Property & Liability Insurance


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Brief account on property and liability insurance which is one of the main types of insurance.

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  • P & L insurance: it can be classified by the types of insurance sold.Fire insurance & allied lines: It covers the loss or damage to real estate & personal property because of fire, lighting, or removal from the premises.Marine insurance: it is called transportation insurance because it covers goods in transit against most pure risks connected with transportation.Ocean marine: provides protection for all types of ocean going vessels and their cargoes.Inland marine: provides coverage for goods being shipped on land. It includes imports, exports, domestic shipments etc.Casualty insurance: it covers whatever is not covered by fire, marine and life insurers.Auto insurance: covers legal liability arising out of the ownership or operation of an autoGeneral liability insurance: covers legal liability arising out of property damage or bodily injury to others.Burglary & Theft insuranceWorkers compensation insuranceMultiple line insurance: combines both property and casualty coverages into one contract. Fidelity & surety bonds: Fidelity bonds provide protection against loss caused by the dishonest or fraudulent acts of employees such as embezzlement and theft of money. Surety bonds provide for monetary compensation in case of failure by bonded persons to perform certain acts such as the failure of a contractor to construct a building on time.
  • Unearned premium reserves: purpose is to pay for losses that occur during the policy period. To assure policyowners that future losses will be paid, this premium reserve is required.It is also maintained so that premium refunds can be paid to the policy owners in the event of cancellation. Pro rata basis refund is doneIf the business is reinsured, this reserve serves as the basis for determining the amount that must be paid to the reinsurer for carrying the reinsured policies to the end of their terms.Loss reserves:Judgement method: a claim reserve is established for each individual claim. The amount of the loss reserve is based on the judgementAverage value method: an average value is assigned to each claim. This method is used when no. of claims is large.Loss ratio method: expected loss ratio is multiplied by premiums earned during period Tabular value method: loss reserves are determined for certain claims for which the amounts paid depend on the length of life, duration of disability, remarriage of the beneficiary and similar factors. Incurred but not reported (IBNR): it must be established for claims that have already occurred but have not yet been reported.
  • Utmost good faithInsurable interestIndemnity
  • Property & Liability Insurance

    1. 1. Property & Liability Insurance<br />1<br />
    2. 2. Insurance???<br />Equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium.<br />Science of spreading of the risk.<br />Method of sharing of financial losses of a FEW from a COMMON FUND formed out of contribution of the MANY who are equally exposed to the same loss.<br />2<br />
    3. 3. Types…<br />3<br />
    4. 4. Types…<br />4<br />
    5. 5. P & L insurance…<br />P & L insurance company investments totaled about $ 789 billion.<br />Most assets are invested in securities that can be quickly sold to pay claims if a major catastrophe occurs.<br />Net premiums written for all lines totaled about $ 300 billion.<br />P & L insurance contracts are short-term in nature.<br />P & L claims payments can vary widely depending on catastrophe losses.<br />5<br />
    6. 6. Property & Liability insurance…<br />6<br />
    7. 7. Reserves in P & L insurance…<br />7<br />
    8. 8. Merit RatingorRisk Factor Rating System<br />
    9. 9. Based on Class Rating.<br />Premiums Adjusted according to individuals.<br />Factors of losses are diverse.<br />Yield a greater spread of losses.<br />Example---<br />
    10. 10. Merit Rating<br /> Schedule Experience Retrospective<br /> Rating Rating Rating<br />
    11. 11. Schedule Rating<br />Uses Class Rating as An average Base.<br />Premiums Adjusted to specific details of loss exposure.<br />Used mainly in property insurance.<br />Considered Factors generally are,<br />Size<br />Location<br />Number of people<br />Maintenance<br />Purpose <br />
    12. 12. Experience Rating<br />Actual loss amount for 3 previous policy periods mainly considered.<br />Loss ratio Method<br />Credibility Factor<br />Typically used For,<br />Liability Insurance<br />Workers Compensation<br />Group Insurance<br />Auto Insurance<br />
    13. 13. Retrospective Rating<br />Burglary Insurance<br />Actual loss experience for that period.<br />Limited by minimum and maximum chargeable amount.<br />Part premium at the beginning of period,<br />Other part at end, considering actual loss for that period.<br />
    14. 14. CLASS RATING<br />Class Rating means that exposures with similar characteristics are placed in the same underwriting class, and each is charged the same rate. The rate charged reflects the average loss experience for the class as a whole. <br />
    15. 15.
    16. 16. ILLUSTRATION FOR Pure Premium<br />QUESTION:-<br />Assume that in auto collision insurance, 500,000 automobiles in a given underwriting class generate incurred losses and loss-adjustment expenses of $30 million over a one-year period. What will be the pure premium and gross rate ?. <br />
    17. 17. ILLUSTRATION FOR LOSS RATIO<br />QUESTION:-<br />Assume that a line of insurance has incurred losses and loss-adjustment expenses in the amount of $800,000, and earned premiums are $ 1 million. The actual loss ratio is 0.80, or 80 percent. If the expected loss ratio is 0.70, or 70 percent, What will be the rate change? <br />
    18. 18. Judgement Rating Method…<br />Each exposure is individually evaluated and the rate is determined largely by the underwriter’s judgement;<br />Used when the loss exposure are diverse;<br />Widely used in marine insurance.<br />18<br />
    19. 19. Effect on Underwriting Profit or Loss<br />19<br />
    20. 20. Let us assume that – <br /><ul><li>A new property insurance company begins operating on January 1.
    21. 21. It plans to sell only one-year property insurance policies.
    22. 22. In establishing the rates, the insurer has an expected loss ratio of 60%, an expected expense ratio of 35%, and expects to earn an underwriting profit of 5%.
    23. 23. During the year, $10 million of property insurance premiums are written.
    24. 24. Losses and loss adjustment expenses incurred total </li></ul> $ 3 million , and expenses incurred are $ 3.5 million. <br /> What is the insurer’s underwriting profit or loss ? <br />20<br />
    25. 25. Statutory underwriting profit or loss = Earned premiums – Losses incurred and loss-adjustment expenses incurred – Expenses incurred<br />21<br />
    26. 26. ( in $ ‘000 )<br /> Premiums written $ 10,000<br />Deduct unearned premiums - $ 5,000<br />Earned premiums $ 5,000<br />Losses incurred $ 3,000<br />Expenses incurred $ 3,500<br />Total losses and expenses - $ 6,500<br />Statutory underwriting loss ( $ 1,500)<br />22<br />
    27. 27. (in $‘000)<br />Statutory underwriting loss - $ 1,500 <br />Equity in the unearned $ 1,750<br /> premium reserve<br />Adjusted underwriting profit $ 250<br />23<br />
    28. 28. Life Insurance<br />“Life insurance is a policy that people buy from a life insurance company, which can be the basis of protection and financial stability after one&apos;s death.”<br />Life insurance is a contract between the policy owner <br />and the insurance company.<br />24<br />
    29. 29. Principles of Life Insurance<br />25<br />
    30. 30. Life Insurance Provides…<br /><ul><li>Financial security for the family .
    31. 31. Source of investment.
    32. 32. Tax concessions.
    33. 33. look after the retirement savings.
    34. 34. Personal and business loan .
    35. 35. Nominal Premium Rates.</li></ul>26<br />
    36. 36. Types of life Insurance…<br />27<br />
    37. 37. Term insurance<br />Term life insurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, <br />the relevant term.<br />Features :<br /><ul><li>Period of Protection is temporary.
    38. 38. Policy can be renewed after the term completed.
    39. 39. It does not provides survival benefits . </li></ul>28<br />
    40. 40. Whole Life Insurance<br />Whole life insurance is a cash value policy that provides lifetime protection.<br />Provides coverage for as long as you live and continue to make timely premium payments.<br />Features :<br /><ul><li>Premiums generally are level and payable for life.
    41. 41. Dividends.
    42. 42. Guaranteed Cash Values</li></ul>29<br />
    43. 43. Types of Whole Life Insurance<br /><ul><li>Variable Life Insurance: </li></ul>It provides permanent protection to the beneficiary upon the death of the policy holder.<br />Fixed Premium policy in which the death benefits and cash surrender value vary.<br /><ul><li>Universal Life Insurance :</li></ul>It defined as flexible premium policy that provides protection under a contract that unbundles the protection and savings components.<br /><ul><li>Variable Universal Life Insurance : </li></ul>This policy is similar to universal life policy but with two major exceptions :<br />The policy owner has a variety of investment option for investment of the cash values.<br />There is no minimum guaranteed rate of interest .<br />30<br />
    44. 44. 31<br />