ASSIGNMENT 3 QA
Name
Institutional Affiliation
Date
1.
The pooling of losses- Insurance involves spreading of losses suffered by few members over the entire group. This aims to substitute average loss for actual loss.
Payment of fortunate losses- an insurance company pays for accidental losses which are unforeseen and unexpected (fortuitous loss)
Risk transfer- Insurance involves the transfer of pure risk from insured to the insurer since the insurer is in healthier financial status than the insured.
Indemnification- This characteristic means that the insured restored to the same financial status he/she was before the loss occurred by the insurer.
2.
A large number of exposure units- there should be extensive and similar or identical exposure units which are subjected to the same risk—for example, many houses in a city.
Unintentional loss (accidental)- the loss must be unintentional and unanticipated by the insured and should be outside the control of the insured.
Determinable and Measurable Loss- the loss incurred should be determinable and quantifiable, and therefore, time, place and loss size have to be distinct.
No catastrophic loss- the incurred losses should not be triggered by catastrophes such as floods, earthquakes, hurricanes and others.
The premiums should be economically feasible- the insured mush be able to afford the premium. Premiums should be less than the face value.
3.
- Stock insurers
The shareholders own stock insurance companies. Policyholders are not involved in the management except when they are investors. Profits are distributed among the shareholders as dividends.
- Mutual insurers
The policyholders own a mutual insurance company, and therefore they select a board of directors.
- Lloyd’s of London
Lloyd’s of London refers to an insurance market where it acts as an intermediary between brokers, underwriters, clients and insurance companies. The syndicates, insurance buyers, brokers, managing agents and the cover holders make up the Lloyd’s London. However, the syndicates are the critical players here.
- Captives
Captives insure their parent organization (Tucciarone & Biscotti, 2018). Captives are useful, especially when insurance in the private marketplace is not affordable for entities. It provides lower rates as compared to each member obtaining insurance from the market.
I would choose captives for my group of companies.
References
Tucciarone, J. W., & Biscotti, L. (2018). Captive Insurance Companies: A Common Sense
Approach to Improved Risk Management. The CPA Journal, 88(12), 54-59.