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Early methods[ edit ] Merchants have sought methods to minimize risks since early times.
Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. The Babylonians developed a system which was recorded in the famous Code of Hammurabic. This allowed groups of merchants to pay to insure their goods being shipped together.
The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether due to storm or sinkage. The first known insurance contract dates from Genoa inand in the next century maritime insurance developed widely and premiums were intuitively varied with risks.
Insurance became far more sophisticated in Enlightenment era Europeand specialized varieties developed. Property insurance as we know it today can be traced to the Great Fire of Londonwhich in devoured more than 13, houses.
Initially, 5, homes were insured by his Insurance Office. In the late s, Edward Lloyd opened a coffee housewhich became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures.
By the late 19th century governments began to initiate national insurance programs against sickness and old age. Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the s.
This gave the British working classes the first contributory system of insurance against illness and unemployment. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring.
In order to be an insurable riskthe risk insured against must meet certain characteristics. Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.
Insurability Risk which can be insured by private companies typically shares seven common characteristics: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses.
However, all exposures will have particular differences, which may lead to different premium rates. The loss takes place at a known time, in a known place, and from a known cause.
The classic example is death of an insured person on a life insurance policy. Fireautomobile accidentsand worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory.
Occupational diseasefor instance, may involve prolonged exposure to injurious conditions where no specific time, place, or cause is identifiable. Ideally, the time, place, and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost.
Events that contain speculative elements such as ordinary business risks or even purchasing a lottery ticket are generally not considered insurable. The size of the loss must be meaningful from the perspective of the insured.
Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims.
For small losses, these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer. If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, then it is not likely that the insurance will be purchased, even if on offer.
Furthermore, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer.
If there is no such chance of loss, then the transaction may have the form of insurance, but not the substance see the U. Financial Accounting Standards Board pronouncement number There are two elements that must be at least estimable, if not formally calculable: Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.Note: The actual costs for a captive insurer to operate in the “Other State” will be even higher, if additional business plan changes are proposed or the regulator outsources its actuarial review work or its statutory audit, requiring the captive insurer to bear those costs.
back to top. Section Names of companies. No captive insurance company shall adopt a name that is the same, deceptively similar, or likely to be confused with or mistaken for any other existing business name registered in the state of Vermont.
Jan 28, · By Christine Hall. With the Affordable Care Act slowly becoming the norm, mid-sized companies are looking for health care options — and one such option is captive insurance. Talk to M&T about business insurance, employee benefits, surety solutions and more.
We serve all sectors and are licensed in all 50 states. Abdul Halim Jantan is the Director and Chief Executive Officer of Sterling Insurance Brokers, a company he started in year Prior to embarking his broking journey, he spent 14 years at American Malaysian Insurance Berhad (AMI), being his last position as the Chief Executive Officer.
Caitlin Morgan: Wholesale Broker, MGU and Specialty Insurance Program Administrator. Caitlin Morgan is a wholesaler insurance broker and Managing General Underwriter (MGU) that specializes in assisting independent agents place business in addition .