DOCSLIB.ORG

Property–Casualty Insurance Basics

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Property–Casualty Insurance Basics Property–Casualty Insurance Basics RISK POLICY- CLAIM HOLDER UNDER- PROTECTION INVESTMENT WRITING PREMIUM RESERVE SOLVENCY REGULATION A look inside the Fundamentals and Finance of Property & Casualty Insurance very day, individuals and businesses face a variety of potentially catastrophic Erisk and uncertainty. By creating tools to manage uncertainty and loss, property-casualty insurers are able to provide vital personal and professional protection. In addition, property-casualty insurance helps provide and maintain a reliable foundation for our economy. Despite the fundamental role property- casualty insurance plays in the lives of virtually every American, relatively few people outside of the insurance industry understand how it works. This booklet looks at the basic concepts of property-casualty insurance, providing a plain-English primer on several key topics. We’ll also look at insurance finance by discussing how premiums are determined and tracing the path of the premium dollar as it flows through a hypothetical company. Insurance Benefits Society and the Economy Improving consumer and worker safety: Insurance Providing trillions of dollars to the U.S. economy makes businesses and individuals more aware of the each year: risks they face and provides motivation to prevent losses. The property-casualty insurance industry pays out more For example, insurers provide premium discounts to than $400 billion annually in policy benefits. safe drivers and to businesses that implement effective worker safety programs. Property-casualty insurers doing business in the United States have more than $1.4 trillion invested in the Protecting consumer transactions: Most consumers economy, through stock, corporate and government have to borrow money to buy homes and cars; lenders bonds, and real estate mortgages. require insurance in order to secure the loans they make for these purchases. Without insurance, few people These investments finance building construction and could obtain an auto loan or home mortgage. provide other crucial support to economic development projects all across the country. Protecting business transactions: Without insurance, most businesses would find that they could not operate. Property-casualty insurers are a major source of capital Insurance enables businesses of all sizes and types for state and local government in the United States. to manage the risks that are an inherent part of any Insurers invest, through municipal bonds, in a variety of business operation (e.g., signing contracts, financing and public projects, such as airport, hospital, and highway expanding operations, manufacturing and distributing construction. Insurers also purchase general obligation products, providing services, hiring employees). bonds used to finance ongoing government operations. Providing recovery from catastrophes: Hurricanes, There are approximately 2,700 companies providing winter storms, fires, and other disasters can cause property-casualty insurance coverage in the United tremendous, sudden loss to many people all at once. States. Insurance coverage enables businesses to replace About 2.3 million people are employed by the property- inventories and reconstruct buildings, and allows casualty industry, including insurance companies, homeowners to repair and rebuild homes and agencies, and brokerages. replace personal property. Introducing the American Insurance Association he American Insurance Association (AIA) is the leading U.S. property-casualty insurance trade Torganization, representing approximately 300 insurers that write more than $117 billion in pre- miums each year. AIA member companies offer all types of property-casualty insurance, including personal and commercial auto insurance, commercial property and liability coverage for business- es, workers’ compensation, homeowners’ insurance, medical malpractice coverage, and product liability insurance. As an industry, property-casualty insurers account for nearly 3% of our country’s GDP and provide over 2.3 million jobs nation-wide. Our roots go back more than 147 years to the establishment of the National Board of Fire Under- writers in 1866. In 1964, the old American Insurance Association merged with the National Board and the Association of Casualty and Surety Companies and became the present-day AIA. We are proud of our history and tradition, but our strength lies in our ability to look toward the future and lead the debate in an era of rapid change. We lead by blending the best ideas of our companies, consumers, regulators, and business leaders to forge constructive solutions to the challenges facing our industry. Then, we build consensus and advocate for those solutions to ensure that the insurance industry remains sound, and keeps its promises to policyholders. Property-Casualty Insurance Basics was developed to provide you a general over- view of the property-casualty industry and offer some basic information on how our business began and how it operates today. Through AIA’s dedicated staff and in-house policy team, we stand ready to assist your office on the pressing issues facing the insurance industry and the financial services sector in general. Please do not hesitate to contact me or a member of my staff should you have any questions and please use AIA as a resource. Leigh Ann Pusey President and CEO Our Team FEDERAL AFFAIRS STATE AFFAIRS Washington Office 2101 L Street, NW, Suite 400 Mid-Atlantic Region Southwest Region Washington, DC 20037 2101 L Street, NW, Suite 400 PO Box 12963 Washington, DC 20037 Austin, Texas 78711 Tom Santos Eric M. Goldberg Fred C. Bosse Vice President for Federal Affairs Vice President for State Affairs Vice President for State Affairs 202-828-7173 202-828-7172 512-659-2327 [email protected] [email protected] [email protected] Melissa Shelk Vice President for Federal Affairs Midwest Region Western Region 202-828-7119 655 Deerfield Road, Suite 100 1015 K Street, Suite 200 [email protected] Deerfield, Illinois 60015 Sacramento, CA 95814 Steve Schneider Marjorie Berte Vice President for State Affairs Vice President for State Affairs 312-782-7720 916-442-7617 [email protected] [email protected] Steve Suchil Northeast Region Assistant Vice President/Counsel 95 Columbia Street for State Affairs Albany, New York 12210 916-442-7617 Gary Henning [email protected] Vice President for State Affairs 518-462-1695 [email protected] Southeast Region 2107 N. Decatur Rd. Suite 257 Decatur, GA 30033 Ron Jackson Vice President for State Affairs 404-261-8834 [email protected] aiadc.org Property-Casualty Basics Insurance Helps People Manage Risk isk is inevitable in society; insurance helps address that In taking on massive amounts of societal risk, the insur- Rreality. Insurance allows individuals and organizations to ance industry relies on two fundamental tools: pooling and exchange the risk of a large loss for the certainty of smaller the Law of Large Numbers. An insurer can cover the risk periodic payments, known as premiums. The exchange of losses from a few policyholders by combining (pool- (or transfer) of risk is laid out in a legal contract called the ing) together the premiums from a much larger group of insurance policy, which spells out the coverage, compen- policyholders. This also improves predictability, thanks to a sation, and/or other benefits. statistical principle known as the Law of Large Numbers, Insurance takes on (or assumes) “pure” risk — the possibil- which states that the accuracy of loss prediction increases ity of suffering harm or loss. (Insurance is not for “specula- with the number of policyholders in the pool. tive” risks, like gambling, where financial gain is possible.) Insurance also handles risk by working to prevent losses If a covered loss occurs, the policyholder is compensated to lives and property. Loss prevention (also known as loss consistent with the terms of the policy. Examples of risk control or mitigation), is a core function of the insurance covered by insurance include fire, theft, tornadoes, mo- business and has benefited society immeasurably. tor vehicle crashes, and being sued for causing harm to another person. Risk has two key dimensions—frequency and severity— and both help determine insurability. “Frequency” relates to how often a loss occurs, i.e., whether the risk/event is common or relatively rare. “Severity” relates to how costly Low Frequency High Frequency losses resulting from that risk could be, i.e., whether they High Severity High Severity could be relatively inexpensive or truly catastrophic in nature. Y IT As shown in the table on the right, insurance is an appro- priate method of risk transfer for low-frequency, high- SEVER severity losses (e.g., house fires or tornadoes), as well as Low Frequency High Frequency for high frequency, low severity losses (e.g., motor vehicle crashes). However, insurance may not be the most ap- Low Severity Low Severity propriate method for treating all risks facing individuals and businesses. For example, insurance could be too expen- sive for certain risks (such as low-frequency, low-severity) or unavailable for other risks (such as high-frequency, FREQUENCY high-severity risks, or risks whose frequency and/or sever- ity is difficult to predict, such as terrorism). Additionally, insurance may be unable to fully compensate for a loss (e.g., the destruction of family photos, which have great emotional value, but little financial value). The Fundamentals and Finance of Property & Casualty Insurance 1 Property-Casualty Insurance Origins
Load more

Recommended publications
  • Best Practices for Lease Insurance Specifications
    BEST PRACTICES FOR LEASE INSURANCE SPECIFICATIONS CHECKLIST VERSUS NARRATIVE FORMAT William H. Locke, Jr. Graves Dougherty Hearon & Moody Austin, Texas ACREL Annual Meeting Leasing and Insurance Committees Chicago October, 2012 1685471v2 TABLE OF CONTENTS I. INTRODUCTION .......................................................................................................................................................... 1 A. Contractual Risk Allocation .................................................................................................................................... 1 B. Risk of Casualty Loss and Injuries in Leased Premises .......................................................................................... 1 C. Heightened Risk Concern Arising During Periods of Financial Distress ................................................................ 2 D. Annotated Forms ..................................................................................................................................................... 2 II. FORMS ........................................................................................................................................................................... 3 A. Lease Provisions ...................................................................................................................................................... 3 1. Form A.1. - Insurance Specifications as Exhibit to Lease ............................................................................... 3 A. General
    [Show full text]
  • Chapter 3: Escrow, Taxes, and Insurance
    HB-2-3550 CHAPTER 3: ESCROW, TAXES, AND INSURANCE 3.1 INTRODUCTION To protect the Agency’s interest in the security property, the Servicing and Asset Management Office (Servicing Office) must ensure that real estate taxes and any other local assessments are paid and that the property remains adequately insured. To ensure that funds are available for these purposes, the Agency requires most borrowers who receive new loans to deposit funds to an escrow account. Borrowers who are not required to establish an escrow account may do so voluntarily. If an escrow account has been established, payments for insurance, taxes, and other assessments are made by the Agency. If an escrow account has not been established, the borrower is responsible for making timely payments. Section 1 of this chapter describes basic requirements for paying taxes and maintaining insurance coverage; Section 2 provides procedure for establishing and maintaining the escrow account; and Section 3 discusses procedures for addressing insured and uninsured losses to the security property. SECTION 1: TAX AND INSURANCE REQUIREMENTS [7 CFR 3550.60 and 3550.61] 3.2 TAXES AND OTHER LOCAL ASSESSMENTS The Agency contracts with a tax service to secure tax information for all borrowers. The tax service obtains tax bills due for payment, determines the optimal time to pay the taxes in order to take advantage of any discounts, and provides delinquent tax status on the portfolio. A. Tax Service Fee All borrowers are charged a tax service fee. Borrowers who obtain a subsequent loan are not required to pay a second tax service fee.
    [Show full text]
  • S a M P L E D O C U M E N T Allstate Insurance Company Standard
    Allstate Insurance Company S Standard HomeownersA PolicyM Policy: P Effective: Issued to: L E D O C U M Allstate Insurance Company The Company Named in the Policy Declarations A Stock Company----Home Office: Northbrook, Illinois 60062 E AP1 N T Table of Contents General Definitions Used In This Policy..................................2 Insurable Interest and Our Liability .........................11 InsuringSAgreement....................................................3 What You Must Do After A Loss.............................11 Agreements We Make With You...............................4 Our Settlement Options............................................12 Conformity To State Statutes ....................................4 How We Pay For A Loss...........................................12 Coverage Changes......................................................4 Our Settlement Of Loss ............................................14 Policy Transfer .A...........................................................4 Appraisal.....................................................................14 Continued Coverage After Your Death.....................4 Abandoned Property.................................................14 Cancellation .................................................................4 Permission Granted To You.....................................14 Concealment Or Fraud ..M.............................................5 Our Rights To Recover Payment.............................14 Our Rights To Obtain Salvage..................................14
    [Show full text]
  • Property Insurance Requirements TO
    U.S. Department of Housing and OMB Approval No. 2502-0029 Property Insurance Urban Development (exp. 10/31/2012) Requirements Federal Housing Administration Public reporting burden for this collection of information is estimated to average .08 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. This is part of the basic application package for insured mortgages for construction of rental housing projects. This is a requirement under Section 207(b) of the National Housing Act (Public Law 479, 48 Stat. 1246, 12 U.S.C., 1701 et. seq.), authorizing the Secretary of HUD to insured mortgages. The information establishes property insurance requirements for a proposed multifamily project. The information is required to obtain benefits. Privacy Act Notice - The United States Department of Housing and Urban Development, Federal Housing Administration, is authorized to solicit the information requested in this form by virtue of Title 12, United States Code, Section 1701 et. seq., and regulations promulgated thereunder at Title 12, Code of Federal Regulations. While no assurances of confidentiality is pledged to respondents, HUD generally discloses this data only in response to a Freedom of Information request. This agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless that collection displays a valid OMB control number. _______________________________________________
    [Show full text]
  • Over Insurance Statutes by State State Statute Statutory Wording Alabama Alaska Over-Insurance Prohibited
    Over Insurance Statutes by State State Statute Statutory Wording Alabama Alaska Over-Insurance Prohibited. (a) Over-insurance shall be considered to exist if property or an insurable interest in property is insured by one or more insurance contracts against the same hazard in an amount in excess of the fair value of the property or of the interest, as determined on the effective date of the insurance or the renewal of it. AS 21.60.010 (b) In this section the term "fair value" means the cost of replacement less depreciation that is properly applicable to the subject insured. (c) A person may not knowingly issue, place, procure, or accept an insurance contract that would result in over-insurance of the property or interest in the property proposed to be insured, except as provided in AS 21.60.020 . (d) Each violation of this section shall subject the violator to the penalties provided in AS 21.90.020 . Arizona 6-909 Prohibited Acts (Banking Law) P. A mortgage broker shall not require a person seeking a loan secured by real property to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer. 44-1208 44-1208. Loans secured by real estate; prohibited practices; insurance Except for consumer lender loans regulated pursuant to section 6-636, for any loan that is secured by real property, a person shall not require as a condition of the loan that the borrower obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer.
    [Show full text]
  • Welcome to Metlife Auto & Home®
    Welcome to MetLife Auto & Home® MetLife Auto & Home is happy to service Massachusetts Assigned Risk Plan policies. Included in this packet is information that will assist you when answering questions for your clients, submitting payments, and providing supporting documentation to us as needed. In addition, we have set up a website for your convenience where this information is also included. It may be helpful to add this to your list of favorites for future reference. www.metlife.com/individual/insurance/auto-insurance/MA-assigned-risk.html Contacts MAIP New Business Processing and Status: 1-800-255-0332 Agency Response Center: 1-800-255-0332 For Agents Only. Please contact the Agency Response Center for all policy changes or endorsements, billing inquiries and changes, and coverage verification. Voluntary Rate Quote: 1-800-545-4282 For Agents Only: The CAR application, in addition to our Supplemental Underwriting Questionnaire, must be completed to receive the most accurate voluntary rate quote. Please feel free to contact us to request a voluntary rate quote for specific risks, once you have obtained all of the necessary information. Correspondence Address: MetLife Auto & Home PO Box 6060 Scranton, PA. 18505-6060 Correspondence Fax: 1-866-743-4890 Claim Department: 1-800-854-6011 Special Investigative Unit (SIU): 1-800-922-FRAUD or 1-800-922-3728 MetLife Auto & Home is a brand of Metropolitan Property and Casualty Insurance Company and its affiliates, Warwick RI L0218502626[exp0121][MA] Page | 1 MAIP Forms and Required Documents Assigned Risk Producer's (ARP) have two business days to mail the signed application, premium deposit, and any other required documents to the Company.
    [Show full text]
  • Commonwealth of Massachusetts Department of Board No
    COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF BOARD NO. 000524-96 INDUSTRIAL ACCIDENTS Adelard Fontaine Employee Evergreen Construction Co. Employer Workers’ Compensation Trust Fund Insurer Eastern Casualty Insurance Co. Insurer REVIEWING BOARD DECISION (Judges Wilson, McCarthy and Smith) APPEARANCES Warren Tolman, Esq., for the employee Paul R. Ingraham, Esq., for the Worker’s Compensation Trust Fund Peter M. Bancroft, Esq., for Eastern Casualty Insurance Co. Tracey E. Palmer, Esq., for the employer WILSON, J. The Workers’ Compensation Trust Fund appeals from a decision in which an administrative judge found it liable for the payment of compensation benefits to an employee who was injured while working for an uninsured employer. The Trust Fund contends that the decision is contrary to law. It argues 1) that Eastern Casualty Insurance Co., which was on the risk prior to the injury, failed to properly “terminate” the policy in accordance with the provisions of G.L. c. 152, § 65B, and 2) that Eastern Casualty is estopped from denying coverage because it accepted the employer’s premium payment. Because the judge’s subsidiary findings of fact sufficiently support his conclusion that Eastern Casualty properly did not renew its policy of insurance with the employer for non-payment of the renewal premium, and adequately notified the employer of such action, we affirm the decision. The employee suffered an industrial injury on February 20, 1996. Upon being informed by the Department of Industrial Accidents that the employer was not insured for Adelard Fontaine Board No. 000524-96 workers’ compensation claims on the date of injury, the employee instituted a claim against the Trust Fund for payment of compensation benefits.
    [Show full text]
  • Homeowners Endorsements
    HOMEOWNERS ENDORSEMENTS POLICY FORMS AND ENDORSEMENTS FOR FLORIDA Name Description Credit Disclosure Credit Disclosure Notice HO 00 03 04 91 Homeowners 3 Special Form HO 00 04 04 91 Homeowners 4 Contents Broad Form HO 00 06 04 91 Homeowners 6 Unit Owners Form HO 00 08 04 91 Homeowners 8 Modified Coverage Form HO 04 10 04 91 Additional Interests - Residence Premises HO 04 16 04 91 Premises Alarm or Fire Protection System HO 04 30 04 91 Theft Coverage Increase HO 04 40 04 91 Structures Rented To Others - Residence Premises HO 04 41 04 91 Additional Insured - Residence Premises HO 04 42 04 91 Permitted Incidental Occupancies HO 04 48 04 91 Other Structures HO 04 81 12 13 Actual Cash Value Loss Settlement HO 04 94 06 97 (06-07) Exclusion for Windstorm Coverage HO 04 96 04 91 No Coverage for Home Day Care Business HO 17 32 04 91R (06-07) Unit Owners Coverage A - Special Coverage HO 17 33 04 91 Unit Owners Rental to Others HO 23 70 06 97 Windstorm Exterior Paint or Waterproofing Endorsement HO 23 74 12 13 Replacement Cost Loss Settlement Endorsement UPCIC 00 07 (02-12) Sinkhole Loss Coverage - Florida UPCIC 01 03 06 07 Law and Ordinance Increase to 50% UPCIC 03 33 07 08 Limited Fungi, Wet or Dry Rot, or Bacteria UPCIC 04 33 07 08 Limited Fungi, Wet or Dry Rot, or Bacteria UPCIC 04 90 04 91 (06-07) Personal Property Replacement Cost UPCIC 06 03 32 08 Limited Fungi, Wet or Dry Rot, or Bacteria UPCIC 06 33 07 08 (1) Limited Fungi, Wet or Dry Rot, or Bacteria UPCIC 08 33 07 08 Limited Fungi, Wet or Dry Rot, or Bacteria UPCIC 10 01 98 (06-07) Existing Damage Exclusion UPCIC 14 01 98 Amendment of Loss Settlement Condition - Florida UPCIC 16 01 98 Loss Assessment Coverage UPCIC 19 01 98 Windstorm Protective Devices UPCIC 23 12 13 Special Provisions - Florida UPCIC 23 01 16 Special Provisions - Florida UPCIC 25 01 98 (06-07) Hurricane Deductible UPCIC 3 01 98 Outline of Your Homeowner Policy UPCIC Privacy UPCIC Privacy Statement UPCIC SPL (05-08) Swimming Pool Liability Exclusion Universal Property & Casualty Insurance Company 1110 W.
    [Show full text]
  • Homeowners Insurance Application
    Homeowners Insurance Application Named Insured(s) and Mailing Address Insurance Company 650 Davis Street San Francisco, CA 94111 Primary Email: Insured Property Primary Phone #: Alternate Phone #: Bought through: NOTICE OF INSURANCE INFORMATION PRACTICES In some insurance transactions, we may not be able to get all the information we need directly from you. In that case, we may obtain information from outside sources at our own expense. We would also like to inform you that without prior authorization, we may as permitted by law, provide information about you contained in our records and files to certain persons or organizations. NOTICE: As part of Esurance's underwriting/qualification procedure and subject to applicable laws and regulations, we may obtain information regarding you and other individuals who may be covered by the insurance you are applying for, including: (i) driving record, based on state motor vehicle reports and loss information reports; (ii) your prior insurance record, if any, which will be obtained from your current or prior carrier(s); (iii) credit reports; and (iv) claim history, based on loss information reports. Policy Number Purchase Date and Time Effective Date Expiration Date Primary Applicant Information Name Date of Birth Gender Marital Status Education Level Existing Esurance Policy Drivers License Number DL State Currently Insured - Auto Length of Time with Current Auto Carrier Length of Time with Prior Auto Carrier Years with Prior Property Company Type of Current Property Policy Co -Applican t Information
    [Show full text]
  • Mortgage Impairment / Mortgagee's Errors & Omissions Insurance
    Mortgage Impairment / Mortgagee’s Errors & Omissions Insurance – Frequently Asked Questions What is Mortgage Impairment / Mortgagee’s Errors & Omissions insurance? Mortgage Impairment provides insurance coverage to a financial institution for a loss to its “mortgage interest” (defined as interest in real property as security for a loan) caused by the lack, or inadequacy, of insurance for Required Perils. Required Perils are the perils against which the mortgage agreement requires the borrower to insure the collateral property. These perils are fire, flood, and other similar direct physical damage perils. These Required Perils are typically covered by homeowner’s insurance, fire and extended coverage insurance, and flood insurance policies. Mortgagee’s Errors & Omissions provides liability insurance to a financial institution for negligent acts, errors, or omissions in procuring and/or failing to maintain insurance for Required Perils (as detailed above). What does this coverage do for me as a mortgage lender or mortgage servicer? Mortgage Impairment insurance covers loss Mortgagee’s Errors & Omissions insurance to the insured’s “mortgage interest” resulting covers the insured’s liability in: from physical damage to mortgaged property and: Failing to obtain or maintain required property insurance, Lack, or inadequacy, of insurance including flood insurance for Required Perils Flood zone determination Lack, or inadequacy, of insurance Failing to secure FHA/VA/PMI for Non-Required Perils (such as guarantees earthquake and flood insurance Failing to obtain or maintain life or Tax seizure disability insurance on the borrower Defective title (mortgagor) Failing to pay real estate taxes or special assessments What are some examples of claims that have been covered by this insurance? Mortgage Impairment A medium sized financial institution suffered a loss as a result of fire damage to a large residential property.
    [Show full text]
  • AFA30: Allstate Fire and Casualty Insurance Company Auto Policy
    Allstate Fire and S Casualty Insurance CompanyA Auto Policy NEVADA Policy: M Effective: Issued to: P L E D O C U M E AFA30 N T Allstate Fire and Casualty Insurance Company TABLE OF CONTENTS Insured Persons ..............................................11 Definitions ......................................................11 GENERAL ...........................................................2 Exclusions What Is Not Covered ...................11 WhenSAnd Where The Policy Applies ...............2 Payment of Benefits; Autopsy ........................11 Limited Mexico Coverage ................................2 Consent of Beneficiary .................................... 12 Changes ..........................................................2 Proof of Claim; Medical Reports......................12 Duty To Report Policy Changes .......................3 Combining LimAits Of Two Or More Autos Part 4 Automobile Disability Income Protection Prohibited ....................................................3 Coverage CW........................................12 Transfer ..........................................................3 Insuring Agreement.........................................12 Cancellation ................................M ....................3 Insured Persons...............................................12 Termination .....................................................4 Definitions ......................................................12 Payment ..........................................................4 Exclusions What Is Not Covered ...................12
    [Show full text]
  • Property/Liability Insurance Risk Management and Securitization
    PROPERTY/LIABILITY INSURANCE RISK MANAGEMENT AND SECURITIZATION Biography Trent R. Vaughn, FCAS, MAAA, is Vice President of Actuarial/Pricing at GRE Insurance Group in Keene, NH. Mr. Vaughn is a 1990 graduate of Central College in Pella, Iowa. He is also the author of a recent Proceedings paper and has been a member of the CAS Examination Committee since 1996. Acknowledgments The author would like to thank an anonymous reviewer from the CAS Continuing Education Committee for his or her helpful comments. PROPERTY/LIABILITY INSURANCE RISK MANAGEMENT AND SECURITIZATION Abstract This paper presents a comprehensive framework for property/liability insurance risk management and securitization. Section 2 presents a rationale for P/L insurance risk management. Sections 3 through 6 describe and evaluate the four categories of P/L insurance risk management techniques: (1) maintaining internal capital within the organization, (2) managing asset risk, (3) managing underwriting risk, and (4) managing the covariance between asset and liability returns. Securitization is specifically discussed as a potential method of managing underwriting risk. Lastly, Section 7 outlines four key guidelines for cost- effective risk management. 1. INTRODUCTION In recent years, the property-liability insurance industry has witnessed intense competition from alternative risk management techniques, such as large deductibles and retentions, risk retention groups, and captive insurance companies. Moreover, the next decade promises to bring additional competition from new players in the P/L insurance industry, including commercial banks and securities firms. In order to survive in this competitive new landscape, P/L insurers must manage total risk in a cost-efficient manner. This paper provides a rationale for P/L insurance risk management, then describes four categories of risk management techniques utilized by insurers.
    [Show full text]