The services insurance provides are critical to the running of a modern economy. Insurance allows both businesses and individuals to minimise the impact of financial loss resulting from the occurrence of future events and enables policyholders to organise a household budget or plan business activities with greater security. Without insurance many aspects of a free market economy would simply not function.
This course discusses the concepts of underwriting and claims. It describes the basic principles of underwriting and the basis for calculating the premium and the claims handling procedure. Underwriting is the process of examining, accepting or rejecting insurance risks and classifying those selected, in order to charge the proper premium for each. A claim refers to a request by an insured for indemnification by an insurance company for the loss incurred from an insured peril. Most people judge the value of an insurance cover by the way in which a claim is handled.
Business interruption insurance is by far the greatest loss of income line. Fire business interruption insurance is by far the most popular form of loss of income insurance, followed by machinery business interruption insurance.
Lloyd's is a unique insurance market that has evolved out of the activities of a City of London coffee house of that name in 1688. Today's massive organisation enables its members to write insurance business in over 120 countries. It covers the full spectrum of insurance business but is probably best known for reinsurance, marine and aviation, professional indemnity and speciality areas.
All risks infers all risks of loss or damage to the property insured; but naturally, there always remain some classes of exposure which are specifically excluded by the underwriter. These must be considered with great care. An all risks policy is a class of policy covering the range of perils described as "all risks".
Some 2000 years before the birth of Christ, merchants in the Babylonian Empire were repeatedly falling victim to robbers on their long travels through inhospitable regions. This prompted them to join their caravans together into larger groups so that they could defend themselves more effectively. Before long, they went a step further: when one merchant suffered a loss on a joint trip, the loss would be shared among the others. This risk community laid the foundation for what we now call insurance.
The formalised insurance market has grown up over a period of 300 years although it existed in an informal sense through risk-sharing ventures for centuries before that. The primary insurer is the cornerstone around which the entire insurance market fits. This is the organisation that accepts the transfer of risk from the customer/purchaser of insurance and contracts to pay out valid claims. Although some primary insurers offer their products direct to the customer, the majority of insurance product is sold via distributors, who take a commission from the insurance premium charged to the customer for the service performed.
Insurance isn't soap, it isn't baked beans, it isn't a chocolate. It is a piece of paper with a promise to pay. It offers no immediate consumer satisfaction - it isn't glamourous - at best it's a painful necessity. An insurer's 'product' consists of a complex, conditional promise. The fundamental value proposition of a insurer is the transfer of risk from the insured to the insurer for an agreed price, the premium.
Historically, new entrants to insurance often started their career in the personal lines of domestic insurance department. Today this is less usual. It is true however that in South Africa we tend to view personal lines insurance as not quite as skilled as commercial insurance. Most people's first encounter with insurance is when they take out cover for their own house, care or flat. The Personal Lines Department is the department that handles the insurance covering: houseowners (buildings); householders (contents); all risks; personal accident; personal liability; and pleasure craft.