Define cession.
- when a company reinsures its liability with another company it cedes business
- this amount ceded is known as cession
Define retention.
- the amount the original insurer keeps for its own account
Define reinsurer.
- when an insurance company or reinsurance company accepts part of another companys business, it assumes business
- and therefore becomes a reinsurer
Define retrocession.
- when one reinsurer cedes part of its business to another reinsurer
What is retrocessionaire?
- the second reinsurer
What are the reasons for reinsuring?
1) to increase insurer’s capacity to write business
- allows insurers to write higher level of risk and enable it to accept larger amounts than it might be able to do on its own
2) to maintain proper reserve/liability balance
- by transferring liability to reinsurer
- allows insurer to grow faster
3) to reduce the effect of a catastrophic loss
- enables an insurer to control losses from a single event
- effective way of spreading risk
4) provide stability in fluctuating market
- enables an insurer to plan better
- allows them to determine ahead of time how much it is prepared to pay out in losses under the worst possible loss scenario
5) enable an insurer to cease operations
- allows an insurer to withdraw from a market quickly
- insurer must remain in the market until all business has been run off and outstanding claims have all been settled
Explain the different methods of reinsuring.
1) proportional reinsurance
- a % of the risk is transferred to the reinsurer and the reinsurer receives the same % of original premium and is responsible for that same % of each loss
2) non-proportional reinsurance
- there is no proportional ceding of the risk and sharing of premium or losses
- insurer pays all of the loss up to an agreed amount called the priority
- the reinsurer then pays all or part of the loss which exceeds priority
- reinsurance premium charged by reinsurer is negotiated and will not bear any proportional relationship to amount of loss
Define priority.
- is amount of any loss that the insurer will pay, in other words, it is the insurers retention
What are the two types of reinsurance?
1) treaty reinsurance
- an agreement between insurer and reinsurer which provides automatic reinsurance without insurer having to submit each risk to reinsurer
- is a contract, usually arranged on a yearly basis covering a whole class of risks
- the insurer must cede all risks within class adn the reinsurer must accept them all
- provides less flexibility, but is more economical and less time-consuming
2) faculatative
- placed on an individual case basis
- make it very flexible
- insurer and reinsurer has absolute free choice in arranging reinsurance
- usually used to provide capacity additional to an insurers treaty reinsurance facilities
- can prove very time consuming and expensive
Explain IBC’s role in managing issues within the insurance industry.
- commissions public opinion research to assess public attitudes on insurance-related matters
- commisions research to measure effectiveness of communication programs
- campaigns on a range of issues to reduce losses
- campaigns to increase public understanding of P&C ins.
- promotes safety on the roads
- promotes safety at home
- works to secure changes in public policy
- works to secure improvements in business operating enviros
- IBC-led claims settlement conferences reduce the workload of canada’s courts
- keeps member companies informed of developments in case law
- also keeps member companies informed of developments in federal, prov, and terriotoral legislation
- formulates industry positions on a wide range of insurance-related issues
- develops model policy wordings
- helps design fair and efficient claims-handling protocols
- offers 5 regional consumer centres that answer thousands of inquiries
- has campaigned against expansion of over the counter bank branch sales of insurance
- has created a model privacy protection code for insurance industry
- has advocated better driving training
- has advocated for better driving testing
Explain the IBC.
- established in 1964 and represents canada’s private P+C insurers
- is involved in the following activites:
1) advocating industry positions with consumers, gov, members and other stakeholders
2) identifying and monitoring issues, developing policy positions, and responding to legal developments
3) staying on top of issues of strategic importance to the industry - in the past have included: regulatory improvement, consumer outreach, reforming the auto ins. system, adapting to climate change and insurance crime
companies can subscribe to any of the following:
1) issues management
- policy development, public affairs and marketing, legal and regional offices
2) investigative services
- ins. crime-related investigations, auto theft and loss recovery services, info exchange
- identified key factors that contribute to increased premiums, like insurance crime
- develops strategies and programs to address them
3) insurance information
- access to web-based business applications and other info related to auro insurance in canada
- its purpose is to:
a) support IBC’s lobbying and communicating efforts
b) support ins. regulators objective of monitoring industry
c) support ind. companies business decisions by offering member a variety of ins. crim and vehicle info programs
What is the institute for catastrophic loss reduction?
- ICLR
- an insurance industry initiative to reduce the human and financial cost of natural disasters
- encourages building of resilient communities through cost effective techniques that enable new and existing structures to withstand severe weather and earthquake
What is the P+C insurance compensation corporation?
- was formed in 1988 as a non-profit way for industry to provide reasonable level of recovery for policyholders/claimants under most policies issued by P&C insurance companies in canada
- max recovery is $250,000 in respect of all claims arising from each policy issued by insolvent insurer, which arise from single occurrence
- also covers significant proportion of unearned premiums that may have been paid in advance
What is the centre for study of insurance operations?
- a non-profit joint venture between insurance brokers asso of canada and majority of independent broker ins. companies as well as system vendors
- its objective is to provide a central forum for free discussion, collectiono and pooling of info, and the recommendation of methods and systems designed to enhance broker and insurance company operation and in so doing to achieve profitability
Describe the facility association.
- rates of premiums for different ins. coverages are established nased on average drivers with similiar characteristics
- information included in rating consists of:
i) age
ii) use of vehicle
iii) area of residence
iiii) accident and driving records - underwriters will decline to underwrite high risk drivers knowing that the rate of premium is not sufficient to quate to the financial exposure to claims payment
- offers insurance for those who cannot obtain it in the regular insurance market
- since auto ins. is mandatory, all drivers must be able to obtain insurance
- the ins. industry proposed that a pooling arrangement be established in order to enable underwriting of high risk drivers
- profits or losses of pool are shared by all auto insurers in the province
- results in higher premiums than in regular market
Describe the canadian independent adjusters association.
- CIAA
- provides leadership for canada’s independent adjusters through advocacy, education, and recognized professional standards
- represents collective interests of independent adjusters to gov, industry, and public on a provincial, regional and national level
- provides members with training, education, and professional development opportunites
- develops and maintains the highest standards of professionalism through a defined code of ethics and fair practice policies
- nine regions are represented in CIAA which each elects an executive to hold meetings throughout the year
Describe the canadian insurance claims managers association.
- CICMA
- org. of ins. claims managers which promotes a high standard of ethics in handling of claims
- main function is to administer the canadian inter-company arbitration agreement
Describe the insurance brokers association of canada
- IBAC
- nonprofit trade association
- voluntary membership open to large international brokers and smaller local brokers
- was organized in 1921
- its goals are to elevate the status of independent ins. intermediaries through professional development
- also to safeguard public interest by establishing improved standards of qualification and ethics
- has developed and maintains licensing courses
- maintains close liaison with gov business, consumer groups, and ins. companies/industry orgs.
- aims at improving services provided by intermediaries
- aims to safeguard the interests of intermediaries within canadaian society
- ensures public will have competent independent advice and freedom of choice
What is the provincial brokers association?
- established to further their common interests and for exhanging viewpoints
- provide a focus for local units and represent members views to insurers and gov
- representation makes up membership of IBAC
Describe surety association of canada.
- SAC
- established to act as the voice of the surety industry
- membership comprises of bonding companies along with surety reinsurers, brokers and other businesse that are associated with surety industry (law firms)
- has negotiated better bond and contract wordings with owners across country
- has established ongoing dialogues with owners and other construction industry groups
- engaged in far reaching public relations and education programs aimed at improving the understanding of suretyship process
Describe the underwriters labratories of canada.
- ULC
- not-for-profit org which operates laboratories and a certification service for examination, testing, and certification of devices, construction materials, and services to ensure thay they meet certain standards
