group 7 - organization and management of insurance company

Title 1

INSURANCE COMPANIES: ORGANIZATION, CAPITALIZATION AND

AUTHORIZATION

Section 184. For purposes of this Code, the term “insurer” or “insurance company” shall include all individuals, partnerships, associations, or corporations, including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty. “Domestic company” shall include companies formed, organized or existing under the laws of the Philippines. “Foreign company” when used without limitation shall include companies formed, organized, or existing under any laws other than those of the Philippines.

Section 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as “insurance corporations”.

The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter.

Section 186. No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe.

Every person, partnership, or association receiving any such certificate of authority shall be subject to the insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of insurance specified in the certificate.

Section 187

No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed.

Section 187

The Commissioner may refuse to issue a certificate of authority to any insurance company if, in his judgment, such refusal will best promote the interest of the people of this country. No such certificate of authority shall be granted to any such company until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such company is qualified by the laws of the Philippines to transact business therein, that the grant of such authority appears to be justified in the light of economic requirements, and that the direction and administration, as well as the integrity and responsibility of the organizers and administrators, the financial organization and the amount of capital, notwithstanding the provisions of section one hundred eighty-eight, reasonably assure the safety of the interests of the policyholders and the public.

Section 187

In order to maintain the quality of the management of the insurance companies and afford better protection to policyholders and the public in general, any person of good moral character, unquestioned integrity and recognized competence may be elected or appointed director or officer of insurance companies. The Commissioner shall prescribe the qualifications of the executive officers and other key officials of insurance companies for purposes of this section.

No person shall concurrently be a director and/or officer of an insurance company and an adjustment company.

Section 187 Incumbent directors and/or officers affected by

the above provisions are hereby allowed to hold on to their positions until the end of their terms or two years from the effectivity of this decree, whichever is shorter.

Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public.

Section 187

Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if the company is continuing to comply with the provisions of this Code or the circulars, instructions, rulings or decisions of the Commissioner. Every company receiving any such certificates of authority shall be subject to the provisions of this Code and other related laws and to the jurisdiction and supervision of the Commissioner.

No insurance company may be authorized to transact in the Philippines the business of life and non-life insurance concurrently unless specifically authorized to do so; Provided, That the terms “life” and “non-life” insurance shall be deemed to include health, accident and disability insurance.

Section 187

No insurance company shall have equity in an adjustment company and neither shall an adjustment company have an equity in an insurance company.

Insurance companies and adjustment companies presently affected by the above provision shall have two years from the effectivity of this Decree within which to divest of their stockholdings. (As amended by Presidential Decree No. 1455).

Definition of Agent

• Law: one who is authorized to act for another, the principal.

• Real estate: a licensed salesperson who typically works under a broker.

• Insurance: individual who sells and services insurance policies in either of two classifications: independent agent and direct writer.

Independent

Agent

An independent agent represents at least two insurance companies and (at least in theory) serves clients by searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy.

Direct Writer

A direct writer represents only one company and sells only that company's policies. This agent is paid on a commission basis in much the same manner as the independent agent.

Title 1

INSURANCE AGENTS AND INSURANCE BROKERS

Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines, or any agent thereof, without first procuring a license to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. Such license shall be issued by the Commissioner only upon the written application of the person desiring it, such application if for a license to act as insurance agent, being approved and countersigned by the company such person desires to represent, and shall be upon a form prescribed by the Commissioner giving such information as he may require, and upon payment of the corresponding fee hereinafter prescribed. The Commissioner shall satisfy himself as to competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion. No such license shall be valid after the thirtieth day of June of the year following its issuance unless it is renewed. (As amended by Presidential Decree No. 1455).

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.

Section 301. Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject.

Section 302. Every applicant for an insurance broker's license shall file with the application and shall thereafter maintain in force while so licensed, a bond in favor of the people of the Republic of the Philippines executed by a company authorized to become surety upon official recognizances, stipulations, bonds and undertakings. The bond shall be in such amount as may be fixed by the Commissioner, but in no case less than one hundred thousand pesos, and shall be conditioned upon full accounting and due payment to the person entitled thereto of funds coming into the broker's possession through insurance transactions under license. The bond shall remain in force until released by the Commissioner, or until cancelled by the surety. Without prejudice to any liability previously incurred there under, the surety may cancel the bond on thirty days advance written notice to both the broker and the Commissioner.

Upon approval of the application, the applicant must also file two errors and omissions (professional liability or professional indemnity) policies issued separately by two insurance companies authorized to do business in the Philippines, satisfactory to the Commissioner to indemnify the applicant against any claim or claims for breach of duty as insurance broker which may be made against him by reason of any negligent act, error or omission, whenever or wherever committed or alleged to have been committed, on the part of the applicant or any person who has been, is now, or may hereafter during the subsistence of the policies be employed by the said applicant in his capacity as insurance broker, provided that the filing of any claim or claims under one of such policies shall preclude the filing of the said claim or claims under the other policy. The said policies shall be in such amounts as may be prescribed by the Insurance Commissioner, depending upon the size or amount of the broking business of the applicant, but in no case shall the amount of each of such policies be less than five hundred thousand pesos. (As amended by Presidential Decree No. 1455).

Section 303

The Commissioner shall, in order to determine the competence of every applicant to have the kind of license applied for, require such applicant to submit to a written examination and to pass the same to the satisfaction of the Commissioner. Such examination shall be held at such times and places as the Commissioner shall from time to time determine.

Section 304

An applicant for the written examination mentioned in the preceding section must be of good moral character and must not have been convicted of any crime involving moral turpitude. He must satisfactorily show to the Commissioner that he has been trained in the kind of insurance contemplated in the license applied for.

Such examination may be waived if it is shown to the satisfaction of the Commissioner that the applicant has undergone extensive education and/or training in insurance..

Section 305

• An application for the issuance or renewal of a license to act as an insurance agent or insurance broker may be refused, or such license, if already issued or renewed, shall be suspended or revoked if the Commissioner finds that the applicant for, or holder of, such license:

• (a) has willfully violated any provision of this Code; or

• (b) has intentionally made a material misstatement in the application to qualify for such license; or

• (c) has obtained or attempted to obtain a license by fraud or misrepresentation; or

• (d) has been guilty of fraudulent or dishonest practices; or

• (e) has misappropriated or converted to his own use or illegally withheld moneys required to be held in a fiduciary capacity;

Section 305

• (f) has not demonstrated trustworthiness and competence to transact business as an insurance agent or insurance broker in such manner as to safeguard the public; or

• (g) has materially misrepresented the terms and conditions of policies or contracts of insurance which he seeks to sell or has sold; or

• (h) has failed to pass the written examination prescribed, if not otherwise exempt from taking the same.

• In addition to the foregoing causes, no license to act as insurance agent or insurance broker shall be renewed if the holder thereof has not been actively engaged as such agent or broker in accordance with such rules as the Commissioner may prescribe.(As amended by Presidential Decree No. 1814).

Section 306

The premium, or any portion thereof, which an insurance agent or insurance broker collects from an insured and which is to be paid to an insurance company because of the assumption of liability through the issuance of policies or contracts of insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be misappropriated or converted to his own use or illegally withheld by the agent or broker.

Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.

Section 307

Any provision of existing laws to the contrary notwithstanding, no person shall, within the Philippines, sell or offer for sale a variable contract or do or perform any act or thing in the sale, negotiation, making or consummating of any variable contract other than for himself unless such person shall have a valid and current license from the Commissioner authorizing such person to act as a variable contract agent. No such license shall be issued unless and until the Commissioner is satisfied, after examination that such person is by training, knowledge, ability and character qualified to act as such agent. Any such license may be withdrawn and cancelled by the Commissioner after notice and hearing, if he shall find that the holder thereof does not then have the qualifications required for the issuance of such license.

Section 308

It shall be unlawful for any person, company or corporation in the Philippines to act as general agent of any insurance company unless he is empowered by a written power of attorney duly executed by such insurance company, and registered with the Commissioner to receive notices, summons and legal processes for and in behalf of the insurance company concerned in connection with actions or other legal proceedings against said insurance company. It shall be the duty of said general agent to notify the Commissioner of his post office address in the Philippines, or any change thereof. Notices, summons, or processes of any kind sent by registered mail to the last registered address of such general agent of the company concerned or to the Commissioner shall be sufficient service and deemed as if served on the insurance company itself.

Section 309

Except as otherwise provided by law or treaty, it shall be unlawful for any person, partnership, association or corporation in the Philippines, for himself or itself, or for some other person, partnership, association or corporation, either to procure, receive or forward applications of insurance in, or to issue or to deliver or accept policies or contracts of insurance of or for, any insurance company or companies not authorized to transact business in the Philippines, covering risks, life or non-life, situated in the Philippines; and any such person, partnership, association or corporation violating the provisions of this section shall be deemed guilty of a penal offense, and upon conviction thereof, shall for each such offense be punished by a fine of ten thousand pesos, or imprisonment of six months, or both at the discretion of the court: Provided, That the provisions of this section shall not apply to reinsurance.

AGENCY AGREEMENT

by Robelyn Rivera

Agency Agreement

is a legal relationship where one person, called the agent, can act on behalf of another person, called the principal. Agency agreements can be helpful in both the personal and business context, but they include some legal risk for the principal. For the principal's legal protection, it is important to clearly define agency relationships in a written contract agency agreement.

• Basics– A contract agency agreement is a mutual

understanding, usually embodied in a written contract, between the principal and the agent. The agreement should identify the extent of the agent's authority, and more importantly, any limitations on that authority. As long as the agent acts within the scope of the contract agreement, then the principal will be responsible for the agent's actions; but if the agent exceeds the scope of the agreement, then the principal generally will not be responsible for those actions.

• Purpose– Contract agency agreements are

helpful because they allow for efficiency and delegation. An out-of-state supplier can appoint an in-state agent to sign contracts and handle affairs. An incapacitated individual can appoint another person to take care of his home and finances during the period of incapacity.

• Risks– A well-drafted contract agency agreement

should address and limit potential legal risks. Potential risks include an agent creating legal liability for the principal that the principal would not have wanted. A shipping agent might sign a contract binding the principal to a price or terms that the principal does not find favorable. A personal agent may sell an item of sentimental value belonging to the principal without the principal's knowledge.

• Implied Authority– Many agency agreements are not embodied in a

written contract. An agency agreement may be implied for circumstances or verbal statements by the principal. If you give your brother your debit card to purchase groceries at the store, you have created an implied agency relationship. Similarly, if you give your employees a business credit card, you have created an implied agency relationship. Or, if you tell a potential purchaser that your employee has authority to enter into a purchase agreement on behalf of your business, then that purchaser can likely enforce a purchase agreement signed by your employee even if you later tell your employee not to enter into the agreement.

Insurance Code of The Philippines Sec. 299

No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines, or any agent thereof, without first procuring a license to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. Such license shall be issued by the Commissioner only upon the written application of the person desiring it, such application if for a license to act as insurance agent, being approved and countersigned by the company such person desires to represent, and shall be upon a form prescribed by the Commissioner giving such information as he may require, and upon payment of the corresponding fee hereinafter prescribed. The Commissioner shall satisfy himself as to competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion. No such license shall be valid after the thirtieth day of June of the year following its issuance unless it is renewed. (As amended by Presidential Decree No. 1455).

CONTENTS OF AN AGENCY AGREEMENT

1. DUTIES OF AGENT2. APPOINTMENT3. DUTIES OF THE COMPANY4. RESERVATION OF RIGHTS5. MAINTENANCE OF RECORDS6. COMPENSATION7. GENERAL PROVISIONS8. TERM AND TERMINATION

Sec. 309. Except as otherwise provided by law or treaty, it shall be unlawful for any person, partnership, association or corporation in the Philippines, for himself or itself, or for some other person, partnership, association or corporation, either to procure, receive or forward applications of insurance in, or to issue or to deliver or accept policies or contracts of insurance of or for, any insurance company or companies not authorized to transact business in the Philippines, covering risks, life or nonlife, situated in the Philippines; and any such person, partnership, association or corporation violating the provisions of this section shall be deemed guilty of a penal offense, and upon conviction thereof, shall for each such offense be punished by a fine of ten thousand pesos, or imprisonment of six months, or both at the discretion of the court: Provided, That the provisions of this section shall not apply to reinsurance.

Solicitors/Underwriter

by Sarah Joy Real

Solicitor

• sells insurance and can even be authorized to collect premiums.

• a solicitor cannot issue or countersign policies.• who often works with or for an agent, has

more limited authority than the agent.

Underwriting

Department

Underwriting – is the process of selecting certain

types of risks and rejecting others so that as a whole, the policies issued by the insurance company will produce the company’s desired results.

Underwriting

Department

Underwriters – who make the decisions about

whether to accept of reject the applications sent in by agents based on the company’s standards and their own judgment.

Three Financial Ratios

• Loss ratio

• Expense ratio

• Combined ratio

Loss

Ratio

Loss ratio is used to compare the company’s operations from year to year. It shows the percentage of losses the company incurred for every dollar of earned premium.

It is calculated by dividing the amount of incurred losses by the amount of earned premium.

Loss

Ratio

• Earned premium– is the premium that the company

actually earned by providing insurance protection for the designated period of time.

• Incurred losses – include amounts paid on claims for

covered losses and various expenses related to handling claims.

Expense

ratio

Expense ratio indicates the cost of doing business.

It is calculated by dividing total underwriting expenses by total written premiums

Expense

ratio

• Underwriting expenses – are the costs required to acquire and

maintain a book of business. – They include expenses for advertising,

commissions, salaries, and other administrative costs, as well as regulatory costs such as taxes and licensing fees.

• Written Premium– is the gross amount of premium income

on the company’s books. – It includes both earned and unearned

premiums. – Premiums for new business, renewals,

and policy endorsements make up written premium.

Combine

d Rati

o

Combined ratio is simply the sum of the loss ratio and the expense ratio.

• Traditionally, 100% is considered to be the break-even point.

• A combined ratio of less than 100% indicates that the company had an underwriting profit;

• a ratio greater than 100% indicates a loss.

Special Agents

by Beverly Recluta

Special Agent

An insurer's representative in a territory that services the insurer's agents and is responsible for the volume and quality of the business written in that territory.

Individual who sells and services life insurance in an exclusive territory; in property and casualty insurance, an individual who represents a property and casualty insurance company as a marketing representative.

Typical Duties of an Special AgentAttend meetings, seminars and programs to learn about

new products and services, learn new skills, and receive technical assistance in developing new accounts.

Sell various types of insurance policies to businesses and individuals on behalf of insurance companies, including automobile, fire, life, property, medical and dental insurance.

Explain features, advantages and disadvantages of various policies to promote sale of insurance plans.

Interview prospective clients to obtain data about their financial resources and needs, the physical condition of the person or property to be insured, and to discuss any existing coverage.

Call on policyholders to deliver and explain policy, to analyze insurance program and suggest additions or changes, or to change beneficiaries.

Typical Duties of an Special AgentContact underwriter and submit forms to obtain

binder coverage. Seek out new clients and develop clientele by

networking to find new customers and generate lists of prospective clients.

Confer with clients to obtain and provide information when claims are made on a policy.

Select company that offers type of coverage requested by client to underwrite policy.

Calculate premiums and establish payment method. Ensure that policy requirements are fulfilled.Perform administrative tasks, such as maintaining

records and handling policy renewals. Develop marketing strategies to compete with other

individuals or companies who sell insurance.

Typical Duties of an Special AgentCustomize insurance programs to suit

individual customers, often covering a variety of risks.

Monitor insurance claims to ensure they are settled equitably for both the client and the insurer.

Explain necessary bookkeeping requirements for customer to implement and provide group insurance program.

Install bookkeeping systems and resolve system problems.

Plan and oversee incorporation of insurance program into bookkeeping system of company.

AGENTS’ QUALIFYING EXAMINATION

The passing of examination is required for applicants for license as insurance agents, in order to determine his/her competence. The applicant must be of good moral character and must have not been convicted of any crime involving moral turpitude. He/she must show to the satisfaction of the Commissioner that he/she has been trained in the kind of insurance contemplated in the license.

Require

ments

1. Application for examination

2. Certificate of good moral

character, NBI or Barangay

clearance

3. Certificate of training

Fees

Php 500.00 - for applicant in main IC Manila Office, Cebu Extension Office, and Davao Extension Office I.

Php 550.00 – for applicant in other

places

Insurance Brokers

by Gilbert Reyes

What is an insurance broker?

An insurance broker is an independent insurance agent who works with many insurance companies to find the very best available policies for his or her clients. A typical insurance agent works for one specific company, and chooses from within that company's policies for clients. While an insurance broker is different from the typical agent in this regard, the two are otherwise similar. Both structure policies, settle claims, and usually work on a commission basis.


In most states, both the agent and the insurance broker must be licensed, after having passed an insurance exam. While formal schooling or degrees are not necessarily required to become an agent or an insurance broker, they are helpful. Even if further education is not required for advancement, it definitely creates an advantage for the person who hopes to rise to the administrative level. Advancement and management experience are certainly beneficial for the agent who hopes to become an independent insurance broker. An agent or an insurance broker may also attend seminars and conferences to keep up to date on the latest insurance trends and legislation.


An insurance broker may specialize in one specific type of insurance or deal in many different types, including health, life, auto, home, and other specialized varieties of insurance, including policies for pets. Those that choose to deal in insurance of an investment nature require special training and must also obtain special licenses from the Securities and Exchange Commission or other associations that deal with investments.

Qualification for Insurance Broker

Your state will most likely have certain qualifications that must be met before you can become licensed. While all states differ in minimum qualifications, most require that you be a resident, that you are at least 18 years of age, and that you have a college degree. All require that the individual takes and passes examinations and courses before issuance of a license.

Education

The first step to becoming an insurance broker is to obtain a college degree, preferably in business or economics. Excellent skills in sales are a must, thus taking courses to increase this ability can only boost your chances of succeeding in this career.

Examinations

Almost all states offer insurance exams that must be taken before obtaining a license to sell insurance. For a fee, some also offer courses that you can take that will concentrate on the material covered in the exam. Depending on the state, you may be able to purchase a text to study on your own, or you may be required to attend classes for a certain period of time before the examination.

Skills and Knowledge

• excellent spoken and written communication skills• confident negotiating skills• honesty and integrity• an organized, methodical approach• accuracy and attention to detail• report writing skills• the ability to gather and analyze information• up to date knowledge about insurance and

financial markets• administrative and computer skills.

Typical

Tasks

•gathering information from clients to assess their insurance needs and evaluating their risks;•researching policies from a number of insurance

companies, comparing features, level of cover and price;•arranging insurance cover for clients, submitting details to

insurers;•negotiating with insurers for policies at the best terms;•renewing or changing existing policies;•ensuring cover and documentation meets legal and

regulatory requirements;•collecting insurance premiums and processing accounts;•advising customers who are making a claim their

insurance policy;•inputting data to a computer system, issuing

documentation and keeping detailed records; and,•preparing reports for insurance underwriters and

surveyors, in complex cases.

Sample of application for Insurance Broker License

What this is For:

Application for Insurance Brokers License

Where to File:

Licensing Division, Insurance Commission

UN Avenue, Manila

How to File:

All applicants shall file their application form with the Licensing Division, Insurance Commission in UN Avenue, Manila.

Requirements for Issuance of License to act as Insurance Broker

1. Certified true copy of Certificate of Registration from the following:– DTI certificate of Registration Single Proprietorship– SEC certificate of Registration of Articles of Incorporation and

By-laws Partnership and Corporation2. Certificate of Registration with the following government agencies:

– Bureau of Internal Revenue (BIR)– Tax Identification Number (TIN)– Value Added Tax (VAT)– Office of the Mayor/Municipal Permit– Social Security System

3. Bank Account/s of the applicant


4. Execute waiver in favor of this Commission to verify the existence of applicants capital deposit with its depositary bank/s.

5. Inventory of equipment, furniture and fixtures6. Plantilla of personnel and officers of the company showing

their respective positions held and corresponding monthly/annual salaries, if applicant is a corporation.

7. Books of accounts to be used in the transaction of business, duly registered with the BIR– General Journal– General Ledger– Cash Receipt– Cash Disbursement


8. ITR for the preceding year and Curriculum Vitae of the officers and members of the Board of Directors

9. Documentary Stamp10. Pre-operational balance sheet11. List of insurance companies to service prospective

clients insurance needs12. Lease agreement of the office space, if any13. Surety Bond worth PHP500,000 (insurance Broker)


14. Errors and Omission Policies (Professional Indemnity) worth PHP1,000,000

15. Minimum paid-up capital of PHP250,000 (Insurance Broker), PHP500,000 (Reinsurance Broker) pursuant to Insurance Memorandum Circular No.1-2004 dated 12 January 2004

16. Compliance with Circular Letter No.13-2004 (Fit and Proper Requirements) dated 7 June 2004

17. Pre-licensing Examination18. License Fee PHP600.00

Qualifications of a Soliciting Official (Broker)

1) He must be a Filipino Citizen2) He must have at least ten (10) years experience as:

a) A sales and/or underwriting executive (at least department manager level) in an insurance brokerage firm or insurance company; orb) A general agent

3) The above requirements may be reduced to five (5) years if the applicant holds at least an associateship from the Insurance Institute for Asia and the Pacific (IIAP), the Chartered Insurance Institute (CII) or a similar educational institution acceptable to the Insurance Commissioner.

4) He must have no history of unprofessional conduct known to the Commissioner, other brokers and insurance companies.

Required Documents to be submitted by the

Soliciting Official (Broker)

1) Accomplished application (duly notarized)2) One passport size of recently taken head photo3) Bio-data (2 copies)4) Certification of ten (10) years experience including

positions held with the corresponding duties and responsibilities and nature of job

5) Copy of certificate of seminars attended6) Copy of resolution of the Board of Directors appointing

the Soliciting Official7) Copy of Income Tax Return for the last three (3) years8) Clearance form immediate past employer9) NBI clearance

Insurance Cooperatives Organization

by John Lawrence Pimentel

A health insurance cooperative is a cooperative entity that has the goal of providing health insurance and is also owned by the people that the organization insures. It is a form of mutual insurance.

Health Insurance Cooperative

A mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders. The primary form of financial business set up as a mutual company in the United States has been mutual insurance.

Mutual Insurance

A mutual organization or society is often simply referred to as a mutual. This could be seen as a competitive advantage to such companies — the idea of owning a piece of the company could be more attractive to some potential clients than the idea of being a source of profits for investors.

Insurance Rate Making

by Aimee Lynn Perez

Rate Making (Insurance Pricing)

Rate Making is the determination of what rates, or premiums, to charge for insurance.

• A rate is the price per unit of insurance for each exposure unit, which is a unit of liability or property with similar characteristics.

Because an insurance company is a business, it is obvious that the rate charged must cover losses and expenses, and earn some profit. However, all states have laws that regulate what insurance companies can charge, and thus, both business and regulatory objectives must be met.

The main business objective is to charge an adequate premium to cover losses, expenses, and

allow for a profit; otherwise the insurance company would not

be successful.

The pure premium, which is what is determined by actuarial studies, consists of that part of the premium that is necessary to pay for losses and loss related expenses.

Loading is the part of the premium necessary to cover other expenses, particularly sales expenses, and to allow for a profit.

The gross rate is the pure premium and the loading per exposure unit and the gross premium is the premium charged to the insurance applicant, and is equal to the gross rate multiplied by the number of exposures units to be insured. The ratio of the loading charge over the gross rate is the expense ratio.

Gross Rate = Pure Premium + Load

Gross Premium = Gross Rate x Number of Exposure Units

Expense Ratio = Load / Gross Rate

The main regulatory objective is to protect the customer. A corollary of this is that the insurer must maintain solvency in order to pay claims. Thus, the 3 main regulatory requirements regarding rates is that:

1. they be fair compared to the risk;2. premiums must be adequate to maintain insurer solvency; and3. premium rates are not discriminatory—the same rates should be charged for all members of an underwriting class with a similar risk profile.

Rating Bureau

A rating bureau is a company that collects loss information to sell to insurance companies, and may even suggest the rates to charge.

Rate Making For Property And Liability Insurance

There are 3 methods for determining rates in property and liability insurance: judgment rating, class rating,

and merit rating. Merit rating can be further classified as schedule rating, experience rating, and

retrospective rating.

Judgment Ratings

Judgment ratings are used when the factors that determine potential losses are varied and cannot easily be quantified. Because of the complexity of these factors, there are no statistics that can be used reliably to assess the probability and quantity of future losses.

Judgment Ratings

Hence, an underwriter must evaluate each exposure individually, and use intuition based on past experience. This rating method is predominant in determining rates for ocean marine insurance, for instance.

ClassRating

Class rating is used when the factors causing losses can either be easily quantified or there are reliable statistics that can predict future losses. These rates are published in a manual, and so the class rating method is sometimes called a manual rating.

ClassRating

Class ratings are often used in pricing insurance products sold to the consumer because there are copious statistics and a large enough population of similar situations that make class ratings effective. It also allows agents to give an insurance quote quickly.

There are 2 methods to determine a class rated premium or to adjust it.

In the pure premium method, the pure premium is first calculated by summing the losses and loss-adjusted expenses over a given period, and dividing that by the number of exposure units. Then the loading charge is added to the pure premium to determine the gross premium that is charged to the customer.

Pure Premium Formula

Pure Premium =Actual Losses + Loss- Adjusted Expenses

Number of Exposure Units

Gross Premium = Pure Premium + Load

There are 2 methods to determine a class rated premium or to adjust it.

The loss ratio method is used more to adjust the premium based on the actual loss experience rather than setting the premium. The loss ratio is the sum of losses and loss-adjusted expenses over the premiums charged.

If the actual loss ratio differs from the expected loss ratio, then the premium is adjusted according to the following formula:

Loss Ratio Method for Adjusting Premiums for a Class Rating

Rate Change =Actual Loss Ratio - Expected Loss Ratio

Expected Loss Ratio

Merit

Rating

Merit rating is based on a class rating, but the premium is adjusted according to the individual customer, depending on the actual losses of that customer. Merit rating often determines the premiums for commercial insurance, and, in most of these cases, the customer has some control over losses—hence, the name.

Merit

Rating

Merit rating is usually used when a class rating can give a good approximation, but the factors are diverse enough to yield a greater spread of losses than if the composition of the class were more uniform. Thus, merit rating is used to vary the premium from what the class rating would yield based on individual factors or actual losses experienced by the customer. There are 3 methods to determine merit rating.

Schedule Rating

Schedule Rating uses a class rating as an average base, then the premium is adjusted according to specific details of the loss exposure. Some factors may increase the premium and some may decrease it—the final premium is determined by adding these credits and debits to the average premium for the class.

Experience Ratin

g

Experience rating uses the actual loss amounts in previous policy periods, typically the prior 3 years, as compared to the class average to determine the premium for the next policy period. If losses were less than the class average, then the premium is lowered, and if losses were higher, then the premium is raised.

Experience Ratin

g

The adjustment to the premium is determined by the loss ratio method, but is multiplied by a credibility factor to determine the actual adjustment. The credibility factor is the reliability that the actual loss experience is predictive of future losses

Retrospectiv

e Rating

Retrospective rating uses the actual loss experience for the period to determine the premium for that period, limited by a minimum and a maximum amount that can be charged. Part of the premium is paid at the beginning, and the other part is paid at the end of the period, the amount of which is determined by the actual losses for that period.

Rate Making For Life Insurance

Rate making for life insurance is much simpler, since there are mortality tables that tabulate the number of

deaths for each age, which includes a population of many people. Also, there are well known factors that

have a significant effect on life expectancy, such as the sex of the individual, and smoking.

The net single premium is simply the present value of the death benefit. The net single premium is less than the death benefit because interest can be earned on the premium until the death benefit is paid.

The gross premium includes the premium to cover the death claim plus all expenses, a reserve for contingencies, and profit.

Adjustment of Claims

by Elaine Ramos

Insurance adjustment

The settlement of an insurance claim; the determination for the purposes of a settlement of the amount of a claim, particularly a claim against an insurance company, giving consideration to objections made by the debtor or insurance company, as well as the allegations of the claimant in support of his claim.

Adjustment

Clause

In insurance, an adjustment clause in a contract specifies how the amount of a claim (particularly a claim against an insurance company) will be determined for the purposes of a settlement, giving consideration to objections made by the debtor or insurance company, as well as the allegations of the claimant in support of his claim.

Adjusters• A person who makes a

determination of a claim, especially a claim against an insurance company, and objections made thereto by the debtor or insurance company, for the purpose of arriving at an amount for which the claim will be settled.

Adjusters• Claims adjusters investigate insurance

claims by interviewing the claimant and witnesses, consulting police and hospital records, and inspecting property damage to determine the extent of the company’s liability.

• The objective of a claims adjuster should be to protect the insured against not only financial loss, but also the cost of recovering it.

Types Adjus

ter

• Public Adjuster - means any person, partnership, association or corporation which, for money, commission or any other thing of value, acts on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims of the said insured arising under insurance contracts or policies, or which advertises for or solicits employment as an adjuster of such claims.

• Independent Adjuster - means any person, partnership, association or corporation which, for money, commission or any other thing of value, acts for or on behalf of an insurer in the adjusting of claims arising under insurance contracts or policies issued by such insurer.

Specific duties of adjuster include:

• Responding to claims in a timely manner• Filing paperwork• Communicating with policy holders• Investigate liability• Assess damages• Research, detail and substantiate each aspect of the claim, including

building damage, contents, and extra living expense claims.• Negotiate with product/service providers on time and cost of repairs

for the purpose of making an offer of settlement to the insured.• Ensuring accurate procedures• Protect the interest of the insurance company the adjuster

represents, when dealing with claimants.