Insurance financing vehicles
· Fraternal insurance is provided on a
cooperative basis by fraternal benefit societies or
other social organizations.
· No-fault
insurance is a type of insurance policy (typically automobile
insurance) where insureds are indemnified by their own insurer regardless of
fault in the incident.
· Protected self-insurance is an alternative
risk financing mechanism in which an organization retains the mathematically
calculated cost of risk within the organization and transfers the catastrophic
risk with specific and aggregate limits to an insurer so the maximum total cost
of the program is known. A properly designed and underwritten Protected
Self-Insurance Program reduces and stabilizes the cost of insurance and
provides valuable risk management information.
· Retrospectively rated insurance is a method
of establishing a premium on large commercial accounts. The final premium is
based on the insured's actual loss experience during the policy term, sometimes
subject to a minimum and maximum premium, with the final premium determined by
a formula. Under this plan, the current year's premium is based partially (or
wholly) on the current year's losses, although the premium adjustments may take
months or years beyond the current year's expiration date. The rating formula
is guaranteed in the insurance contract. Formula: retrospective premium =
converted loss + basic premium × tax multiplier. Numerous variations of this
formula have been developed and are in use.
· Formal self-insurance is
the deliberate decision to pay for otherwise insurable losses out of one's own
money. This can be done on a formal basis by establishing a separate fund into
which funds are deposited on a periodic basis, or by simply forgoing the
purchase of available insurance and paying out-of-pocket. Self-insurance is
usually used to pay for high-frequency, low-severity losses. Such losses, if
covered by conventional insurance, mean having to pay a premium that includes
loadings for the company's general expenses, cost of putting the policy on the
books, acquisition expenses, premium taxes, and contingencies. While this is
true for all insurance, for small, frequent losses the transaction costs may
exceed the benefit of volatility reduction that insurance otherwise affords.
· Reinsurance is
a type of insurance purchased by insurance companies or self-insured employers
to protect against unexpected losses. Financial reinsurance is a form of reinsurance
that is primarily used for capital management rather than to transfer insurance
risk.
· Social insurance can
be many things to many people in many countries. But a summary of its essence
is that it is a collection of insurance coverages (including components of life
insurance, disability income insurance, unemployment insurance, health
insurance, and others), plus retirement savings, that requires participation by
all citizens. By forcing everyone in society to be a policyholder and pay
premiums, it ensures that everyone can become a claimant when or if he/she
needs to. Along the way this inevitably becomes related to other concepts such
as the justice system and the welfare state. This
is a large, complicated topic that engenders tremendous debate, which can be
further studied in the following articles (and others):
· Stop-loss insurance provides protection
against catastrophic or unpredictable losses. It is purchased by organizations
who do not want to assume 100% of the liability for losses arising from the
plans. Under a stop-loss policy, the insurance company becomes liable for
losses that exceed certain limits called deductibles.
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