Chapter 1 Flashcards
A stock insurance company is owned by its?
Shareholders
Which Term best describes the elimination of a hazard?
Risk Avoidance
A_______ agent may represent several insurers
Independent
Which of these statements regarding insurance is false?
A. One way insurers deal with catastrophic loss is through reinsurance.
B. As the number of insured units increases, the number of losses decreases.
C. Speculative risk cannot be insured.
D. Pure risk can be insured.
B. As the number of insured units increases, the number of losses decreases.
Which of the following is a syndicate established by a group of insurers to share underwriting duties?
A. Reinsurer
B. Lloyd’s organization
C.NAIC
D. Multi-line insurers
B. Lloyd’s organization
ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk?
Reduction
The authority given to the producer on behalf of the insurer?
Producer Contract
Which of the following financial products creates an instant estate, no matter when the date of death?
A. Mutual Funds
B. Life Insurance
C. Certificate of Deposit
D. Deferred annuity
B. Life Insurance
Calculates policy rates, Reserves, and dividends.
Actuarial Department
A(n)_____ agent is an insurance agent who represents only ONE insurance company.
Captive
Which one of these is NOT considered to be an element of an insurable risk?
A. Speculative Risk
B. Pure risk
C. Loss cannot be catastrophic
D. Loss must be due to chance
A. Speculative Risk
What is the accounting measurement of an insurance company’s future obligations to its policyowners?
Reserves
A reciprocal insurer typically has an administrator who manages the premiums collected from the group’s members. This administrator is called a(n)?
Attorney-in-fact
An unincorporated association whose members provide coverage for one another?
Reciprocal
A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as?
Risk retention group
Which of these statements is NOT a characteristic of the law of large numbers?
A. Individual losses can be practiced based on past experience.
B. Group losses can be predicted based on past experience
C. Losses can be predicted in large groups with a higher degree of accuracy
D. Rates can be calculated to compensate for losses.
D. Rates can be calculated to compensate for losses.
In the Unites States is an insurer whose principal office and domiciled location is outside the country.
Alien insurer
is an insurer who has received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state.
Admitted Insurer: ( Authorized insurer)
Represents themselves and the insured ( Client or customer)
Broker
An issuer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure
Captive insurer
a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.
Certificate of Authority
Is responsible for processing, investigating, and paying claims
Claims Department
the amount of earning paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.
Divisible Surplus
an insurer with its principal or home office in a state where it is authorized
Domestic Insurer
nonprofit benevolent organizations that provide insurance to its members.
Fraternal Benefit Society
an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business
Foreign Insurer
a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums.
Industrial Insurer
*Other names (home service or debit insurers)
The transfer of risk through the pooling or accumulation of funds
Insurance
Customer receiving insurance protection under an insurance policy
Insured
the insurance company
Insurer
a group of individuals and companies that underwrite unusual insurance
Lloyds of London
an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs
Multi-line Insurer
insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance
Mutual Insurance
an insurer who has not received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state
Non-admitted Insurer
(unauthorized insurer)
typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.
Nonparticipating policy
Companies owned by private citizens or groups that offer one or more insurance lines. NOT government-owned.
Private (Commercial) Insurer
an insurance policy under which the policyowners share in the company’s earnings through receipt of dividends and also elect the company’s board of directors
Participating Plan
an unincorporated organization in which all members insure one another
Reciprocal Insurer
the acceptance by one or more insurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage
Reinsurance:
a company that provides financial protection to insurance companies. Handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to
Reinsurer
a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members
Risk Retention Group
establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.
Self-Insurers
an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.
Stock Insurance Company:
They offer coverage for substandard or unusual risks not available through private or commercial carriers.
Surplus Lines Insurance
*nontraditional insurance only available from a surplus lines insurer
The department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications
Underwriting Department
a principle of actuarial science that states that the higher the number of risks insured in the same risk pool; the more predictable losses become.
The Law of Large Numbers
Accident, health, property, and casualty insurance contracts are all contracts of ?
indemnity
something that can cause a financial loss.
A peril
A condition that increases the possibility of financial loss is called a (n)?
Peril
When a ceding insurer transfer a portion of its risk to an assuming insurer on a case by case basis, this process is referred to as?
Facultative reinsurance
Type of insurers that limits the exposures to it writes to those of its owners?
Captive insurer
Dividends from a mutual insurance company are paid to whom
Policyholders
Dividends from a mutual insurance company are paid to whom
Policyholders
Sharing an uncertain risk with another similar group
Transfer
A hold harmless clause is an example of risk
Transfer
Who regulates an insurer’s claim settlement practices?
State insurance Departments
A syndicate established by a group of insurers to share underwriting duties?
Lloyd’s Organization
For insurance purposes, similiar objects which are exposed to the same group of perils are referred to as?
Homogenous exposure units
What reinsurance contract between two insurers involves an automatic sharing of the risks assumed?
Treaty Reinsurance
Can be defined as (the potential for loss) ?
Risk
Individually lists perils that they cover?
Specified or Named Perils
Do not name the perils they cover but instead begin by saying they cover all direct causes of loss.
Special or Open Peril insurance policies
An unintentional decrease in the value of an asset due to a peril.
A loss
When a person or property is damaged, destroyed, or killed by a peril, without any intervening cause.
Direct loss results
Also known as Consequential Loss.
An indirect loss
Any event that causes a loss.
An Occurrence
A condition or situation that creates or increases a chance of loss.
A hazard
Types of hazards
Physical Hazard
Moral Hazard
Morale Hazard
physical or tangible conditions existing in a manner that makes a loss more likely to occur.
Physical hazards
make the loss more likely to occur due to the dishonest or villainous character of the insured.
Moral hazards
is created based as a result of the personal or subjective thought process of the insured.
Morale hazard
There are two types of risks:
Speculative Risk
Pure Risk
considered to have an average potential for loss.
Standard risks
considered to be a poor risk for the insurance company and have a higher potential for loss.
Substandard risks
spreads risk by sharing the possibility of loss over a large number of people.
Risk Pooling, also known as loss sharing,
is defined as the tendency for poorer than average risks to seek out insurance.
adverse selection
*Insurers must minimize
may reduce the chance of adverse selection.
Sound and competent underwriting
The process of analyzing exposures that create risk and designing programs to handle them is called?
risk management
Treatment of risk includes implementing the following strategies:
Risk Avoidance
Risk Reduction
Risk Retention
Risk Transfer
Risk Sharing
can be avoided by eliminating a hazard.
Risk
can be reduced by minimizing the severity of a potential loss.
Risk
can be retained through self-insurance
Risk
can be transferred or passed from one party to another through an insurance contract.
Risk
can be shared by multiple parties.
Risk
the spreading of risk from one insurer to one or more other insurers.
Reinsurance
involves taking actions to eliminate damage or loss.
Loss prevention
In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called?
primary insurer.
