Policy Administration Transactions In Insurance

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National Association of Insurance Commissioners (NAIC)

The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.


NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S. Its current president is Florida Insurance Commissioner Kevin M. McCarty. The NAIC acts as a forum for the creation of model laws and regulations.


Each state decides whether to pass each NAIC model law or regulation, and each state may make changes in the enactment process, but the models are widely, albeit somewhat irregularly, adopted. The NAIC also acts at the national level to advance laws and policies supported by state insurance regulators. The NAIC also is responsible for creating the statutory accounting principles (SAP) upon which insurance accounting is based


SAP is often contrasted with Generally Accepted Accounting Principles (GAAP) and is notable for its very conservative valuation methods. Additionally the NAIC promulgates the NAIC annual statement which incorporates SAP and must be filed with the department of insurance in every state in which an insurance company writes business.


Under-writing and Policy Issuance

Insurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk.


The function of the underwriter is to protect the company's book of business from risks that they feel will make a loss and issue insurance policies at a premium that is commensurate with the exposure presented by a risk. Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should accept the risk. The information used to evaluate the risk of an applicant for insurance will depend on the type of coverage involved.


The underwriters may either decline the risk or may provide a quotation in which the premiums have been loaded or in which various exclusions have been stipulated, which restrict the circumstances under which a claim would be paid. Depending on the type of insurance product (line of business), insurance companies use automated underwriting systems to encode these rules, and reduce the amount of manual work in processing quotations and policy issuance.


Cancellations

Commonly used different calculation methods


Factors affecting Cancellations of policies

Cancellation DateThe date a policy's coverage is cancelled prior to the normally expiration date of a policy, often resulting in a return premium owed to the insured.Inception DateThe date a insurance policy's coverage is started. Also called effective date or renewal date.Policy TermThe period of time that an insurance policy provides coverage. Most policies have a one year term (365 days) but many other policies also have a 6 month term. Policy terms can be for any length of time and can be for a short period when the period of risk is also short. Policy terms can also be for a multi year period.


Characterisation of premiums


Premium finance

Premium Financing involves the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by third party finance entity known as a "Premium Financing Company"; however insurance companies and brokerages occasionally provide premium financing services.


To finance a premium, the individual or company requesting insurance must sign a premium finance

agreement with the premium finance company. The loan arrangement may last from one year to

the life of the policy. The premium finance company then pays the insurance premium and

bills the individual or company, usually in monthly installments, for the cost of the loan.


Benefits of Premium finance

There are a number of benefits to financing an insurance premium. These include:

Eliminates the requirement for a large up-front payment to an insurance company.

Multiple insurance policies can be attached to a single premium finance contract, allowing for a single payment plan to cover all insurance coverage.


Renewals

A renewal is a new policy or a standard certificate from an insurance company, stating that the conditions of your old policy will stay in effect for a specified period of time. An insurance policy is issued for a limited time, and, at the end of that period, the insurance company renews the policy. Renewal dates are important times for insurance companies and policyholders.


Renewal dateA renewal date is when a policy period expires and a new policy period begins. Renewal dates typically occur six months or one year after the policy began or the last renewal date occurred.

PurposeRenewal dates give both the insurance company and the insured the opportunity to make any necessary changes to the policy.


Policy ChangesIf the insurance company determines that the risk posed by the policyholder has changed, it may amend the policy, add restrictions or terminate coverage. Premium ChangesA change in risk may also trigger a premium change at renewal. A policyholder who has not filed any claims may see a premium reduction, while a policyholder with several claims may see an increase.


Endorsements

Insurance policies can be changed and modified by using a technique called endorsing a policy. A policy endorsement can be done to change or modify coverages, add or delete items from a policy and modifies a current policy without completely rewriting it. When an insurance policy is endorsed the premium amount paid for the policy can change.


An insurance policy needs to be changed during the policy term. When an insurance policy is modified during the policy term it known as endorsing a policy. A policy endorsement can be made when a coverage limit needs to be changed in order to increase or decrease the coverage limit. An endorsement is a written document attached to an insurance policy that modifies the policy by changing the coverage afforded under the policy. Also Known As: Rider, addendum, attachment.


An insurance endorsement is like a mini-policy that is added to a current insurance policy to change the original insurance policy terms and/or coverages. Endorsements used in insurance policies can differ depending on the insurance company and the type of insurance the endorsement is applied to. It is important to understand what endorsements are available for a policy along with how that endorsement can change the current insurance policy.


Reinstatement and Revival

Insurance policies are long term contracts involving the insurance company and the policyholders. The payment of the premium is spread over the premium paying term which is designated by the purchased policy.Before the paying term is over, the policyholder should be able to pay for the premium. However, if the premium is not paid within the effective time, the policy lapses.


Basically, the insurance company will consider your policy as ‘lapsed’ in the event that you’re not able to make the premium payment on the designated due date. Grace periods, which are typically 30-day timeframes that come after the due date, are provided by companies. If you are able to pay your premium within the grace period, then you have reinstated it. Reinstating your policy within the grace period avoids further repercussions and your contract won’t be terminated.


However, as mentioned before, not being able to pay within the grace period will cause the company to declare your insurance policy as ‘lapsed’. There is still a chance for the policyholder to revive his policy if the premiums have not been paid for only several months (though this would vary for different companies). This option would mostly be more available for policyholders who have been paying their premiums on time for many years.


It’s possible that the company may charge interest when the circumstances call for it. If the time that the policy has been in lapse is longer than necessary, then the insurance company may require to-date information from the policyholders. This would mean that the company wants to evaluate the level of risk that the policyholder presents before putting the policy back to its previous effectiveness


Definition of 'Waiver Of Subrogation‘

A special type of endorsement on a property-casualty insurance policy. The Waiver of Subrogation prohibits the insurer from attempting to seek restitution from a third party who causes any kind of loss to the insured. This type of arrangement is allowable under certain circumstances where the insured could be held liable for a claim that is paid.


An example of Waiver of Subrogation can be seen where a tenant rents an apartment from a landlord and takes out a renter's insurance policy. The landlord makes an agreement with the tenant stating that the landlord will not hold the tenant liable for any type of damage to the rental unit. If damage occurs, the insurer could pay the claim to the landlord and then come after the tenant for the damage. But a Waiver of Subrogation would prevent the insurer from being able to do this.

Thank you for your attention and wish you all the best

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Policy Administration Transactions In Insurance