SCI BCP – Basic Concepts & Principles In General Insurance

Please Note! The added capital is not applied on Qualitative insufficiency of the external model

Please Note! The liability adequacy test requires an insurer to assess at each reporting date whether recognized insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts.

Please Note! The definition of reinsurance is that is insurance purchased by insurers from reinsurers to limit the total loss an insurer would experience in case of an extreme event

Please Note! Definition of Underwriting capacity is Maximum amount an insurer accepts to lose on a single loss risk.

Please Note! Action-oriented biases drive us to take action less thoughtfully than we should

Please Note! Framing bias is that people think 3 dollars a day less costly than 1095 dollars a year.

Please Note! Ruin risk is not included in parameter risk.

Please Note! Net deferred tax assets and subordinate debt falls into Tier 3

Please Note! Risk Diversification reduces a company’s need for risk-based capital. This is the key to both insurance and investments.

Please Note! Absolute risk aversion is not a utility property rather than it is a utility function.

Please Note! Distortion Risk measures transform the probabilities and Utility risk measure transform the amounts

Please Note! Inflation and interest rate relationship is not the aim of Enterprise Risk Management

Legal wrong In law, a wrong can be a legal injury, which is any damage resulting from a violation of a legal right. A legal wrong can also imply the state of being contrary to the principles of justice or law. It means that something is contrary to conscience or morality and results in treating others unjustly. In legal wrong, the other name of an injured or harmed person can also be called as accuser, litigant, suer, plaintiff or claimant in legal action.

A tort, in common law jurisdiction, is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits a tortious act. It can include the intentional infliction of emotional distress, negligence, financial losses, injuries, invasion of privacy and many other things. International torts, Absolute liability, Inattention the three categories of torts. Torts include all negligence cases as well as international wrongs which result in harm.

Employee benefits, also known as perks or fringe benefits, are provided to employees over and above salaries and wages. These employee benefits packages may include overtime, medical insurance, vacation, profit sharing and retirement benefits, to name just a few. The relationship between higher earnings and higher benefits is loose and disproportionate, but it does exist.

In Property and Casualty Insurance Marketing, An insurance distribution system that allows agents to sell and service insurance contracts that limit representation to one insurer and reserve to the insurer the ownership, use and control of policy records and expiration date. It may also be defined as an insurance distribution system through which agents represent only one company or a group of companies under similar management.

An insurance rate is the amount of money necessary to cover losses, cover expenses, and provide a profit to the insurer for a single unit of exposure. Rates, as contrasted with loss costs, include provision for the insurer’s profit and expenses.

They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. “Provide income statement to the shareholders” is not a principle of the underwriting

Steps in Settlement of a Claim are as follows:-
(A) Notice of loss must be given
(B) The claim is investigated
(C) Proof of loss may be required.
(D) A decision is made concerning payment

Future value is the value of an asset at a specific date. It measures the nominal future sum of money that a given sum of money is “worth” at a specified time in the future assuming a certain interest rate, or more generally, rate of return; it is the present value multiplied by the accumulation function. The formula for future value FV = PV(1 + i)n so
FV=100(1+0.06)2
FV=100(1.06)2
FV=100×0.11236
FV=112.36

A holding company is a company that owns the outstanding stock of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies to form a corporate group. The holding company is a company that directly or indirectly controls an authorized insurer

The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. If the data points are further from the mean, there is a higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation.

Probability is a numerical description of how likely an event is to occur. The formula for probability is result divided by total no of possible outcomes. True probability is the (almost always) unknown actual probability that an event will occur in a given situation. So in the case of Coin, the probability of getting head is 1/2. True probability is a priori probability of getting “heads” is 0.5.

Any condition or situation that presents the possibility of a claim alleging the legal responsibility of a person or business for injury or damage suffered by another party. A Liability Loss is a claim for monetary damages because of injury to another party or damage to another party’s property. Sexual harassment of employees, employment discrimination, wrongful termination, and failure to promote is an example of Liability loss exposures

Risk reduction measures are pre-event management activities designed to either directly enforce or empower local actors to contain local human vulnerability and hazard, and enhance adaptive capacity and actions in the long and short term.

Loss prevention is a technique that limits, rather than eliminates, loss. Instead of avoiding a risk completely, this technique accepts a risk but attempts to minimize the loss as a result of it. Loss prevention refers to measures that reduce the frequency of a particular loss.

Please Note! The captive insurers are formed because the parent’s insurance costs may be lower.

Please Note! Personal selling systems is not the major distribution system for marketing property and casualty insurance

Please Note! The principle of indemnity has two fundamental purposes. The first purpose is to prevent the insured from profiting from a loss and the second purpose is to reduce moral hazard. If dishonest policy holders could profit from a loss.

Please Note! Guaranty fund assessments and insolvency because of bad management are the examples of Business risk.