Basics and State Regulations Flashcards
Risk
The uncertainty or possibility of financial loss.
- Speculative: financial loss - possibility of gain - NOT INSURABLE
- Pure Risk: financial loss - NO possibility of gain - only potential outcome is loss.
Loss
UNINTENDED unforeseen damage or injury measurable in financial terms.
NO INTENDED ACTS!
Peril
The actual CAUSE of a loss. The reason the loss occurred.
Hazard - Definition and Name the Three
Anything that increases the likelihood (frequency) of a loss occurring or the severity of a loss.
- Physical: material or structural features (icy roads, frayed wires)
- Moral: morality or ethics of insured (arson, fraud).
- Morale: human carelessness or irresponsibility (cellphones, garage doors left open).
Physical Hazard
material or structural features - icy roads, frayed wires
Moral Hazard
morality or ethics of insured - arson, fraud
Morale Hazard
human carelessness or irresponsibility - cell phones, garage doors left open
Hazard vs Peril
Hazard: increases likelihood (frequency) of a loss
Peril: the actual CAUSE of the loss
RRAT
Reduce: lower the hazard - loss control (alarm system, guard dog)
Retain: assume the risk - self-ensure or agree to pay deductible
Avoid: eliminate the risk - do not engage in the activity
Transfer: transfer the risk through purchase of INSURANCE
First Dollar Coverage
Self-Insure - provides for the payment of all losses up to the specified limit without any use of deductibles.
Risk Management
process of:
- identifying exposure to risk
- deciding how to handle the financial risk
Reduce, Retain, Avoid, Transfer
Not Predictable
Not Insurable
Insurance
social device for the transfer of an individuals financial risk to a large number of people - POOLING THE RISK - TRANSFER OF FINANCIAL RISK
Transfer of Risk
Insurance
Law of Large Numbers
The larger the number of similar exposure units, the more predictable the future TOTAL losses become.
DOES NOT CONSIDER INDIVIDUAL LOSS.
Insurance Policy - Definition, Parties
A legally binding contract between the insurance company and the insured.
ENFORCEABLE BY THE JUDICIAL SYSTEM
Insurer: The insurance Company
Insured: The person(s) or business covered by the policy
TWO PARTY CONTRACT
Insurance is a ________ party contract
TWO PARTY
Binder
Temporary insurance contract
Temporary protection for a MAXIMUM period of 90 days
A binder can be VERBAL
DOES NOT HAVE TO BE: WRITTEN, DELIVERED OR SIGNED.
Binder does NOT have to be:
Written, Delivered or Signed
Elements of an Insurable Risk
Not all Pure Risks are insurable
- unforseen (accidental), unintended (from the insured’s perspective)
- financial loss
- ascertainable in cause, time, and amount AND occur during the policy period
- insurer must be able to predict the chance of loss - “Law of Large Numbers.”
- economically feasible premium (Flood Insurance)
- excludes catastrophic loss (war or nuclear)
Insurable Interest
is the financial loss a person suffers when property is destroyed
It is created by:
- Ownership
- holding a mortgage
- having responsibility for property in your care (Bailee - auto shop, laundry)
*more than one person can share insurable interest (you and lienholder)
Health & Life: insurable interest must exist only at the time of application.
Personal/Commercial Property & Casualty: insurable interest must exist ONLY at the time of the loss.
READ EVERY QUESTION THREE TIMES
READ EVERY ANSWER
Essential Elements of a Legally Binding Contract
Four -
- Legal Purpose: Must not be against the public interest (chop shop, meth, illegal)
- Agreement: Requires both an OFFER and an ACCEPTANCE
- Offer - made when the applicant signs the application: making a request to the insurance company for coverage
- Acceptance - made when insurance policy is issued
- Competent Parties: at the time of agreement, must be considered legally competent (minors [girl scout], legally insane or intoxicated are NOT competent)
Competent: Elderly, Prisoners, Hospitalized
4 Consideration: Something of value which BOTH parties must give (aka TRADE VALUE)
- Act, Promise or Money
Insurer’s consideration is PROMISE
Insured’s consideration is PREMIUM
Legal Purpose
Must not be against the public interest (chop shop, meth, illegal)
Agreement
Requires both an OFFER and an ACCEPTANCE
- Offer - made when the applicant signs the application: making a request to the insurance company for coverage
- Acceptance - made when insurance policy is issued
Competent Parties Definition
at the time of agreement, must be considered legally competent (minors [girl scout], legally insane or intoxicated are NOT competent)
Competent Parties Examples
Competent: Elderly, Prisoners, Hospitalized
minors [girl scout], legally insane or intoxicated are NOT competent
An agreement must be an Offer and _______
Acceptance
Legally Binding Contract does not have to be:
Written, Delivered, Signed or Reviewed by an attorney
Consideration
Something of value which BOTH parties must give (aka TRADE VALUE)
- Act, Promise or Money
Insurer’s consideration is PROMISE
Insured’s consideration is PREMIUM
What legal concepts affect the validity of a contract?
- Representations (Truth): material facts that the insured believes to be true
Misrepresentation - false information regarding a material fact
Concealment - intentional failure to disclose a material fact
- Warranties: written statements regarding material facts the insured GUARANTEES to be true.
- Breach of warranty AUTOMATICALLY VOIDS THE INSURANCE CONTRACT
- WARRANTIES CARRY GREATER WEIGHT THAN REPRESENTATIONS
Representations
(Truth): material facts that the insured believes to be true
Misrepresentation - false information regarding a material fact
Concealment - intentional failure to disclose a material fact
Misrepresentation
false information regarding a material fact
Concealment
intentional failure to disclose a material fact
Warranties
WRITTEN STATEMENTS regarding material facts the insured GUARANTEES to be true.
- Breach of warranty AUTOMATICALLY VOIDS THE INSURANCE CONTRACT
- WARRANTIES CARRY GREATER WEIGHT THAN REPRESENTATIONS
Warranties carry more weight than ________
Representations
Breach of warranty ___________________
Automatically voids the contract
TRADE VALUE
AKA CONSIDERATION
Something of value which BOTH parties must give
- Act, Promise or Money
Insurer’s consideration is PROMISE
Insured’s consideration is PREMIUM
Speculative Risk
financial loss - possibility of gain - NOT INSURABLE
Pure Risk
financial loss - NO possibility of gain - only potential outcome is loss.
DOES NOT CONSIDER INDIVIDUAL LOSS
Law of Large Numbers
Insurer:
The insurance Company
Insured:
The person(s) or business covered by the policy
Insurable Interest is created by:
- Ownership
- holding a mortgage
- having responsibility for property in your care (Bailee - auto shop, laundry)
*more than one person can share insurable interest (you and lienholder)
Health & Life: insurable interest must exist only at the time of application.
Personal/Commercial Property & Casualty: insurable interest must exist ONLY at the time of the loss.
For Health & Life, when does the insurable interest exist
only at the time of application
For Person/Commercial Property and Casualty, when does the insurable interest exist
only at the time of the loss
Insurer’s consideration is
PROMISE
Insured’s consideration is
PREMIUM
Fraud
knowing misrepresentation of truth or concealment of a material fact TO INDUCE ANOTHER TO ACT TO HIS/HER DETRIMENT
Fraud is a _____ and punishable by:
FELONY
- Up to $10,000
- Up to Ten years in jail
- Combination of both
Insurance is Bi-lateral. T or F?
False - Insurance is NOT bi-lateral
Contract Indemnity
make the insured financially whole again by paying losses but NOT allowing gain (profit)
- designed to avoid over payment
- allows the insured to be reimbursed and restored to his/her ORIGINAL value.
Agreement to Indemnify
AKA Contract Indemnity
make the insured financially whole again by paying losses but NOT allowing gain (profit)
- designed to avoid over payment
- allows the insured to be reimbursed and restored to his/her ORIGINAL value.
Contract of Adhesion
under the policy/contract:
- The insured must ADHERE to the contract terms without negotiation - ACCEPT OR REJECT IN FULL
- Courts will interpret any unclear policy provisions in favor of the insured
- The insured cannot alter a policy provision
Courts will interpret any unclear policy provisions in favor of the insured in favor of ________
THE INSURED
The insured cannot alter a _________
policy provision
Aleatory Contract
- Equal value is not given by both parties
- One Party can benefit more than the other - BASED ON CHANCE (aka the occurrence of an uncertain event)
EQUAL VALUE IS NOT REQUIRED!
Unilateral Contract
- enforceable by only ONE party
- insurer has the DUTY to perform
- contract is enforceable by the insured!
The insured pays the premium, the insurer promises to pay policy proceeds for covered losses
INSURED CAN SUE
INSURED CANNOT
Who can sue in a unilateral insurance contract?
Insured
Conditional Contract
certain conditions (RULE) are required of BOTH PARTIES:
- INSURER must pay the claim based on the valuation method stated in the policy
- INSURED must pay the premiums
- INSURED must protect the property in event of a loss
Contract of Utmost Good Faith
TRUST - Each party is entitled to rely upon the respresentations of the other
- insured tells the truth regarding material facts
- insurer pays in covered loss
Unique Features of the Insurance Contract
Contract of Indemnity (Agreement to Indemnify)
Contract of Adhesion
Aleatory Contract
Unilateral Contract
Condition Contract
Contract of Utmost Good Faith
What does a producer do?
transact insurance
What does an underwriter do?
selects ricks for the insurer
What does the adjuster do?
negotiates claim settlements
What does an actuary do?
mathematician who develops the rates for the insurer
Purpose of insurance regulation
protect the public interest
What are the three sources of regulation of the insurance business?
- State - primary source
- statutes enacted by legislature
- Rules and Regulations made by Insurance Departement - ID enforces provisions of OK Insurance Code
- Rules and Regulations promulgated as often as necessary - Federal - WATCHDOG role
- supervises areas of insurance not covered by state regulation OR WHEN STATE JURISDICTIONS ARE IN CONFLICT. - Self-regulation - NAIC - National Association of Insurance Commissioners
- voluntary - non-profit - promote uniformity - proposing standardized laws (model legislations)
- makes recommendations - no legal authority
Primary Source of Insurance regulation
State
- statutes enacted by legislature
- rules and regulations made by insurance department
- insurance department enforces provisions of OK insurance code
- rule and regulations promulgate as often as necessary
Watchdog role of Insurance Regulation
Federal
-supervises areas of insurance not covered by state regulation OR WHEN STATE JURISDICTIONS ARE IN CONFLICT.
List Seven things about the NAIC:
National Association of Insurance Commissioners
- voluntary
- non-profit
- promote uniformity
- proposes standardized laws (model legislations)
- makes recommendations -
- no legal authority
- OK Insurance Commissioner is a member
Who makes the Rules and regulations concerning insurance on OK?
Insurance Departement
What body enacts laws concerning Insurance in OK?
Legislature
Insurance Department enforces provisions of what?
OK insurance code
When can rules and regulations concerning insurance be added or changed?
as often as necessary - by the insurance department
Oklahoma Department of Insurance
- does not enact law
2. makes and Rules and Regulations to ENFORCE provisions of the Oklahoma Insurance Code
Who is the OK Insurance Commissioner and what is his duty?
John Doak
administration and enforcement of the provisions of the OK Insurance Code
How is the OK Insurance Commissioner chosen, how long is their term and what are the qualifications?
elected
every four years
Qualifications:
- at least 25yo
- resident of OK for at least five years
- minimum of five years experience
- no financial interest in any insurer, agency or transactions (except as a policy owner or claimant)
Does NOT need:
- Education
- Continuting Ed
- Cannot work for insurer
- not appointed
Qualifications for Insurance Commissioner?
Qualifications:
- at least 25yo
- resident of OK for at least five years
- minimum of five years experience
- no financial interest in any insurer, agency or transactions (except as a policy owner or claimant)
Does NOT need:
- Education
- Continuting Ed
- Cannot work for insurer
- not appointed
Not needed to be insurance commisioner
Does NOT need:
- Education
- Continuting Ed
- Cannot work for insurer
- not appointed
Nine general responsibilities of the insurance commissioner:
- adopt rules and regulations
- examine insurance companies
- jurisdiction over complaints against ANYONE engaged in insurance (licensees, insurers)
- Authority to:
- conduct hearings
- issue cease and desist orders
- initiate civil actions
- censure, suspend, revoke or non-renew licenses - approve the monitor the adequacy or insurance company rates
- maintain books and records
- provide annual report to governor regarding financial status of the insurance industry and the TOTAL AMOUNT OF INSURANCE CLAIMS PAID IN THE STATE OF OKLAHOMA
- educate consumers
- deliver all furniture, records, property to successor
Four things the Insurance Commission has authority to do:
- conduct hearings
- issue cease and desist orders
- initiate civil actions
- censure, suspend, revoke or non-renew licenses
Who approves and monitors the adequacy of insurance company rates in OK?
Insurance Commissioner
What annual report does the IC provide the Gov in OK?
- financial status of the insurance industry
- total amount of claims paid in OK
What does the Insurance Commissioner NOT do?
- recruit
- enact law
- develop rates
Another term for Punishment in OK?
Orders
OID
Oklahoma Insurance Commission
What is a hearing used to determine?
if a licensee or insurer violated the insurance code
What must a licensee or insurer do if they receive a written request regarding violations?
Respond IMMEDIATELY
OID must give ____ days WRITTEN notice and not more than ____ days of a hearing
5 days
30 days
Where are hearings conducted concerning violations?
OID office
Three MAJOR facts about OID hearings (where and what isn’t involved):
- at OID office
- no court fees
- no judge
Punishment (orders) which CANNOT be given after a hearing:
- pay restitution
- jury trial
- jail time
Three things about hearings and what the OID can and must do:
- open to the public
- OID can take depositions and subpoena witnesses or evidence
- must summarize findings IN WRITING within 30 days.
Another name for Orders given after a hearing?
Punishment
AFter a hearing, if the OID has determined that a violations Have occurred they may:
- issue cease & desist
- institute a civil suit
- institute a civil penalty (fine) $100-1,000
- Suspend license
- revoke license
After orders (punishment) have been issued, the guilty party may:
- Accept the orders (punishment
- Appeal - 30 days to file - brings the case to COURT - JUDICIAL REVIEW
How long does a licensee have to appeal an order (punishment)?
30 DAYS - JUDICIAL REVIEW
Four types of insurers:
- Stock Companies
- CAPITAL STOCK
- shareholders
- Mutual Company
- NO capital stock
- policyowners (insured)
- policyowners are entitled to the profits of the company
- policyowners elect board of directors (who hires management
- Fraternal (Fraternal Benefit Society)
- society, order or lodge
- NO capital stock
- non-profit
- organized for sole benefit of members
- Federal Gov’t Insurers
- insures EVERYTHING BUT Workers comp
What defines a Stock Company insurer:
- CAPITAL STOCK
- shareholders
What defines a Mutual Company insurer:
- NO capital stock
- policyowners (insured)
- policyowners are entitled to the profits of the company
- policyowners elect board of directors (who hires management
What defines a Fraternal Benefit Society:
- society, order or lodge
- NO capital stock
- non-profit
- organized for sole benefit of members
Federal Gov’t can insure just about everything, BUT the don’t offer:
Worker’s Comp
Which type of insurer has capital stock and shareholders?
Stock Company
Which type of insurer has policyowners?
Mutual Company
Which type of insurer is non-profit and organized only for members of a particular group?
Fraternal Benefit Society
Which type of insurer does not offer Worker’s Comp?
Federal Gov’t
Three types of Insurers by charter (where organized):
- Domestic - under the laws of OK, home office in OK
- Foreign - under the laws of ANOTHER state - office in OK, but home office in another state
- Alien - under the laws of another country - office in OK, but home office in another country
What is a Foreign insurer?
under the laws of ANOTHER state - office in OK, but home office in another state
What is an Alien insurer?
under the laws of another country - office in OK, but home office in another country
Certificate of Authority is obtained by who?
Insurer doing business in OK
Certificate is an insurer’s ________ to do business in OK.
license
What is issued to an insurer and is perpetual and automatically renews on March 1?
Certificate of Authority
Three basic facts about a Certificate of Authority:
- issued to insurer as a license to do business in OK
- perpetual
- automatically renews on March 1, unless insurer fails to renew