Chapter 1 Flashcards
Introduction to General Insurance
The action of compensating an insured following a loss under the insurance policy
Indemnify
The danger or chance or financial loss ocurring
Risk
The cause of loss. Fire, burglary, and wind
Peril
The item that is insured or covered in insurance policy.
Automobiles, buildings, contractor’s equipment are all examples
Object of Insurance
The contractual obligation by one party (the insurer) to make good the losses suffered by another (the insured) by putting the insured back in the same financial position they were in at the time the loss occurred.
Imdemnity
The person who purchased an insurance policy and who compensates or indemnifies a policyholder in the event of a loss. Noted as the second party. —— doouble check this
Insured or Policy Holder
The insurance company who issues the insurance policy and who compensated or imdemnifies a policyholder in the event of a loss. Noted as the second party
Insurer
The sum of money paid by a person to an insurance company in exchange for an insurance policy
Premium
The basic rule of insurance. It states that policyholders receive the actual amount of their loss — no more and no less. To pay more than the loss would enable to people to profit; to pay less would result in an incomplete indemnity
Principle of Indemnity
- Independent Insurance in Ontario
-governed by the RIB act - provide independent advice and sell general insurance products from a variety of insurance companies.
- represent their client’s best interest when negotiating a contract between the client and the insurance company.
- has two or more insurance companies contracted with their brokerage, can offer more insurance choices to the public.
Registered Insurance Broker
Involves any insurance product other than life or health insurance
also referred to as property and casualty (P&C) insurance.
General insurance
includes coverage for homes, condominiums, business assets, farms, automobiles, contractor’s equipment, watercraft and more.
Property Insurance
refers to third-party liability coverage for a loss, where a policyholder is legally responsible for having caused injury to another or damage to the other person’s property.
Casualty Insurance
People are their own greatest asset. Financial loss will almost always accompany the loss of one’s health or life
Personal risk
Financial loss occurs when owned property is lost or damaged.
For example, if someone’s business severely damaged in a fire, the financial impact is twofold: They would be faced with (1) The cost of repairing or replacing the property and (2) the loss of business incomes resulting from the interruption to the business
Property risk
when a person’s negligent actions result in injury to others are damage to another’s property, the law generally provides that they be held financially responsible
Liability Risk
The possibility of either financial loss or gain.
example : gambling, a person gambling could either win a lot of money or lose the money, neither of which are foreseeable nor within their control.
new business - potential success or failure.
Speculative Risk
This is the chance of financial loss with no chance of financial gain.
When there is no chance for a person or business to profit from a loss. The risk is pure. Therefore, it is in the interest of society to offer support, in the form of insurance, to protect this venture or item.
Pure Risk
Is any condition the increases the risk or amount of damage
Hazard
These are observable conditions relating to the object of insurance.
example: Machine shop.
this hazard would include the building itself, as well as its construction, age, and condition.
Physical Hazards
Characteristics of an insured. or an applicant for insurance, that increase the likelihood of a loss to occur.
for instance, people experiencing financial difficulty are viewed as more likely to commit insurance fraud than those who are not. also, people who are dishonest and intentionally provide false or incomplete information about the property or activity they wish to insure.
Moral hazards
The only way to totally prevent a loss from happening is to avoid the risk completely.
Eliminating Risk
Taking measures to decrease the chance of loss occurring, or to reduce the severity of any losses that do happen.
ex. taking a new-driver training course
installing a security alarm
Controlling Risk
Self-insurance.
example. companies may request a very high deductible or simply not purchase insurance on some or all buildings, stock or equipment. Instead, there organizations self-insurance any losses that occur. The cost of doing so is factored into their budget and amortized over several years.
Retaining Risk
is the most common and practical means of dealing with risk. In exchange of the premium paid by the insured, the insurer will pay the cost of losses incurred. subject to the terms of the policy.
another method of this is by contractual agreement. For instance, in a lease agreement, a building owner may make its tenants legally responsible for damage to the building caused by the tenant.
Transferring Risk
is a form of an insurance that can be purchased by an insurance company to limit the amount of loss it might experience at any one time.
Purchase of this is a part of the process of sharing or spreading risks.
Reinsurance
Used when the primary insurer contracts individuals risk separately to a reinsurer.
Example : to be able to write a policy for a large manufacturing plant, the underwriter can ceded the portion of the risk to reinsurer
Facultative Reinsurance
Five Functions of Insurance
Spread of Risk
Basis Of Credit System
Eliminating Worry, Encouraing of Entrepeneurship
Loss of Prevention and Reduction
Source of Investiment Capital and Employment
Primary Insurer contracts annually to move risks a portion or percentage to its portfolio to a reinsurance
example: a portion all homeowners policies it writes
Treaty Insurance
The amount of money a policyholder pays out of a pocket to cover the first portion of a loss before the insurance begins to cover the balance
Deductible
