Intro to Insurance
Objectives
• Describe how insurance began and the way it
has evolved over time
• List the benefits and costs of insurance
• Explain how the insurance industry is
organized
• Describe the two general principles of
insurance
• Define basic insurance terms
What do you know about
insurance?
Key Terms
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Benjamin Franklin
Commercial Insurance
Fire Marks
Hazard
Indemnity
Insurable Interest
Insurance
Hazard
Speculative Risk
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Personal
Property and Casualty
Insurable Interest
Pure Risk
Commercial
Life and Health
Indemnified
Loss
Peril
Lloyd’s of London
• Beginnings of Lloyd’s of London:
–Late 1600’s in a coffee shop
–Edward Lloyd was the founder
–Wealthy merchants took on the risks of cargo
ships
–Underwriters
–Now known for insuring the wild, wacky and
everything in between.
American Fire Marks –
A Good Story
Round Robin
everyone reads a paragraph
Quiz 1.1
What Insurance Will You
Need After Your Graduate?
• Homeowners
Insurance
• Renters
Insurance
• Boat
Insurance
• Auto
Insurance
• Health
Insurance
• Life
Insurance
Benefits of Insurance
• Reimburse people when property is damaged or when
they suffer a loss
• Helps individuals resume their normal standard of living
• Restore someone to same financial condition before the
loss occurred
• Encourages people to practice loss control to reduce
losses from happening
Costs of Insurance
• Takes resources- office building, employees etc. to be
able to run an insurance company or agency
• Some people commit crimes to collect on insurance
policies
• Some people are less careful because they know
insurance will reimburse them for a loss
Quiz 1.2
Insurance Industry
• Part of the financial industry
• Divided into 2 primary divisions:
–Property & Casualty: 2
classifications as well
• Commercial or Business
• Personal
–Life & Health
Major Types of Loss Exposure
• Property: These are easier to see, touch and
evaluate.
–Example: Damage to your home
• Liability: Involves the loss of assets because
we have become financially responsible to
another person, firm or organization.
–Example: Lawsuit from destroying someone else’s
property
• Human: Involves the loss of life, health, or
earning capacity
–Example: Getting hurt on the job
Principles of Insurance
• Insurance Interest- person must have
financial interest or ownership of
damaged item
• Principle of Indemnity- Insurance is
designed to restore the policyholder to
the same financial condition enjoyed prior
to a loss.
Words to Know
• Risk: Uncertainty about the outcome
– Pure Risk- loss or no loss
– Speculative Risk- gain, loss or no loss
• Peril: cause of a possible loss.
• Loss: decline in value
Hazards
Four Types
• Hazard: condition that increases the
probability of a loss.
• Four types of Hazards:
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Physical Hazards- improper brakes on car
Moral Hazards- speeding in car
Morale Hazards- leaving keys in car
Legal Hazards- personal injury lawyers
All of the above increase the chance of a loss
and may also increase damages incurred.
Elements of a Loss
Physical
Hazard
Moral
Hazard
Morale
Hazard
Increases
Risk
Chance of loss
Perils
Loss
Financial Consequence
Legal
Hazard
Insurance is a social and contractual
device that transfers the risk of financial
loss from individuals or businesses to an
Insurer
Banks & Insurance
• Why do banks want you to buy insurance for your
car or home?
• How would your live be different without
insurance?
Quiz 1.3
Questions?