Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of potential financial loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care. The rate of losses must be relatively predictable: In order to set premiums (prices) insurers must be able to estimate them accurately. If the coverage is unique, the insured will pay a correspondingly higher premium. Lloyd's of London often accepts unique coverage. (e.g., the insuring of Tina Turner's legs and Jennifer Lopez's butt). The losses must be predictable on a macro level: Insurers need to know how much they would be required to pay when the insured-for event occurs. Most types of insurance have maximum levels of payouts, but not all do, notably health insurance. The loss must be significant: The legal principle of De minimis dictates that trivial matters are not covered. Furthermore, rational insurance uses existing insurance when the transaction costs dictate that filing a claim is not rational.
[...] One must be able to push for better terms but at the same time know when to stop. If pushed too hard, it may result in loss of goodwill which can affect continuity of terms. Where the cover is not very attractive. Even assurance of better cash flow through wavier of reserves can help. When a competing market or broker quotes better than existing terms, no decision should be made without considering the nature and suitability of the alternate market to satisfy the original objectives. [...]
[...] Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster Nicholas Barbon opened an office to insure buildings. In 1680 he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes. The first insurance company in the United States provided fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. [...]
[...] In all fairness, a clear and concise summary of the coverage and pricing aspects of a reinsurance contract is generally perceived as the initial evidence of the parties respective commitments to their future obligation. Said another way, the cover note summary of terms is a snapshot of a skeletal structure which will eventually require a fleshing out in order to evolve into an effectively working organism. Quite often, however, it is the failure and delay of that fleshing out process, as well as the merely incidental attention paid to the operational aspects of the reinsurance contract, which give rise to the acrimonious contentions causing a break-down of relationships and the need for eventual dispute resolution. [...]
[...] John Tucci, Consulting Actuary & Senior Manager, Asia Gcneral Insurance, Trowbridge Deloitte, said: "Insurers are able to manage their exposures to volatility from investments and property classes but the downside exposure of liability stands out." Recommending the five strategies for avoiding surprises, he said: Resist adding too much investment risk (but do not be too risk averse); Write as much good short-tail business as you can find; Work the short-tail reinsurance program hard to minimize potential volatility; Pray that the next bout of superimposed inflation is not until next year, and lastly; Educate analysts that nothing in insurance is a surprise. [...]
[...] In the history of insurance there have always been periods in which cover for certain risks was either hard to get or altogether unobtainable. In the mid- 1980s, the US liability coverage was temporarily unavailable because a law was amended retroactively to introduce joint and several liability. After September terrorism cover for airlines was practically un-obtained because the potential claims as regards both extent and probability of occurrence arising out of terrorist attacks suddenly rose sharply and became incalculable. For sometime now, reinsurers have been withdrawing from liability insurance for asbestos-related claims because the claims potential is no longer calculable. [...]
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