The Intricacies Of Sq: Unraveling The Insurance Industry's Unique Acronym

SQ, in insurance terms, refers to subrogation, which is the assignment of rights of recovery from an insured individual. In other words, it is the process by which an insurance company seeks reimbursement for a claim they have paid out, typically from a third party who is deemed responsible for the damages. For example, if a driver causes an accident and their insurance company pays out a claim to the other driver, the insurance company may then seek to recover the cost of that claim from the at-fault driver. This process is known as subrogation, or SQ in insurance shorthand.

Replacement value

The replacement value of an item is the cost of replacing it with a brand-new equivalent. This is one of the methods used by insurance companies to determine how much they will pay out in the event that the insured item is destroyed or stolen. The other method is actual cash value, which is the replacement value minus depreciation.

The replacement value of an item is often different from the price that was paid for it. This is because the purchase price may include the value of the land that the item is built on, and it may not reflect the current cost of materials and labour needed to replace the item.

When it comes to insurance, it is important to understand the difference between replacement value and actual cash value. Replacement value policies tend to be more expensive, but they provide better protection as they will cover the full cost of replacing an item. Actual cash value policies, on the other hand, are cheaper but may leave the policyholder with insufficient funds to replace their item.

When taking out insurance, it is essential to discuss replacement cost with the insurance agent to ensure that the correct policy is purchased.

Deductible

A deductible is a key feature of insurance policies. It is the amount of money that the insured person must pay before their insurance policy starts paying for covered expenses. In other words, it is the out-of-pocket amount that the policyholder is responsible for paying towards an insured loss. For example, if you have a health insurance policy with a deductible of $1,000 and you receive a medical bill for $2,000, you will be required to pay the first $1,000 out of your own pocket, after which your insurance company will cover the remaining $1,000.

It is worth noting that deductibles vary depending on the type of insurance policy, level of coverage, and other factors. Some insurance policies, such as liability insurance, may not include a deductible, while others like homeowners or auto insurance might offer a higher deductible in exchange for lower premiums. Additionally, deductibles typically reset at the beginning of each policy period.

When choosing an insurance policy, it is crucial to consider your financial situation and individual needs. For instance, if you have a chronic medical condition that requires frequent doctor visits, selecting a health insurance policy with a lower deductible might be more suitable to help manage your expenses. Conversely, if you rarely need medical care, you may opt for a higher deductible to save money on your premiums.

Furthermore, it is important to understand the different types of deductibles. Some policies may include separate deductibles for different types of coverage, such as collision and comprehensive coverage in auto insurance. Additionally, some policies may have a percentage-based deductible, where the amount is calculated as a percentage of the total claim cost.

Understanding your insurance deductible is essential for making informed decisions when purchasing insurance and filing claims. It allows you to effectively manage your insurance coverage and expenses by helping you choose a policy that aligns with your financial circumstances and risk tolerance.

Exclusions

Insurance policy exclusions serve various purposes, but most apply to risks that fall into one of the following categories:

• Catastrophic risks: Some risks are uninsurable because they are catastrophic events, such as war. Virtually all property policies exclude damage caused by war and military action. Some catastrophic events, like floods and earthquakes, can be insured by specialized coverage.
• Covered by another policy: Many risks are excluded under one type of policy because they are covered by another. For example, auto liability claims are excluded under a general liability policy because they are covered by a commercial auto policy.
• Controllable risks: Some risks, such as wear and tear, are excluded because they are naturally occurring events that can be controlled by the policyholder through proper maintenance. Other controllable risks include rust, corrosion, and insect infestations.
• Against public policy: Many insurance policies exclude crimes, violations of the law, and intentionally caused injuries because insuring them would be against public policy.

It is important to familiarize yourself with the exclusions in your insurance policies to avoid surprises if you experience a loss that is not covered.

Liability

There are different types of liability insurance, including:

• Personal liability insurance: Typically purchased by high-net-worth individuals to protect against claims resulting from injuries or damage to other people or property.
• Business liability insurance: Protects businesses from claims related to bodily injury, property damage, and more.
• Commercial general liability insurance: A standard type of business liability insurance that also covers intellectual property infringement, slander, libel, and more.
• Professional liability insurance: Covers legal costs and judgments made against a business that is sued for mistakes made during the provision of professional services. Also known as errors and omissions insurance.
• Product liability insurance: Covers businesses that manufacture products in case those products are faulty and cause damage to purchasers or other third parties.

Underwriting

Underwriters are professionals who evaluate and analyse the risks involved in insuring people and assets. They establish pricing for accepted insurable risks. The term 'underwriting' means receiving remuneration for the willingness to pay a potential risk.

Underwriters use specialised software and actuarial data to determine the likelihood and magnitude of a risk. They assume the risk of a future event and charge premiums in return for a promise to reimburse the client in the event of damage or loss.

The underwriting process is complex due to the unique characteristics of every risk. In the small and medium-sized enterprise (SME) space, fast underwriting is essential, given the small premiums associated with each account. Larger accounts require specialised underwriting and consideration to create a bespoke solution for the client.

Underwriters must balance their approach: if too aggressive, greater-than-expected claims could compromise earnings; if too conservative, they will be outpriced by competitors and lose market share.

Underwriters review different variables depending on the type of insurance being applied for. For example, for life insurance, an underwriter might look at health and smoking history, age, gender and occupation. For auto insurance, they might check driving record, age, gender, vehicle make and model, safety features, marital status and employment.

Underwriters must possess excellent analytical, decision-making, attention to detail, interpersonal and communication, and math skills.

Frequently asked questions