Formation and use of insurance reserves
The fundamental principle of insurance activities is the equivalence of the obligations of the insurer and policyholders. To realize its main production function and fulfill contractual obligations to customers, the insurance company must have special monetary resources (reserves). These reserves in accordance with US insurance law are divided into life insurance reserves and reserves for risky types of insurance.
The use of the insurance fund is based on the principle of a closed layout of the damage. Due to the mismatch of the time of receipt of funds into the insurance fund and the time of payment from it, the insurer generates insurance reserves that reflect the amount of the insurer's obligations to the insurance contracts that he and the policyholders have concluded, but not performed at the moment.
Insurance reserves include:
• technical reserves, which in turn consist:
- from the unearned premium reserve (a premium adequate to the liability, passing to the next period);
- the reserve of losses (reserve of declared but unsettled losses - the creation of such a reserve is conditioned by the specifics of the insurance business, since the settlement of claims can take a rather long period, with this purpose reserves are created for the amount of the accepted claims, the reserve of occurred, but undeclared losses) ;
- additional technical reserves (reserve of catastrophes, reserve of fluctuations in loss ratio);
- other types of technical reserves related to the specificity of obligations assumed under insurance contracts;
• a reserve of preventive measures;
• Life insurance reserves.
Practice of insurance shows that insurers form large amounts of insurance reserves, which the insurer can use in accordance with the law on the principles of diversification, repayment, profitability and liquidity. In accordance with United States legislation, the placement of insurance reserves is possible in the following areas:
- government securities;
- securities of US entities and local authorities;
- deposit bank deposits;
- ownership rights to the share of participation in the authorized capital;
- real estate (land, apartments, houses, etc.);
The size of the reserves of the insurance company, except for cases of legislative regulation of their level, is calculated according to a special methodology for each group.
Financial basis of insurance activities
The fundamental feature of the organization of insurance business is to build it on the basis of self-financing. The insurer's finances are provided by his activity in providing insurance protection. The insurer forms and uses the funds of the insurance fund, covering the insured's damage and financing its own expenses for organizing the insurance business. The main parameters that characterize the activities of the insurer are costs, revenues and financial results.
The costs performed during the distribution of the insurance fund are divided:
- for the costs of paying off the obligations to the insured;
- deductions to reserve funds or reserves;
- deductions for preventive measures;
- costs of doing business.
The amount of the above costs is the cost of the insurance service, which is subject to the impact of supply and demand.
In turn, costs of doing business include:
- Acquisition costs (for the conclusion of new insurance contracts, commissions, medical examination costs, etc.);
- collection costs (for the payment of labor of employees of the insurance company, for collecting insurance payments, as well as services for policyholders);
- liquidation costs (direct costs after the occurrence of the insured event: travel of the liquidator and experts to the place of the insured event, expert fees, court costs, correspondence expenses) ;
- administrative costs (to pay the administrative and administrative staff of the insurance company, administrative and business, to develop insurance).
The income of the insurer is the aggregate amount of cash receipts to its accounts as a result of its performance of insurance or other activities not prohibited by law. The mechanism of receipt, composition and structure of income depends on the sectoral specifics and development strategy of each individual insurance enterprise. The income of the insurance company is divided into three groups:
- income from insurance activities (insurance premiums, commissions, etc.);
- income from investment activities;
- other income (from activities related to insurance, not related to insurance, etc.).
The main factors in the income of insurance activities are the composition and structure of the insurance portfolio, pricing and tariff policy, the company's marketing strategy, market conditions, legislative and regulatory framework, taxation system, loan interest dynamics, etc.
The investment activity of the insurance company is to use insurance premiums of policyholders as a source of investment. The main reason for the investment activity of insurance companies is to cover the negative result of insurance operations in general and ensure their financial stability.
Financial stability of insurance operations - is a constant balance or excess of income over the costs of the insurer as a whole for the insurance fund.
The basis for ensuring financial stability lies primarily in the optimal rates of tariff rates, as well as sufficient concentrations of the funds of the insurance fund, in which it becomes possible territorial and temporal layout of the damage. The problem of ensuring the financial stability of the insurance fund can be considered in two ways: first, how to determine the degree of probability of a deficit in the insurance fund in any year; secondly, as the ratio of incomes and expenses of the insurer for the expired tariff period.
The ratio of income and expenses of an insurance company reflects the results of its activities, which are characterized by absolute and relative indicators.
To absolute indicators are:
- the number of concluded contracts (characterizes the insurance portfolio, the extent of coverage of the insurance field, the level of demand for insurance services of this company, the company's place in the insurance services market);
- the insured amount of the insured objects (it is considered as the aggregate value and the average insured amount);
- payment of insurance indemnity (characterizes the amount of responsibility and the level of solvency of the insurance company);
- amount of received insurance payments;
- the volume of income and expenses in general (both from insurance activities and from non-insurance activities);
- the volume of insurance reserves.
To relative indicators are:
- profitability of insurance activities (both in general for the insurance company, and for a separate type of insurance);
- the norm of payments by types of insurance;
- an indicator of the level of expenditure (loss ratio);
- profitability of insurance activities.
Insurance marketing is a complex
The methods by which mutual understanding and effective interaction of the insurer and the insured are achieved - the optimization of their financial and economic relations aimed at the best provision of various needs of policyholders in quality, affordable and full insurance protection in combination with the achievement of sufficient profitability of insurance operations for the company. In essence, the main task of insurance marketing is balancing the interests of different groups of subjects of insurance relations with conflicting interests.
In a functional aspect, marketing in insurance means a system for organizing the activity of an insurance company based on a preliminary study of the state of the insurance services market and prospects for demand, identifying tasks to improve the implementation of its own insurance services and forming demand for new services.
Insurance marketing differs significantly from the classical understanding of this concept. The most important features of insurance marketing are:
- the long-term nature of the interaction between the insurer and the policyholder as a result of the long life of the insurance service;
- the inseparability of the insurance service from the insurer
- risk as one of the main components of the insurance service;
- significant state regulation of the insurance business, the existence of stringent requirements for the properties of the insurance service;
- the lack of an adequate understanding of the essence of insurance and the effectiveness of insurance coverage by most potential insurers.
Insurers, as a rule, apply the "gardener strategy" and "hunter's strategy". The principal difference between them is that in the nerve case, the main efforts of the insurer are aimed at ensuring the high quality of the insurance service, and in the second - in the search for new customers.
As a result of insurance marketing, an insurance portfolio of the company is created. Insurance portfolio is the combination of specially selected, processed and accepted risks (the actual number of insured objects or existing insurance contracts) formed for the purpose of a joint damage assessment.
The insurance portfolio is characterized by qualitative and quantitative characteristics. Qualitative indicators include the balance and diversification of the portfolio; to quantitative - the number of insured objects, the maximum amount of losses, the frequency of risk realization.
For the management of the insurance portfolio, as well as for the purpose of its adjustment, the system of indicators is analyzed:
- the size of the insurance portfolio (the number of insured objects, the number of valid insurance contracts, the total insured amount);
- the structure of the insurance portfolio (the ratio of: certain types of insurance, individual forms of insurance, the current portfolio and newly concluded contracts);
- the dynamism of the insurance portfolio (characterized by the fact that the influx of new insurance contracts compensates for the end);
- Homogeneity (homogeneity) of the insurance portfolio (this is a portfolio with homogeneous risks, ie, one-level insurance sum and a homogeneous dynamics of risk realization in time are assumed).
There are the following stages of adjusting the insurance portfolio for the year based on the above indicators.
1. Separation of all insurance portfolio contracts into favorable and unfavorable for the insurer. At the same time, as favorable contracts, profitable ones are classified with a classical risk distribution over time, as well as long-term ones, if the rate of growth of interest for bank credit outstrips inflation. And the unfavorable are those for which there is a lack of information, it is difficult to predict the risk, as well as long-term contracts, if the bank interest grows slower than inflation.
2. Analysis of the need to update the portfolio. Insurance companies, working mainly with long-term contracts, face changes in the dynamics of risk, as well as the dynamics of demand and supply for insurance services and, as a result, after a certain period of time, all long-term contracts are revised and their conditions changed.
3. Cleaning the portfolio of unwanted contracts. These are recognized as all contracts with the insured, who admitted cases of insurance fraud, double insurance, etc.
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