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1.6 Insurance Terms and Related Concepts

The Law of Large Numbers

The law of large numbers helps insurers to predict the number of losses they will pay in any given time period so that they can determine what premium is required to pay for those losses.

The Principle of Indemnity and Insurable Interest

A fundamental principle of insurance is that no insured should be in a better financial position after a loss than before the loss. This idea is known as the principle of indemnity and holds that an insured who has suffered a loss should be restored to the same financial position as before the loss.

The principle of indemnity is reinforced by the requirement that a party must have an insurable interest to purchase insurance. An insurable interest exists when the party would suffer a financial loss as a result of damage to or loss of the insured item. The insurable interest requirement prevents

people from profiting from a loss. Insurance policies cover losses only to the extent of the insured’s’ insurable interest in the property. Having an insurable interest means only that a person may buy insurance and is not guaranteed that a person can buy it.

Claim Handlers

People who handle claims might be staff claim representatives, independent adjusters, employees of third-party administrators, or producers who sell policies to insured’s. Staff claim representatives are employees of the insurer who handle claims. Independent adjusters handle claims for insurers on a case-by-case basis for a fee. They are not employees of insurers.

Third-party administrators (TPAs) handle claims, keep claim records, and perform statistical analyses for businesses that self-insure their risks.

We promote good faith and fair claims settlement practices when dealing with all of our clients. It is not only a Standard Operating Procedure, but it is the Law.

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