Auto insurer

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of loss of a quota. Insurance is defined as the equitable transfer of risk of loss, from one entity to another, in exchange for a premium. The insurer is the company that sells insurance. Insurance Rates is a factor used to determine the amount called the premium to be charged for a certain amount of insurance coverage. Risk management, the practice of assessment and risk control has evolved as a discrete field of study and practice. A large number of homogeneous units of exposure. The vast majority of insurance policies are provided to each member of a very large classes. Car insurance, for instance, covered about 175 million cars in the United States in 2004. [2] The existence of a large number of homogeneous units exhibition enables insurers to take advantage of the so-called "law of large numbers", which, in effect, declares that the number of units set increases , actual results are likely to become increasingly close to the expected results. There are exceptions to this criterion. Lloyd's of London is famous for the life or health of actors and sports personalities. insurance Satellite Launch cover the events that are infrequent. Large commercial property policies can ensure exceptional properties for which there is no 'uniform exposure units. Despite failing on this criterion, numerous exhibitions like these are generally considered as insurable. Loss final. event which gives rise to a loss which is subject to the insurance could, at least in principle, take place at a time known in a place known, and a known cause. L ' classic example is the death of an insured on a life insurance policy. fire, car accidents, injuries and all workers can easily meet this criterion. Other types of losses can be defined in theory. Sickness Professional, for example, can involve prolonged exposure to adverse conditions where no time, place or cause can be identified. Ideally, the time, place and cause of loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements. accidental loss. event that is the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. loss must be " pure "in the sense that it is the result of an event which is the only opportunity for expenses. events which contain speculative elements, such as normal commercial risks, are generally not considered insurable. Large Loss. size of the loss must be significant from the point of view of the insured. insurance premiums required to cover the cost of anticipated losses, plus the cost of issuing and administering the policy, adjusting losses, and to provide the capital necessary to reasonably ensure that the insurer will be able to pay compensation. For small losses of the latter costs can be several times the size of a cost estimation of losses. It is useless to pay these charges, unless the protection afforded a real value to a buyer. Affordable Premium. If the probability of an accident is so high, the cost of the event so important, that the result is significant premium compared the amount of protection offered, it is unlikely that anyone who buys an insurance policy, even if the offer. Moreover, as the accounting profession officially recognized in the financial accounting standards, the premium may not be so great that there is not a reasonable chance of a significant loss of the insurer. If there is no chance of loss, the transaction could be in the form of insurance, but not the substance. (See U.S. Financial Accounting Standards Board standard number 113) Loss calculable. There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is usually an exercise empirical while the cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and proof of loss associated with a petition filed under this policy to report practical and reasonable objective assessment of the loss amount recoverable as a result of the claim. limited risk of major catastrophic losses. Risk is often essential aggregation. If the same event can cause loss of many policies of the same insurer, the ability the insurer to the question that the policies is limited, and not by individual factors surrounding the characteristics of a police, but by the factors surrounding the sum of all policyholders are exposed. Typically, insurers prefer to limit their exposure to a loss from a single event in a certain small portion of their capital base, in the order of 5 percent. If losses can be aggregated, politics or individual could produce unusually large claims, the capital constraint will restrict insurers' appetite for additional insured. The classic example is the earthquake insurance, where the ability of an underwriter to issue a new policy based on the number and size of the policies it has already undertaken. Wind insurance in the areas of the hurricane, particularly along the coast, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since Combined capital of insurers and reinsurers may be low compared to the needs of prospective policyholders in areas at risk of aggregation. commercial fire insurance, it is possible to isolate the properties whose total value is well exposed to Apart from any individual insurer's capital constraint. These properties are usually shared among several insurers or which are provided by a single insurer, which syndicates risk in the reinsurance market. "Severance pay" policy will never pay claims until the insured has paid out of pocket to a third party, namely a visitor slips into your home on a moist that you left and you sued for $ 10000 and win. Pursuant to a "compensation" Political owner would have to find to pay $ 10000 visitors, and then fall would be "compensated" by the insurer for the costs of their own pockets (10000 dollars) [4]. A person who is seeking the transfer of risk (one individual, corporation, or association of any kind, etc.) becomes the "insured" once part of the risk is assumed by an "insurer", the portion of insurance, through a contract called insurance "Politics." Generally, an insurance contract, at a minimum, the following elements: the parties (the insurer, the insured, the beneficiaries), the premium, the coverage period, including the loss event covered, the amount of coverage (ie, the amount will be paid to the policyholder or beneficiary in the event of loss), and exclusions (the events are not covered). Insured so, said be "compensated" from loss of the events covered in the policy. Where insured parties experience a loss for a peril, coverage allows police to make a "claim" against the insurer for the losses covered as specified by the policy. fee paid by the insured to the insurer, who assume the risk is called "premium." Insurance premiums many policyholders are used to finance the reserve accounts for the payment of claims later - In theory for a relatively small number of claimants and for overheads. Tant maintains that the insurer set aside sufficient funds for losses (ie, reserves), the rest is profit margin of the insurer. Insurers make money in two ways: (1) through underwriting, the process by which insurers to select the risks to be insured and decide on the amount of premiums to be paid to accept these risks and (2) by investing the premiums they collect from the insured. The most difficult aspect of the insurance industry is underwriting policies. Using a wide range of data, insurers predict the likelihood that an application will be made against their pricing policies and product accordingly. To that end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will be responsible for assume. data are analyzed to project precisely the rate of future claims based on a given risk. Actuarial uses statistics and probability to analyze the risks associated with the range of risks covered, and these principles are used for scientific determine an insurer's overall exposure. Upon termination of a given policy, the amount of premiums collected and investment gains less about the amount paid in claims to the insurer underwriting profit on this policy. Sure , the insurer of view, some policies are winners (ie, the insurer will pay less in claims and expenses than it receives in premiums and investment income), and some are losers (for example, the insurer will pay more in claims and expenses than it receives in premiums and investment income). An insurer underwriting performance is measured in its combined ratio. loss ratio (losses and the loss of 'adjustment expenses divided by net earned premiums) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company combined ratio. The combined ratio is a reflection of the company's overall profitability subscription. A combined ratio below 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Insurance companies also earn profits on investment "float". "or" Float reserve available is the amount of money at hand, at one point, that an insurer has collected insurance premiums, but has not been paid in claims. Insurers begin investing the premiums insurance as soon as they are collected and continue to earn interest on them until claims are paid. In the United States, the underwriting loss of property and casualty insurance businesses was $ 142.3 billion dollars in five years ending 2003. But overall profit for the same period was $ 68.4 billion, following float. insiders Some insurance industry, including Hank Greenberg, do not believe it is always possible to maintain a profit of floating without a profit, but that view is not universally. Naturally, the "float" method is difficult to perform in a period economically disadvantaged. Bear markets do not cause insurers to abandon investments and to strengthen their underwriting standards. example, a poor economy usually means high insurance premiums. This tendency to swing between profitable and non-profitable periods in time commonly called "underwriting cycle" or insurance. [ 6] property and casualty insurers currently the most money from their line of auto insurance businesses. generally better statistics are available on the losses of autos and underwriting on this industry has benefited greatly from advances Informatics. In addition, property losses in the United States, due to natural disasters have exacerbated this trend. Lastly, claims handling and loss is materialized usefulness of insurance. in management role Processing of claims, insurers seek to balance the elements of customer satisfaction, administrative expenses, and the claims too many leaks. Within this balancing exercise, fraudulent practices of insurance are l 'One of the main risks of the business that must be managed and overcome. Aux gambling or gaming was first designed for that the chances are not affected by the players conduct or behaviour, and not required to conduct practices to mitigate the risk. But players can be prepared and to increase their chances of winning some games such as poker or blackjack. Unlike gambling or gaming, to obtain certain types of insurance, as fire insurance, the insured may be required to conduct practical risk mitigation, such as installing sprinklers and fireproof using building materials in order to reduce the probability of loss fire. Moreover, after suffering a loss, insurers specialize in providing rehabilitation to minimize the total loss. In a sense, we can say that the insurance appears simultaneously with the emergence of human society. We know of two types of savings in human societies: cost savings (with markets, money, financial instruments, etc.) and not the money or natural economy (excluding money markets , financial instruments, etc.). The second type is an ancient form of more than the first. In such an economy and the community, we can see in the form of insurance people helping one another. "For example, if a house burns, members of the community helping to build a new one. Should the same thing happen to her next, other neighbouring countries should help. Otherwise, the neighbors will not receive help in the future. This type Insurance survives till today in some countries where the modern economy of money with its financial instruments is not widely available (for example, countries in the territory of the former Soviet Union). As for insurance, in the modern sense (ie, insurance in a modern economy of money, in which insurance is part of the financial sector), the first means of transferring or the distribution of risk has been practiced by Chinese traders and Babylonian from the 2nd and 3rd Millennium BC, respectively. Merchants Chinese traveling treacherous river rapids to redistribute their goods through many vessels to limit loss due to one capsizing. Babylonians developed a system that was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by retailers beginning of the Mediterranean sailing. If a trader has received a loan for finance his expedition, it will pay the lender an additional sum in exchange for the guarantee of the lender to cancel the loan should the shipment be stolen. Achaemenian kings were the first to assure their people and has been officially 's registering in the process of insurance governmental notary. tradition was insurance per year of the Norouz (beginning of the Iranian new year), the leaders of different ethnic groups and others ready to take part, presented gifts for the monarch. The largest donation was presented at a special ceremony. When a gift is valued at more than 10000 Derrick (Achaemenian gold coin), the question was registered in a special office. This has been beneficial for those who have presented such gifts. For others, the gifts were quite appreciated by the confidants of the court. Secondly, the evaluation has been registered in special offices. A thousand years later, the inhabitants of Rhodes invented the concept of "average". merchants whose goods were shipped together should pay a premium divided proportionally that could be used to repay any merchant whose goods were dropped during the storm or sinkage. Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "corporate welfare" for welcoming families and paid the funeral expenses in case of death of members. Guilds of the Middle Ages has served a similar purpose. Talmud deals with several aspects of the property insurance. Before insurance was created in the late 17th century, "tontines" existed in England, where people donated money amounts to a sum that could be used for emergencies. Separate insurance contracts (for example, insurance not included with loans or other types of contracts) were invented in Genoa in the 14th century, as well as the pools Insurance supported by announcements of landed estates. These new insurance contracts Insurance allowed to be separated from investment, a separation of roles that first proved useful in marine insurance. insurance has become much more sophisticated post-Renaissance Europe, and developed specialized varieties. Towards the end of the seventeenth century, the growing importance of London as a center for commerce increased demand for marine insurance. at the end the years 1680, Mr. Edward Lloyd opened a coffee house, which became a popular haunt of ship owners, merchants, and masters, and thus a reliable source of the last shipment of the press. It has become the place where meeting for parties who wish to provide cargo and ships, and those who are willing to subscribe to such businesses. Today, Lloyd's of London remains the largest market (note that this is not an insurance company ) for marine and other types of insurance specialist, but it works quite differently from the more familiar types of insurance. insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13200 houses. In the wake of this disaster, Nicholas Barbon opened an office for the buildings. In 1680, he set up England for the first insurance company Fire, "" The Fire Office, in order to ensure the brick and the frame houses. Benjamin Franklin helped to popularize and make the practice of the standard insurance, particularly against fire, in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for insurance losses Properties fire. Franklin's was the first company to make contributions towards fire prevention. Not only does his company warn against certain risks of fire, he refused to insure certain buildings where the risk of fire was too great, like all wooden houses. In the United States, the regulation of the insurance industry is highly Balkanized, in the primary responsibility of every State insurance departments. Considering that the insurance markets have become centralized at the national and international levels, state insurance commissioners acted individually, even though at times in concert through a national insurance commissioners organization. In recent years, some have called for a double regulatory state and federal insurance system similar to the one that oversees the state banks and national banks. In New York State, which has its laws into line with its status as a global business center, the former Attorney General of New York, Eliot Spitzer is in a unique position to address the major brokerages d 'National Insurance. Spitzer alleged that Marsh & McLennan has conducted business in insurance based on the amount of contingent commissions that could be extracted carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest brokerages commercial insurance have since stopped accepting contingent commissions and have adopted new business models. Any risk that can be quantified can potentially be ensured. Some types of risks that could give rise to claims are known as "perils". An insurance policy will be explained in detail the dangers that are covered by the police and which are not. You will find below (not exhaustive) list of the different types of insurance that exist. A single policy may cover risks in one or more of the categories listed below. For example, motor insurance would normally cover both goods risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims cause an accident). An owner of the insurance policy in the United States typically includes property insurance covering damage to the house and property of the owner, liability insurance, which covers some legal claims against the owner, and even a small amount health insurance for medical expenses of visitors who were wounded in Property Ownership. The insurance can be any type of insurance that protects companies against risks. Some major subtypes of business insurance are: (a) different types of professional liability insurance, also known as professional indemnity insurance, which are discussed below under this title, and (b) the owners Business policy (BOP), which sets policy in a lot of types of coverage that a business owner must, in a manner similar to how the owners of insurance coverage that bundles a landlord needs. [7] Life insurance provides a financial benefit to the deceased's family or other designated beneficiary, and can accurately predict the family income of the insured, burial, funeral and other expenses finale. The life insurance policies often allow the possibility of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same type of actuarial and investment management, life insurance expertise requires. Annuities and pensions that pay a benefit for life are sometimes seen as insurance against the possibility that a retiree will survive its financial resources. In this sense, they are a complement to life insurance and, from a shooting, is the mirror of life insurance. Fonts health insurance will often cover the cost of private medical treatment if the National Health Service in the United Kingdom (NHS), or other publicly funded health programs do not pay for them. The result is often faster to health care where better facilities are available. Driving School Insurance provides insurance coverage for any driver allowed under everything from tuition, unlike also cover other policies engine provides coverage for liability instructor where both the student and instructor of conduct are both equally liable in the event of a disaster. Driving School Insurance provides insurance coverage for any driver allowed under everything from tuition, unlike also cover other policies engine provides coverage for liability instructor where both the student and instructor of conduct are both equally liable in the event of a disaster. Builder risk insurance insures against the risk of loss or damage to physical property during construction. Builder of risk insurance is usually written on an "all risks" cover damage from any cause (including negligence of the insured) are not otherwise expressly excluded. Earthquake insurance is a form of property insurance that pays the insured in the case of an earthquake that causes damage to property. Most regular insurance policies, the owners do not cover earthquake damage. Most insurance policies have earthquake of a franchise high. Rates depend on the location and the probability of an earthquake, as well as the construction of the house. A fidelity bond is a form of insurance that covers damage to the insured for the losses they suffered as a result of fraudulent acts by individuals. It usually provides a company for losses caused by dishonest acts of its employees. Flood insurance protects against loss of property due to flooding. Many insurers in the United States do not provide insurance flooding in parts of the country. In response, the federal government created the National Flood Insurance Program, which serves as the insurer of last resort. Marine insurance and ocean freight insurance to cover the loss or damage of ships at sea or inland waterways, and cargo that may be on them. When the cargo owner and the carrier are separate companies, ocean freight insurance generally compensates for the cargo owner for losses incurred since the fire, shipwreck, etc., but excludes the losses that can be recovered by the carrier or the carrier of insurance. Many marine insurance underwriters include "element" in the coverage of such policies, which extends compensation to cover lost profits and other business expenses due to the delay caused by a covered loss. Liability insurance is a very broad concept that covers superset legal claims against the insured. Many types of insurance include an aspect of civil liability. For example, an owner of the insurance policy will normally include liability coverage that protects the insured in the event of an application made by a person who slips and falls on the property, automobile insurance also includes an aspect of the " liability insurance that indemnifies against evil as a car crash can cause to others' lives, health or property. The protection offered by a liability insurance policy is twofold: his defence in the case of a lawsuit against the policyholder and compensation (payment on behalf of the insured) with respect to a settlement or a court decision. The liability policies generally cover only the negligence of the insured, and will not apply to the results of voluntary or intentional acts of the insured. Professional Liability Insurance, also known as professional indemnity insurance, protects the professionals such as architects, lawyers, doctors, accountants and against any claims made by the negligence of their patients or clients. Liability insurance professional can take several names, depending on the occupation. For example, professional liability insurance in reference to the medical profession can be called malpractice insurance. Notaries public may purchase insurance errors and omissions (E & O). Other potential E & O policyholders include, for example, real estate brokers, home inspectors, appraisers, and Web site developer. The credit insurance will reimburse all or part of a loan when certain things happen to the borrower, such as unemployment, disability or death. Mortgage Insurance is a form of credit insurance, although the name of the credit insurance is most often used to describe policies that cover other types of debt. Base Defence Act DBA workers compensation or insurance offers insurance cover for civilian workers hired by the government to perform contracts outside the United States and Canada. DBA is mandatory for all American citizens, residents of the United States, US Green Card holders, and all employees or subcontractors hired abroad government contracts. Depending on the country, foreign nationals must also be covered by DBA. Cette couverture comprend généralement des frais liés aux traitements médicaux et à la perte de salaire, ainsi que d'invalidité et de décès. La perte financière assurance protège les particuliers et les entreprises contre les divers risques financiers. Par exemple, une entreprise peut couvrir l'achat, à l'abri de la perte de ventes, si un incendie dans une usine ont empêché de mener à bien ses activités pendant un certain temps. D'assurance peuvent également couvrir la défaillance d'un créancier de payer l'argent qu'il doit à l'assuré. Ce type d'assurance est souvent dénommé "l'assurance". Fidelity obligations et les cautionnements sont inclus dans cette catégorie, bien que ces produits offrent une prestation à un tiers (le «créancier») dans le cas où l'assuré (généralement appelé le "débiteur") ne s'acquitte pas de ses obligations au titre d'un Contrat avec le créancier. Acheter de l'assurance vise à assurer la protection des personnes sur les produits achat. Acheter de l'assurance peut couvrir l'achat de protection individuelle, les garanties, les garanties, les plans de soins et même téléphone mobile assurance. Cette assurance est normalement très limitée dans l'ampleur des problèmes qui sont couverts par la police. L'assurance titres offre une garantie que le titre de propriété immobilière est exercé par l'acheteur et / ou le créancier hypothécaire, libres et dégagés de privilèges ou encombrements. Il est habituellement délivré en liaison avec une recherche des documents publics effectués à l'occasion d'une transaction immobilière. Assurance auto-protégés est un mécanisme de financement alternatif des risques dans une organisation qui conserve les mathématiquement calculé coût du risque au sein de l'organisation et des transferts de risques catastrophiques avec des limites précises et globales à un assureur afin que le maximum du coût total du programme est connu. Un bien conçus et souscrite protégées auto-Programme d'assurance réduit et stabilise les frais d'assurance et de gestion des risques fournit de précieux renseignements. Rétrospectivement Rated est une méthode d'assurance de la création d'une prime sur les grands comptes commerciaux. La prime définitive est basé sur la perte réelle de l'assuré au cours de l'expérience de la durée, parfois soumis à une prime minimale et maximale, avec la prime définitive déterminée par une formule. Selon ce plan, l'année en cours, la prime est basé partiellement (ou entièrement) sur l'année en cours, les pertes, bien que les adaptations de primes peut prendre des mois ou des années au-delà de l'année en cours, la date d'expiration. L'avis formule est garanti dans le contrat d'assurance. Formule: rétrospective prime converties = perte + prime de base × coefficient d'impôt. De nombreuses variantes de cette formule ont été élaborés et sont en cours d'utilisation. Formel d'assurance auto est le choix délibéré de payer pour les pertes assurables autrement hors de son propre argent. Ceci peut être fait sur une base formelle par la création d'un fonds distinct dans lequel les fonds sont déposés sur une base périodique, ou tout simplement en renonçant à l'achat d'assurance et de la disposition à payer de leur poche. Assurance auto est habituellement utilisé pour payer à haute fréquence et à faible gravité des pertes. Ces pertes, si elles sont couvertes par les assurances classiques, signifie avoir à payer une prime qui comprend les charges de la compagnie, les frais généraux, le coût de la mise de la politique sur les livres, les frais d'acquisition, les taxes sur les primes, et des éventualités. Même si cela est vrai pour tous les assurés, pour les petits, de fréquentes pertes les coûts de transaction peut dépasser le bénéfice de réduction de la volatilité que toute autre offre d'assurance. Dans la plupart des pays, la vie et non-vie, les assureurs sont soumis à différents régimes réglementaires et fiscaux différents et des règles comptables. La principale raison de la distinction entre les deux types de sociétés, c'est que la vie, de rentes et de retraite d'entreprise est très long terme dans la nature - la couverture de l'assurance-vie ou une rente peuvent couvrir les risques sur de nombreuses décennies. En revanche, les non-vie, une assurance couvre habituellement une période plus courte, par exemple un an. Aux États-Unis, les compagnies d'assurance ligne standard sont vos «main stream» assureurs. Ce sont les entreprises qui, typiquement assurer votre auto, la maison ou les affaires. Ils se servent de modèle ou «cookie-cutter» politiques sans variation d'une personne à l'autre. Ils ont généralement plus faible que les primes d'excédent de lignes et peuvent vendre directement aux particuliers. Ils sont régis par des lois de l'Etat qui peut restreindre la somme qu'ils perçoivent pour les polices d'assurance. Excédent de la ligne des compagnies d'assurance (aka et Excédent Excédent) typiquement assurer des risques non couverts par les lignes standard du marché. Ils sont largement évoqué comme étant une assurance tous placés avec les non-admis assureurs. Non admis les assureurs ne sont pas autorisés dans les Etats où les risques sont situés. Ces entreprises ont une plus grande souplesse et peut réagir plus vite que les compagnies d'assurance standard, car ils ne sont pas tenus de déposer des tarifs et des formulaires de même que les "admis" transporteurs. Cependant, ils ont encore des exigences réglementaires importantes qui leur sont imposées. Etat lois exigent généralement une assurance en excédent de la ligne placée agents et les courtiers à ne pas être disponibles via la norme assureurs autorisés. Les compagnies d'assurance sont généralement classés comme étant soit réciproque ou de sociétés par actions. Ce n'est plus une distinction traditionnelle comme de véritables sociétés mutuelles sont devenues rares. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Other possible forms for an insurance company include reciprocals, in which policyholders 'reciprocate' in sharing risks, and Lloyds organizations. Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well. Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100 percent subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an " association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices. The types of risk that a captive can underwrite for their parents include property damage, public and products liability, professional indemnity, employee benefits, employers liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client. Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed. Financial stability and strength of an insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies. In recent years this kind of operational definition proved inadequate as a result of contracts that had the form but not the substance of insurance. The essence of insurance is the transfer of risk from the insured to one or more insurers. How much risk a contract actually transfers proved to be at the heart of the controversy. This issue arose most clearly in reinsurance, where the use of Financial Reinsurance to reengineer insurer balance sheets under US GAAP became fashionable during the 1980s. The accounting profession raised serious concerns about the use of reinsurance in which little if any actual risk was transferred, and went on to address the issue in FAS 113, cited above. While on its face, FAS 113 is limited to accounting for reinsurance transactions, the guidance it contains is generally conceded to be equally applicable to US GAAP accounting for insurance transactions executed by commercial enterprises. Paragraph 10 of FAS 113 makes clear that the 9a and 9b tests are based on comparing the present value of all costs to the PV of all income streams. FAS gives no guidance on the choice of a discount rate on which to base such a calculation, other than to say that all outcomes tested should use the same rate. Statement of Statutory Accounting Principles ("SSAP") 62, issued by the National Association of Insurance Commissioners, applies to so-called 'statutory accounting' - the accounting for insurance enterprises to conform with regulation. Paragraph 12 of SSAP 62 is nearly identical to the FAS 113 test, while paragraph 14, which is otherwise very similar to paragraph 10 of FAS 113, additionally contains a justification for the use of a single fixed rate for discounting purposes. The choice of an "reasonable and appropriate" discount rate is left as a matter of judgment. Neither FAS 113 nor SAP 62 defines the terms reasonable or significant. Ideally, one would like to be able to substitute values for both terms. It would be much simpler if one could apply a test of an X percent chance of a loss of Y percent or greater. Such tests have been proposed, including one famously attributed to an SEC official who is said to have opined in an after lunch talk that a 10 percent chance of a 10 percent loss was sufficient to establish both reasonableness and significance. Indeed, many insurers and reinsurers still apply this 10/10" test as a benchmark for risk transfer testing.   It should be obvious that an attempt to use any numerical rule such as the 10/10 test will quickly run into problems. Implicit in the test is keeping the 10/10 that either are upper bonds for the comment made by the SEC official therefore, the rest of this paragraph doesn't apply. Suppose a contract has a 1 percent chance of a 10000 percent loss? It should be reasonably self-evident that such a contract is insurance, but it fails one half of the 10/10 test.   Excess of loss contracts, like those commonly used for umbrella and general liability insurance, or to insure against property losses, will typically have a low ratio of premium paid to maximum loss recoverable. This ratio (expressed as a percentage), commonly called the rate on line for historical reasons related to underwriting practices at Lloyd's of London, will typically be low for contracts that contain reasonably self-evident risk transfer . As the ratio increases to approximate the present value of the limit of coverage, self-evidence decreases and disappears.   The analysis of reasonableness and significance is an estimate of the probability of different gain or loss outcomes under different loss scenarios. It takes time and resources to perform the analysis, which constitutes a burden without value where risk transfer is reasonably self-evident.   An insurance policy should not contain provisions that allow one side or the other to unilaterally void the contract in exchange for benefit. Provisions that void the contract for failure to perform or for fraud or material misrepresentation are ordinary and acceptable.   The policy should have a term of not more than about three years. This is not a hard and fast rule. Contracts of over five years duration are classified as ‘long- term,’ which can impact the accounting treatment, and can obviously introduce the possibility that over the entire term of the contract, no actual risk will transfer. The coverage provided by the contract need not cease at the end of the term (eg, the contract can cover occurrences as opposed to claims made or claims paid).   The contract should be considered to include any other agreements, written or oral, that confer rights, create obligations, or create benefits on the part of either or both parties. Ideally, the contract should contain an ‘Entire Agreement’ clause that assures there are no undisclosed written or oral side agreements that confer rights, create obligations, or create benefits on the part of either or both parties. If such rights, obligations or benefits exist, they must be factored into the tests of reasonableness and significance.   Provisions for additional or return premium do not, in and of themselves, render a contract something other than insurance. However, it should be unlikely that either a return or additional premium provision be triggered, and neither party should have discretion regarding the timing of such triggering.   All of the events that would give rise to claims under the contract cannot have materialized prior to the inception of the contract. If this "all events" test is not met, then the contract is considered to be a retroactive contract, for which the accounting treatment becomes complex.   By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be ( since, by definition, the insured has transferred the risk to the insurer). This problem is known to the insurance industry as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.   For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by the insured. Even if a provider were so irrational as to desire to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.   Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.   In the United Kingdom The Crown (which, for practical purposes, meant the Civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.   Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result , people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.   Many institutional insurance purchasers buy insurance through an insurance broker. Brokers represent the buyer (not the insurance company), and typically counsel the buyer on appropriate coverages, policy limitations. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.   Redlining is the practice of denying insurance coverage in specific geographic areas, purportedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.[10 ]   In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.   An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent. Thus, "discrimination" against (ie, differential treatment of) potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently than younger people (ie, a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.   What is often missing from the debate is that prohibiting the use of legitimate, actuarially sound factors means that an insufficient amount is being charged for a given risk, and there is thus a deficit in the system. The failure to address the deficit may mean insolvency and hardship for all of a company's insureds. The options for addressing the deficit seem to be the following: Charge the deficit to the other policyholders or charge it to the government (ie, externalize outside of the company to society at large).   Health insurance, which is coverage for individuals to protect them against medical costs, is a highly charged and political issue in the United States, which does not have socialized health coverage. In theory, the market for health insurance should function in a manner similar to other insurance coverages, but the skyrocketing cost of health coverage has disrupted markets around the globe, but perhaps most glaringly in the US See health insurance & Health insurance in the United States .   Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp. Certain insurance products and practices have been described as rent seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products . Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.   'Combined ratio' = loss ratio + expense ratio. Loss ratio is calculated by dividing the amount of losses (sometimes including loss adjustment expenses) by the amount of earned premium. Expense ratio is calculated by dividing the amount of operational expenses by the amount of earned premium. A lower number indicates a better return on the amount of capital placed at risk by an insurer.