hbb@hou5a.UUCP (H. Braude) (01/17/84)
<####>
Do (can) insurance companies take out insurance against claims
being made on policies they sell?
In other words, if Mr. X has a homeowners policy that protects
him against law suits for up to $1.5 million, [cw]ould the
insurance company with whom he has taken the policy buy
insurance for itself so that in the event that Mr. X ever has
to file a claim against his policy, his insurance company will
not be the one to foot the bill (ignoring the premiums they
might be paying)?
--
Harlan B. Braude
{allegra,harpo,hogpc,ihnp4,zehntel,ucbvax,sdcsvax,eagle,burl}!hou5a!hbbhalle1@houxz.UUCP (01/17/84)
Re:insurance companies taking out insurance against claims BINGO! You have just defined underwriting (more or less)
wetcw@pyuxa.UUCP (01/17/84)
Insurance companies normally sell large policies to other insurance companies. That is, say you have a policy for 1 million on whatever. The company will sell the policy, in parts and pieces, to other companies. They spread the risk around. They might sell one tenth each to nine other companies, keeping one tenth. Thus, if a claim comes in on the policy, each is only liable for one tenth the full amount, thereby spreading the bite around. This is done in many cases where there is some type of liability attached. Mortgages, large loans, car loans, and many consumer credit situations are bought and sold in the marketplace. It all helps to reduce the chance of one company carrying too great a burden in case of default or claim. T. C. Wheeler
mag@whuxle.UUCP (01/18/84)
Yes, this is called reinsurance, and allows the company to spread risk and spread losses. All insurers do it routinely, especially if the risk is something like an ocean liner. Sometimes it is done several levels deep. Mike Gray, BTL, WH
robison@eosp1.UUCP (01/18/84)
Insurance companies routinely insure themselves against insurance claims. The practice is called "re-insurance". Obviously when a company re-insures, it is paying out some of its profit to avoid a risk it cannot reasonably risk exposure to. I believe that one of the big accidents that gave impetus to re-insurance was a collision above NYC beyween two jet planes, in the late 50's. Insurance companies gave quite a bit of thought to what the exposure of an accident like that might be, depending upon where the planes came down. A classic example of a casualty policy requiring re-insurance that was once described to me: Umbrella disaster insurance for Rockefeller Center in NYC. If one company owns a policy like this, it has probably re-insured pieces of it with as many other companies as possible. - Toby Robison decvax!ittvax!eosp1!robison or: allegra!eosp1!robison (maybe: princeton!eosp1!robison)
robison@eosp1.UUCP (01/18/84)
We had a recent insurance company scandal (can someone remember the names involved, please?) in which an insurance company made much dough as follows: it wrote false life insurance policies, re-insured them with other companies, pretended that the people insured had died, and collected from the re-insurers. - Toby Robison decvax!ittvax!eosp1!robison or: allegra!eosp1!robison (maybe: princeton!eosp1!robison)
drew@pyuxbb.UUCP (RD Davis) (01/18/84)
I re-call a great fraud case in the re-insurance business that came
to light a few years back: an insurance company was selling off
trumped up policies to re-insurers. Thanks to the clever use of computers,
the company was able to keep up payments & make a few claims to get
some money back, but not enough to raise anybody's suspicions. It all
depended on continuing to sell off still more imaginary policies to keep
the cash flowing in to keep up payments & skim off a profit. Eventually
they got caught - though I don't remember how.
One thing that bothers me is that I never heard of any programmers getting
charged in that case. It sure sounds to me like the executives who ran
the insurance company would have needed some technical support. Its
hard for me to see how the programmers could have worked in ignorance
of what was going on. ("I was only following orders."?)
Anybody remember a few more details about that case?
R. Drew Davis AT&T Bell Laboratories pyuxbb!drewemma@uw-june.UUCP (01/19/84)
Just by the way, this was the root of the first major computer fraud, the Equity Funding case about 10 years ago. They were reinsuring nonexistent policies... -Joe P.
wan@gatech.UUCP (Peter N. Wan) (02/05/84)
I believe that you are referring to the Equity Funding Corporation of
America fraud, which involved over $2 billion. It was discovered in
1973 in Los Angeles, California. Insurance was only part of the plan
in this fraud; the companies involved in this were Equity Funding
Corporation CAL, Equity Funding Securities Corporation, and Equity
Funding Life insurance Company. In addition to insurance, these companies
engaged in financing of operations and selling mutual shares. A good
writeup of the case is presented in "Crime by Computer" by Donn B. Parker
(published by Charles Scribner's Sons, New York, ISBN 0-684-15576-1).
In the writeup, Parker questions whether this was actually a computer fraud
case; computers don't seem to have been a major factor in this case ("...the
role it [the computer] played was no bigger and more complicated than that
played by the Company's adding machines.") That is probably why no
programmers were implicated in the case. In fact, not all of the records
for the company were in the computer to be juggled; records were kept on
microfiche and juggled by hand. The perpetrators of this fraud inflated
their earnings, borrowed money without listing it as a liability in the
corporate books, and sold fictitious policies to cover existing bogus
policies (the fake policies produced cash-flow problems which eventually
led to their downfall). Their use of the computer in these operations was
described as being very simple.
--
Peter N Wan
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