This week we discuss the operations of an insurance company. As stated before, t

Question

This week we discuss the operations of an insurance company. As stated before, the primary technique for risk management is transferring the risk, usually to an insurance company. Every risk manager should have a strong understanding of how an insurance company operates, prices its products, underwrites the risk, sells, and services the customer. (If you don't have an employer at this time you can call an insurance agent and interview them about the commercial risks and how they help their clients manage those risks). This helps tremendously if a claim arises. Ask the risk manager of your company who provides the property insurance and respond with an overview of that insurance company. Include their history, current business model, and premium volume.

Explanation / Answer

Company is the Prudential Insurance Company of America,started in New York in 1875 was founded by John F Dryden sold in the beginning the burial insurance.At turn of 29th century reaped huge profits from industrial insurance on industrial workers who paid high premium due to high lapse rate of 1 in 12.

The company's principal products includes life insurance,annuities,mutual funds,asset management.Individual Life insurance segment manufactures and distributes individual variable life,term life and universal life insurance products prominanetely to US mass middle and affluent markets.Group Life insurance segment manufactures and distributes group life insurance products prominently to US mass middle and affluent markets.Group insurance also sells accidental death,dismemberment and other ancillary coverage.

The company earns majority of the revenues from premiums and fees on insurance policies and retirement products.The company has some $3.5 trillion gross life insurance policies around the globe.International Insurance accounted for 35% of the revenues.Company has agreed to buy indirect stakes in other insurance firms.Main segments from where the firm generates revenue is asset management,annuity and retirement services generates 33% of Revenue in 2010,the insurance group formed 27% of Revenue in 2010 while international Insurance and Investment generates 40% of whole life insurance.

The insurance premiums are priced after considering the probability of the events happening,life mortality tables ,individual record and considering factors that may affect insurance payouts premiums is determined.Overall its a complex process where host of factors as mortality rates,age,sex,claims history,industry growth ,inflation,past performance of similar product,future market prediction,competition pricing, interest rates etc. are considered. Companies do also consider insurance score which includes a number of factors as credit history,payment history,revolving credits,loans and other credits this insurance scores area critical input in determining the premiums charged.The main objective of the insurance company is to charge enough premium as its their main source of income to cover expenses and allow for a profit.Pure premium as determined by actuarial studies is used to cover losses and loss related expenses,loading is necessary to pay for other expenses and allow for a profit.

Underwriting involves decision whether to insure the exposures on which applications for insurance are submitted.Individual insurance needs to provide evidence of insurability in areas of health and life insurance.Individual Insurability is not examined in group insurance therefore every individual can receive insurance without Insurability check. The selling and services function differs based on life/health and property/casualty segments.Agents who sell policies represent the insurers and work under a general agency,Brokers represent the insureds and place policies with appropriate insurers.Internet marketing,mass merchandising and financial planning are other methods of acquiring customers.

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