ch1 keywords Flashcards
Reserves
the accounting measurement of an insurer’s future obligation to its policyholders. - classified as liabilities on the insurance company’s accounting statements since they must be settled at a future date.
liquidity
indicates a company’s ability to make unpredictable payouts to policy owners.
*Annuities
provide income by making a series of payments to the annuitant for a specific period of time or for life.
*liquidity
indicates a company’s ability to make unpredictable payouts to policy owners.
Reinsurer
specialized branch of insurance they insure insurers. Arrangement by which an insurance company transfers portion of risk has assumed to another insurer. Reinsurance takes places to limit loss of any one insurer would face if a large claim become payable.
** enable a company to meet certain objectives : favorable UW or morality results. Company transferring the risk = ceding company. Company assuming risk = reinsurer.
** common reinsurance contract between 2 insurance companies = treaty reinsurance - involves an automatic sharing of risk assumed.
** the agreement , insurance company that transfers the loss exposure to another insurer is called primary insurer.
*private insurance - commerical
multi line insurers : life and annuities, accident, health, property and casualty insurance.
Stock companies (non participating)- purpose of making a profit for its stock holders (private)
Mutual companies (participating)- owners are policy holders
Fraternal Benefit Socities
social, charitable, benevolent activities membership based on religious, national or ethnic lines. non profit, lodge system = ritualistic work and maintain representative form of government with elected officers. Must be formed for reasons other than obtaining insurance.
Fair Credit Reporting Act
1970 attempt to protect an individual’s right to privacy, the govt passed this act which requires fair and accurate reporting of information about consumers, including applications for insurance.
NAIC
state insurance commissioners or directors are members. work regularly to examine various aspects of insurance industry and to recommend appropriate insurance laws and regulations.
- encourage uniformity in state insurance laws and regu
- assist in the admin of those laws and regu by promoting efficeincy
- protect the interests of policyowners and consumers
- preserve state regu of the insurance business
*Government as insurer
social insurance programs
funded with taxes and serve national and state social purposes
- Old age, survivors and Disability insurance (OASDI) (Social Security)
- Medicaid & Medicare
*Self insurers
self insurer established its own reserves to cover potential loss. Often used by large company for funding pension and some health plans.
Risk pooling
loss sharing, spreads risk by sharing the possibility of loss over a large number of people. transfers risk from an individual to a group
Risk
uncertainty regarding loss - property loss, negiligence or carelessness can give risk to liability risk. Loss involved is characterized by lessening of value.
Peril
can cause financial loss, such as earthquake or tornado. Perils can be referred to as the accident itself.
Pure Risk
involve change of loss; never possibility of gain or profit. chance of injury from accident. *insurable
Speculative risk
involve the chance of both loss and gain. gambling or investing *not insurable
*homogeneous exposure unit
similar objects of insurance that are exposed to the same group of perils
Risk transfer
transfer it so that the loss is absorbed by another party. insurance is most common method of transferring risk. enables/relieves insures losses these risk bring.
Risk retention
accepting the risk and confronting it if and when it occurs. - self insurance setting up fund to offset cost of potential loss
Risk reduction
attempt to lessen the possibility of loss by taking action to reduce risk - smoke alarm in house will not lessen possibility but may reduce risk of loss.
Risk avoidance
avoiding as many risks as possible - choosing not to drive avoid risk of driving - choose not to fly avoid risk of place crash - not investing in stock avoid risk of market crash.
Hazard
condition or situation that creates or increases a chance of loss
Reinsurance
one way insureers deal with catastrophic loss - spreading risk from one insurer to one or more other insurers
** many insurers are able to minimize exposure to loss by reinsuring risks**
Moral hazard
tendencies that people have which increase risk and the chance of loss - alcoholism and drug addiction
Morale hazard
arise from an attitude or state of mind causing indifference to loss - driving recklessly with no fear increases change of death or injury
Adverse Selection
tendency for poorer than average risks to seek out insurance - insurers must minimize adverse selection.
*risk management
process of analyzing exposures that create risk and designing programs to handle them
*principle of indemnity
involves making an insured whole by restoring them to the same condition as before a loss
physical hazard
individual characteristics increase chance of peril *blind and deaf
Lloyd’s of london
an association formed to UW and issue insurance on certain items and areas that might be uninsurable
