As hotel manager, I am intending to complete an insurance contract with a certain company. The essay calculated my surplus. It also laid out reasons for substantiating my confidence in the company and the five principles that legalize the contract. This basis is important for me since it informs me of my rights vis-à-vis the company and will prevent me from being manipulated. I can also scout for the best company and know both their and my responsibilities. It also helps me understand the procedure. In terms of recommendations, all that I have to add would be to read the fine print of the company as thoroughly as I can and to ensure that they are licensed and approved by the state. I would need to do some background research on them to ensure that they fulfill all the requirements.
¶ … independent owner of a six-story hotel in the business district in a major city (population at least 100,000) near where I live. I wish to apply for insurance for my hotel. The first part lays out my finances whilst the following sections detail basis for my confidence of insurance company's reliability as well as the requirements for the formation of a valid insurance contract. With this information in hand, I can confidently proceed to complete the transaction.
This is the information of my capital:
Total invested assets $50,000,000
Loss reserves 40,000,000
Total liabilities 70,000,000
Bonds 35,000,000
Unearned premium reserve 25,000,000
Total assets 90,000,000
Based on this information, I calculate that the Hotel's policyholders' surplus for Delta Insurance Company is 150,000,000
The three principle ways of regulating insurance companies are by: (a) legislation, (b) court rulings, and (c) regulations and rulings issued by state insurance departments.
(a) legislation
States regulate insurance by regulating the companies that develop the policies and sell the insurance.
According to the McCarran-Ferguson Act of 1945, every state, for instance, has an insurance department that monitors and regulates insurance within the state.
States regulate the following:
insurance companies their formation insurance rates policy forms taxation financial requirements to maintain solvency
rehabilitation or liquidation procedures for an impaired or insolvent insurer, agents and brokers their licensing sales and claims procedures
There is also some federal regulation of insurance policies too. The hotel's interests is protected by this since it can rely on state and federal government to monitor the dealings of Delta Insurance Company. In this way, they can be more confident of their dealings with the company.
Court rulings
Court rulings may fill in gaps in certain court decisions, substantiate others, or repeal precedents that do not apply in a certain case. The court in other words steps in for the hotel making sure those precedents match and are just. When not so, the court appeals for amendment.
(b) regulations and rulings issued by state insurance departments
These include obligation for audits and solvency testing where the possibility of the insurer becoming insolvent could substantially hurt the hotel. Each state, therefore, regularly reviews domestic insurers for signs of financial problems.
Every insurance company, too, must file annual reports with the insurance department of each state that it does business with, and with the National Association of Insurance Commissioners (NAIC) that reviews industry regulations and drafts model laws and policy forms for the states. Each insurer is audited every 3 years by the state and there may be representatives from other states that are involved too. Agents and brokers, too, have to be licensed and the states also require that policy forms be approved by the state insurance department before they can be used in the state. This is particularly helpful for the hotel since it would be difficult for them to compare the policy rates of Delta Insurance Company with policy rates of other insurers aside from which they may have difficulty in reading the same print of the Delta company and the Delta company may also omit certain essential points. The state's reviewing the policy ensures that none of this occurs. (thismatter.com)
One requirement for the formation of a valid insurance contract is that the contract must be for a legal purpose. To be legally binding, the insurance contract needs to have at least five factors. These are:
1) Offer and Acceptance
The offer must be stated in explicit, clear terms with no ambiguous reading. The one accepting does so in complete understanding of these precise terms. The company may counteroffer to which applicant has the choice of whether or not to accept new terms.
The applicant may or may not submit a premium before policy is delivered. If premium is only delivered later, the offer precedes premium. (All Business.com)
2) Consideration
Consideration refers to the exchange of value. Policy is handed to applicant in exchange for consent (submission of completed application) and premium. This is provided that the applicant passes underwriting process.
3) Legal Intent
The purpose of the policy must be for legal purposes. If the hotel, for instance, were intending to apply for policy in order to commit crime this would not be recognizable in court and therefore would not be legal or passe.
3) Competent Parties
Either party must be competent for the contract to be approved. This means that the company (Delta) must be approved and licensed by state as well as that parties on both sides must hold the following characteristics. They must be:
Mentally competent
Older than 18
Not under the influence of alcohol or drugs (All Business.com)
5) Legal Form
The insurance contracts must be formalized according to laws of the state. If, for instance, the state in which the hotel resides regulates that the policy be written then the contract is only legalized if written. (Investopedia.)
Any insurance contract that lacks one of these five characteristics voids the entire contract. For the hotel then wanting to ensure that its policy is legitimate, it must ascertain that each of these characteristics is met.
Each of these five requirement are fulfilled when the applicant applies for an auto insurance policy for the hotel's three vans to shuttle guests to and from the airport in that both parties are aware of the precise terms of the contract -- offer and acceptance is clearly matched with no ambiguousness involved; both parties are competent aside from which the policy holder is licensed; the vans are used for legal issues; the form is written in the coinage of the statue; and consideration has been achieved with hotel handing over completed application and premium in exchange for polity.
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