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Understanding PAF in Insurance

This document contains a tutorial on risk and insurance management. It discusses key topics such as the different types of insurers, common insurer costs, premiums versus rates, agents versus brokers, challenges in insurance pricing, loss ratios, underwriting processes, reasons for claim denial and reinsurance, and the principle of indemnity. The tutorial poses several questions on these topics and references textbook chapters for additional information.

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adri kusno
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92 views2 pages

Understanding PAF in Insurance

This document contains a tutorial on risk and insurance management. It discusses key topics such as the different types of insurers, common insurer costs, premiums versus rates, agents versus brokers, challenges in insurance pricing, loss ratios, underwriting processes, reasons for claim denial and reinsurance, and the principle of indemnity. The tutorial poses several questions on these topics and references textbook chapters for additional information.

Uploaded by

adri kusno
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Fundamentals of Risk and Risk Management

Term 1, 2020
Tutorial Program

Tutorial Week 3

The Private Insurance Industry and Government Regulation of Insurance

Question 1

a) List the types of insurers as classified by legal form of ownership, and briefly describe the
distinguishing characteristics of each type.

b) Identify the various costs common to all insurers and explain the extent to which these
costs may differ from one insurer to another.

c) What is the difference between a premium and a rate? How do you account for the fact
that two insurers may charge significantly different premiums for identical coverage?

d) Martin sells health insurance products from companies such as Medibank Private, Bupa
and NIB. On the other hand, Melvin sells home & contents insurance products solely from
GIO. Discuss who would be categorised as an ‘agent’ and who would be a ‘broker’.

Question 2

a) Why is the pricing of the insurance product more difficult than pricing of other products?

b) Insurer ABC Ltd has 100 customers, with their policies covering 400 units of protection.
Claims of $5,000 are projected for the year. 35% of ABC Ltd’s customers become
policyholders through a broker who is paid $60 per customer referred. An additional
loading of $200 per policy is incorporated, as an allowance for contingencies and profit.

i) If Hailee’s policy covers 3 units of protection, what premium would she be charged
by ABC Ltd?

ii) What is ABC Ltd’s expense ratio and permissible loss ratio? Comment on your
answers.

c) “When an insurer is successful in its efforts to select insureds from the better than average
classes, the gain in its competitive position is magnified by the impact of this success on
its competitors.” Explain what is meant by this statement.

d) List and briefly explain the steps in the underwriting process.

Question 3

a) List several reasons for which a claim might be completely denied.

b) Do you think that loss adjustment would be most difficult in the field of life insurance,
property insurance, or liability insurance? What training would you recommend for
adjusters in each of these three fields?

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c) Give three specific reasons for reinsurance.

d) Joanna, a noted insurance authority, stated, “The insured should prefer to purchase
insurance from a company that has a high loss ratio since this is evidence that the
company is returning a high percentage of the premium dollars collected to its customers.”
Explain why you agree or disagree with his position.

Question 4

The principles of insurable interest, subrogation and actual cash value all stem from the
broader principle of indemnity. Explain what is meant by the principle of indemnity, and
indicate specifically in what way each of the three principles mentioned above helps enforce
the principle of indemnity.

References: Textbook Chs. 5-9 (selected pages)

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