Principle of Insurance

1. Assignment on Principles of Insurance.
Submitted By
Name: Ravi Ranjan
MBA Finance (60)
Subject: Principles of Insurance
Submitted To
Smita Pachare

2. Q1. A crisis such as Covid-19 affects all business sectors - but it especially
puts a spotlight on insurers who can expect to be inundated with general
inquiries and claims across multiple different lines, whether that is for
health, life or non-life cover. For example during Covid-19 outbreak
millions of US citizens claims for unemployment insurance, so discuss how
Covid-19 outbreak will affect or change the trends in the insurance
industry in Developed and Developing country .
Corona virus disease 2019 (COVID-19) is an infectious disease caused by
severe acute respiratory syndrome corona virus 2 (SARS-CoV-2). The disease
was first identified in December 2019 in Wuhan, the capital of China's Hubei
province, and has since spread globally, resulting in the ongoing 2019–
20coronavirus pandemic.
Common symptoms include fever, cough, and shortness of breath. Other
symptoms may include muscle pain, diarrhea, sore throat, loss of smell, and
abdominal pain. While the majority of cases result in mild symptoms, some
progress to viral pneumonia and multi-organ failure.
The virus is mainly spread during close contact, and by small droplets produced
when people cough, sneeze, or talk. These small droplets may be produced
during breathing but the virus is not generally airborne. People may also catch
COVID-19 by touching a contaminated surface and then their face. The virus
can survive on surfaces up to 72 hours. It is most contagious during the first
three days after symptom onset, although spread may be possible before
symptoms appear and in later stages of the disease. Time from exposure to onset
of symptoms is generally between two and fourteen days, with an average of
five days. The standard method of diagnosis is by reverse transcription
polymerase chain reaction (rRT-PCR) from a nasopharyngeal swab. The
infection can also be diagnosed from a combination of symptoms, risk
factors and a chest CT scan showing features of pneumonia.
A crisis such as Covid-19 affects all business sectors but it especially puts a
spotlight on insurers who can expect to be inundated with general inquiries and
claims across multiple different lines, whether that be for health, life or non-life
cover. Balancing the need for responding to this influx of activity in the contact
centres with a quickly shifting remote workforce is an area that insurers are
working to address. Of course, countries are at different stages of coronavirus
activity. The WHO already declared health emergency in many countries. But

3. alongside the tragic human toll, it is already having considerable economic
impacts, posing major challenges to the global supply chain and certain business
sectors such as airlines, travel and leisure, and causing significant stock market
volatility and some precipitous falls. Central banks including the US Federal
Reserve and the European Central Bank (ECB) have responded by cutting
interest rates.
Starting with non-life or general insurance first, I expect the impact on claims to
be relatively manageable. Most insurers learned the lessons from the SARS
outbreak of 2003 and introduced exclusion clauses for communicable diseases
and epidemics/pandemics into most non-life products such as business
interruption and travel insurance. Business interruption policies usually pay out
only if physical damage occurs to an organization's assets or operations - so
coronavirus related claims may not be covered, but there is potential for future
disputes on this issue. Travel insurance, meanwhile, may offer cover if a
customer is diagnosed with the virus before or during their trip - but not for
travel that is cancelled because of the pandemic, unless a customer has taken out
premium `any cause' cover, which very few have. Of course, interest in
`premium' policies could change in a world after COVID-19. Event
cancellations may cause greater losses to insurers as some large events (but
certainly not all) have policies that may cover them even for epidemics or
pandemics. The largest event taking place this year is the Tokyo Olympics
where analysts estimate approximately $2bn of coverage. It is likely that the
reinsurance sector will bear some of the brunt here, as insurers claim back the
costs of cover from them over a certain threshold. One major global reinsurer,
for example, has been quoted 4 as having exposure of over 500 million euros
should all events covered for pandemics be cancelled. However, there are two
potentially big areas to watch for non-life. Firstly, trade credit insurance,
covering businesses against debts that cannot be paid by their customers or
suppliers. This is an $11bn global market - and if increasing numbers of
companies go out of business due to coronavirus impacts, insurers could face
rapidly spiralling claims. The second area is workers' compensation claims. We
could see spikes in workers claiming they were not adequately protected by
their employers against exposure to the virus brought about by their normal
working duties. It is impossible to know at this stage how significant such
claims could become. But insurers offering this type of cover to employers may
need to brace themselves, depending on how things develop. Finally, the
volatility and falling interest rates within the financial markets will likely
impact general insurers from an earnings and solvency perspective.

4. Q2. Discuss how the corona virus outbreak may impact insurers &
reinsurers operationally and economically?
COVID-19 is impacting the insurance industry in multiple ways—from
employee and business continuity issues to client service considerations to the
financial outlook. Here are some key issues insurers face and potential action
steps they could take.
INSURERS are responding to the widening COVID-19 outbreak on multiple
fronts—as claims payers, employers, and capital managers. Each has its own
distinct challenges, not just for the insurance industry, but for the economy and
society at large.
However, the most immediate concern for insurers is protecting the health and
safety of employees and their distribution partners in the agent/broker
community as they strive to maintain business continuity. Like the commercial
policyholders they serve, insurers are being challenged to review and update
their crisis management plans and take steps to continue operations with a
minimum of disruption to clients.
If they haven’t already done so, insurers should consider establishing cross-
functional, emergency decision-making teams to coordinate the organization’s
response, set new safety protocols, and assure quicker action as conditions
continue to evolve. A comprehensive communications system should also be in
place to keep employees, distributors, and clients fully informed about the status
of business continuity plans and instructions on how to remain personally safe.
One of the biggest challenges could be enabling alternative work arrangements
for insurance company employees if needed to protect staff and adapt to
possible office access restrictions, all while assuring business continuity.
Emphasis on efforts to contain the spread of COVID-19 may mean enabling
insurance company staff—from actuaries to underwriters to claims managers—
to work offsite, most likely from home. Insurers should ascertain whether
employees can access necessary files and conduct business from remote
locations. In addition, chief information security officers (CISOs) may need to
establish new cyber security protocols to permit the safe exchange of
confidential information among employees connecting from outside the office.
Many organizations are setting policies around remote access to support social
distancing. As companies move toward remote protocols, chief information

5. officers, chief technology officers, and CISOs should ensure that offsite workers
have access to the following technology capabilities:
 A laptop or desktop computer, preferably equipment issued by the
company
 A virtual private network to securely and remotely connect to critical
business applications
 Collaboration tools to help with audio, video, and screen-sharing
 An adequately equipped and staffed IT support team to answer
employees’ questions and help them continue to do their jobs remotely
Insurers may have additional circumstances to consider to accommodate claims
adjusters, who often need to travel to perform their jobs—both locally and to
more distant locations. That could be problematic with the COVID-19 outbreak.
What if an adjuster needs to go onsite to examine a claim for commercial or
personal property damage, and one of the policyholder’s family members or an
employee who interacts with the adjuster is infected with COVID-19?
To avoid such circumstances, insurers may have to take additional safety steps
such as setting new protocols for in-person interactions with claimants or
requiring claims to be investigated from the office or an alternative remote
location where possible—even those that normally require site visits.

6. Q3. Discuss how the price of insurance is determined.
Cost of insurance is a fee associated with certain types of life insurance, such as
variable and universal life insurance. Different from premiums, these charges
are billed to pay for administration, mortality and other responsibilities of the
insurer. The amount is determined by the risk class and age of the policyholder.
Cost of insurance charges tend to increase as a life insurance policyholder gets
older. This is largely because as the policyholder ages, the more likely they are
to die and thereby require the insurer to pay out a death benefit. The risk can be
further compounded if the policyholder has had a stroke, suffers from heart
disease or diabetes, smokes, or is fond of dangerous activities, such as
skydiving. Cost of insurance fees are typically charged on a monthly basis.
The premium rate for a life insurance policy is based on two underlying
concepts: mortality and interest. A third variable is the expense factor which is
the amount the company adds to the cost of the policy to cover operating costs
of selling insurance, investing the premiums, and paying claims.
Mortality
Life insurance is based on the sharing of the risk of death by a large group of
people. The amount at risk must be known to predict the cost to each member of
the group. Mortality tables are used to give the company a basic estimate of
how much money it will need to pay for death claims each year. By using a
mortality table a life insurer can determine the average life expectancy for each
age group.
Interest –
The second factor used in calculating the premium is interest earnings.
Companies invest your premiums in bonds, stocks, mortgages, real estate, etc.,
and assume they will earn a certain rate of interest on these invested funds.
Expense –
The third consideration is the expenses of operating the company. The
company estimates such expenses as salaries, agents’ compensation, rent, legal
fees, postage, etc. The amount charged to cover each policy’s share of expenses
of operation is called the expense loading. This is a cost area that can vary from
company to company based on its operations and efficiency.

7. Q4. Describe each type of automobile physical damage insurance. What
does each cover?
Physical Damage is a general term for a group of insurance coverages that
protect your vehicle. This general term includes Collision insurance, as well as
your choice of full Comprehensive insurance or the more limited Fire and Theft
with Combined Additional Coverage (CAC) insurance.
Collision insurance provides protection for your vehicle if it is damaged in an
accident. Collision insurance pays to repair or replace your vehicle if it:
 Collides with another object
 Overturns or rolls
Comprehensive insurance provides protection for your vehicle if it is damaged
by something other than a collision with a vehicle or object, or if your vehicle is
stolen.
Fire and Theft with CAC provides similar protection to that of Comprehensive
insurance, except its coverage is limited to certain specific, non-collision
incidents. Fire and Theft with CAC does not cover windshield claims.
Who needs physical damage coverage?
If you have a loan on your vehicle, or if you want to fully protect your vehicle,
you should choose Physical Damage insurance.
 Collision insurance will provide protection in case of a collision.
 Comprehensive insurance will provide protection against almost
everything except a collision with another vehicle or object.
 Fire and Theft with CAC insurance is a limited form of Comprehensive
insurance specially designed for specific heavy truck types.
If your vehicle is leased, you probably are required to have Physical Damage
insurance. If your vehicle is fully paid for, Physical Damage coverage is
optional.
Physical damage coverage deductibles and other details
For Physical Damage insurance, you must choose a deductible. The deductible
is the amount that you agree to pay out of pocket when you have a claim.
Choosing a higher deductible is an easy way to lower the price of your
insurance. Be sure you choose a deductible that you can afford to pay out of
pocket at any time.

8. When you select Physical Damage insurance, you also are required to submit a
Stated Amount, which is your best estimate of the current value of your vehicle.
The Stated Amount should take the age and condition of your vehicle into
account, as well as any permanently attached equipment. Learn more
about Stated Amount and how to calculate it for your vehicle.
Physical damage coverage examples
Example 1:
You're driving down the street when you hit a patch of ice. You lose control of
your vehicle and run into a telephone pole.
Your Collision insurance will pay for damage to your own vehicle because this
was an accident in which you collided with another object.
If you selected a $500 deductible, you would pay the first $500 to have your
vehicle repaired or replaced, depending on the extent of the damage, out of
pocket. Your Collision insurance would then pay the rest of the repair or
replacement costs, up to the Stated Amount that you submitted.
Physical damage coverage exceptions and restrictions
If you would like to have Collision insurance, you also must select either
Comprehensive insurance or Fire and Theft with CAC insurance.
In some states, Progressive offers Comprehensive insurance or Fire and Theft
with CAC insurance only policies for seasonal businesses.