Chapter 1-10 Definitions Flashcards
All textbook definitions
Ch 1. Class Rating
A rating approach that uses rates that reflect the average probability of loss for businesses within large groups of similar risks, the predominant method used for rating commercial properties.
Ch. 1 Schedule rating
A method of rating risks by measuring them against fixed standards of construction and protection. Risks below standards earn a charge that increases the rate, risks above earn a credit that reduces the rate.
Ch 1. Manuscript Wording
Policy wording that does not confirm to the standard wording in general use within the insurance industry and that is unique to the policy involved
Ch 1. Deductible
An agreed specified amount that the insured must pay on a claim before the insurance company will cover the rest of the claim. The amount is agreed upon by both the insurer and the insured. an insured’s obligation to pay a deductible is not based on whether the insured is at fault.
Ch 1. Self-Insured Retention (SIR)
A dollar amount specified in an insurance policy (usually a liability policy) that must be paid by the insured before the insurance policy will respond to a loss.
Ch 2. Loss run
A summary or report of loss experience for a risk over a specified period
Ch 2. Incurred loss ratio
The ratio of losses paid and reserved (that is, incurred) to premiums earned
Ch 2. Loss development factor
The markers or issues that will cause a change in the difference in the amount between the original estimate of the cost of a claim and the amount for which it is finally settled
Ch 2. Loss Triangle Method
The most widely used technique for projecting loss reserves. the method groups losses by year over successive time periods to demonstrate a history of change (or development) in the amounts of the losses. A loss triangle is created from multiple evaluations of the aggregate losses from a series of loss periods.
Ch 2. Accident year
Matching all losses, regardless of when they were actually reported, to the 12-month period in which they occured
Ch 2. Pure Premium
Portion of the total premium that is need to pay expected losses. It does not take into account money needed for company expenses.
Ch 2. Median accident date
The date in the middle of a series of dates of loss such that the number of dates of loss that precede the median date is the same as the number of dates of loss that follow it
Ch 3. Object
1) Electrical equipment used for the generation, transmission, or use of electrical power. 2) Boiler and pressure vessels and associated piping normally subject to internal pressure other than static pressure of contents. 3) Mechanical equipment used for the generation, transmission, or use of mechanical power
Ch 4. Drop Down Coverage
A clause in umbrella policies providing that the umbrella will “drop down” over reduced or exhausted underlying policy aggregate limits. some umbrella’s maintain their own coverage terms when they drop down, others assume those of the primary policy
Ch 4. Personal Injury Liability
Injury other than bodily injury arising out of defined cases that usually include false arrest or detention, malicious prosecution, wrongful entry, or eviction, libel or slander, or violation of a person’s right to privacy other than in the course of advertising, broadcasting, television or publishing
Ch 4. General Aggregate Limit
The maximum amount an insurer will pay for covered losses during a policy period
Ch 4. Incurred but not reported (IBNR) losses
An estimate of the amount of an insurer’s (or self-insurer’s) liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. the sum of the IBNR losses plus incurred losses provide an estimate of the insurer’s eventual liabilities for losses during a given period
Ch 5. Cyber Risk
Any risk of financial loss disruption of business or damage to an organization’s reputation due to a failure of its information technology systems
Ch 5. Sharing Economy
A collaborative system where participants share access to services and products rather than owning them individually generally facilitated through an online platform.
Ch 5. Ridesharing
An arrangement set up by means of a website or mobile app in which a passenger travels in a private vehicle driven by its owner, for free or for a fee.
Ch 5. Carsharing
An arrangement set up by means of a website or mobile app that links renters and car owners. Sometimes called vehicle sharing or peer to peer car rental services
Ch 5. Transportation network
An online-enabled application or website used by persons to prearrange the transportation of passengers for compensation by a transportation network drive. Also called ridesharing services.
Ch 5. Accommodation Sharing
An arrangement set up by means of a website or mobile app in which a property primarily occupied by its owner is rented for a short time period to a third party.
Ch 5. Accommodation Sharing
An arrangement set up by means of a website or mobile app in which a property primarily occupied by its owner is rented for a short time period to a third party.
Ch 7. Pro Forma Statement
An accounting or financial projection made in advance of the facts, a financial forecast.
Ch 7. Asset
An asset is anything that has financial value including cas, bank balances, investments, proceeds of a life insurance policy, vehicles, real estate, household good,s and personal effects. the total of an individuals property is referred to as a person’s assets
Ch 7. Net Income
The income of an individual or company during a specified period after consideration of all deductions, expenses, and taxes
Ch 7. Combined Ratio
the sum of the loss ratio and the expense ratio an insurer for a specified period.
Ch 7. Loss Ratio
The loss ratio is the ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums. Usually expressed as a percentage
Ch 7. Expense Ratio
(1) Expenses (including accruals) excluding loss adjustment expenses, during a defined period, divided by the premiums earned for the same period. (2) Percentage of the premium used to pay the costs of acquiring, writing an managing a bond or policy.
Ch 7. Current Ratio
The ratio of current assets to current liabilities
Ch 7. Quick Ratio
Current assets divided by current liabilities. An accounting test that measures a business’s ability to pay its current liabilities. Also called the acid test
Ch 8. Alternative risk financing
The name given to the set of method by which an organization may retain its risk. It is a self-insurance arrangement that finances risk by means other than a transfer to a traditional insurer.
Ch 8. First-Dollar Coverage
Coverage that the insured company enjoys in at least the lowest of the several potential layers into which its risk might be divided.
Ch 8. Captive Insurance Company
An insurance company that provides insurance to and is controlled by its owners
Ch 8. Single-owner (single-parent) captive
An insurance company that insures only the risks of the owner or the owner’s subsidiary operations
Ch 8. Group (multi-parent) captive
An insurance company that insures the risks of the multiple non-related organizations that own it
Ch 8. Association captive
An insurance company owned or sponsored by a group of organizations belonging to a common industry or service that insures the risks of the group.
Ch 8. Agency Captive
An insurance company owned by insurance agencies, brokerages, or insurers and formed to insure the risks of its owner’s clients.
Ch 8. Rent-A-Captive
An insurance company established by organizations unrelated to the companies that use the captive and made available for a fee.
Ch 8. Fronting
An arrangement whereby an insurer or surety issues a policy or surety bond at the request of another insurance company, with the latter carrying the whole or substantial part of the risk and the former being paid for the use of its name.
Ch 8. Frictional Costs
The direct and indirect costs associated with market transactions, including insurer acquisition costs
Ch 8. Override Commission
An amount included in a commissions to an insurer in addition to an amount for the insurer’s commissions to the broker
Ch 8. Reciprocal Insurance Exchange
A means of insurance whereby each subscriber appoints a central underwriter as attorney in fact for the purpose of sharing insurance costs with other insureds in the same group
Ch 9. Admitted Company
Insurer or reinsurer licensed or approved to conduct business in a particular jurisdiction (provincial, territorial or federal)
Ch 9. Admitted Paper
Insurance written on locally approved policy forms issued by a locally licensed, registered, or authorized insurer.
Ch 9. Difference in conditions insurance
(1) Property policy insuring “all risk” of physical loss or damage, excluding fire and extended coverage perils (2) A term used to describe liability coverage needed to wrap-up program enrollees to protect them when either the wrap-up ends or the wrap-up aggregate limit is exhausted
Ch 10. Speculative risk
An insurance term for a situation where the possibility of either a financial loss or a financial gain exists, such as in purchasing shares or betting on horses. Speculative risk is usually not insurable, unlike pure risk
Ch 10. Pure Risk
A situation involving a chance of a loss, or no loss but no chance of gain
Ch 10. Reinsurance
Insurance purchased by an insurance company from another insurance company (reinsurer) to provide it protection against large losses on cases it has already insured. Essentially, insurance for insurance companies. A transaction in which one party, the “reinsurer” in consideration of a premium paid to it, agrees to indemnify another party the “reinsurer” for part or all of the liability assumed by the reinsured under a policy of insurance that it has issued. The reinsured may also be referred to as the “original” or “primary” insurer or the “ceding” company
Ch 10. Reinsurer
An insurance company that reinsures primary insurance companies
Ch 10. Facultative reinsurance
Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer.
Ch 10. Cession
That which is ceded, for example a reinsurance term
Ch 10. Cede
An insurers transferral or signing over part of an insurance risk to a reinsurer
Ch 10. Retention
1) The amount of liability the ceding company (primary insurer) retains for its own account. It may be a percentage or a dollar amount of each risk. 2) Also refers to the part of the risk retained by clients without insuring it (either because insurance is deemed to expensive or the loss is not insurable).
Ch 10. Retrocede (retrocession)
To cede a part of a risk to another insurer or reinsurer
Ch 10. Net account
The part of a risk that an insurer retains for itself, apart from any amounts ceded to another insurer or a reinsurer
Ch 10. Ultimate net loss
The amount of the loss the insurer is called on to pay after all recoveries, including salvage, subrogation and reinsurance
Ch 10. Net Line
1) The amount of insurance the company carries on a risk and retains for its own account. 2) Amount of insurance minus reinsurance
Ch 10. Run-Off
An article in reinsurance contract stating that the reinsurer remains liable under the ceding company’s policies in force at termination for losses occurring after date of termination of the reinsurance contract
Ch 10. Funding Approach
An approach to pricing non-proportional reinsurance based on the amount of premium the reinsurer estimates it will need to cover its share of the worst likely loss over the period of time reinsurance contract
Ch 10. Loading
An additional charge included in an insurance rate to reflect a hazard not contemplated in the basic rate for the class
Ch 10. Lead Company
The insurer or reinsurer with the largest share of the risk when a large risk is shared by a number of insurers or reinsurers.
Ch 10. Bordereau
An itemized list or summary of insurance or reinsurance premium or loss transactions
