Essay Example on Premiums & Rates: Essential for Insuring Profit & Loss

Introduction

A rate is the amount of money essential to cover all the losses, expenses and generate more profit to the insurer for any single unit of exposure. At the same time, the premium is the amount of money a person or maybe business pays for the insurance policy. Usually, people or business enterprises pay insurance premiums to pay for the various policies that cover healthcare, auto-machines, home, life and many others (Kumar et al., 2016). A typical example of a premium is a yearly car insurance payment while an example of a rate is the long-term national rate of insurance.

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An insurer takes several steps in determining a rate. Describe the first step of classifying risks.

Usually, the insurance company considers the following factors in determining the insurance rates: The geographical location of the insured, age of the insured, marital status, claims and credit history of the insured, risks involved in the policy cover and many more. While determining the amount of premium to be paid by the insured due to the policy coverage, the insurer must approximate the expected losses for the insured. Generally, the main objective of the risk classification approach is to ensure that people are grouped in a manner that those with the similar possibility of risks or loss are charged the same rate (Raviv, 2019). Therefore, the first step of risk classification is identifying the risk involved in the policy coverage. In this first step, the insurer should properly separate uncorrelated risks into the different and adequately defined pool of risks to effectively control the final selection. To effectively classify the risks involved, the insurer should consider the following variable elements such as homogeneity, reliability, incentive worth, separation as well as the causality of the policy covered.

Explain and provide ONE (1) example of each of the meanings of exposure as it relates to insurance.

Overall, exposure refers to the state of being a subject to loss due to specific hazard or contingency and usually applied as the measure of the units of rating or maybe the premium base of a risk. The insurer examines the rate of risk a person experiences typically and apply it to estimate the insurance premiums (Kumar et al., 2016). First, pure risk exposures involve some chances of loss as well as no opportunity to gain, for example, fire and flood risks. Second, the speculative risks characterize an opportunity to either gain or lose, such as reputational risks, investment risk exposures, and strategic risks.

Explain why Statutory Conditions are part of the insurance contract. Describe the effect of a breach of any of these conditions by either party to the agreement.

Indeed, every insurance policy for risks against individual property has some standard features called the statutory conditions. Therefore, the statutory term is fundamental the government through the insurance Act requires that all the insurance policies meet some requirements for the protection of the insurer and the insured in the insurance contract (Raviv, 2019). These statutory conditions enable both insurance parties to understand their rights as well as obligations of the contract. However, the consequences of breaching insurance conditions rely on the classification of that particular statutory condition bare no recovery or bare recovery (Kumar et al., 2016). The main effect of non-disclosure is that either insured or insurer should avoid or terminate the contract. Again, in cases of fraud, the insured or insurer can claim for compensation for the damages caused due to the breach of the statutory insurance conditions.

Under what circumstances would an insurance policy be cancelled short-rate and how would the return premium (refund) be calculated?

The insurer may decide to terminate the policy contact due to the various circumstances such as if the insured has provided the insurer with the false information, if the insured has failed to obey the precautionary rules and guidelines of the policy contract and if the policyholder has intentionally caused insured situation (Raviv, 2019). Moreover, in case of the contract termination before the policy expiry, the return premium would be calculated by the policyholder, the insurer shall refund sooner the practicable the excess premium typically paid by the policyholder over the short rate premium for the expired period. However, no circumstance, shall the short rate premium for the expired period be deemed to be less than any minimum retained premium that is specified.

Distinguish between the roles of staff and independent adjusters.

The Independent Adjusters in general work for the independent adjusting organizations. They move wherever they are required on a contracted basis. For instance, they may get deployed for about three weeks to the disaster management zone; they finally have that particular contract increased several times and end up staying in that zone for more than a year (Raviv, 2019). Usually, where the independent adjusters reside has no bearing on where they work. As contractors, the independent adjusters operate for themselves and can acquire deployment when as well as where they need.

On the other hand, Staff Adjusters are usually salaried workers of the insurance carrier. Even though they may still travel, but it usually is less often and only in particular areas. The staff adjusters have constant and reliable work from their insurance carrier, which is of benefit to those individuals who may want to stay near their homes. Nevertheless, in exchange for this advantage, their compensation and bonuses usually are lower than the independent adjusters.

Case Study Applications

Yes, the policymaker can dispute this decision since there is no overall statutory time limit for requesting for payment or claim under the insurance policy contract, other than the average six-year limitation time applicable to all the contract claims (Kumar et al., 2016). But, individual policy contracts of the insurance can significantly specify the time limit within which the compensation claim must be established by the insured.

References

Kumar, C., Dyrnaes, D., Von Kaenel, T., Goodwin, J., Wayman, J., Trivelpiece, C., ... & Jenkins, A. (2016). U.S. Patent Application No. 10/537,636.

Raviv, A. (2019). The design of an optimal insurance policy. The American Economic Review, 69(1), 84-96.