3 - P&C Insurance Basics Flashcards
Underwriting
“Classifies” the applicant to match the risk presented with the premium charged by the insurer
Loss ratio
The percentage of claims paid in comps is on to the total premiums collected during a period of time.
Judgement rating
The underwriter determines the individual rate using their intuition and experience instead of a rating manual.
Manual rating
The underwriter refers to rates as published in the insurer’s rating manual (law of large numbers)
Merit rating
The underwriter modifies a he manual rate based in past loss experience
Retrospective rating
A rating plan, subject to minimum and maximum premiums, where the final premium is not determined until the end of the policy period and is based in prior loss experience
Experience rating
Used to calculate premiums on a large group life or health insurance policy. Modifies the manual premium based in the insureds own loss experience
Insurance Services office
A rating bureau that develops and Giles rates and policy forms with different states for their members (insurance companies)
What is the difference between a rate and a premium?
The rate is the cost per unit.
The premium is the # of units multiplied by the rate.
Ex: if one unit is $100 and if the rate is $0.25 per $100 in f coverage. For a $100,000 policy, it would be $250/year.
Tort lawyers
Lawyers who handle negligence lawsuits
Assumption of the risk
You agree to take the risk of engaging in certain activities and if you are injured during the course of that activity, you may not sue.
Tort threshold
You assumed risk up to a certain level
Statute of limitations
Limits the time during which a lawsuit may be filed after the occurrence of claim.
Special damages
Consist of medical expenses and lost wages. Exact and verifiable figures.
General damages
The insurer is attempting to compensate the injured party for their mental and physical distress
Punitive damages
Awarded when injury was caused by gross negligence if the defendant
Absolute or strict liability
So dangerous that the liability is absolute or statutory.
Ex: keeping a wild tiger makes you absolutely responsible for injury or damage.
Vicarious liability
Some state statutes spell out situations where one party may be responsible for the negligent activities of another party.
Ex: you let your secretary drive her own car for your business, you can be sued if she negligently hurts someone.
Named perils
They only cover the causes of loss that are named in the contract
Open peril policy
All risk policy
Covers all perils UNLESS excluded
Direct loss
One that happens suddenly due to a coveted peril
Indirect loss
A loss that occurs as a consequence of the direct loss
Blanket property insurance
Provides a single amount of insurance that may apply to different types of property or to different locations
Specific property coverage
A specific amount of insurance for specific types of property at a specific location
ACV
(Def & equation)
Find the replacement cost and subtract any depreciation.
RC - D = ACV
Declarations
1st page
Named insured. Location of the property. Premium & effective date.
Definitions
Who is covered as an insured:
HO: people in the home
PAP: a covered auto
Insuring agreement:clause
Coverage is provided, perils to be covered and insurers promise to pay coveted claims
Additional/supplementary coverage
Debris removal, coverage for trees, shrubs and plants and fire department service charges.
Conditions
Apply to insured and insurer. Notice of claim and proof of loss. Protect from further damage
Exclusions
Provisions in the policy taking coverage away for certain claims. (Flood)
Endorsements
Added to the policy to make it better/more coverage
Named insured
The person listed on the declarations page, including their spouse, if they live together.
First Named Insured
The person named 1st on the declarations page of a commercial policy, if there are more than one named on the policy. Only person that has to be notified for a cancellation notice.
Additional/Other Insureds
Any additional insured is another party listed in your policy
(Ex/ contractor puts you additional on their liability policy while working on YOUR home)
Policy Period & Policy Territory
On declarations to let you know when coverage ends and begins and let’s you know what locations are covered
Cancellation
Can be requested by the insured or the insurer. The policy is being canceled at some point other than the normal date, mid-term
Non-Renewal
Insurer gives the client advanced notice (by law) that their policy will not be continued beyond the normal date. No refund is required.
Deductibles
Selected by the client at policy inception, the higher the deductible chosen, the lower the premiums will be.
Other insurance clause/ pro rata liability clause
Designed to reinforce the principle of indemnity by keeping clients from collecting more than they lost
Limits of liability
The most the insurer will pay for a single occurrence. On the declarations page.
Aggregate limit
Total limit
Restoration of limits
Coverage is restored with a new aggregate limit on the anniversary date
Split limit definition: 15/30/10
15 is the amount the insurer will pay to any one person
30 is for BI, no matter how many people are injured
10 is for PD
*MOST to be paid for one claim is 40k + defense
Coinsurance
Are contained in many property insurance policies to assure that the insurance risk is commensurate to the amount of premium charged
Insuring agreement
Contains their promise to pay coveted claims as per the terms of the policy
Liberalization clause
The insurer can change the terms of the contract at any point one as long as the insured benefits and no additional premium is charged
Subrogation clause
The insurer may required and assignment of all rights of recovery against any negligent 3rd party
