C81 Study 1-3 Flashcards
means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value upon the happening of a certain event.
Insurance
is a requirement of all contracts in the common law provinces. It is what one party gives or promises to give in exchange for the act or promise of the other party to the contract.
Consideration
is the current cost of replacing an article with a similar one in the same condition.
Actual cash value
is a principle of insurance by which insureds, up to the limit of the policy, are fully compensated for the actual cash value of what they have lost, so that they neither gain nor lose as a result of the loss.
Indemnity
The Three groups of insurance
1) Organizations (ex. stock; Profit)
2) Co-operative Organizations ( ex. mutuals)
3) Government Organizations (ex. workers comp.)
Who are the Government insurers?
- BC the MAN was SASssy
1) BC
2) MAN
3) SAS
4) QUE
What makes up premium reserves?
1) Unearned premiums
2) Outstanding Loss
3) Incurred but not Reported ( IBNR)
Signature Clause Who signs the policy?
The Insurer, with a stamp
Consists of that portion of the premium which has not yet been earned on each policy. In actual fact this figure would change every day. To facilitate handling, several formulas are in common use to establish the amount required at given times but these are beyond the scope of this course. Since the premium paid for a policy does not belong to an insurer in its entirety until the last day of the policy period, funds must be kept available to refund any unearned premium should the policy be cancelled at some point during its term.
Unearned premium reserves
A loss is _____ when it happens.
Incurred
Refers to losses which have occurred but have not yet been reported or recorded by the insurer. An insurer must estimate such losses and also set aside funds to cover them when they are reported. Such reserves are called_____
IBNR reserves
Stock insurance companies achieve a profit from two main sources:
1) Underwriting gain, that is, excess of premiums collected over loss payments and expenses.
2) Interest on investments
Refers to a class of risk or in other words a subject of insurance
or
all the insurance for a given policyholder.
A line
In automobile insurance a _____ policy is one insuring a number of automobiles for one owner. A specified minimum number of vehicles is required before it is considered a ___. Leasing companies , taxicab companies, transport companies, organizations that supply company cars to a number of employees are but a few examples of ____ owners. (same word for all blanks)
Fleet
is the subject of an insurance contract. For example, we speak of accepting a good risk or rejecting a poor risk when we are referring to a specific application for insurance.
Risk
a request for insurance; it could be oral or written.
Application
is the danger of loss, particularly fire, arising from what happens to another risk close by.
ALSO
is the sum total of values which if damaged or destroyed would cause loss under a policy, in other words, the value of everything a policy insures.
Exposure
is the amount an insurer retains for its own account not including reinsurance.
Retention
is the process whereby an insurer may share its risk with another insurer by paying to this insurer a portion of the premium it receives for the risk. A reinsurer pays only the company it reinsures and not the actual policyholder.
Reinsurance
a person who investigates and determines the amount of a loss.
Adjuster
assets less liability
Net Worth
all of a company’s wealth. Some ___ are non-admitted in that while they may be of value, they do not comply with the requirement of the Insurance Acts, and therefore cannot be used in determining a company’s net worth in its published financial statements.
Assets
money owed. The two columns of an insurance company financial statement represent its assets or the things it owns and its liabilities or the amount it owes or expects to owe.
Liabilities
is the use of symbols such as numbers or letters to represent information appearing in policies and loss records.
Coding
are premiums after the producer’s commission has been deducted.
Net premiums
What does “fortuitous “ mean ?
Accidental
encompass the chance of loss arising from one’s own bodily injury or loss of life or loss of income as a consequence of :
a) premature death
b) physical disability (resulting from accident or sickness)
c) old age
d) unemployment
Personal Risk
encompass the chance of loss arising from the destruction of or damage to property. Losses are of two types:
1) Direct losses-are those involving damage to or destruction of the property insured.
2) Indirect losses-occur as a consequence of direct losses.
Property Risk
Encompass the chance of loss arising from an individual’s obligation to pay damages because of injury or death of another or damage to another’s property.
Liability Risk
1) Personal risk
2) Liability risk
3) Property risk
3 Categories of insurable risk
is a condition which may cause a peril to occur or make the loss more server.
Hazard
refers to subject matter of insurance and concerns those facts which can be ascertained by inspection of the risk, such as the construction of property, manufacturing processes, age of vehicle, location in relation to water supplies for fire fighting. It relates to a condition of or pertaining to the property and may lead to the occurrence of a peril.
Physical Hazard
relates to conditions attributable to the human element of risk. It grows out of mental attitudes and depends on the character of an insured and his employees. It can involve outright dishonesty which could lead to fraud but it is also concerned with carelessness and poor management. It may lead to the occurrence of a peril, or making the peril’s results more serious. It is harder to detect and extremely difficult or impossible to eliminate or reduce.
Moral Hazard
is the price of a unit of insurance for a period of one year. It is expressed either in dollars and cents or as a percentage.
Rate
is the amount of money an insurance company charges to provide coverage for a specific item or policy.
Premium
Spread of risk is achieved by:
D- Diversity of type of risk
V- volume
D Diversity of location
is an independent business person who may place business with any number of insurers. This individual seeks out clients (insureds) and tries to bring about the most beneficial match between each client and the insurer that will best meet that client’s insurance needs. ____ usually have a contract or agreement with the insurers they represent.
Broker
represents one company only or sells only life insurance.
Agent
is one who has authority to manage all of a company’s business within his/her territory, to appoint other agents and to settle claims.
Usually in charge of company’s business for a province(s)
Also known as Provincial Agent or Provincial Manager
Do not confuse with term general (insurance) agent meaning they sell General Insurance as opposed to Life Insurance
General Agent
Civil code of Quebec ->Common law
1) Mandate:
2) Mandator:
3) Mandatary:
1) Contract
2) Principal
3) Agent
A ____ contract is one in which the terms of the arrangement have been specifically stated and agreed to by both parties either orally or written.
Express contract
A ____ agreement is obviously more desirable in that it avoids any misunderstanding as to the responsibilities and obligations of each party to the agreement.
Written agreement
An ____ is one in which the parties have acted in such a way that it is understood that a principal - agent relationship exists, even though there may have been no expressed statement by either. This is not the most desirable arrangement as it could result in disputes because of the lack of any specific terms.
Implied contract
What are the responsibilities of the Agent/Broker?
1) Act within the terms of the contract
2) Follow instructions as to types of business which may be written, for example, to write only the classes of risk acceptable to the insurer and not the exceed the limits of coverage authorized.
3) Collect premiums and hold these amounts in trust until they are remitted to the insurer.
4) Remit premiums collected within specified time limit.
5) Advise the insurer of the business written or submit application promptly.
6) Advise the insurer promptly of all claims notified to the agent/broker.
The capacity to confirm to applicants that they have coverage against certain happenings or events which if, they occur, may cause financial loss.
Binding Authority
____ is the confirmation that insurance coverage is in effect. It can be oral or written.
Binder
___ is notice and confirmation to the insurer that it has been bound to a contract of insurance in accordance with the details given. Serves as a written binder.
Cover note
____is the share of the premium allowed to the broker/agent for having produced the business. It is stated as a percentage and stipulated in the agency agreement. ___ rates may vary between different classes of risk and between companies.
Commission
Regulation of Insurance Agents/brokers:
4
1) Q-qualifications
2) L-licensing
3) O- operating Requirements
4) R- renewal of License
Relating to individuals in their private capacity such as home, auto, boats, jewellery, travel insurance, etc.
This is what you will be dealing with here at HB
Personal lines insurance
Relating to commercial operations such as stores, professional offices, trucking operations, similar business
Commercial lines
Relating to large industrial firms such as factories, multi-location stores, high rise properties, and many industrial operations.
Special Risks
Three ways of deal with risk?
EAT*
E-Eliminate the risk
A-Assume or retain the risk
T-Transfer the risk
Three ways of deal with risk?
EAT*
E-Eliminate the risk
A-Assume or retain the risk
T-Transfer the risk
The damage done to the property that’s insured.
Direct loss
a consequence of a direct loss.
Indirect loss
Determin chance of loss
#of times an event happened \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ #of times an event could happen
the principle that the reliance to be placed upon a given probability is increased when the number of trials or cases is increased.
Law of large numbers
Event which may cause a loss to occur.
Peril
is an extra commission paid annually to a broker/agent, but only if the business placed by the broker/agent produced a certain level of profitability for the insurer. Terms are usually stated in the agency agreement.
Profit commission
What are the extended Perils?
L- Lightening I- impact from land or water craft V-vandalism or malicious acts E-explosion R- riot S-smoke
W- windstorm/hail
W-water eascaped
F-falling object
Fire is standard.
Functions of insurance are:
S-Spread the risk A-Aide in security L-Loss prevention activities S-Source of capital A-Aide in credit S-Source of employment
The physical link between insurers and consumers.
Most consumers do not have an in depth knowledge of insurance and therefore look to ____ (agents or brokers) for guidance.
_____ help in identifying the insurance needs of their clients and match those needs with products available from insurers and finalize contracts between the parties concerned.
Insurance Intermediaries
insurance contract
1st party is:
2nd party is:
3rd party is:
1st-insured
2nd-insurer
3rd-Anyone else
Principle-agent contract
1st-
2nd-
3rd-
1st-principle (insurer)
2nd- intermediary (broker/agent)
3rd-insured
Where do agents and brokers obtain their authority from?
Agents and brokers obtain their authority from the agreement or contract entered into with the insurers.
Broker/agent.
The premiums collected belong to the insurer and are merely held in trust by the intermediary. Therefore, every agent/broker must establish two bank accounts for the business. They are:
What goes into these accounts?
Trust Account: collect premiums
Operations account: General business account, Commissions deposited, and operations expenses withdrawn.
Consist of funds set aside to pay for losses which have been incurred (happened) but not yet paid.
We know about them, but have not yet paid out.
Outstanding loss reserves
____ is considered an insurance market place.
Lloyds
Who are the owners of Lloyds?
it’s Members
