Ch. 1 Introduction to Insurance Flashcards
Transfer of risk
Insurance
A reduction, decrease, or disappearance in value that affects someone’s property or financial position
Loss
Condition with a chance, likelihood, or probability of a potential loss
Risk
A risk that will result in either a loss or no change in status
Pure Risk
A risk that may result in a loss, a gain, or no change in status
Speculative Risk
The condition of being at risk for a loss, whether or not an actual loss occurs
Exposure
Cause of loss
Peril
A specific condition that increases the probability or likelihood that a loss will occur
Hazard
What are the three types of hazards
Physical, moral, and morale
A physical condition that increases the probability of loss, including the use, condition, or occupancy of property
Physical Hazard
Dishonest tendencies that increase the probability of a loss
Moral Hazard
An attitude of indifference toward a risk of loss that increases the probability of loss occurring
Morale Hazard
What are the methods to managing risk (STARR)
Sharing, Transfer, Avoidance, Reduction, and Retention
A probability theory states that the larger the number (sample size) of units with the same exposures, the greater the accuracy in predicting losses
Law of Large Numbers
The principle that people will seek insurance more frequently for risks that are hard to insure
Adverse Selection
A device used by insurers to spread their risk and limit the loss they will face in the event of a large claim or catastrophic loss, which helps stabilize profits, increase the insurer’s ability to underwrite risks and build confidence with consumers and investors
Reinsurance
Non-governmental entities that typically write insurance on a for-profit basis
Private Insurer
Provide basic property insurance on real property, state-required personal auto liability coverage, or Workers’ Compensation coverage
Residual Markets
An insurer organized under the laws of this state
Domestic Insurer
An insurer not organized under the laws of the state but in one of the other states or jurisdictions within the United States
Foreign Insurer
An insurer organized under the laws of any jurisdiction outside of the United States
Alien Insurer
An insurer who is authorized to transact insurance in a given state, and will be granted a certificate of authority
Admitted Insurer
An insurer that is not authorized to transact insurance in a given state, either by failing to comply with state requirements or by not seeking permission
Non-admitted Insurer
Gathers and interprets statistical information to determine probability of loss
Actuary
Responsible for selecting risks and selecting the specific rate that applies to those risks
Underwriter
Distributing or pooling risk among several risk-takers with similar loss exposures who agree to cover each other for their losses
Risk Sharing
Shifting a risk to another party
Risk Transfer
Elimination of risk by not participating in activities that involve a chance of loss
Risk Avoidance
Minimizing the risks we cannot completely avoid
Risk Reduction
Assuming responsibility for a loss, like with self-insurance, whereby an organization sets aside funds to pay potential losses
Risk Retention
What does an underwriter do
Select risks whose future losses fall into the normal range of expected losses
Defines the relationship between an insurance company, known as the principal, and a producer operating as its agent
Law of Agency
Authority indicates the capacity in which an agent legally represents an insurer
Agent’s Authority
What are the three different types of authority?
Expressed, implied, and apparent
Authority that is written into the producer’s agency contract
Expressed Authority
Authority that is not specifically stated in the contract, but is necessary, reasonable, and usual for the producer to perform stated duties
Implied Authority
Authority that is created when the producer exceeds the authority expressed in the agency contract
Apparent Authority
What are an agents responsibilities to the insurer
Agents are responsible for soliciting, negotiating, selling, and cancelling insurance policies with the insurer
An agent who handles insurer funds in a trust capacity
Fiduciary Duty
A licensed individual or firm who negotiates insurance contracts with insurers on behalf of the insurance applicant
Broker
The Fair Credit Reporting Act protects the consumer’s right to the privacy of credit and financial information, ensuring that all collected data is confidential, accurate, relevant, and properly used for a specific purpose
Protection
The Gramm-Leach-Bliley Act of 1999’s purpose is to ensure the confidentiality of consumer information and protect that information from security threats
Prevention
