Chapter 1

Question 1

Stock Insurance Company

Answer 1

Corporation owned by its shareholders.

Shareholders purchase shares and are interested in making a return on their investment. Policy holders pay a premium for insurance protection but have no financial interest in the company.

Question 2

Mutual insurance companies

Answer 2

Type of co-operative owned by its policyholders.

The primary purpose of a mutual company is to insure the losses of its members. Profits made by a mutual company will be paid as a dividend to the members or used to reduce premium.

Question 3

Captive insurance company

Answer 3

Owned by its parent company for the purpose of funding their losses.

Question 4

Lloyds of London

Answer 4

An insurance market.

Syndicates are set up to accept risk on behalf of the syndicate. They are known for insuring complex, unusual risks.

Question 5

Treaty Reinsurance

Answer 5

Automatic reinsurance.

Insurer must cede risk and reinsurer must accept risk.

• Usually arranged on an annual basic
• Less expensive
• Less flexible
• Automatic-does not need binding instructions

Question 6

Facultative Reinsurance

Answer 6

Not automatic–per risk basis
Choice to reinsure or not.

• May be annual but can be for whatever period it is.
• More expensive to administer
• More flexible
• Binding instructions must be given

Question 7

Broker

Answer 7

Independent business person who is authorized to sell insurance policies on behalf of an insurer. They usually represent many insurers.

Question 8

Agent

Answer 8

Represents one company only. Employees of an insurance company.

Question 9

Staff and company adjusters

Answer 9

They are the same.

Question 10

Public adjuster

Answer 10

Paid by the insured

Question 11

Independent adjuster

Answer 11

Paid by the insurer

Question 12

Company adjusters

Answer 12

Salaried by insurance company

Question 13

Major function of insurance

Answer 13

Spreading the losses of the few among many

Question 14

Underwriter

Answer 14

An insurance professional who determines risk acceptance or rejection on behalf of an insurance company.

Question 15

Loading

Answer 15

Additional charge included in an insurance rate to reflect a hazard not contemplated in the base rate for the class of risk.

Question 16

Loss severity

Answer 16

Refers to how serious a potential loss might be.

Question 17

Claims adjuster

Answer 17

Investigates, negotiates, and settles claims

Question 18

Once insurance is indemnified

Answer 18

Any salvage belongs to the insurance company.

Question 19

Salvage

Answer 19

The portion of property remaining after a loss that still has some value or usefulness.

Question 20

Public adjuster

Answer 20

One who is hired and paid for by an insured to represent their interested in a claim.

Question 21

indemnified

Answer 21

Put back to the same financial position as they were before the loss happened.

Question 22

Insurance is about protection

Answer 22

It is about providing an insured with peace of mind.

Question 23

Negligence

Answer 23

The omission or failure to do something which a reasonable person would do.

OR doing something which a prudent and reasonable person would not do.

Question 24

Mutual insurance companies

Answer 24

Are a type of co-operative owned by its policy holders.

The primary purpose of a mutual company is to insure the losses of its members (the policyholders)

Question 25

Stock companies

Answer 25

Corporation owned by its shareholders.

Most insurance companies in Canada are stock companies.

Question 26

Lloyds of London

Answer 26

Not an insurance company. It’s an insurance market.

Question 27

Loss frequency

Answer 27

Refers to the probability or likelihood of a loss occurrence.

Question 28

Loss severity

Answer 28

Refers to how serious a potential loss might be.

Question 29

Unearned premium

Answer 29

Premium that has been collected for a portion of a policy but has not yet expired.

Question 30

Law of large numbers

Answer 30

Sufficient number of previous losses must exist in order for predictions about the future to be statistically credible.

Question 31

Law of large numbers

Answer 31

Sufficient number of previous losses must exist in order for predictions about the future to be statistically credible.

Question 32

Underwriter

Answer 32

Insurance professional who determines risk acceptance or rejection on behalf of an insurance company.

Question 33

Loading

Answer 33

An additional charge included in insurance rate to reflect a hazard not contemplated in the base rate for the class of risk.

Question 34

Public adjuster

Answer 34

One who is hired and paid for by an insured to represent their interests in a claim.

Question 35

Claims examiner

Answer 35

specialist who directs loss investigations, oversees adjusting work and examines reports submitted by independent adjusters.

Question 36

Independent Adjuster

Answer 36

• Works for an independent adjusting firm
• Accepts claim assignments from insurance companies
• Reports facts of claims to insurer and awaits settlement instructions.

Question 37

Staff or Field ajuster

Answer 37

• Handles claims requiring investigation
• Salaried employee of an insurance company
• Has authority to commit insurer usually up to a specified dollar limit

Question 38

Telephone Adjuster

Answer 38

• Usually handles a large volume of small losses
• Claims are not handled face to face but by telephone
• Salaried employee for an insurance company

Question 39

Reasons for reinsurance

Answer 39

• To increase capacity
• To provide stability in times of market fluctuation
• To maintain balance between asset reserves and liabilities
• To close insurance operations
• To reduce the impact of catastrophic losses.