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Insurance Fundamentals for Policymakers. Four assignments: Insurance Principles Insurance Coverages: Property and Casualty Insurance Coverages: Life and.

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Presentation on theme: "Insurance Fundamentals for Policymakers. Four assignments: Insurance Principles Insurance Coverages: Property and Casualty Insurance Coverages: Life and."— Presentation transcript:

1 Insurance Fundamentals for Policymakers

2 Four assignments: Insurance Principles Insurance Coverages: Property and Casualty Insurance Coverages: Life and Health Insurance Regulation and Legislation Insurance Fundamentals for Policymakers

3 The Homeowners Policy The Personal Auto Policy The Surplus Lines Market Reinsurance Workers Compensation: Statutes and Methods of Demonstrating Financial Security Insurance Coverages: Property and Casualty Topics

4 Property and casualty insurance covers real and personal property and the insured’s liability for others’ injuries or property damage. The Homeowners Policy

5 Section I—Property Coverages  Dwelling  Other Structures  Personal Property  Loss of Use Section II—Liability Coverages  Personal Liability  Medical Payments to Others The Homeowners Policy

6 Protects: House and structures attached to house Detached structures on premises Perils insured against depend on policy Section I—Property Coverages, Dwellings and Other Structures

7 Personal Property—property other than dwelling and other structures Loss of Use—financial losses when an insured residence is uninhabitable –Reimbursement for living or meal expenses –Fair rental value Section I—Property Coverages, Personal Property and Loss of Use

8 Bodily injury or property damage for which the insured is legally liable Insurer is obligated to defend the insured Section II—Liability Coverages, Personal Liability

9 For persons injured at insured’s premises Applies whether or not insured is liable Claim must be made within three years Section II—Liability Coverages, Medical Payments to Others

10 Owner-occupants Tenants Condominium owners Policy Choices—Insureds

11 Perils are causes of loss Named perils—Perils listed in the policy Open perils—All perils not excluded by the policy Policy Choices—Perils

12 Owner-Occupant Policies

13 Other Policies

14 An individual or family can use a personal auto policy (PAP) to insure against the consequences of losses involving ownership or use of an auto. The Personal Auto Policy

15  Liability  Medical payments Uninsured/underinsured motorists Physical damage  Personal injury Coverage Options

16 Covers bodily injury and damage to others’ property caused by an insured in an auto accident. Insured must be found legally responsible. Applies to –Covered vehicles and other vehicles driven by an insured –Occasional drivers of covered vehicles Liability Coverage

17 Covers reasonable and necessary medical expenses for injuries from auto accident to –Insured in any auto –Insured pedestrian injured by auto –Occupants of insured auto Paid regardless of fault Carries per-person limit Medical Payments Coverage

18 Covers bodily injury caused by  At-fault uninsured motorist  Hit-and-run driver  Driver who is insolvent Uninsured Motorists Coverage

19 Added as endorsement to PAP Covers insured’s injury caused by underinsured at-fault driver In some states, also covers property damage Pays difference between underinsured motorists coverage limit and at-fault vehicle’s liability limits Underinsured Motorists Coverage

20 Applies to insured’s covered autos Applies to certain other autos –Nonowned auto not for insured’s regular use –Auto or trailer used as temporary substitute (loaner) Has a deductible Physical Damage Coverage

21 Applies when covered auto –Strikes an object –Collides with another vehicle –Overturns Physical Damage Coverage—Collision

22 Applies to damage not resulting from collision Examples: damage from fire, theft, vandalism, hail, animal contact, flood, and glass breakage Physical Damage Coverage—Other Than Collision

23 Pays benefits regardless of fault Covers medical expenses, income loss, and other losses of injured occupants of covered auto May restrict victims’ right to sue (“true” no-fault laws) Added by endorsement Personal Injury Protection

24 The surplus market includes unique or unusual exposures, as well as those exposures that the standard market is unwilling or unable to insure. The Surplus Lines Market

25 Classes of E&S business  Unusual or unique loss exposures  Nonstandard business  Insureds needing higher coverage limits  Insureds needing unusually broad coverage  Loss exposures that require new forms of coverage Excess and Surplus Lines (E&S)

26 Standard insurance depends on a large number of similar exposures. Without that, coverage is difficult to price. E&S coverage may be available. Unusual or Unique Exposures

27 Standard insurers may not cover high-loss or uncontrollable-loss exposures. Premiums may be too high. E&S coverage may be available. Nonstandard Business

28 In comparison to what the standard market provides, the E&S market provides: –Higher-limit coverages –Broader coverage –Coverage for new exposures High Limits, Broad Coverage, New Exposures

29 Some states maintain lists of approved E&S insurers. Other states maintain lists of unapproved E&S insurers. Most states require all E&S business to be placed through an E&S broker. E&S Lines Regulation

30 Reinsurance enables insurers to meet the needs of the public and handle their own risk portfolios efficiently. Reinsurance helped the United States insurance industry withstand such disasters as the September 11, 2001, terrorist attacks and Hurricane Sandy in 2012. Reinsurance

31 Insurer transfers liability for certain losses to reinsurer. In exchange, insurer pays reinsurer a ceding commission. Insurer retains some of the loss, and coverage is subject to limits. Reinsurers also use reinsurance (retrocession). Basic Reinsurance Concepts

32 Policyholders cannot collect directly from reinsurers. Two exceptions: –Cut-through endorsement –Purchase of reinsurance for captive insurer or pool Indemnification of Policyholders

33 Workers compensation (WC) laws provide an exclusive remedy for work-related injuries: employers are required to cover such injuries without regard to fault, and employees’ right to sue in such cases is limited. Workers Compensation

34 Obligate employers to compensate employees for job-related injuries Limit employees’ rights to sue employers for such injuries Guarantee prompt payment Reduce court burdens and litigation costs State WC Laws

35 Medical expenses and wage loss Work-related injuries and occupational diseases Scope of Coverage

36 Medical benefits Disability income benefits Rehabilitation benefits Death benefits Benefits Payable

37 Covered—Industrial workers and most workers of private employers Exempt (varies by state) –Small businesses with few employees –Farm labor –Domestic employees –Casual employees –Independent contractors Persons Covered or Exempt

38 State laws require employers to demonstrate ability to pay WC claims. Employers can meet this requirement through insurance or self- insurance. Employers’ Financial Security

39 Voluntary market—private insurers Assigned risk plan State fund WC Insurance

40 Self-insurance plans Self-insured groups Self-Insurance for WC

41 Homeowners policies—property damage, loss of use, liability Personal Auto Policy—losses from ownership/use of autos Surplus lines—unusual or unique exposures Reinsurance—insurance for insurers WC—medical expenses and wage loss Summary

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