Hayley Kai Fundamentals- Chapter 1

5000 BC in China, boat operators would spilt loads into several boats for treacherous waters . If one boat was lost the boat owners shared the loss so no one was wiped out. Marine Insurance Industry was born .

Then in September 1666 kings bake shop in London had fire that almost wiped out the town . A dentist started offering fire insurance .

Approx 125 general insurance companies ( other than life and health ) in Canada . 15 of these insurers provide over 70% of the insurance purchased by Canadians

1) spread of risk

2) basis of credit system

3) eliminates worry -encourages entrepreneurship

4)loss prevention and loss reduction

5) source of Employment and investment capital

A mechanism in which the losses of a few are shared among the many .

Insurance is a pot that all insured pay their premiums into . This pays for running the business and the losses of those who have claims

Many Canadians have to use loans to finance large purchases . The ability of insurance to protect the investments of lenders help to facilitate the granting of credit

Available insurance allows people to enhance in ventures with out money aside for possible future losses. By making small defined expenditure (premium) to cover large and uncertain loss alleviates worry

Insurance pays for losses and works hard to prevent losses and reduce their severity. Partnerships form in communities and public officials to deal with road safety , fire prevention, anti theft and insurance fraud

Insurance companies employ adjusters , agents , brokers and trade/professionals (auto body,accounting etc) derive income from the settlement of insurance claims .

In 2007 $116 billion and expected to double in 10 years

1) insurance provides a means of shifting ones financial responsibility for a loss of another party

2) payment will be made only in the event of the happening of a certain risk or peril

3)amount of payment is restricted to the amount required to indemnify the insured

4) insurance covers losses to which the object of insurance may be exposed

5) the indemnity provided can be in the former of a sum of money or other thing of value

The chance of financial loss to which the object of insurance may be exposed.

It is NOT the object of insurance . It is the financial risk in the Acts.

Aka building is the object of insurance but the exposure of fire (peril) to the building resulting in financial loss is the risk

" the cause of loss"

Ex . Fire, wind or hail

A peril causes a claim . The risk was the chance of financial loss by the peril

Indemnify = compensate the victim of a loss .

Principle of indemnity ensures people receive ACTUAL amount of their loss . No more no less .

More = people profit

Less = incomplete indemnity

Indemnity amount is the value IMMEDIATELY prior to the loss. (House purchased at 75k but worth 140 k when burned down. Indemnity would be 140 k)

Insurance is for future and accidental losses. Insurance companies could not profit if everyone waited until AFTER a loss to purchase or people wasting resources with deliberate losses

Can be a sum of money OR the claim can be settles by repair/ replacement .

- cash sum is for personal items usually ( instruments , household items)

- payment will be made to labourer and materials to repair damage not paid out in cash

Aka general insurance . Involves all insurance types other than life and health.

Auto insurance (50% of P&C premiums )

Property Insurance (habitational and business properties. 2nd largest premium )

Liability insurance (when insureds are financially responsible for injury or damage they cause to other . 3rd largest )

Private Insurers (majority. Broken into stock companies and mutual companies)

Government Insurers (federal and provincial )

A) stock companies - most insurance in Canada. Operates on private funds or through public sale of stock. Companies shareholders own. Main purpose is profit for their investment

B) mutual companies - owned by policy holders. Main purpose is to provide low cost insurance to policy holders. When company profits , refunds policy holders directly through dividends or rate adjustments .

Provincial and Federal provide medical and employment insurance and workers compensation. BC,SASK,MAN , QUEBEC provide compulsory auto insurance coverage . The can purchase additional coverage. Sask gov also competes with private Insurers

Direct writing system - sell products only provided by the insurer . Salary and or commission Insurer owns all business written and performs all administration

Independent brokerage - 80% of P&C . Not employees of insurers and represent more than one company . Brokerage owns business and paid a commissions

Agency system - while sometimes interchangeable for insurance study brokerage and agents are different. Represent one insurer . Commission and bonuses . Agent owns book of buisness

17th century to write marine insurance. NOT an insurance company and does not transact insurance buisness itself. Consists of companies and individuals called underwriters who assume risks for them selves . Underwriting memberships open to anyone meeting financial requirements of the committee of Lloyd's

Lloyd's insurers what other insurers can't handle

As marine insurance became more complex (from Lloyd's of London) more underwriters (individuals or groups assuming risks) were needed . This formed syndicates. An underwriting agent manages affairs of each syndicate and appoints expert underwriter for each class of business written.

In Canada non underwriting members act as broker intermediaries for Lloyd's syndicates . To place a risk at Lloyd's producer provides under writing info on folded piece of paper (slip ) to broker. Under writer commits to certain percentage of risk . When 100% of risk is subscribed slip is forwarded to Policy Signing Office . All Lloyd's policies MUST bear embossment of this office.

Hot air balloons, oil rigs , opera singer voices , legs of movie stars etc Lloyd's portfolios