4.2. Verificación de la Capacidad de Interrupción
4.3.4. Caney
4.3.4.1.2. Fusible del Lado del Primario del Transformador: Código Fuse63… 61
In addition to the preceding, many insurers use group marketing methods to sell individual insurance poli- cies to members of a group. These groups include employers, labor unions, trade associations, and other groups. In particular, substantial amounts of new individual life insurance, annuities, long-term-care insurance, and other financial products are sold to employees in employer–employee groups. Employees pay for the insurance by payroll deduction. Workers no longer employed can keep their insurance in force by paying premiums directly to the insurer.
Life insurers typically sell and service group life insurance products through group representatives who are employees who receive a salary and incen- tive payments based on group sales, persistency, and profitability of the business.
Some property and casualty insurers use mass merchandising plans to market their insurance. Mass
merchandising is a plan for selling individually under-
written property and casualty coverages to group members; auto and homeowners insurance are popular lines that are frequently used in such plans. As noted earlier, individual underwriting is used, and applicants must meet the insurer’s underwriting standards. Rate discounts may be given because of a lower commission scale for agents and savings in administrative expenses. In addition, employees typically pay for the insurance by payroll deduction. Finally, employers do not usually contribute to the plans; any employer contributions result in taxable income to the employees.
the public by television, telephone, mail, newspapers, and other media. Property and casualty insurers also operate Web sites that provide considerable con- sumer information and premium quotes.
The direct response system is used primarily to sell personal lines of insurance, such as auto and homeowners insurance. It is not as useful in the mar- keting of commercial property and casualty cover- ages because of complexity of contracts and rating considerations.
Multiple Distribution Systems The distinctions
between the traditional marketing systems are breaking down as insurers search for new ways to sell insurance. To increase their profits, many property and casualty insurers use more than one distribution system to sell insurance. These systems are referred to as multiple distribution systems . For example, some insurers that have traditionally used the independent agency system now sell insurance directly to consumers over the Internet or by televi- sion and mail advertising. Other insurers that have used only exclusive agents (also called captive agents) in the past to sell insurance are now using inde- pendent agents as well. Other insurers are marketing property and casualty insurance through banks and to consumer groups through employers and through professional and business associations. The lines between the traditional distribution systems will con- tinue to blur in the future as insurers develop new systems to sell insurance.
Commercial Insurance is a large stock property and lia- bility insurer that specializes in the writing of commercial lines of insurance. The board of directors has appointed a committee to determine the feasibility of forming a new subsidiary insurer that would sell only personal lines of insurance, primarily homeowners and auto insurance. The new insurance company would have to meet cer- tain management objectives. One member of the board of directors believes the new insurer should be legally organized as a mutual insurer rather than as a stock insurer. Assume you are an insurance consultant who is asked to serve on the committee. To what extent, if any,
would each of the following objectives of the board of directors be met by formation of a mutual property and casualty insurer? Treat each objective separately.
a. Commercial Insurance must legally own the new insurer.
b. The new insurer should be able to sell common stock periodically in order to raise capital and expand into new markets.
c. The policies sold should pay dividends to the policyholders.
d. The new insurer should be licensed to do business in all states.
R E V I E W Q U E S T I O N S 9 9
Captive insurer (93) Demutualization (90) Direct response system (96) Direct writer (97)
Exclusive agency system (97) Fraternal insurer (90) Holding company (91) Independent agency system (97) Lloyd’s of London (91) Mass merchandising (98) Multiple distribution systems (98)
Multiple line exclusive agency system (95) Mutual insurer (88) Nonadmitted insurer (95) Personal-producing general agent (96) Personal selling systems (95) Reciprocal exchange (92) Savings bank life insurance
(SBLI) (93) Stock insurer (88) Surplus lines broker (95)
SUMMARY
■ There are several basic types of insurers: Stock insurers
Mutual insurers Lloyd’s of London Reciprocal exchange
Blue Cross and Blue Shield Plans
Health maintenance organizations (HMOs) Captive insurers
Savings bank life insurance
■ An agent is someone who legally represents the insurer and has the authority to act on the insurer’s behalf. In contrast, a broker is someone who legally represents the insured.
■ Surplus lines refer to any type of insurance for which there
is no available market within the state, and the coverage must be placed with a nonadmitted insurer. A nonadmit- ted insurer is a company not licensed to do business in the state. A surplus lines broker is a special type of broker who is licensed to place business with a nonadmitted insurer.
■ Several distribution systems are used to market life insurance. They include:
Personal selling systems
Financial institution distribution systems Direct response system
Other distribution systems
■ Several distribution systems are used to market property and casualty insurance. They include:
Independent agency system Exclusive agency system Direct writer
Direct response system Multiple distribution systems
■ Many insurers use group insurance marketing methods to sell individual insurance policies to members of a group. Employees typically pay for the insurance by payroll deduc- tion. Workers no longer employed can keep their insurance in force by paying premiums directly to the insurer.
KEY CONCEPTS AND TERMS
Advance premium mutual (90) Agent (93) Assessment mutual (90) Broker (94) Captive agent (95)
REVIEW QUESTIONS
1. Describe the basic characteristics of stock insurers. 2. a. Describe the basic features of mutual insurers.
b. Identify the major types of mutual insurers. 3. The corporate structure of mutual insurers has
changed over time. Briefly describe several trends that have had an impact on the corporate structure of mutual insurers.
4. Explain the basic characteristics of Lloyd’s of London. 5. Describe the basic characteristics of a reciprocal
exchange.
6. Explain the legal distinction between an agent and a broker.
7. Describe briefly the following distribution systems in the marketing of life insurance.
a. Personal selling systems
b. Financial institution distribution systems c. Direct response system
d. Other distribution systems
8. Describe briefly the following distribution systems in the marketing of property and casualty insurance. a. Independent agency system
b. Exclusive agency system c. Direct writer
d. Direct response system e. Multiple distribution systems
9. Who owns the policy expirations or the renewal rights to the business under the independent agency system? 10. What is a mass-merchandising plan in property and
5. Property and casualty insurance can be marketed under different marketing systems. Compare the inde- pendent agency system with the exclusive agency sys- tem with respect to each of the following:
a. Number of insurers represented by the agent b. Ownership of policy expirations
c. Differences in the payment of commissions
INTERNET RESOURCES
■ The American College is an accredited, nonprofit educational institution that provides graduate and undergraduate education, primarily on a distance learning basis, to people in the financial services field. The organization awards the professional Chartered Life Underwriter (CLU) designation, the Chartered Financial Consultant (ChFC) designation, and other professional designations. Visit the site at
theamericancollege.edu
■ The American Council of Life Insurers (ACLI) represents the life insurance industry on issues dealing with legislation and regulation. ACLI also publishes statistics on the life insurance industry in an annual fact book. Visit the site at acli.com
■ The American Fraternal Alliance is the recognized leader in the fraternal benefit system. The Fraternal Alliance is the voice of fraternal benefit societies on legislative and regulatory issues. Visit the site at
fraternalalliance.org
■ The American Insurance Association (AIA) is an impor- tant trade association that represents property and casualty insurers. The site lists available publications, position papers on important issues in property and casualty insurance, press releases, insurance-related links, and names of state insurance commissioners. Visit the site at
aiadc.org
■ The Insurance Information Institute (III) has an excellent site for obtaining information on the property and casualty insurance industry. It provides timely consumer information on auto, homeowners, and commercial
APPLICATION QUESTIONS
1. A group of investors are discussing the formation of a new property and liability insurer. The proposed company would market a new homeowners policy that combines traditional homeowner coverages with unemployment benefits if the policyholder becomes involuntarily unemployed. Each investor would contrib- ute at least $100,000 and would receive a proportionate interest in the company. In addition, the company would raise additional capital by selling ownership rights to other investors. Management wants to avoid the expense of hiring and training agents to sell the new policy and wants to sell the insurance directly to the public by selec- tive advertising in personal finance magazines.
a. Identify the type of insurance company that best fits the above description.
b. Identify the marketing system that management is considering adopting.
2. Compare a stock insurer to a mutual insurer with respect to each of the following:
a. Parties who legally own the company
b. Right to assess policyholders additional premiums c. Right of policyholders to elect the board of directors 3. A luncheon speaker stated that “the number of life insurers has declined sharply during the past decade because of the increase in company mergers and acqui- sitions, demutualization of insurers, and formation of mutual holding companies.”
a. Why have mergers and acquisitions among insurers increased over time?
b. What is the meaning of demutualization?
c. Briefly explain the advantages of demutualization of a mutual life insurer.
d. What is a mutual holding company?
e. What are the advantages of a mutual holding com- pany to an insurer?
4. A newspaper reporter wrote that “Lloyds of London is an association that provides physical facilities and services to the members for selling insurance. The insurance is underwritten by various syndicates who belong to Lloyd’s.” Describe Lloyd’s of London with respect to each of the following:
a. Liability of individual members and corporations b. Types of insurance written
S E L E C T E D R E F E R E N C E S 1 0 1
services field, conducts research, and produces a wide range of publications. Visit the site at
limra.com
■ Lloyd’s of London provides a considerable amount of information about its history and chronology, global insurance operations, financial results, and key events on its Web site. The site also provides information to the news media. Visit the site at
lloyds.com
■ The National Association of Mutual Insurance Com panies is a trade association that represents mutual property and casualty insurance companies. Visit the site at
namic.org
■ Towers Watson is one of the world’s largest actuarial and management consulting firms. Towers Watson provides a substantial amount of information on the insurance industry and advises other organizations on risk financing and self-insurance. Visit the site at
towerswatson.com
SELECTED REFERENCES
Black, Kenneth, Jr., and Harold D. Skipper, Jr. Life Insurance, 13th ed. Upper Saddle River, NJ: Prentice- Hall, 2000, chs. 23–24.
The Financial Services Fact Book 2012, New York: Insurance Information Institute, 2012.
Graves, Edward E., ed. McGill’s Life Insurance, 8 th ed. Bryn Mawr, PA: The American College, 2011; chs. 22–23. The Insurance Fact Book 2012, New York: Insurance
Information Institute, 2012.
Life Insurers Fact Book, 2011, Washington, DC: American Council of Life Insurers, 2011.
LOMA (Life Office Management Association), Insurance Company Operations, 3 rd ed., Atlanta, GA: LL Global, Inc. 2012, Ch. 11.
Viswanathan, Krupa S., and J. David Cummins, “Ownership Structure Changes in the Insurance Industry: An Analysis of Demutualization,” Journal of Risk and Insurance, Vol. 70, No. 3 (September 2003), pp. 401–437.
insurance, and other types of property and casualty insurance. Visit the site at
iii.org
■ The Insurance Information Institute (III) also publishes an online fact book on the financial services industry. The publication provides detailed financial information on the role of insurers in the financial services industry. Visit the site at
iii.org/financial
■ The Institutes (also known as the American Institute for CPCU) is an independent, nonprofit organization that offers educational programs and professional certifica- tion to people in all segments of the property and casu- alty insurance business. The organization awards the professional CPCU designation and other designations. Visit the site at
aicpcu.org
■ The Insurance Journal is a definitive online source of timely information on the property/casualty industry. A free online newsletter is available that provides breaking news on important developments in property and casu- alty insurance. Visit the site at
insurancejournal.com
■ Insure.com provides a considerable amount of timely information on the insurance industry. The stories reported are directed toward insurance consumers. Consumers can get premium quotes on life, health, auto, and homeowners insurance. Visit the site at insure.com
■ InsWeb offers insurance quotes from the nation’s strongest insurers. You can obtain quotes for auto and homeowners insurance, term life insurance, individual health insurance, and other products as well. Visit the site at
insweb.com
■ LIMRA is the principal source of industry sales and marketing statistics in life insurance. Its site provides news and information about LIMRA and the financial
8. LOMA, Insurance Company Operations, 3 rd ed., p. 11.8.
9. Ibid., p. 11.8.
10. Constance M. Luthardt and Eric A. Wiening, Property and Liability Insurance Principles, 4 th ed., 5 th print- ing (Malvern, PA: American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America), 2005, p. 4.11.
NOTES
1. Insurance Information Institute, The Insurance Fact Book 2012, (New York: Insurance Information Institute, 2012), p.v.
2. Ibid.
3. Edward E. Graves, ed., McGill's Life Insurance, 8th ed. (Bryn Mawr, PA: The American College, 2011), pp. 22.9–22.11.
4. This section is based on Lloyd's Quick Guide 2011, Lloyd’s of London at lloyds.com and Lloyd’s of London, Wikipedia, the free encyclopedia.
5. Edward E. Graves, and Burke A. Christensen, McGill’s Legal Aspects of Life Insurance, 7th ed. (Bryn Mawr, PA: The American College, 2010), pp. 6.3–6.5. 6. Ibid., p. 6.7.
7. This section is based on LOMA (Life Office Management Association). Insurance Company Operations, 3 rd ed. (Atlanta, GA: LL Global, Inc. 2012), Ch. 11; and Graves, McGill’s Life Insurance, Ch. 23.
Students may take a self-administered test on this chapter at
1 0 3
Learning Objectives
After studying this chapter, you should be able to
◆ Explain the ratemaking function of insurers.
◆ Explain the steps in the underwriting process.
◆ Describe the sales and marketing activities of insurers.
◆ Describe the steps in the process of settling a claim.
◆ Explain the reasons for reinsurance and the various types of reinsurance treaties.
◆ Explain the importance of insurance company investments and identify the various types of investments of insurers.
“People who work for insurance companies do a lot more than
sell insurance.”
Insurance Information Institute
INSURANCE COMPANY
OPERATIONS
M
The placement director has an annual job fair where recruiters from different business firms interview students for possible employment. Michael signed up for an interview with a property insurer to learn about job opportunities. The recruiter explained that job openings exist in several areas, and that the company hires new employees with a wide variety of educational backgrounds. Michael is surprised to learn of the wide range of jobs in the property and casualty insurance industry. Jobs are available in ratemaking, underwriting, sales, claims, finance, information technology, accounting, legal, and other areas as well.To make insurance available to the public, insurers must perform a wide variety of specialized functions or operations. In this chapter, we discuss the major functional