C81 Chapter 7

Question 1

application

Answer 1

a request by an insured for insurance. verbally, written, or online

Question 2

applicant

Answer 2

person or firm requesting insurance

Question 3

broker of record

Answer 3

the broker currently receiving a commission to handle a policy

Question 4

named insured

Answer 4

party designated in the policy as the insured

Question 5

mortgage clause

Answer 5

clause that stipulates rights and obligations of the insurer and the mortgagee

Question 6

ratemaking

Answer 6

the process of compiling and analyzing data to establish rates that accurately reflect the level of risk

Question 7

actuary

Answer 7

one who specializes in the mathematics of insurance, mortality rates and the like.

Question 8

loss probability

Answer 8

likelihood of a risk resulting in a loss.

Question 9

pure premium

Answer 9

portion of premium that is needed to pay expected losses

Question 10

loading

Answer 10

additional charge to reflect hazard not contemplated in basic rate

Question 11

expense loading

Answer 11

part of premium for cost to the insurer of producing and maintaining policy

Question 12

acquisition cost

Answer 12

cost of putting business on the books

Question 13

the duty of disclosure

Answer 13

principle of utmost good faith, underlying all insurance transactions. Parties disclose relevant information

Question 14

Requirements of an application… 8 sections

Answer 14

1. name of insurable. 2. policy term; dates and policy term. 3. subject of insured. 4. loss payee; any other person to whom the proceeds of insurance are entitled to. 5. loss history. 6. prior insurance. 7 brokers report. 8. signatures.

Question 15

loss payee

Answer 15

someone other than insured to whom the proceed of insurance will be paid

Question 16

5 steps of ratemaking process

Answer 16

classify risk, gather stats, calculate pure premium, determine total premium, calculate rate or unit cost.

Question 17

underwriters decide which of the three actions to take after considering risks

Answer 17

accept the risk, accept under condition, or reject the risk

Question 18

exposure

Answer 18

danger of a loss. also the sum total of values insured under a policy.

Question 19

reasons to reject a risk

Answer 19

(class of business, hazard level, substandard risk) insurer may not insure that type of risk, it may be much more hazardous then the norm, or applicant is not prepared to carry suggested improvements.

Question 20

to calculate the premium =

Answer 20

multiply the rate to the amount of insurance purchased

Question 21

determination of premiums uses application of what 3 principals

Answer 21

Law of large numbers, probability theory, and loss probability.