Private LOBs — Qualified

Key Insurance Functions

Three primary business functions directly influence an insurer’s rate adequacy, risk selection, and overall profitability:

Marketing: Targets specific customer segments and shapes the distribution channel.
Underwriting Guidelines: Sets criteria for risk selection and classification to control adverse selection.
Ratemaking: Determines premium rates that cover expected losses, expenses, and profit targets.

Personal Lines of Business (LOBs)

Personal Auto Insurance

Personal auto policies provide a combination of liability and physical damage coverages:

Coverage	Covers	Cause of Loss / Trigger	Key Identifier
Bodily Injury Liability (BI)	Third Parties	Bodily injury caused by the insured’s negligence.	Insured is at fault (Liability).
Property Damage Liability (PD)	Third-Party Property	Property damage caused by the insured’s negligence.	Insured is at fault (Liability).
Personal Injury Protection (PIP)	Insured & Passengers	Medical expenses, lost wages, and rehabilitation.	No-Fault coverage; mandated in certain states.
Medical Payments (MedPay)	Insured & Passengers	First-party medical expenses.	Similar to PIP but narrower; common in tort states.
Collision	Insured Vehicle	Physical damage from hitting another vehicle or object.	Crash-related damage.
Comprehensive (Comp)	Insured Vehicle	Physical damage from non-collision hazards.	”Other than collision” (theft, fire, hail, vandalism).
Uninsured Motorist (UM)	Insured & Passengers	BI/PD caused by a driver without liability insurance.	At-fault driver has no insurance.
Underinsured Motorist (UIM)	Insured & Passengers	BI/PD exceeding the at-fault driver’s limits.	At-fault driver has insufficient insurance.

Homeowners Insurance

Homeowners policies package property coverages for dwellings and personal property alongside personal liability:

Coverage	What is Covered?	Key Concept	Actuarial Notes
Dwelling	Physical structure of the home.	”The House”	Base coverage; other limits are typically set as a % of this.
Other Structures	Detached structures (sheds, fences, detached garages).	”Not Attached”	Usually automatically set to 10% of the Dwelling limit.
Personal Property	Contents/belongings inside the home.	”Your Stuff”	Primary coverage for renters policies. Subject to sublimits for high-value items.
Additional Living Expense (ALE)	Temporary living expenses (hotel, meals) during repairs.	”Loss of Use”	Covers excess living costs to maintain standard of living.
Personal Liability	Third-party BI or PD from negligence.	”Insured at Fault”	Covers legal defense and damages (e.g., slip-and-fall, dog bites).
Medical Expense	Medical bills for guests injured on-premises.	”No-Fault goodwill”	Low limits; designed to resolve minor injuries quickly without lawsuits.

Key Property Concepts

Peril: The cause of loss (e.g., fire, wind, theft).
- Named Peril: Covers only perils explicitly listed in the policy.
- Open Peril (Special): Covers all perils except those explicitly excluded.
Valuation Methods:
- Replacement Cost (RC): Cost to replace with a brand-new equivalent item, without depreciation.
- Actual Cash Value (ACV): Replacement Cost minus depreciation ( $\text{ACV} = \text{RC} - \text{Depreciation}$ ).
Common Exclusions: Natural catastrophes like floods and earthquakes are typically excluded and require specialized policies.

Commercial Lines of Business (LOBs)

Commercial Auto

Provides the same basic coverages as Personal Auto (BI, PD, Collision, Comp) but tailored for business-use vehicles. Key differences include higher liability limits and coverage options for unlisted/fleet drivers.

Commercial Property

Covers business structures and contents.

Coverage	What is Covered?	Personal Lines Analogy
Building	The physical commercial structure.	Dwelling
Business Personal Property (BPP)	Equipment, machinery, inventory, and furniture.	Personal Property
Business Interruption (BI)	Lost business income and fixed expenses during suspension.	Additional Living Expense (ALE)

Commercial General Liability (CGL)

CGL policies protect businesses from liability claims arising from operations, premises, and products.

Coverage	What is Covered?	Key Identifier
Premises / Operations	Claims arising from business premises or ongoing operations.	Here & Now (e.g., slip-and-fall in a retail store).
Products / Completed Operations	Claims arising from goods sold or completed work.	There & Later (e.g., food poisoning from a restaurant’s food).

Professional Liability

Professional liability policies cover financial or non-physical losses caused by errors, negligence, or failure to perform professional duties (typically excluded from CGL).

Common LOB	Target Profession	Scope of Coverage
Medical Malpractice	Doctors, nurses, surgeons.	Bodily injury resulting from medical negligence or error.
Errors & Omissions (E&O)	Lawyers, accountants, architects, engineers, insurance agents.	Financial losses incurred by clients due to professional errors/oversights.

Workers’ Compensation

Workers’ Compensation is a statutory, no-fault system covering work-related injuries and illnesses. Under the “exclusive remedy” doctrine, employees receive guaranteed benefits but forfeit the right to sue employers for negligence.

Section	Title	What is Covered?	Key Features
Section I	Workers’ Compensation	Medical expenses and lost wages (indemnity benefits).	Paid regardless of fault. Statutory coverage with no policy limit.
Section II	Employer’s Liability	Insured employer’s liability for lawsuits arising from work-related injuries.	Protects the employer in rare tort claims (e.g., third-party over actions). Subject to policy limits.