The Private Insurance Industry :

Marketing and Operations

指導老師：王詩韻老師
學生：曾雅琪(69936017)，藍婉綺(69936011)
 Contents
 Private Insurance and the Financial Services Industry
 Insurance Agents
 Insurance Brokers
 Life Insurance Marketing
 Property & Casualty Insurance Marketing
 Insurance Company Operations
 Private Insurance and the
Financial Services Industry
 The financial services industry consists of thousands of
financial institutions that provide financial products and
services to the public. These include –
 commercial banks, savings and loan institutions, credit unions, life
and health insurers, property and casualty insurers, mutual funds,
securities brokers and dealers, various government-related financial
institutions, finance companies, and other financial firms.
 As part of the financial services industry, the insurance
sector has a profound financial impact on any economy.
 In 2013, premiums written by the insurance industry totaled $1
trillion, with life and health insurers accounting for 54 % and
property and casualty insurers accounting for the remaining 46 %.
 Life & health insurers held cash and invested assets of $3.5 trillion,
while property & casualty insurers held $1.5 trillion; the industry
provided 2.4 million jobs; and paid $17.4 billion in premium taxes
 Insurance Agents
 An agent is someone who legally represents the insurer and
has the authority to act on the insurer’s behalf.
 Has the authority to represent the insurer based on express
authority, implied authority, and apparent authority
 The principal (insurer) is legally responsible for the acts of an
agent whenever the agent is acting within the scope of express,
implied, or apparent authority. This includes - wrongful and
fraudulent acts, omissions, and misrepresentations.
 A property and casualty agent has the power to bind the
insurer immediately with respect to certain types of coverage.
This relationship can be created by a binder (a temporary
insurance until the policy is actually written; oral or written),
but a life insurance agent normally does not have the authority
to bind the insurer.
 Insurance Brokers
 A broker is someone who legally represents the insured even
though he or she receives a commission from the insurer.
 Legally does not have the authority to bind the insurer.
Instead, he or she can solicit or accept applications for
insurance and then attempt to place the coverage with an
appropriate insurer. But the insurance is not in force until the
insurer accepts the business.
 A broker is paid a commission by insurers where the business
is placed. Many brokers are also licensed as agents, so that
they have the authority to bind their companies when acting
as agents.
 Life Insurance Marketing
 Personal selling systems: commissioned agents solicit and sell life
insurance products to prospective insureds. Include the following-
 Career agents - full-time agents, who usually represent one insurer and are
paid on a commission basis.
 Multiple Line Exclusive Agency System - agents who sell primarily property
and casualty insurance also sell individual life and health insurance
Independent Property and Casualty Agents - independent contractors who
represent several insurers and sell primarily property and casualty
insurance.
 Brokers - Life insurance and annuities are also soldby brokers. Usually enter
into separate agency contracts with each insurer in which business is placed.
 Financial institution distribution systems
 Direct response system
 Other distribution systems (Worksite Marketing/stock
brokers/financial planners)
 Property & Casualty Insurance
Marketing
 Independent agency system- a business firm that usually
represents several unrelated insurers, owns the expirations
or renewal rights to the business, compensated by
commissions that vary by line of insurance. Frequently
authorized to adjust small claims.
 Exclusive agency system - the agent represents only one
insurer or a group of insurers under common ownership
 Direct writer - an insurer in which sales representatives are
employees and not independent contractors . Use the
exclusive agency system for selling insurance products
 Direct response system - sells directly to the public by
television, telephone, mail, newspapers, and other media
 Multiple distribution systems
 Insurance Company Operations
 Rate making
 Underwriting
 Production
 Claims settlement
 Reinsurance
 Other
 Rate making
 Refers to the pricing of insurance and the calculations of
insurance premiums.
 The premium paid by the insured is the result of multiplying
a rate determined by actuaries by the number of exposure
units, and then adjusting the premium by various rating
factors (a process called rating). A rate is the price per unit
of insurance.
 The person who determines rates and premiums is known
as an actuary. He or she is a highly skilled mathematician
who is involved in all phases of insurance company
operations, including planning, pricing, and research.
 Underwriting
 Refers to the process of selecting, classifying, and pricing
applicants for insurance. There are several important
underwriting principles:
 Attain an underwriting profit.
 Select prospective insureds according to the company’s
underwriting standards.
 Provide equity among the policyholders.
 In determining whether to accept or reject an applicant for
insurance, underwriters have several sources of
information. Important sources include the application,
agent’s report, inspection report, physical inspection, and a
physical examination in life insurance.
 Production
 Refers to the sales and marketing activities of insurers. Agents
who sell insurance are called producers.
 The key to the insurer’s financial success is an effective sales
force. Life insurers have an agency or sales department. This
department is responsible for recruiting and training new agents
and for the supervision of general agents, branch office
managers, and local agents. On the other hand, property and
casualty insurers have marketing departments.
 The marketing of insurance has been characterized by a distinct
trend toward professionalism in recent years. This means that
the modern agent should be a competent professional who has a
high degree of technical knowledge in a particular area of
insurance and who also places the needs of his or her clients first.
S/he abides by a code of ethics.
 Claims Settlement
 From insurer’s viewpoint, several basic objectives in settling claims:
 Verification of a covered loss
 Fair and prompt payment of claims
 Personal assistance to the insured
 The major types of adjustors (who adjusts a claim) are as follows:
 Agents
 Staff claims representatives
 Independent adjustors
 Public adjustors
 Several steps are involved in settling a claim:
 Notice of loss must be given to the company.
 The claim is investigated by the company.
 A proof of loss may be required.
 A decision is made concerning payment.
 Reinsurance
 Reinsurance is used for several reasons:
 To increase the company’s underwriting capacity
 To stabilize profits
 To reduce the unearned premium reserve
 To provide protection against a catastrophic loss
 Facultative reinsurance is an optional case-by-case method by which
the primary company negotiates a separate agreement with the
reinsurer for each loss exposure that the primary company wants to
reinsure.
 Not automatic. The primary company is under no obligation to cede
insurance, and the reinsurer is under no obligation to accept. In
contrast, under treaty reinsurance, if the business falls within the
scope of the agreement, the primary company must cede insurance
to the reinsurer, and the reinsurer must accept the ceded coverage.
 Reinsurance (contd.)
 Reinsurance arrangements for the sharing of losses include the
following:
 Quota-share treaty
 Surplus-share treaty
 Excess-of-loss treaty
 Reinsurance pool
 Other
 Investment
 Information systems
 Accounting
 Legal, and
 Loss-control service
 Thanks
Ref. Ch 6 from Rejda et al. 13th Ed.