Insurance Fundamentals

Risk

• Risk is a possible future event that is accidental and independent of the insured's will
• It causes material damage, personal injury, or death

Risk Selection

• Pure risk has only possibilities of loss or no loss. Examples include unexpected death, job-related accidents, and property damage from natural events
• Speculative risks involve situations where either profit or loss is possible, such as gambling, stock exchange, and trading currency

Definition of Insurance

• Insurance is a social instrument where a group/individual (insured) transfers risk to another party (insurance company/insurer)
• The transfer occurs in exchange for payment (insurance premium)
• The insurance company promises to cover losses at the time of their occurrence
• According to the Romanian Civil Code, the insurance contractor/insured pays a premium to the insurance company
• The company undertakes to pay an indemnity to the insured, beneficiary, or third party

Technical Elements of Insurance

• General elements include subjects of insurance, the object, the interest in insurance, insured and excluded risks, the insured amount, the insurance premium, damage/loss, the indemnity, and the insurance period.
• Subjects of insurance: entities directly or indirectly involved in subscribing/selling insurance policies like the insurer, the insured, the contractor, and the beneficiary
• Objects of insurance: property, individuals/life/injuries, civil liability, pension, etc
• Interest in insurance: Individuals or companies must have a financial interest in property, persons, or liability to be included in insurance contracts
• Property Insurance: Interest protects own property or company assets
• Personal Insurance: Interest covers deaths, work accidents, disabilities, or survival over a certain age
• The interest insures an income for contract beneficiaries upon the insured's death
• It provides compensatory income for hospitalization due to work-related accidents, or life annuities for permanent disabilities
• Liability Insurance: Interest avoids diminishing financial resources from damages caused to third parties

Insured Amount (Insured Sum)

• It is the maximum liability level of the insurer for assumed risks
• It is stated in each policy and determined via property valuation/insurance assessment
• The insured amount should closely align with insured property's real value
• Underinsurance: If insured sum is lower than the real value, the insured receives only part of the real value in case of damages
• Over insurance: If insured amount is higher than the real value, the policyholder may neglect the asset's condition anticipating a higher payout
• Subscribing for insurance at a value higher than the real value is generally not possible
• If excess insurance is subscribed and an insured event occurs, the insurer will recover the difference between the insured amount and the real value from whoever caused the over-valuation
• Individual/disability insurance: The insured sum is split into amounts for accidental death and permanent disability

Insurance Benefits

• Insurance prevents financial difficulties/bankruptcies for companies
• It prevents individuals from losing savings when risks occur
• This is achieved by dispersing risks among group members
• Preventing damage is sometimes more effective than insurance
• Insurance industry conducts research and publishes statistical studies
• Supporting research is more convenient than paying out later compensations.
• Researching phenomena like earthquakes can help limit damages because experts will know when they could occur.

Mechanism of Insurance

• Insurance is created by an insurer/insurance company
• Insurers assume the financial aspect of the risk from the insured/policyholder
• The insurance company accepts paying damage/compensation per the insurance contract in exchange for insurance premiums
• Contracts are in financial/monetary terms, or allow payment for services
• Property, civil liability, or life insurers pay the amount specified in the policy
• Injury insurance provides remuneration/compensation as well as free services, like access to a physical recovery center

Objects of Insurance

• Objects can be property, injuries, third-party liability, and life

Interest in Insurance

• Insured goods/property, individuals, and liabilities must be of interest to the policyholder

• This interest needs assessment in monetary terms or have economic value for legal entities

• Property insurance protects one's own assets

• Individual/injury/health insurance covers deaths, accidents, disabilities, and survival over a certain age and provides beneficiaries an income

• Liability insurance protects the insured's financial resources if the insured causes damage to third parties

• Insurance companies use marketing to make policyholders aware of offered protections

• Interest is imposed by the state when dealing with mandatory insurance

Mandatory Insurance

• It's regulated by law, and mandatory based on high frequency or severity of insured risks’ occurrence
• In Romania, a well-known form of compulsory insurance is motor third-party liability insurance (MTPL = RCA).
• Mandatory home insurance became valid in Romania in 2008, for all real estate owners
• Developed countries such as the USA, Japan, and EU states have compulsory insurances for cars, buildings, etc.
• Facultative/optional insurance is requested by the insured
• Facultative/optional insurance is based on the insurance company and the insured/policyholder agreement in the insurance contract

Insurance Sales Channels

• Insurers operate sales through insurance clients' managers, insurance agencies, and insurance brokers
• Managers are permanently employed by the insurer, and conduct complex insurance targets
• Insurance inspectors coordinate insurance agents and brokers

Insurance Agent Definition

• Insurance agents are legally defined and represent only one insurer's interests

• To act as an agent, one needs written authorization from an insurer (agent contract), has to act on their behalf, and needs official certification from the Institute of Insurance Management(IOIM/ISF)

• If insurance is bought through an agent, the insurance company is liable for agent's actions/omissions

• An insurance agent is liable to the insurance company for actions resulting from insurance sales.

• Any mistake by the agent toward an insured party is covered by the insurer, eventually imputing the amount related to the guilty agent

Insurance Agents Requirements

• Agents must pass specialized professional training and have knowledge to exercise their activity
• Agents must also have mal practice insurance
• Agents also cannot have a criminal record
• Agents must uphold a good reputation / ethic
• Current legislation lets insurance agents organize as a limited liability company

Legal Entity Insurance Agent Conditions

• The sole purpose of the activity should be only that of an insurance agent
• The agent must have a malpraxis insurance contract according to Financial Supervisory Authority requirements
• The agent must not have previously been declared bankrupt or be the object of a judicial reorganization procedure
• The agent must have a good reputation, and its name must mention “insurance agent" + the executive leader needs training/experience
• Insurance brokers may also act as intermediaries if they have license from Financial Supervisory Authority, and meet certain conditions:
• To be a legal entity; paid share capital.
• The insurance broker must also be in force a professional liability insurance contract.
• The agent's object of activity must be only the activity of insurance broker.
• Must comply with regards to the Supervisory Authority's reports, in addition, it must carry out the activities themselves
• Unlike insurance agents, insurance brokers can intermediate insurance products from several insurers
• Brokers represent the interests of their clients and provide assistance before, during insurance, intermediate/facilitate the process of settling claims/loss compensation

Insurance Contracts Trend

• In developed countries, most insurance contracts/policies are intermediated by insurance brokers
• The trend is similar in Romania, where the volume of gross written premiums by brokers is increasing

Insured Sum

• It expresses the maximum level of liability for the risks assumed by the insurance contract

• The insured sum is determined by valuation of the property/insurance assessment

• It should be close as possible to the real value of the insured property/asset

• If the insured sum is lower than the real value (underinsurance):

  • Damages will not cover the full real value in case of damages.

• If the amount is higher than the real value (over insurance or excess of insurance):

  • No interest to maintain the good/asset/property because it is not possible from insurers point of view higher values than real value.
  • The insurance company will recover the difference from the real value to the level of compensation from the culprit if over-valuation occurred.

• For individual/disability insurance:

  • The insured sum is divided in two parts
    • Insured sum doe death
    • Insured sum for permanent disability caused by accidents.

• If the insurance policy includes a sum for disability insurance includes 10,000 lei for injuries and the policyholder suffered an arm' fracture that will cause a permanent disability then amount is 2,000 lei in compensation

• The insured total is determined by the value required by the potential insured in the questionnaire form and accepted by the insurance Company

• Insured sum can be divided/expressed for several events as" insured sum per event".

• A maximum value, not restricted by the number of events: aggregate insured sum (total insured sum)

  • Insurers will offer the difference not covered by insurers.

Damage/Loss/Injury

• Damage reflects prejudice caused to the insured by the occurrence of the insured event and has a certain value
• Property Insurance:
  • Total damage means the property/asset is completely destroyed or stolen
  • Partial damage means if the insured property is destroyed, it can be used again as in initial form after repairing/restoration

Damages

• Vehicle Insurance:
  • A total damage has been recorded if the percentage of damage goes over 75-80% from the real value, paying the insured sum to beneficiary
  • Insured sums represent the maximum liability of insurrance CO.
• Total damage can be caused by a traffic collision if the loss exceeds 75% of the Insured Sum The compensation paid to the insured+75% the sum of wreck
• The wreck remains on policyholder ownership, and it can be sold or repaired following safety regulations.

Leasing Contracts

• The leasing company is the vehicle owner.
• 75% of the Insured Sum + vehicle is paid to leasing CO
• Leasing company will deduct+75% Insured SUm=Leasing+remaining

Injury

• It defines/quantifies the prejudice, in case of individuals

• It can generate temporary/permanent invalidity-partial/total - depending on the injured parts involved.

• Third party: - damages to property or moral damages

• To insure properties on the real value, the method depends on : Vehicles Buildings owned by individuals/legal entities Goods

• Companies insure the value of assset. If there are differences, they are going to be determined.

• Two principles are used: limited insured sum/ Proportional principle of compensation.The difference is the correlation between insured amount and real value. In the case of a accident, insured will receive the difference. Insurance will pay any loss up to 60,000 Euros.

• The principle of proportional compensation states that the compensation will be paid proportionally, insured sum divided by real value.

• The limited insured sum used mandatory house insurance. And the damages will be given out of insured sums

• The deductible represents the part paid by the policyholder if theft occurs.

• The cheaper price policies is zero deductible Compensation-loss times insured sum over real value-deductible

• The insured receives the extra price of premium. This way any future damage will occur. Insurance can be interupted in case if insurance are not paid in time

• Renewal facultative Insurance- the insurance company is going to offer a discaunt

• The name and adress the company are important, because they are providing documents.

Insurance Contract

• The following conditions are met to confirm contract is valid:

  • In order that the persons involved have the authority to sign the specific contract.
  • Need consent between both parties.
  • The purpose of the agreement is to show the purpose of clarification.
  • It is also important that contractual clause exist when needed.

• Law 172/2004 Insurance Contract. The information follows:

  • Contract address:
    • Objects
    • Risks.
    • Start and end dates.
    • Insured Sum
    • Insurance of property/assets, type of equipment, or VIN

• Risk policy. Risks insured in basic policy, but can be under an insurer, based on special clauses

• Issuance is valid when the standards of the insurer are respected under asset liability.

• When the insurance policy has a premium level, representatives must insure verification of risks. Risk inspection is what is insured.

• Before staring insurance can be valid

IPID Content

• Information about type of insurance
• A summary of insurance cover
• The insured sum, geographical
• A summary of the excluded risks
• Payment and duration

KEY KIDs for insurance has a producer, based on sales

Motors Own

• Damages Isurance Optional insurance-each person/entity choses to buy this insurance on the history and financial

The insurance companies in Romania is set up depreciations, amounts, and premium quotations. The general risks include: - damage by vehicles, theft, fire,explosion, natural phenomena etc.

• Motors need periodic Inspection to be insured
• Two original Keys. There are certain instances where insures aren't

The Following Events Are Excluded

• Damage as result of maintenance, temperature, gearbox
• Also, damages caused to the insured vehicle if entered into flooded Places
• M.O.D or insurance can b e concluded with deductible. The deductible is an integral part of the insurance policy

Risk Inspection

• Can be avoid after fraud.
• Insurance Premium- diversifies certain criteria: --Area and distance traveled --Warranty

Damage Agents

• finds the damaged parts replace or repair. With copy of the claim file, the insured can take the parts or insurance

• The insurance needs housing in Romania for individuals

• Residential Homes, housing, InterventionHousing Law 260/2008 Has to have external walls, for a high insured sum

Other insurance policy

Natural disasters are earthquakes, floods, landslides

• The insurance premium-50 or 130.

• Policy has owners for a period of a year. Provides a claim when all premiums have been provided.

• Buildings are to be insured, machinery equipment.

• Insurance policy gives protection to buildings againt fire, explossion, theft etc.

• Insurers exclude the building because of a number of risks, huts and wells.

• The damage can be causes of war etc. Insurance doesn't provide money, jewels. etc Insured Sum for buildings

• For New buildings, the insured need to provide certain data such as year,surface and type.

• Buildings : -Invoice value -Evaluation Table for costs.

Personal Accident Insurance

• It refers from disabilty-death and accidents
• It can also be additional clauses.
• The sum insures the death from accidents.
• The category relates to industries.
• Temporary-work-accident

Indemnity

• The forms claims are filled out.

• Doctor determines the amount disability. This document need to be provided so they recive claim. Injures and treatments.

• The indeminity includes the insurance as a result.

• Insurance in case of permanent disability.

• No benefits on designated heir.

• Provide claims.