California Individual And Group Health Insurance Plans

The rate of losses mut be relatively preditable: In orer to set premiums (prices) insurers must be able to estimate them accurately. This is done using the Law of Large Numbers whih states that: The larger the number of homogenous exposures considered, the more closely thelosses reported will equal the underlying probability of loss. If the coverage is unique, the insured will pay correspondingly hgher premium. Lloyd's of London often accepts unique coverages. (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 ho much they would be required to pay when the insured-for event occurs. Mot types of insurance have maxium levels of payouts, but not all do, notably hegal principle of De minimis dictates that trivial mtters are not covered. Fthermore, rational insurance uses existing insurance when the transaction costs dictate that filing a claophic: If the insurer is insolvent, it will be unable to pay the insured. n te United States, there is a system of Guaranty Funds run at the state level to reimburse insured people whose insurance companies have become his program is run by the Ncapital, insurers almost universaly purchase reinsurance to protect them against excessively large accumulations of risk in a single area, and to protect them against large-scalecatastrophes.
Insurance Contract PrinciplesA propteral contract," a "contract of adhesion," a "contract of indemnity," and a contract which requires that the person insured have an insurable interest at the time of the insured-against cotingency.
Personal ContractProperty and liability insurance policies cover persons and not property or operations. Although thenically correct. The contract between the nsurer and the insured is a personal contract between an insuing entity and a person(s) and not the object beng insured. In other words, the question of whether payment is due upon the occurrence of a contingency, and how such payment will be meed, depends upon economic loss suffered b the person(s).
Conditional ContractProprty and libility insurance policies are said to be "conditional contracts" because the obligation o the insurer to perform may be conditiond upon the nsured satisfying certain condiions.Unilatral ContractOnly one party is legally bound to contrctual obligations after the premium is pai to the insurer. Only the insurer has made a promise of future performance, and only the insurer can be charged with breach of contract.
Contract of AdhesionProperty and liability insurance policies are said to be "cotracts of adhesion" because the insurer and isured partes are of unequal baraining power where the insured arty cannot ngtiate the terms of the contract and must take the offer of the insurr as made. Importantly, the ule of law rearding "contracts of adhesion" is that any ambiguities resolve in favor of he insured.
Contract of IndemnityProperty and liabilit insurance policies are said to be "contacts of indemnity" because the purpose of insurance is t indemnify the insured. The priniple of indemnification is that the insured should not profit nor incr an eonomic loss from the response provided by the policy.
Insurable InterestInsrable interes is one wherin economic loss would be suffered from an adverse occurrence to the peron(s) insured.
IndemnificationAn entity seekingto transfer risk (an individual, corporation, or association of any type) beomes the 'insued' party once isk is assumd by an 'insurer', the insuring party, by meansof a contract, defined as ninsurance 'policy'. This legal contract sets out terms and conditions specifying the amount of coverage (compensation) to be rendered to the insred, by the insurer uposumption of risk, in the event of a loss and all the speciic perils covered against (indemnified), for the term of the contracts experience a loss for a specified peril, the coverage entitles the policyholder to mak a 'claim'gainst the insurer forhe amount of loss as specified by the policy contract. The fee paid by theinsured to the insurer for assuming the risk is called the 'premium'. Insurance premiums from many clien are used to fund accounts set aside for later payment of clntains adequate funds set aside for anticipated losses, the remaining margin becomes their profit.
A customer migt pay one or more premium payments over time. The company ollects these payments from one or more customers. If something happens which triggers a clai, the company then pays out a certain amount of money. If, during the lifetime of all of the company's insurance contracts, it pays out less than it has taken in, it makes what is known as an underwriting profit. One measure of an insurance company's performance is their loss ratio (incurred losses and loss-adjustmentexpenses divided by net earned premium). The loss ratio is added to the expense ratio (underwriting expenses divided byion of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates a profit, while anything over 100 is a loss. One company that is famous for achieving underwriting profitis American International Group. Berkshire Hathaway, by contrast, is famous or making its money on "float" rather than underwriting profit. Float is the concept that as insurance premiums are collected up front, and clais paid over time ometimes up to periods of 10 years or more), the insurance companies are able to collect investment income on the money they have reserved for claims that have not occurred yet, or have not yet been paid. Over time, this interest is compounded into significant dollars, particularIn many cases a company's combined ratio is greater than 100 percent, however the company still manages to make money. This is because in between the time the company collectmay offset an underwriting loss resulting in profit. For example, if a company has to pay out 10 percent more than it took in, but made a 20 percent rcompanies consider it only prudent (and may be mandated to do so by laws contolling insurance businesses in the territory in which they operate) to invest in risk-free government bonds, or other lower risk and lower return forms of investments, it's important that the extra amount it has to pay out compared to what it has to take in is less than the percent return of these investments. If it isn't, the company and be compared to an interest rate of the same company borrowing money. Becget by borrowing somewhere else. If this isn't the case, the insurance company does not add any value to their owners, who theoretically could have borrowed money from somewhere else and made the same investments themselves
Although insurers traditionally depended upon underwriting profit to provide them with operating profit, market forces now require that insurers earn the bulkof their profit on investment income on pre claims, ordinarily with reasonable accuracy. Actuarial science uses statistics and probability to aniples are used by insurers, in conjunction with additional factors, to determine rate structuto an insurance company. If a covered loss occurs, the insurer is obliged by the terms of the contrareceived from their insurer will greatly exceed the expense of premiums paid. Others may never make a claim or receive any beneftotal claims expense paid by an insurer should be less than the total premiums paid by their policyholders, with the difference allocated to overhead and are needed to pay claims. This money is called the 'float'. The insurer may make profits or losses from the value change in the float as well as interest or dividends on the float. In the United States, the underwriting loss of property and casualty insur period was $68.4 billion, at the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.
Gambling analogySome people consider insurance a type of wager (particularly as associated with moral hazard) that executes over the policy period. The insurance company bets that you or your property will not suffer a loss while you put money on the opposite outcome. The difference in the fees paid to the insurance company versus the amount for which they can be held liable if an accident happens is roughly analogous to the odds one might expect when betting on a racehorse (for example, 10 to 1). For this reason, a number of religious groups, including the Amish and Muslims, avoid insurance and instead depend on pport provided by their communities when disastrs strike. This can be thought of as "social insurance," as the risk of any given person is assumed collectively by the community who wills, and other smaller-scale disasters. Howevr, a flood may impact a large percentage of te city and the company might be unable to deal with this. A prime example of this is the flooding in New Orleans as a result of Hurricane Katrina. For the same reason, losses due to war and ear fixed at the start so that the odds are not affeted by the players. Howevr, to o gabling in terms of risk andreward, the main difference is in the motivation behind the process (risk seeking vs. risk avoidance). When gambling, you arloss or a gain (speculative risk). With insurance, you are managing risk that you could not otherwise avoid, and which does not present the possibility of gain (pure risk). Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. Avoiding, mitigating and transferring certain risk creates greater predictability for consumers and business, and allows people and organizations to use risk intelligently to maximize their opportunities.
Historically, gambling has been considered an uninsurable risk. Recent developments, however, have led to the invention and patenting of new types of insurance to protect against gambling losses. An example is United States Pllennium BC respectively. Chinese merchants traveling treacherous river raps would redisribute their wares across many vessels to limit the loss due to any single capsizing. The Babylonians deveoped a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practicd by aly Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pld the shipment be stolen.
A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whse goods were being shipped together would pay a proportionally divided premium which would be used to d a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was estblished in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used in case of emergency.
Separate insurance contracts (i.e. insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation those willig to underwrite such ventures. Today, Lloyd's of London remains the leading market for marine and other specialist types of insurance, but it works rather differently tharmathany warn against certain fire hazards, it refused to insure certain buildings where the risk a unique laws in keeping with its stature as a global business center, Attorney General Eliot Szer alleged that Marsh & McLennan steered business to insurance carriers based on the amount of contingent commissions that could be extracted from carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest commercial insurance brokerages have since stopped accepting contingent commissions and have adopted new business models.