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Nonprofit Resources is a wholly owned Subsidiary of Colorado Nonprofit Association |
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What is insurance and how does it work? Insurance is a mechanism whereby people pool their dollars (premium) to pay for the unfortunate losses of a few. Or, you could view insurance as a guaranteed small loss to prevent a large, possibly devastating loss. The idea of insurance has been in existence for thousands of years. Early methods of distributing risk were practised by Chinese and Babylonian traders in the 3rd and 2nd millenium BC. The Chinese would redistribute their wares among many vessels to limit the loss due to any vessel’s capsizing. Early Mediterranean sailing merchants would pay a lender an additional sum in exchange for the lender’s guarantee to cancel the loan should the shipment be stolen. Insurance has evolved over time to cover the categories of property, casualty, life, and health. The main goal of an insurance company is to be profitable. After all, if they are not profitable they will not be able to pay a claim. Insurers make money in two ways – through underwriting and by investing premium dollars. To be profitable, a company will calculate the amount of premium collected plus their investment gains minus the amount paid in claims. The combined loss ratio must be less than 100% for the insurer to be profitable. Insurance companies are regulated by the individual States and Commonwealths, not the Federal Government. Each state has an insurance commissioner whose job is to protect policy holders. Agents, brokers, and claims adjusters must take licensing exams and continuing education courses. State insurance departments also monitor the health of insurance companies through analysis of financial statements and/or periodic financial examinations. As a policy holder, you can monitor the health of a company by looking at various rating systems like A.M. Best or Standard & Poor’s or ask your agent to find that information for you. To be very secure, the rating should be between B+ and A++. If the company is licensed to do business within a state, it is considered admitted. If the company is not, it is considered non-admitted. These non-admitted companies are considered Excess and Surplus (E&S) Lines companies and can still transact business in a state but require a special license. E&S carriers are very important to the insurance industry as many times they will insure unusual risks. Soft and hard markets are normal industry cycles, taking a number of years to cycle. The term hard market refers to a stage in the insurance industry in which coverages becomes scarcer and more expensive. A hard market is a seller’s market. A soft market is a buyer’s market and there is much competition among agents to increase their market share; therefore, premiums are more reasonable and coverages more available during these periods. Experts feel that the industry is currently moving from a soft market to a hard market. Hard market conditions can affect nonprofits. You could see higher premiums, loss of coverages, cancellations and nonrenewal notices. Make sure that your agent has access to companies who will still write nonprofit business. The Alliance of Nonprofits for Insurance (ANI) is our principal carrier of property/casualty insurance at our agency and they are themselves a nonprofit. We are privileged to have an exclusive agreement with ANI and are the only agent in Colorado to carry their products. ANI’s premiums typically do not fluctuate throughout soft and hard markets and they are an excellent choice for insurance for YOUR nonprofit. Nonprofit Resources, ANI and YOUR ORGANIZATION will make a great team!
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iNews Articles 2010 