Catastrophe Bonds (or CAT Bonds) are high-yield, risk-linked securities used to transfer explicitly to the capital markets major catastrophe exposures such as low probability disastrous losses due to hurricanes and earthquakes. It has a special condition that states that if the issuer (Insurance or Reinsurance Company) suffers a particular predefined catastrophe loss, then payment of interest and/or repayment of principal is either deferred or completely waived. These bonds were first introduced as a solution to problems resulting from traditional insurance market capacity constraints, excessive insurance premia, and insolvency risk due to catastrophic losses. Catastrophe Bonds or CAT Bonds are complex financial tools which transfer peril specific risks to the capital markets instead of an insurance company. The peril risk is transferred through a complex system of events which include creation of a special purpose vehicle by a sponsor, modeling event scenarios by qualified risk management firms, drafting of a bond Continue reading
Insurance Investments
Differences Between Term and Permanent Life Insurance
Life insurance is an essential financial product with the life of the insured being the subject of protection. There are two types of life insurance: term and permanent. Term life insurance begins a low premium that increases upon renewal and pays a death benefit to the beneficiaries only if the insured dies within the policy term. On the other hand, permanent life insurance has a fixed premium and is designed to offer coverage for the insured’ s entire life. Both the insurance company will pay a death benefit to the designated beneficiary after the death of an insured. Although term and permanent life insurance behave as protections to ensure the beneficiary’s benefit, they have different features: convertibility, cost, and cash surrender value. For instance, term and permanent policy offer different periods of validity. Term life insurance provides guarantees for a limited set of years, generally between 10 to 30 years. Continue reading
Understanding the Insurance Underwriting Process
In order for the insurance companies to make profit and charge the appropriate rate for an insured, they undergo the underwriting process. In simpler words, insurance underwriting is a process of risk classification. The purpose of insurance underwriting is to spread risk among a pool of insured in a way that is both profitable for the insurer and fair to the customer. Insurance companies need to make a profit like many other businesses. Therefore, it doesn’t make sense if they sell insurance for everyone who applies for it. They may not want to charge an excessive high rate to the customer and also it is not good for them to charge the same premium to every policyholder. Insurance underwriting enables the company to weed out certain applicants and to charge the remaining applicants premiums that are commensurate with their level of risk. The insurance underwriting process consist of evaluating several Continue reading
System of Insurance Claims Management
Basis of Claims Management Claims management means and includes all the managerial decisions and processes concerning the settlement and payment of claims in accordance with the terms of insurance contract. It includes carrying out the entire claims process with a particular emphasis on monitoring and lowering the claims costs. The important elements of claims management are claims preparation, claims philosophy, claims processing and claims settlement. The claims philosophy is defined as procedure or specified approach to settle the claims. It contains the claims management principles and also claims handling methods and procedures. The claims philosophy includes the preparation of guidelines regarding the receipt of claims from the insurers or claimants, analysis of the claims, consideration of the possible decision on the particular issues and disputes, evaluating the impact of the claims cost and expenses, relation of claims to the consumer satisfaction, monitoring the claim payment and improving the efficiency of Continue reading
Evolution and Development of Life Insurance in India
Life insurance in the modern form was first set up in India through a British company called the Oriental Life Insurance Company in 1818 followed by the Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance Society in 1829. All these companies operated in India but did not insure the lives of Indians. They insured the lives of Europeans living in India. Some of the companies that started later did provide insurance for Indians, as they were treated as “substandard”. Substandard in insurance parlance refers to lives with physical disability. Pioneering efforts of reformers and social workers like Raja Rammohan Ray, Dwarakanath Tagore, Ramatam Lahiri, Rustomji Cowasji and others led to entry of Indians in insurance business. The first Indian insurance company under the name “Bombay Life Insurance Society” started its operation in 1870, and started covering Indian lives at standard rates. Later “Oriental Government Security Life Insurance Continue reading
Insurance – Definition, Principles and Functions
Life is a roller coaster ride and is full of twists and turns. Insurance policies are a safeguard against the uncertainties of life. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. The risk assumed by the insurer is the risk of death of the insured in case of life insurance. Insurance policies cover the risk of life as well as other assets and valuables such as home, automobiles, jewelry etc. On the basis of the risk they cover, insurance policies can be classified into Life Insurance and General Insurance. Life insurance products cover risk for the insurer against eventualities like death or disability. General insurance products cover risks against natural calamities, burglary, etc. Insurance is system by which the losses suffered by a few are spread over many, exposed to similar risks. With the help of Insurance, Continue reading