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How should one
select an insurance company?
Ask friends who deal with the
Companies for personal feedback.
Request the financial accounts of the Company and ask someone
who understands it to analyze it if necessary.
Ask your Broker to recommend the best Companies for the type
of cover you are seeking.
In case of Group Policies the Company may be predetermined.
Consult your bank or mortgagee, they may be willing to give
you a list of acceptable companies.
Be sure that the Company is sound and not on the brink of
insolvency.
Ensure that the Company has a good reputation for settling
claims and disbursing claim related funds.
Be sure that the Company has a reputation for providing
effective and pleasant service to clients.
What is an
insurance broker, and what are the advantages of using one?
An insurance Broker is an intermediary that acts on behalf of
the Insured when negotiating with various Insurers, and on
behalf of the Insured when accepting business or settling
claims. They do not have binding authority on quotes or final
statements.
The advantages of having an Insurance Broker are as
follows:
Since a Broker will deal with various Insurance Companies, he
is in the best position to inform and advise on the best cover
available.
A Broker can negotiate with the Insurance Company for terms
and conditions and handle claims as well.
What is an
insurance agent and what are the advantages of using an
insurance agent?
An Insurance Agent is an individual or firm that is contracted
by an Insurance Company to transact insurance business on its
behalf.
The advantages of using an Insurance Agent are as follows:
The Agent has explicit knowledge of each policy offered.
The Agent can have binding authority and is capable of first
hand negotiations on behalf of the Company.
The Agent is a direct link to the Company.
What is Insurance?
Insurance is a risk transfer mechanism
which facilitates the transfer of risks from one party, the
Insured to the risk taker/underwriter, the Insurer.
What risks are insurable?
Not all risks are insurable. Insurable risks have certain
characteristics:
they must be capable of financial measurement, they must be a
large enough number of similar risks, they must be pure and
particular, with possibly certain fundamental risks
qualifying. The loss must be fortuitous as far as the insured
is concerned, the risk must not be against public policy and
the premium is to be reasonable and there must be insurable
interest on the part of the person insuring.
What is Insurable Interest?
Insurable interest constitutes ‘the legal right to insure
arising out a financial relationship, recognized at law
between the insured and the subject matter of insurance.
What is ‘Utmost Good Faith’?
Due to the fact that the subject matter of insurance, and the
circumstances pertaining to it, are facts particularly within
the knowledge of the insured. The insurers are not generally
aware of these facts unless the insured tells them. In order
the make the situation an equitable one, the law imposes a
duty of "uberrima fides" or "utmost good
faith" on the parties to an insurance contract. This
makes the contract one of faith or trust and most contracts of
a fiduciary nature are subjected to the same doctrine.
What is a Material Fact?
According to the Marine Insurance Act 1906 S.18 (2), a
material fact refers to every circumstance which would
influence the judgment of a prudent insurer in fixing the
premium or determining whether he will take the risk.
What is Proximate Cause?
Proximate Cause was clarified in the case of Pawsey v.
Scottish Union and National (1907) as the active, efficient
cause that sets in motion a train of events which brings about
a result, without the intervention of any force started and
working actively from a new and independent source.
What is Indemnity?
For the purposes of insurance contracts, Indemnity could be
looked upon as exact financial compensation sufficient to
place the insured in the same financial position after a loss
as he enjoyed immediately before it occurred.
Some insurance agents I talk to say they are paid
employees of the insurance company while other agents says
they are independent business people -- why the difference?
Should I care which one I purchase insurance from?
Insurers deliver their insurance products to policy owners
primarily through independent agents or through exclusive
agents. Historically, almost all insurance agents were
independent business people paid on commission. More recently,
many insurance companies have adopted a system where the agent
is a paid employee of the firm rather than an independent
business person. These agents are referred to as exclusive
agents. Economists who have studied the differences between
these two types of distribution systems have long argued that
the independent agency system is a less efficient method of
getting the insurance product to the customer as measured by
statistics such as the ratio of expenses incurred to premiums
written. However, the most recent studies suggest that the
reason for the higher expenses by independent agents is that
they offer better quality service to policy owners through
more personalized service, more advice on policy limits, more
help when a claim is filed with the company, etc.
What do I give up by not using an agent to purchase
insurance?
Many life insurance and property-casualty insurance products
can be purchased without the use of an agent. Typically
potential policyholders will either be contacted through the
mail or they can call a 1-800 number to apply for the
insurance product. The advantage of this type of distribution
system is that the expenses of selling the product are usually
much lower because there are no agent commissions to be paid.
These savings may then be passed onto the consumer through
lower premiums. The main disadvantage is that the policyholder
does not receive as much, or sometimes any, personal service
either purchasing the product or in filing a claim.
I understand there are organizations that assign
financial ratings to insurance companies. Who are they and
what do they do?
Insurance is a product where the insurance company promises to
make future loss payments in return for a premium you pay
today. It is therefore important that you know the financial
health of the insurer when you are deciding how much you are
willing to pay for the product. For example, holding all other
things equal, people should pay slightly more for a life
insurance policy from an insurance company with a higher
financial rating, or should pay slightly less for the same
policy from a company which is not as financially strong. In
order to make this kind of informed purchasing decision, a
number of private organizations, called rating agencies, rate
the financial stability of insurance companies. Major
insurance rating agencies include the A.M. Best Company,
Standard & Poor's, Weiss Research, Duff and Phelps, and
Moody's. Each of these companies uses data obtained from
various sources to rate the financial strength of insurance
companies. It should be noted, however, that each organization
has its own rating standards and therefore the financial
grades from two different rating agencies may be different.
The best advice usually given to insurers is to check the
financial rating of the insurer from as many rating agencies
as possible to determine the range of opinions of the
financial health of the company.
What kinds of questions should I be expected to answer
when I am applying for an insurance policy? Why do insurers
ask all of these questions?
When you apply for an insurance policy, you will be asked a
number of questions. For example, the agent will ask you a
number of demographic questions such as your name, age, sex,
address, etc. In addition to these demographic questions, you
will be asked a number of other questions which will be used
to determine what type of risk you are. For example, when an
insurance company is deciding whether or not to offer
automobile insurance to a potential policy owner, it will want
to know about the person's previous driving record, whether
there have any recent accidents or tickets, what type of car
is to be insured and various other types of information. All
of this information will be used for two purposes. First,
based upon the responses to these questions, the insurance
company will decide whether the profile of the applicant is
consistent with the type of risks the insurer is trying to
attract. Some insurers specialize in offering insurance to
only very safe drivers and therefore will only accept
applications from people who fit the profile of a safe driver.
Once the insurer has decided that your risk profile is
consistent with the types of risks it accepts, the answers to
the questions will be used to determine which rate to charge
you. For example, the insurance company will decide whether
you should be offered insurance at the high risk driver rate
or the low risk driver rate. Collectively, this entire process
is known as the underwriting process. The primary function of
the underwriting department in an insurance company is to
decide whether or not to offer insurance to a person who has
completed an application. If the answer is yes, then the
underwriting department seeks to determine the
"quality" of that risk so that the proper premium
can be charged. That is, high risk people should pay more than
low risk people.
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