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Insurance Notes

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History of Insurance

2500 BC- Bottemry Contract: Take a higher interest rate, if the ship is lost at sea then the loan is forgiven.

1600 BC- London- Eduard Lloyd- First true insurance policy for ships at sea. - Eduard Lloyds company became known as Lloyds of London. - Nicholas Barbon: If you buy my house and it burns down, I’ll build it back for free.

1666- Great London Fire- Nicholas Barbon was not able to rebuild all the houses.

1752- 1st fire insurance policy was written. - Written by the Philadelphia Contributionship - Fire mark: A metallic symbol you put on your front door. Damages are paid by the insurance company if you have the fire mark. - Must cut down all your trees to give access to the fire department.

1759- First life insurance company: Presbyterian Ministers Fund

1834- 26 Fire insurance companies in New York City alone.

1835- Great New York City fire: Only three of the 26 fire insurance companies paid.

1836- Battle of the Alamo

1865- End of the Civil War

1868- Paul v. Virginia court case: The Supreme Court took the case because insurance was not a transaction of commerce. The end result was that the states started regulating insurance.

1871- Great Chicago Fire: O’Leary’s cow started the fire allegedly. Many insurance companies went out of business because they couldn’t pay the claims.

1897- 1st automobile insurance policy

1944- Southeastern Underwriters Decision Court Case- Insurance should be regulated by the federal government, which changes the decision from 1868.

1945- McCarron Ferguson Act- Left the control of insurance up to the states. Exempted insurance companies from most of the insurance trust statutes. - Insurance trust statutes kept companies from getting together to raise prices.

1999- Gramm Leach-Bliley Act
2000- Patient Protection- Affordable Care Act

Insurance Notes 1-14

Risk- is the uncertainty of something. - Objective vs. subjective risk
Objective Risk (Degree of risk)- Relative variation of actual loss from expected loss. It declines as the number of exposure units increases.
Subjective Risk- Dealing with a persons attitude towards risk.

Chance of loss- - Objective probability - Subjective probability: A persons estimate
- Chance of damage to our car in Tarrant County is 1 in 20.

Perils- Causes of loss (Fires, theft, tornados, hail) - Life insurance perils (death)
Hazards- Conditions that increase the chance of loss from a peril. -Physical hazard: A condition that increases the chance of loss. - Moral Hazards: When people are dishonest. When people purposely get in car accidents or burn their houses down. - Moral hazards: When people are careless or indifferent (Leave their car running or keep their doors unlocked).

Classifications of risk- Pure risk vs. speculative risk Pure Risk- A situation of when there are only the possibilities of loss or no loss. Most insurance deals with this type or risk. Speculative risk- A situation where only profit or loss is possible.
Enterprise risk

Major personal risks - Property (risk associated with it) - Two types of losses that might occur - Direct cost: Financial loss from the damage, destruction, or theft of the property. - Indirect cost: Loss that occurs as a result of a direct loss. Liability risk- Risk associated with our bodies - Premature death (life insurance): Dying with unfulfilled financial obligations. - Loss of health - Medical bills (Dealt with by health insurance) - Loss of income (Dealt with by disability income insurance) - Insufficient income during retirement - Risk of unemployment

Major business risk - Property risk - Direct - Indirect: Loss of income - Liability risk - Body exposure (employees): Workers compensation insurance - Health insurance - Other insurance: Life, dental, and disability insurance.…...

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