Insurance Company Operations and Administration
New business and underwriting
The application, producer report, exams, and attending physician statements feed underwriting. Underwriters classify risks as preferred, standard, substandard, or declined, and apply retention limits. Reinsurance lets a ceding insurer keep only its retention; the policyholder still deals with the original insurer, which pays the full claim and is reimbursed by the reinsurer. Common forms are yearly renewable term, coinsurance, and modified coinsurance.
Administration and claims
Policy administration handles issue, billing, premium collection, loans, ownership changes, and conservation. Claims adjudication verifies coverage, eligibility, exclusions, and documentation, then pays, pends, or denies. Customer service, producer compensation, and compliance monitoring are operational functions. Straight-through processing reduces hands-on work.
Actuarial and investment operations
Actuaries set premiums from mortality, morbidity, interest, and expense assumptions; reserves are liabilities for future obligations. Investment departments match asset duration to liability duration through asset-liability management and respect diversification and regulatory limits.
Traps and worked example
Traps: assuming reinsurance changes the customer's contract; treating reserves as assets; confusing ceding commission with producer commission. Worked example: an insurer retains $250,000 and issues a $1 million policy, ceding $750,000 under yearly renewable term. The insured dies; the insurer pays the beneficiary $1 million and recovers $750,000 from the reinsurer, keeping the $250,000 retention.
Rule of thumb
Reserves are money owed to policyholders-liabilities, not profit.