Expertise

The insurance company may want to avail of the expertise of a reinsurer in regard to a specific (specialised) risk or want to avail of their rating ability in odd risks.

Creating a manageable and profitable portfolio of insured risks

By choosing a particular type of reinsurance method, the insurance company may be able to create a more balanced and homogenous portfolio of insured risks. This would lend greater predictability to the portfolio results on net basis (after reinsurance) and would be reflected in income smoothing. While income smoothing is one of the objectives of reinsurance arrangements, the mechanism is by way of balancing the portfolio.

Managing cost of capital for an insurance company

By getting a suitable reinsurance, the insurance company may be able to substitute "capital needed" as per the requirements of the regulator for premium written. It could happen that the writing of insurance business requires x amount of capital with y% of cost of capital and reinsurance cost is less than x*y%. Thus more unpredictable or less frequent the likelihood of an insured loss, more profitable it can be for an insurance company to seek reinsurance.

Types of reinsurance

Proportional

Proportional reinsurance (the types of which are quota share & surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses. In addition, the reinsurer will allow a "ceding commission" to the insurer to compensate the insurer for the costs of writing and administering the business (agents' commissions, modeling, paperwork, etc.).

The insurer may seek such coverage for several reasons. First, the insurer may not have sufficient capital to prudently retain all of the exposure that it is capable of producing. For example, it may only be able to offer $1 million in coverage, but by purchasing proportional reinsurance it might double or triple that limit. Premiums and losses are then shared on a pro rata basis. For example, an insurance company might purchase a 50% quota share treaty; in this case they would share half of all premium and losses with the reinsurer. In a 75% quota share, they would share (cede) 3/4 of all premiums and losses.

The other form of proportional reinsurance is surplus share or surplus of line treaty. In this case, a retained “line” is defined as the ceding company's retention - say $100,000. In a 9 line surplus treaty the reinsurer would then accept up to $900,000 (9 lines). So if the insurance company issues a policy for $100,000, they would keep all of the premiums and losses from that policy. If they issue a $200,000 policy, they would give (cede) half of the premiums and losses to the reinsurer (1 line each). The maximum underwriting capacity of the cedant would be $ 1,000,000 in this example. Surplus treaties are also known as variable quota shares.

Non-proportional

Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss of $1 million for any loss which may occur and they purchase a layer of reinsurance of $4 million in excess of $1 million. If a loss of $3 million occurs, the insurer pays the $3 million to the insured, and then recovers $2 million from its reinsurer(s). In this example, the reinsured will retain any loss exceeding $5 million unless they have purchased a further excess layer (second layer) of say $10 million excess of $5 million.

The main forms of non-proportional reinsurance are excess of loss and stop loss.

Excess of loss reinsurance can have three forms - "Per Risk XL" (Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), and "Aggregate XL". In per risk, the cedant’s insurance policy limits are greater than the reinsurance retention. For example, an insurance company might insure commercial property risks with policy limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the recovery of $1 million from the reinsurer.

In catastrophe excess of loss, the cedant’s per risk retention is usually less than the cat reinsurance retention (this is not important as these contracts usually contain a 2 risk warranty i.e. they are designed to protect the reinsured against catastrophic events that involve more than 1 policy). For example, an insurance company issues homeowner's policies with limits of up to $500,000 and then buys catastrophe reinsurance of $22,000,000 in excess of $3,000,000. In that case, the insurance company would only recover from reinsurers in the event of multiple policy losses in one event (i.e., hurricane, earthquake, flood, etc.).

Aggregate XL affords a frequency protection to the reinsured. For instance if the company retains $1 million net any one vessel, the cover $10 million in the aggregate excess $5 million in the aggregate would equate to 10 total losses in excess of 5 total losses (or more partial losses). Aggregate covers can also be linked to the cedant's gross premium income during a 12 month period, with limit and deductible expressed as percentages and amounts. Such covers are then known as "Stop Loss" or annual aggregate XL.

Risk-attaching Basis

A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written.

All claims from cedant underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from cedant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.

Loss-occurring Basis

A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered.

As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.

Claims-made Basis

A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred.

Contracts

Most of the above examples concern reinsurance contracts that cover more than one policy (treaty). Reinsurance can also be purchased on a per policy basis, in which case it is known as facultative reinsurance. Facultative reinsurance can be written on either a quota share or excess of loss basis. Facultative reinsurance is commonly used for large or unusual risks that do not fit within standard reinsurance treaties due to their exclusions. The term of a facultative agreement coincides with the term of the policy. Facultative reinsurance is usually purchased by the insurance underwriter who underwrote the original insurance policy, whereas treaty reinsurance is typically purchased by a senior executive at the insurance company.

Reinsurance treaties can either be written on a “continuous” or “term” basis. A continuous contract continues indefinitely, but generally has a “notice” period whereby either party can give its intent to cancel or amend the treaty within 90 days. A term agreement has a built-in expiration date. It is common for insurers and reinsurers to have long term relationships that span many years.

Markets

Most reinsurance placements are not placed with a single reinsurer but are shared between a number of reinsurers. For example a $30,000,000 excess of $20,000,000 layer may be shared by 30 or more reinsurers. The reinsurer who sets the terms (premium and contract conditions) for the reinsurance contract is called the lead reinsurer; the other companies subscribing to the contract are called following reinsurers.

About half of all reinsurance is handled by reinsurance brokers who then place business with reinsurance companies. The other half is with “direct writing” reinsurers who have their own production staff and thus reinsure insurance companies directly. In Europe reinsurers write both direct and brokered accounts.

Using game-theoretic modeling, Professors Michael R. Powers (Temple University) and Martin Shubik (Yale University) have argued that the number of active reinsurers in a given national market should be approximately equal to the square-root of the number of primary insurers active in the same market.^[1] Econometric analysis has provided empirical support for the Powers-Shubik rule.^[2]

Insurers (that is to say, reinsureds) tend to choose their reinsurers with great care as they are exchanging insurance risk for credit risk. Risk managers monitor reinsurers' financial ratings (S&P, A.M. Best, etc.) and aggregated exposures regularly.

Top Reinsurers

1. Münchener Rück - Germany (31,4 in bn.USD Gross Written Premiums)
2. Swiss Re- Switzerland (30,3)
3. Berkshire Hathaway / General Re - USA (n.a.)
4. Hannover Rück - Germany (12)
5. SCOR – France (6,9)
6. Reinsurance Group of America – USA (5,7)
7. Transatlantic Re – USA (4,2)
8. Everest Re – Bermuda (4,0)
9. Partner Re – Bermuda (3,8)
10. XL Re – Bermuda (3,4)

(Based on the last company figures)

Retrocession

Reinsurance companies themselves also purchase reinsurance and this is known as a retrocession. They purchase this reinsurance from other reinsurance companies. The reinsurance company who sells the reinsurance in this scenario are known as “retrocessionaires.” The reinsurance company that purchases the reinsurance is known as the “retrocedent.”

It is not unusual for a reinsurer to buy reinsurance protection from other reinsurers. For example, a reinsurer that provides proportional, or pro rata, reinsurance capacity to insurance companies may wish to protect its own exposure to catastrophes by buying excess of loss protection. Another situation would be that a reinsurer which provides excess of loss reinsurance protection may wish to protect itself against an accumulation of losses in different branches of business which may all become affected by the same catastrophe. This may happen when a windstorm causes damage to property, automobiles, boats, aircraft and loss of life, for example.

This process can sometimes continue until the original reinsurance company unknowingly gets some of its own business (and therefore its own liabilities) back. This is known as a “spiral” and was common in some specialty lines of business such as marine and aviation. Sophisticated reinsurance companies are aware of this danger and through careful underwriting attempt to avoid it.

In the 1980s, the London market was badly affected by the creation of reinsurance spirals. This resulted in the same loss going around the market thereby artificially inflating market loss figures of big claims (such as the Piper Alpha oil rig). The LMX spiral (as it was called) has been stopped by excluding retrocessional business from reinsurance covers protecting direct insurance accounts.

It is important to note that the insurance company is obliged to indemnify its policyholder for the loss under the insurance policy whether or not the reinsurer reimburses the insurer. Many insurance companies have experienced difficulties by purchasing reinsurance from companies that did not or could not pay their share of the loss (these unpaid claims are known as uncollectibles). This is particularly important on long-tail lines of business where the claims may arise many years after the premium is paid.

Source: Wikipedia - the free encyclopedia, http://en.wikipedia.org/wiki/Reinsurance

Monday 5 January 2009

DETIK: Perusahaan Asuransi Didorong Berkonsorsium Penuhi Modal Minimum

Perusahaan Asuransi Didorong Berkonsorsium Penuhi Modal Minimum

Perusahaan asuransi skala kecil didorong untuk membentuk konsorsium untuk memenuhi persyaratan modal minium yang ditetapkan pemerintah. Melalui PP 81 tahun 2008 pada 31 Desember 2008, semua perusahaan asuransi harus memiliki modal minium Rp 40 miliar pada 2010 dan Rp 100 miliar pada 2014.

Demikian disampaikan Ketua Tim Ad hoc PP 39 tahun 2008, Syarifudin Harahap dalam jumpa pers di Gedung Nasional-Re, Jalan Cikini Raya No 99, Jakarta, Senin (5/12/2009).

"Dua tahun kami akan dorong perusahaan-perusahan agar perbaikin kinerjanya. Dengan begitu perusahaan asuransi menengah dan kecil banyak yang selamat karena ketentuan tersebut dapat dipenuhi," jelasnya.

Salah satunya cara mendorong kinerja perusahaan tersebut, menurut Syarifudin, yaitu dengan membentuk konsorsium. Melalui konsorsium ini, para perusahan asuransi dapat memperbaiki sistem adminsitrasinya sehingga bisa memperkuat keuangan.

"Sehingga laba perusahaan asuransi ini bisa meningkat kalau bisa diatas tingkat bunga obligasi sehingga para investor tertarik membeli saham kalau mereka membutuh modal," paparnya.

Hal senada disampaikan Ketua AAUI Kornelius Simanjuntak. ia menghimbau agar 40 perusahaan asuransi yang merupakan anggota AAUI dapat menfaatkan waktu ini dengan sebaik-baiknya agar syarat modal tersebut dapat dipenuhi pada tahun 2010.

"Kalau ada anggota yang mengalami kesulitan, bisa kerja sama dengan anggota AAUI lain," jelasnya.

Terkait dengan Judicial review PP 39 tahun 2008 yang sudah diajukan AAUI ke Mahkamah Konstitusi, Kornelius menjelaskan pihaknya tidak akan mencabut judicial review tersebut.

"Dalam posisi sekarang, kita menunggu hasilnya karena proses hukum terus berjalan. Apalagi kami PP 81 juga belum kami terima," ungkapnya.

Dalam PP No. 39 tahun 2008 mengenai penyelenggaraan usaha perasuransian mewajibkan seluruh perusahaan asuransi memiliki modal minimum sebesar Rp 40 miliar pada akhir 2008 dan modal minimum Rp 100 miliar pada 2010.

Pemerintah merevisi PP 39 tahun 2008 tersebut, dengan menerbitkan PP No. 81 tahun 2008 pada 31 desember. Dalam PP tersebut mengatur seluruh perusahaan asuransi wajib memiliki modal minimum sebesar Rp 40 miliar pada 2010 dan modal minimum Rp 100 miliar harus dimiliki seluruh perusahan asuransi pada tahun 2014.

***
Our mother earth is in need of help.
We actually can do a little help.
Think twice before printing this message.
-
http://www.belajar-asuransi.tk
***

Risk Management (1)

Proses manajemen risiko:

1) Identifikasi Risiko - Risk Identification

2) Analisa Risiko - Risk Analyst

3) Kontrol Risiko - Risk Control

a) Kontrol Fisik - Physical Control
i) Menghindari Risiko - Risk Avoidance
ii) Mengurangi Risiko - Risk Reduction

b) Kontrol Finansial - Financial Control
i) Menanggung Risiko - Risk Retention
ii) Mengalihkan Risiko - Risk Transfer

4) Evaluasi Risiko - Risk Evaluation

EHN

Saturday 3 January 2009

Insurance - from Wikipedia

Insurance

From Wikipedia, the free encyclopedia

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, , called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

Principles of insurance

Commercially insurable risks typically share seven common characteristics.^[1]

A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.^[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.
Large Loss. The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer.
Affordable Premium. If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the U.S. Financial Accounting Standards Board standard number 113)
Calculable Loss. There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurer's appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

Indemnification

The technical definition of "indemnity" means to make whole again. There are two types of insurance contracts;

an "indemnity" policy and
a "pay on behalf" or "on behalf of"^[3] policy.

The difference is significant on paper, but rarely material in practice.

An "indemnity" policy will never pay claims until the insured has paid out of pocket to some third party; for example, a visitor to your home slips on a floor that you left wet and sues you for $10,000 and wins. Under an "indemnity" policy the homeowner would have to come up with the $10,000 to pay for the visitor's fall and then would be "indemnified" by the insurance carrier for the out of pocket costs (the $10,000)^[4].

Under the same situation, a "pay on behalf" policy, the insurance carrier would pay the claim and the insured (the homeowner) would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language^[5].

An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance 'policy'. Generally, an insurance contract includes, at a minimum, the following elements: the parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified" against the loss covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a 'claim' against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the 'premium'. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims—in theory for a relatively few claimants—and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses (i.e., reserves), the remaining margin is an insurer's profit.

Insurers' business model

Underwriting and investing

The business model can be reduced to a simple equation: Profit = earned premium + investment income - incurred loss - underwriting expenses.

Insurers make money in two ways: (1) through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insured parties.

The most complicated aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Of course, from the insurer's perspective, some policies are winners (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are losers (i.e., the insurer pays out more in claims and expenses than it receives in premiums and investment income).

An insurer's underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss.

Insurance companies also earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out.

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. ^[6]

Property and casualty insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the United States, due to unpredictable natural catastrophes, have exacerbated this trend.

Claims

Finally, claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for, though one hopes it will never need to be used. 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 claim 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 a thorough investigation of each claim, usually in close cooperation with the insured, determines its reasonable monetary value, and authorizes payment. Adjusting liability insurance claims is particularly difficult because there is a third party involved (the plaintiff who is suing the insured) who is under no contractual obligation to cooperate with the insurer and in fact may 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.

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.

History of insurance

In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union).

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.^[7] Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

Achaemenian monarchs of Iran were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system (commonly referred to as the Optional federal charter (OFC)) for insurance similar to that which oversees state banks and national banks.

Types of insurance

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

Business insurance can be any kind of insurance that protects businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owner's policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.^[8]

Auto insurance

A wrecked vehicle

Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage: (1) Property coverage pays for damage to or theft of your car. (2) Liability coverage pays for your legal responsibility to others for bodily injury or property damage. and (3) Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses. An auto insurance policy is comprised of six different kinds of coverage. Most countries require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements.

Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium. ^[9]

Home insurance

Home insurance provides compensation for damage or destruction of a home from disasters. In some geographical areas, the standard insurances excludes certain types of disasters, such as flood and earthquakes, that require additional coverage. Maintenance-related problems are the homeowners' responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.^[10]

Health

Almost all developed countries have government-supplied insurance for health

Health insurance policies by the National Health Service in the United Kingdom (NHS) or other publicly-funded health programs will cover the cost of medical treatments. Dental insurance, like medical insurance, is coverage for individuals to protect them against dental costs. In the U.S., dental insurance is often part of an employer's benefits package, along with health insurance. Most countries rely on public funding to ensure that all citizens have universal access to health care.

Disability

Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards.
Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work.
Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury.

Casualty

Casualty insurance insures against accidents, not necessarily tied to any specific property.

Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement.
Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss.

Life

Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.

Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.

In many countries, such as the U.S. and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

In U.S., the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation. A combination of low-cost term life insurance and a higher-return tax-efficient retirement account may achieve better investment return.

Property

This tornado damage to an Illinois home would be considered an "Act of God" for insurance purposes

Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.

Automobile insurance, known in the UK as motor insurance, is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the insured's vehicle itself. Throughout the United States an auto insurance policy is required to legally operate a motor vehicle on public roads. In some jurisdictions, bodily injury compensation for automobile accident victims has been changed to a no-fault system, which reduces or eliminates the ability to sue for compensation but provides automatic eligibility for benefits. Credit card companies insure against damage on rented cars.
- Driving School Insurance insurance provides cover for any authorized driver whilst undergoing tuition, cover also unlike other motor policies provides cover for instructor liability where both the pupil and driving instructor are equally liable in the event of a claim.
Aviation insurance insures against hull, spares, deductibles, hull wear and liability risks.
Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to equipment or machinery.
Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded.
Crop insurance "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease, for instance."^[11]
Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowners insurance policies do not cover earthquake damage. Most earthquake insurance policies feature a high deductible. Rates depend on location and the probability of an earthquake, as well as the construction of the home.
A fidelity bond is a form of casualty insurance that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
Flood insurance protects against property loss due to flooding. Many insurers in the U.S. do not provide flood insurance in some portions of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort.
Home insurance or homeowners' insurance: See "Property insurance".
Landlord insurance is specifically designed for people who own properties which they rent out. Most house insurance cover in the U.K will not be valid if the property is rented out therefore landlords must take out this specialist form of home insurance.
Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of the cargo that may be on them. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.
Surety bond insurance is a three party insurance guaranteeing the performance of the principal.
Terrorism insurance provides protection against any loss or damage caused by terrorist activities.
Volcano insurance is an insurance that covers volcano damage in Hawaii.
Windstorm insurance is an insurance covering the damage that can be caused by hurricanes and tropical cyclones.

Liability

Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured.

Directors and officers liability insurance protects an organization (usually a corporation) from costs associated with litigation resulting from mistakes made by directors and officers for which they are liable. In the industry, it is usually called "D&O" for short.
Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
Errors and omissions insurance: See "Professional liability insurance" under "Liability insurance".
Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.
Professional liability insurance, also called professional indemnity insurance, protects insured professionals such as architectural corporation and medical practice against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called malpractice insurance. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, Insurance agents, home inspectors, appraisers, and website developers.

Credit

Credit insurance repays some or all of a loan when certain things happen to the borrower such as unemployment, disability, or death.

Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt.

Other types

Collateral protection insurance or CPI, insures property (primarily vehicles) held as collateral for loans made by lending institutions.
Defense Base Act Workers' compensation or DBA Insurance provides coverage for civilian workers hired by the government to perform contracts outside the U.S. and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, Foreign Nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
Financial loss insurance protects individuals and companies against various financial risks. For example, a business might purchase coverage to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover the failure of a creditor to pay money it owes to the insured. This type of insurance is frequently referred to as "business interruption insurance." Fidelity bonds and surety bonds are included in this category, although these products provide a benefit to a third party (the "obligee") in the event the insured party (usually referred to as the "obligor") fails to perform its obligations under a contract with the obligee.
Kidnap and ransom insurance
Locked funds insurance is a little-known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required.
Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. See the Nuclear exclusion clause and for the United States the Price-Anderson Nuclear Industries Indemnity Act)
Pet insurance insures pets against accidents and illnesses - some companies cover routine/wellness care and burial, as well.
Pollution Insurance, which consists of first-party coverage for contamination of insured property either by external or on-site sources. Coverage for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.
Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction.
Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, personal liabilities, etc.

Insurance financing vehicles

Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other social organizations.^[12]
No-fault insurance is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident.
Protected Self-Insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.
Retrospectively Rated Insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
Formal self insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money. This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.
Reinsurance is a type of insurance purchased by insurance companies or self-insured employers to protect against unexpected losses. Financial reinsurance is a form of reinsurance that is primarily used for capital management rather than to transfer insurance risk.
Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is purchased by organizations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.

Closed community self-insurance

Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.

In the United Kingdom, The Crown (which, for practical purposes, meant the Civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.

Insurance companies

Insurance companies may be classified into two groups:

Life insurance companies, which sell life insurance, annuities and pensions products.
Non-life, General, or Property/Casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories.

Standard Lines
Excess Lines

In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature — coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are "mainstream" insurers. These are the companies that typically insure autos, homes or businesses. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies.

Excess line insurance companies (aka Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers not to be available through standard licensed insurers.

Insurance companies are generally classified as either mutual or stock companies. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century. Other possible forms for an insurance company include reciprocals, in which policyholders 'reciprocate' in sharing risks, and Lloyds organizations.

Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.

Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.

Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

heavy and increasing premium costs in almost every line of coverage;
difficulties in insuring certain types of fortuitous risk;
differential coverage standards in various parts of the world;
rating structures which reflect market trends rather than individual loss experience;
insufficient credit for deductibles and/or loss control efforts.

There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies.

Global insurance industry

Life insurance premia written in 2005

Non-life insurance premia written in 2005

Global insurance premiums grew by 8.0% in 2006 (or 5% in real terms) to reach $3.7 trillion due to improved profitability and a benign economic environment characterised by solid economic growth, moderate inflation and strong equity markets. Profitability improved in both life and non-life insurance in 2006 compared to the previous year. Life insurance premiums grew by 10.2% in 2006 as demand for annuity and pension products rose. Non-life insurance premiums grew by 5.0% due to growth in premium rates. Over the past decade, global insurance premiums rose by more than a half as annual growth fluctuated between 2% and 11%.

Advanced economies account for the bulk of global insurance. With premium income of $1,485bn, Europe was the most important region, followed by North America ($1,258bn) and Asia ($801bn). The top four countries accounted for nearly two-thirds of premiums in 2006. The U.S. and Japan alone accounted for 43% of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only around 10% of premiums. The volume of UK insurance business totalled $418bn in 2006 or 11.2% of global premiums. ^[13]

Controversies

Insurance insulates too much

By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer). This problem is known to the insurance industry as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.

For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by the insured. Even if a provider were so irrational as to want to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

Complexity of insurance policy contracts

Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.

For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, it should be noted that in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.

Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. An agent can represent more than one company.

An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

[edit] Redlining

Redlining is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.^[14]

All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available.^[15]

In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.

An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent. Thus, "discrimination" against (i.e., negative differential treatment of) potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently than younger people (i.e., a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.

What is often missing from the debate is that prohibiting the use of legitimate, actuarially sound factors means that an insufficient amount is being charged for a given risk, and there is thus a deficit in the system. The failure to address the deficit may mean insolvency and hardship for all of a company's insureds. The options for addressing the deficit seem to be the following: Charge the deficit to the other policyholders or charge it to the government (i.e., externalize outside of the company to society at large).

[edit] Insurance patents

Further information: Insurance patent

New asssurance products can now be protected from copying with a business method patent in the United States.

A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major U.S. auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134 ) and a Spanish independent inventor, Salvador Minguijon Perez (EP patent 0700009).

Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new U.S. patent applications in this area.

Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.

There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The rate at which patents have issued has steadily risen from 15 in 2002 to 44 in 2006. ^[16]

Inventors can now have their insurance U.S. patent applications reviewed by the public in the Peer to Patent program.^[17]

[edit] The insurance industry and rent seeking

Certain insurance products and practices have been described as rent seeking by critics.^{[citation needed]} That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products.^{[citation needed]} Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.

Criticism of insurance companies

Some people believe that modern insurance companies are money-making businesses which have little interest in insurance.^{[citation needed]} They argue that the purpose of insurance is to spread risk so the reluctance of insurance companies to take on high-risk cases (e.g. houses in areas subject to flooding, or young drivers) runs counter to the principle of insurance.^{[citation needed]}

Other criticisms include:

Insurance policies contain too many exclusion clauses. For example, some house insurance policies do not cover damage to garden walls.^{[citation needed]}
Many insurance companies now use call centres and staff attempt to answer questions by reading from a script.^{[citation needed]} It is difficult to speak to anybody with expert knowledge.^{[citation needed]} While policyholders find their premium payments decrease when dealing with companies who sacrifice the use of trained insurance agents, they also risk greater financial loss due to inadequate coverage protection.^{[citation needed]} Those companies who invest in educated insurance agents provide a valued service to the community. Policyholders who work with knowledgeable insurance agents are more likely to identify needs, evaluate options, purchase sufficient insurance protection, and minimize the risk of heavy financial loss for themselves and their family.^{[citation needed]}

Source: Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Insurance

Friday 30 January 2009

Tuesday 27 January 2009

Monday 26 January 2009

Sunday 25 January 2009

Saturday 24 January 2009

Saturday 17 January 2009

Tuesday 13 January 2009

Wednesday 7 January 2009

History of insurance

From Wikipedia, the free encyclopedia

Early modern

Industrial revolution

Modern health insurance

Tuesday 6 January 2009

Reinsurance

From Wikipedia, the free encyclopedia

Functions of reinsurance

Risk transfer

Income smoothing

Surplus relief

Arbitrage

Reinsurer's Expertise

Creating a manageable and profitable portfolio of insured risks

Managing cost of capital for an insurance company

Types of reinsurance

Proportional

Non-proportional

Risk-attaching Basis

Loss-occurring Basis

Claims-made Basis

Contracts

Markets

Top Reinsurers

Retrocession

Monday 5 January 2009

Saturday 3 January 2009

Insurance

From Wikipedia, the free encyclopedia

Principles of insurance

Indemnification

Insurers' business model

Underwriting and investing

Claims

History of insurance

Types of insurance

Auto insurance

Home insurance

Health

Disability

Casualty

Life

Property

Liability

Credit

Other types

Insurance financing vehicles

Closed community self-insurance

Insurance companies

Global insurance industry

Controversies

Insurance insulates too much

Complexity of insurance policy contracts

[edit] Redlining

[edit] Insurance patents

[edit] The insurance industry and rent seeking

Criticism of insurance companies

Links

Visitors

PERISAI UNTUK MELINDUNGI

Blog Archive