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Exam FX > Ch. 1 - General Insurance NOTE CARDS > Flashcards

Ch. 1 - General Insurance NOTE CARDS Flashcards

1
Q

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.

A

Agent

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2
Q

Another name for agent

A

Producer

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3
Q

A person applying for insurance.

A

Applicant

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4
Q

Another name for an applicant.

A

Proposed insured

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5
Q

An insurance producer not appointed by an insurer and is deemed to represent the client.

A

Broker

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6
Q

A contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

A

Insurance Policy

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7
Q

The person covered by the insurance policy. This person may or may not be the policyowner.

A

Insured

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8
Q

The company who issues an insurance policy.

A

Insurer

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9
Q

Another name for insurer.

A

Principal

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10
Q

The person entitled to exercise the rights and privileges in the policy.

A

Policyowner

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11
Q

The money paid to the insurance company for the insurance policy.

A

Premium

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12
Q

A mutual interchange of rights and privileges.

A

Reciprocity/Reciprocal

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13
Q

A transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals

A

Insurance

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14
Q

Insurance Transactions

A

Any of the following by mail or others means- solicitation, negotiations, sale, and advising an individual concerning coverage or claims.

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15
Q

The uncertainty or chance of a loss occurring

A

Risk

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16
Q

Referring to situations that can only result in a loss or no charge (no opportunity for financial gain)

A

Pure Risk

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17
Q

What type of risk is insurable?

A

Pure risk

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18
Q

Refers to the opportunity for either loss or gain. Ex. Gambling (Uninsurable risk)

A

Speculative Risk

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19
Q

A unit of measurement used to determine rates charged for insurance coverage.

A

Exposure

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20
Q

A large number of units having the same or similar exposure to loss.

A

Homogeneous

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21
Q

What is the basis of insurance?

A

Sharing risk between homogeneous group with similar loss exposures.

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22
Q

Conditions/situations that increase the probability of an insured loss occurring.

A

Hazards

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23
Q

3 types of hazards

A
  1. physical
  2. moral
  3. morale
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24
Q

What increases the probability of a loss?

A

Hazards

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25
Q

Section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the term of the policy.

A

Conditions

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26
Q

Individual characteristics that increase the chances of the cause of loss. Ex. Past medical history, birth conditions such as blindness, or physical health condition.

A

Physical Hazards

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27
Q

Tendencies towards increased risk due to character/reputation of the proposed insured. (People who lie on applications or submit fraudulent claims.)

A

Moral Hazards

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28
Q

Tendencies towards increased loss due to indifference/carelessness towards loss. (Ex. Physical injuries caused by lack of forethought in actions.)

A

Morale Hazards

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29
Q

The causes of loss insured against in an insurance policy.

A

Perils

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30
Q

4 Types of Insurance Against Perils:

A
  1. Life Insurance
  2. Health Insurance
  3. Property Insurance
  4. Casualty Insurance
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31
Q

The reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril.

A

Loss

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32
Q

Uncertainty as to the outcome of an event when two or more possibilities exist.

A

Risk

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33
Q

What are the five methods for handling risk?

A
  1. Risk avoidance
  2. Risk retention
  3. Risk sharing
  4. Risk reduction
  5. Risk transfer
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34
Q

Eliminating exposure to a loss. Ex: Avoiding dying in a plane crash by never flying

A

Risk avoidance

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35
Q

Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.

A

Risk retention

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36
Q

When the insured accepts the responsibility for the loss before the insurance company pays.

A

Self insurance

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37
Q

What is the purpose of risk retention?

A

To reduce expenses, improve cash flow, increase control of claim reserving/claims settlements, to fund losses that can’t be insured.

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38
Q

Method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group.

A

Risk sharing

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39
Q

A formal risk-sharing arrangement.

A

Reciprocal Insurance Exchange

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40
Q

Lessening the possibility or severity of a loss. (Ex. Installing smoke detectors, annual physicals, changes in lifestyle)

A

Risk reduction

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41
Q

Most effective way to handle risk through the use of transfer (insurance) so that loss is borne by another party.

A

Risk transfer

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42
Q

What are the 5 elements of an insurable risk?

A
  1. Due to chance.
  2. Definite and measurable.
  3. Statistically predictable.
  4. Not catastrophic.
  5. Randomly selected and large loss exposure.
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43
Q

Outside of the insured’s control.

A

Due to chance

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44
Q

Loss that specifies the cause, time, place, and amount.

A

Definite and measurable

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45
Q

Must be able to estimate average frequency and severity of future losses to premium rates

A

Statistically predictable

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46
Q

Insurers must be certain their losses will not exceed specific limits. Thus why policies do not include loss caused by war or nuclear events

A

Not catastrophic

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47
Q

Must have a large pool of insured that represents random selection of risk in terms of age, gender, occupation, health, economic status, and location.

A

Randomly selected and large loss exposure

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48
Q

The insuring of risks that are more prone to losses than the average risk.

A

Adverse Selection

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49
Q

A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

A

Law of Large Numbers

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50
Q

What is the purpose of the Law of Large Numbers in insurance?

A

Allows insurance companies to have a general way of setting premiums by comparing similar people, and comparing their losses.

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51
Q

A form of insurance whereby one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company (the ceding company) for part or all of its liabilities from insurance policies it has issued. **Protects insurers against catastrophic losses.

A

Reinsurance

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52
Q

Compensate (someone) for harm or loss.

A

Indemnify

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53
Q

The originating company that procures insurance on itself from another insurer.

A

Ceding Insurer

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54
Q

Reinsurer, the other insurer in reinsurance.

A

Assuming Insurer

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55
Q

When reinsurance is purchased on a specific policy.

A

Facultative Reinsurance

56
Q

When an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it.

A

Reinsurance Treaty

57
Q

Any person or company engaged as the principal party the business of entering into insurance contracts

A

Insurer

58
Q

How are insurers classified?

A
  1. Ownership type
  2. Authority to transact business
  3. Home location
  4. Marketing and distribution system
  5. Rating/financial strength
59
Q

What are the different types of insurers?

A
  1. Government programs
  2. Private companies
  3. Stock companies
  4. Mutual companies
  5. Fraternal benefit societies
  6. Reciprocals
  7. Risk retention group
  8. Lloyd’s associations
  9. Surplus lines
60
Q

Insurer that is funded with taxes and serve national/state social purposes.

A

Government program

61
Q

What are private insurance companies funded by?

A

Premiums

62
Q

Owned by stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits/losses.

A

Stock companies

63
Q

Insurance policy where policyowners do not share in profits or losses.

A

Nonparticipating parties

64
Q

Which type of insurer typically issues nonparticipating policies?

A

Stock companies

65
Q

Owned by the policyowners and issue participating policies.

A

Mutual companies

66
Q

Insurance policy where policyowners are entitled to dividends, which, in the case mutual of mutual

A

Participating policies

67
Q

Generated when the premiums and earnings combined exceed the actual costs of providing coverage, creating a surplus.

A

Dividends

68
Q

An organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government.

A

Fraternal Benefit Societies

69
Q

Insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscribers. (Subscribers agree to become liable for their share of losses and expenses incurred among all subscribes and they authorize through attorneys to manage and operate the exchange.)

A

Reciprocal Insurance Company

70
Q

A liability insurance company owned by its members whose members are exposed to similar liability risks in similar industries and assume/spread liability to its group members.

A

Risk Retention Group

71
Q

Can a Risk Retention Group be a reinsurer?

A

Yes; A RRG can reinsure another RRG as long as the members of the second group are engaged in similar business/industry.

72
Q

Support facility provider for underwriters or groups of individuals that accept insurance risk.

A

Lloyd’s Associations

73
Q

What type of insurance do Lloyd’s Associations typically insure?

A

Property insurance

74
Q

Future unpredictable events

A

Contingency

75
Q

A type of coverage that is not readily available on admitted market.

A

Surplus lines

76
Q

What type of insurer typically specializes in offering insurance to the high risk market on an unregulated basis under each state’s laws.

A

Surplus lines

77
Q

A document that authorizes a company to start conducting business and specifies the kind(s) of insurance a company can transact.

A

Certificate of Authority

78
Q

Insurers who meet the state’s financial requirements and are approved to transact business in the state as a legal insurer.

A

Authorized/Admitted

79
Q

Insurers who have not been approved to do business in the state. (Only licensed excess and surplus line brokers fall into this category.)

A

Unauthorized/Nonadmitted

80
Q

3 Types of Insurance Locations:

A
  1. Domestic
  2. Foreign
  3. Alien
81
Q

The location where an insurer is incorporated, not necessarily where the insurer conducts business.

A

Domicile

82
Q

An insurance company that is incorporated in this state

A

Domestic

83
Q

An insurance company that is incorporated in another state or territorial possession.

A

Foreign

84
Q

An insurance company that is incorporated outside the US.

A

Alien

85
Q

Based on prior claims of experience, investment earnings, level of reserves, and management.

A

Financial Strength

86
Q

Amount of money kept in a separate account to cover debts to policyholders.

A

Reserves

87
Q

Important factors to insureds: financial strength and stability of insurance company.

A

Financial Solvency Status (Independent Rating Services)

88
Q

Guides to insurance company’s financial integrity are published in what?

A
  1. AM Best
  2. Fitch
  3. Standard and Poor’s
  4. Moody’s
  5. Weiss
89
Q

Insurance comps market their products in different ways (agents or direct solicitation).

A

Marketing (Distribution) Systems

90
Q

5 types of Marketing (Distribution) Systems:

A
  1. Independent Agency System/American Agency System
  2. Exclusive Agency System/Captive Agents
  3. General Agency System
  4. Managerial System
  5. Direct Response Marketing System
91
Q

Marketing System that:

  1. 1 agent represents several companies
  2. Nonexclusive
  3. Commissions on personal sales
  4. Business renewal with any company
A

Independent Agency System/American Agency System

92
Q

Marketing System that:

  1. 1 agent represents 1 company
  2. Exclusive
  3. Commissions on personal sales
  4. Renewals can only be placed with the appointing insurer
A

Exclusive Agency System/Captive Agents

93
Q

Marketing system that:

  1. General agent-entrepreneur represents 1 company
  2. Exclusive
  3. Compensation and commissions
  4. Appoints subagents
A

General Agency System

94
Q

Marketing system that:

  1. Branch manager supervises agents
  2. Salaried
  3. Agents can be insurer’s employees or independent contractors
A

Managerial System

95
Q

Marketing system that:

  1. No agents
  2. Company advertises to consumers.
  3. Consumers apply directly to company
A

Direct Response Marketing System

96
Q

An individual licensed to sell, solicit or negotiate insurance contracts on behalf of the principal.

A

Agent/Producer

97
Q

Principal

A

Insurer

98
Q

The relationship between the principal and the agent/producer; the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer.

A

Law of Agency

99
Q

What are the responsibilities of an insurance agent?

A
  1. Completing applications for insurance
  2. Submitting the application to the insurer for underwriting
  3. Delivering the policy to the policyowner.
100
Q

3 types of Agent Authority:

A
  1. Express Authority
  2. Implied Authority
  3. Apparent Authority
101
Q

The authority a principal intends to grant to an agent by means of the agent’s contract. (Written in the contract.)

A

Express Authority

102
Q

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal. (Not written in the contract.)

A

Implied Authority

103
Q

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. (AKA perceived authority)

A

Apparent Authority

104
Q

Another name for apparent authority:

A

Perceived authority

105
Q

Someone in a position of trust.

A

Fiduciary

106
Q

The way companies and producers should conduct their business. (AKA Code of Ethics for producers)

A

Market Conduct

107
Q

Common market conduct regulations include:

A
  1. Conflict of interest
  2. A request of a gift/loan as a condition to complete business
  3. Supplying confidential info
108
Q

A person that is engaged in an occupation requiring an advanced level of training, knowledge, or skill; placing the public’s interest above one’s own in all situations.

A

Professionalism

109
Q

4 Elements of a Legal Contract:

A
  1. Agreement (offer and acceptance)
  2. Consideration
  3. Competent Parties
  4. Legal Purpose.
110
Q

Contract element where:

  1. One party must submit a definite offer and the other party must accept the exact terms.
  2. Applicants make the offer in insurance.
  3. Underwriters approve the application and issue policies.
A

Offer and Acceptance

111
Q

Contract element that is the binding force in a contract that requires something of value to be exchanged for the transfer of risk. The _________ on the part of the insured is the representations made in the application and the payment of premium; the _________ on the part of the insurer is the promise to pay in the event of loss.
Insured provides payment of premium and statements on application.
Insurer provides promise to pay in event of loss.

A

Consideration

112
Q

Contract element that ensure that the parties to a contract must be capable of entering into a contract in the eyes of the law (of legal age, mentally competent, and not under the influence).

A

Competent Parties

113
Q

Contract element that ensures the purpose of contract must be legal and not against public policy.

A

Legal Purpose

114
Q

A contract in which the participating parties agree to exchange UNEQUAL amounts.

A

Aleatory

115
Q

One-sided (only one party makes a promise).

A

Unilateral

116
Q

Only one party (insurer) prepares a contract, and the other party (insured) accepts it as is.

A

Adhesion

117
Q

Prepared by one of the parties (insurer) and accepted/rejected by the other party (insured).

A

Contract of Adhesion

118
Q

According to the Contract of Adhesion, how are ambiguities handled?

A

Ambiguities settled in favor of the insured.

119
Q

An unequal exchange of amounts or values.

A

Aleatory Contract:

120
Q

A contract that exists between an insurance company and an individual.

A

Personal Contract

121
Q

A contract where only one of the parties is bound to do anything.

A

Unilateral Contract

122
Q

A contract that requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

A

Conditional Contract

123
Q

In favor of the insured because the insurance companies draws up the contract.

A

Ambiguities in a Contract of Adhesion

124
Q

If an agent implies through advertising, sales literature, or statements that provisions exist, coverage is expected even if not directly stated in the contract.

A

Reasonable Expectations

125
Q

Compensation to the insured that restores them to the same financial position that they enjoyed prior to the loss. (AKA reimbursement)

A

Indemnity

126
Q

What is the purpose of indemnity?

A

Purpose is to restore to the same financial position, not necessarily profit, from a loss.

127
Q

A principle that implies that there will be no fraud, misrepresentation, or concealment between the parties.

A

Utmost Good Faith

128
Q

Statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true.

A

Representations

129
Q

Untrue statements.

A

Misrepresentations

130
Q

A statement that, if discovered, would alter the underwriting decision of the insurance company.

A

Material Misrepresentation

131
Q

An absolute true statement upon which the validity of the insurance policy depends.

A

Warranties

132
Q

The legal term for the intentional withholding of information of a material fact that is crucial in making a decision.

A

Concealment

133
Q

The intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party.

A

Fraud

134
Q

The voluntary act of relinquishing a legal right, claim, or privilege.

A

Waiver

135
Q

A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived.

A

Estoppel

136
Q

________ is a legal consequence of a waiver?

A

Estoppel

Exam FX (16 decks)

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