Chapter 1 Flashcards
Contract of adhesion
Any doubt or ambiguity found in the document is constructed in favor of the party that did not write it. Lawsuit the court rule in favor of insured, not the insurer.
ALEATORY contract
The exchange of value is unequal. Zero dollar in the event a loss doesn’t occur.
Personal contract
A contract between the insurance company and an individual. Insured cannot transfer.
Unilateral contract
Only one party is legally bound to the contractual obligations.
Unilateral contract because only one party can be charged with breach of contract
Conditional contract
Both parties must perform certain duties follow rules to conduct to make contract enforceable.
Principle of indemnity
The insured is restore to the same financial condition that existed prior to the loss. Insured should not profit.
Utmost good faith
Both parties bargain in good faith
Re-representations
Not warranties!
Our statements that are believed to be true to the best of their knowledge and belief
Example during policy writing applicant believes he, or she does not have any diseases, but when underwriting that person does
Material versus immaterial representation
Material misrepresentation affects policy insurance.
Immaterial representations do not affect the substance of reading of the risk .
Misrepresentations
A false statement contain in the application.
Warranties
Statement in the application in the policy that I guarantee true and all respects
Concealment
Withholding facts if a person smokes intentionally withheld information. It is a concealment.
Fraud
Doing intentional. Intentional deception of the truth.
Waiver
Voluntary abandonment to contract to surrender of unknown, right claim or privilege
Such a failure waves the insurer rights to contest a claim, based on the information it could reasonably have obtain.
ESTOPPEL
Is a denial of a contract if the insurer waves its rates, it cannot later than assert those rights
Underwriter
Primarily responsibilities include the selection of risk
By determining insurability by determining the classifications or type of risk in premium rating if a risk is accepted
Risk risk risk
Underwriting factors
Age, gender, tobacco use medical history in pre-existing condition, hazardous hobbies, and occupations
marital status is not a factor
Premium assumptions
Inadequate premium must be charged for the risk based on the same factor use in evaluating the risk.
Which person or entity issues, a certificate of authority to enable insurer to conduct insurance business within a particular state?
State insurance commissioner or director
Representation
Statement are true and complete to best ones knowledge. The clients are unaware of their health disease issues.
Producers have a duty to only recommend coverage based on what is suitable to the
Consumer
Not what would be most profitable for the producer or for any insurer for whom they act as agents
MCCARRAN FERGUSON act of 1945
Gave states the authority to regulate insurance
To act as an agent for an insurance company, a licensed producer must be
Appointed
Appointed by the insurance company to act on that insurers behalf
When managing risk, risk reduction is
Minimizing the chance of loss
Self insurance
Means setting aside funds to assume the risk face rather than paying premiums to an insurer. To limit potentially large risk, exposures, large companies typically self insure up to a certain dollar amount of risk and buy insurance for the rest.
Insurance agent use a financial reading service
Evaluate the financial stability of an insurance company
The ability of an individual to meet and assurance companies underwriting requirements is known
Insurability
Only one legally bound party to its contractual obligations after premium is paid
unilateral contract is one sided such as an assurance contract once the premium is paid only the insurer is legally bound to this unilateral.
Reciprocal insurance company
Each subscriber assumes a share of the risk of all other subscribers
Reciprocal are not restricted on the type of insurance they transact unlike
Risk retention groups, which only transact liability insurance
Agent act on behalf of the principal, the insurance company, and the principal is responsible for the act of their agent
The law of agency
Act on behalf of the consumers, not insurers
Brokers
Types of reinsurance agreements, risk of loss is to all companies, CEDING company
Treaty is one of the two types of reinsurance agreement, which automatically accepts all the new risk
Express authority is the authority stated or written in the producers or agents contract
Type of producer authority is specifically stated in the producer contract
An insurer underwriting department is responsible for
Risk selection
Private versus government insurers
Most insurance is written through private insurers
Private insurers right insurance policy for profit, which are sold through agency and producers
Insurance contract
Insurance is a contract that transfer risk from the insured to the insurer. Having insurance coverage doesn’t decrease the likelihood of loss.
An insurance contract is designed to transfer the risk from their insured to the insurer
Which system is not in marketing and distribution model
Exclusive writing system
Refers to the jurisdiction, where an insurer is formed or incorporated. An insurer might be in an admitted carrier in multiple state, but it can only ever have one domicile
Domicile
Can be obtained from non-admitted
Surplus lines insurance
Which of the following is not a requirement of an insurable risk?
Prevention is not a requirement for a insurable risk
When the risk is retained, the insured party continues to have responsibility for covering laws, as with self insurance or a deductible. It is the opposite of risk transfer.
Which is when another party becomes responsible for the risk
Contract of adhesion
In Favor of the party that did not write it
Speculative risk
Is the possibility that I purchased painting might be a long lost masterpiece
Chance for either loss or gain
Adverse selection
Is the principal that people will seek insurance more frequently for risk that are hard to insure
When it comes to life insurance, insurable interest on one’s own life is
Unlimited
A company that is licensed to sell insurance in a particular state
An authorized company
Generally speaking, all of the following are true of insurance except
It eliminates risk
Insurance is a way of transferring risk. It can reduce financial uncertainty and indemnify an insured after a loss.
No form of insurance can totally eliminate risk
Generally speaking, all of the following are true of insurance except
It eliminates risk
A stock insurance company
Issues non-participating policy in is owned by stockholders who may receive taxable corporate dividends as a share of the companies profit
Participating policies and is owned by the policyholder who may receive non-taxable dividends as a return of any divisible surplus
Mutual insurance company
Transfer of risk between insurance companies
Reinsurance.
The reinsurer assumes some or all the risk of the ceding, or primary, insurance company
Refers to the state in which an insurer Incorporated. Person’s permanent home.
DOMICILE
Is organized under the laws of the residence state
Domestic insurer
Is organized under the laws of another state within the United States
Foreign insurer
Is organized under the laws of a country outside the US
Alien insurer
Is authorized to do insurance business in the state and is issued a certificate of authority by the state Department of insurance
Admitted insurer
An insurance company is responsible for the selection of risk( persons, and property) to insure and determines the rate to be charged for the amount of coverage to be issued
The underwriting department
Under the direct writing system, an agent producer can be the employee of an insurance company that owns the agent’s book of business.
under the independent agency, a producer is an independent agent that enters into selling agreements with more than one insurance company. They are appointed by more than one insurer, independent agent retained owner ownership of their books of business.
The law of agency
Is a relationship where a principal authorize an agent to act on its behalf in the business of insurance. An act of the agent is an act of the agent’s principal.
The fair credit reporting act FCRA
Protects consumer privacy by ensuring that any data collected by an insurer, remains confidential, and is accurate, relevant, and use for a proper and specific purpose
A risk
Is the condition where the chance, probability or potential for a loss exist
A PERIL
Is the cause or source of a loss
A hazard increases the probability of a loss
The three types of hazards are physical, moral, and morale
The principle of indemnity
Means that the insured should not profit from a loss. And said, it restores the insured to the same financial or economic condition that existed prior to the loss.
Insurable interest
In property and casualty insurance must exist at the same time of the loss, but for life insurance, it must exit only at the time of application and policy issuance
Contract of adhesion
Take it or leave it basic
Terms and condition
Underwriting factors
Use to determine premium
Age, gender, tobacco use, medical history, hazardous, hobbies, and hazardous occupations
Private firms in persons
1: Insurance companies, a.k.a. Insurers
2: insurance agency are captive, independent and support insurance producers
3: insurance producers are licensed individuals representing and appointed by an insurance company when transacting insurance business
4: an insured is the person that is covered by the insurer which covers losses due to loss of life, health, property, or liability
5: an owner, is not necessarily the insured under the policy, but is responsible for paying the policies premium. It has various rates as specified in the contract.
Insured
First party
Any person, or organization or company protected by the insurance policy
Insurer
The second party
The party who indemnifies for losses
Indemnifies mean compensate of harm or loss
Law of agency
Defines the relationship between an insurance company known as the principal.
And a producer operating as its agent. The agent represents the principal and is appointed to transact insurance business on their behalf.
Producer responsibilities to the insurer
Producer= agent
Responsibilities to the insurer : FIDUCIARY duty to the insurer in all respects. It is legal and ethical relationship of trust between two or more parties.
Producer cannot recommend only high premium policies, but to purchase only suitable to their clients .
Must report any material facts that may affect underwriting
Responsible for soliciting, negotiating, selling, and canceling policy with insurer
Duty to only recommend the purchase of suitable policy
Producers, responsibility to insurance, applicant or insured
Forward premiums to insurer on a timely basis
Seek and gain knowledge of the applicant insurance needs
Review and evaluate the current insurance coverage, limits, and risk
Serve the best interest of the applicant or insured, although producers represent the insurer
Recommend coverage that protects the insured from possibly loss and not the most profit coverage from the perspective of the producer
Express authority
Is written into the producers agency contract it details, specific activity regarding the producers,
ability to trans business on behalf of the principal
Implied authority
Is not specifically seated in the contract, but is necessary, reasonable, and usually for the producer to perform seated duties
Apparent authority
Is created when the producer exceeds the authority expressed in the agency contract.
It is authority. The public or third-party is false. Let to believe the agent has in the principal does nothing to counter the public impression that such authority exist.
The national Association of insurance commissioners NAIC
The NAIC has no legal authority to enact or enforce insurance law
Federal insurance office FIO consumer protection act
This office monitors the insurance industry and identify issues and gaps in the state regulations of insurers
FIO does not regulate or supervised
Insurance is primarily regulated by
Individual states
Private versus government insurers
Most insurance is written through private insurers
Mutual insurance company
Is owned by a policyholder who may be referred to as members
Reciprocal insurance company
Group owned each member is known as a subscriber and each subscriber assumes a part of the risk of all other subscribers
Lloyd’s of London’s
Syndicate – not insurance company
Risk retention groups, RRG
Our group owned insurers that primarily assume and spread the liability related risk of its member
Example who owns theme parks, ice-skating, rinks waterpark go karts
Risk retention groups, RRG
Our group owned insurers that primarily assume and spread the liability related risk of its member
Example who owns theme parks, ice-skating, rinks waterpark go karts
Self insurers
Self insurers, assume all the financial risk faced without transferring that risk insurer. Generally, an option for only for large companies who may limit the risk by only self assuring up to a certain dollar amount of risk and then acquiring insurance for dollar amount and access of that amount
Reinsurance companies
Risk of loss is to all companies. Except all or a portion of the financial risk of laws from the primary or CEDING insurance company.
Risk of loss is shared with one or more insurance companies XYZ
Reinsurance companies
Risk of loss is to all companies. Except all or a portion of the financial risk of laws from the primary or CEDING insurance company.
Risk of loss is shared with one or more insurance companies XYZ
Types of reinsurance agreements
Treaty- automatically accepts all new risk presented by the ceding insurer
Facultative- reinsurance agreement that allows the reinsurance company and opportunity to reject coverage for individual risk
Financial rating services
Marketing tool to evaluate and rate the stability of insurance companies
An insurance company wants to transfer all or part of the risk it has accepted, it would buy, which of the following types of insurance
Reinsurance
Insurance company is owned by its policy holders
Mutual
What is a residual markets?
Are the last resort private coverage source for businesses and individuals who have been rejected by the voluntary insurance market typically workers comp, personal auto liability or property insurance on real property
What does retention mean?
Retention means to continued possession.
DOMICILE
Where an insurer is formed or Incorporated.
Admitted versus non-admitted
Refers to whether or not an insurer is approved or authorized to write business in this state
Admitted authorized insurer
Is authorized by the state commissioner of insurance to do business in the state it has received a certified of authority to do business in the state
DOMICILE does not impact whether insurer may be admitted to do business in the state.
Surplus lines insurance
Find coverage insurance cannot be obtained from admitted insurers.
Which of the following is an insurance company that is organized under the laws of another state within the United States
Foreign insurer
Management underwriting department
Determine pure based on risk
Broker
A licensed individual who negotiate insurance contracts with insurers on behalf of the applicant. A broker represents the advocate or insured interest
Not the insurer
Which of the following individuals represent the insurance company was selling an insurance policy
Producer
Which of the following authorities does the public assume an agent has, based on the agents conduct?
Apparent
A producer has each of the following responsibilities to the insurer, except
A duty to recommend only high premium policies
Fair credit report reporting act
All must be informed, protects consumer privacy, and protects the public from overly intrusive information
The applicant has rights to review the report
USA patriot at an entire money laundering AML 2006
Bookkeeping this act specify which financial institutions would be required to institute AML training programs, including insurance company
Red flags are required to report any activity they believe or even have a reason to suspect is an effort to launder money
Fraud and false statements, fraudulent insurance act
Fraud always involves a false statement and deceit
Subsequently, each of the states enacted its own fraudulent insurance act which involves a statement of material fact
GRAMM – LEACH – Billy act 1999
The financial privacy rule requires financial institution to provide each consumer with a privacy notice. At the time the consumer relationship is established and annually thereafter.
Violent crime control and law-enforcement act of 1994
The act made it a felony for a person to engage in the business of insurance after being convicted of a state of federal felony crime, evolving dishonesty, or breach of trust.
Consent to work 1033 waiver
Applicants who have been convicted of a felony must apply to engage or participate in the insurance business, a prohibited person must apply
Consent to work 1033 waiver
Applicants who have been convicted of a felony must apply to engage or participate in the insurance business, a prohibited person must apply
A federal regulation protects consumers privacy
Fair credit reporting act
Risk
Uncertainty
A condition where the chance, likelihood, for a loss exist
Managing risk
Analyzing exposures that create risk and designing programs to minimize the possibility of a loss
Adverse selection
Is the principle that people will seek insurance more frequently for risk that are hard to insure
Condition of living , earthquakes, higher risk, exposures
How to manage risk
STARR
Sharing
Pulling or spreading the wrist among a large number of persons or entities
Transfer
Transferring the risk from one party to another, such as from a consumer to an insurance company
Transfer the uncertainty of via a contract
Avoidance
Elimination of the risk
Avoid the activity that gives rise to the chance of loss
Avoiding by not accepting or entering into the event which has hazards
Avoidance
Elimination of the risk
Avoid the activity that gives rise to the chance of loss
Avoiding by not accepting or entering into the event which has hazards
Reduction
Minimizing the chance of loss but not preventing the risk.
Example taking medication’s
Burglar alarms
Sprinkler systems
Reduction
Retention
Choosing deductibles is a method of risk retention
Assume the responsibility for loss
Self-insure the entire loss or a portion of loss
Moral hazard
Dishonest Tennessee that increase the probability of a loss cheating stealing a house burned down to collect insurance payout
Morale hazard
Driving too fast for conditions, not wearing a seatbelt, ignoring stop signs and attitude of indifference toward the risk of loss
Insurable risk must include
Homogeneous units or groups with the same perils/source
Chance of lost must be calculable
Premium must be affordable, must be accidental in nature
Dishonest tendencies that increase the probability of loss or what type of hazard
Moral hazard
Each of the following must be included in an insurable risk except
Large group with dissimilar members
Insurable risk must include a large numbers of groups within the same same same perils, premiums, and loss
Insurance contract
Legal contract purchased to indemnify the “insured” against a lost damage or liability arising from an unexpected event
Designed to transfer risk from the insured to the insurer
Principle of indemnity
Insured is intended to be restored to the same financial or economic condition that existed prior to the loss
The ability of an advocate to meet an insurers underwriting requirements
Insurability
Life and health policies
Each person has unlimited insurable interest
The insurer does not want to over insure as this may increase the likelihood of a claim
Examples of insurable interest
Policy purchased by a spouse or immediate family member, business partner, or creditor of the insured
Evidence of insurable interest
Property ownership is evidence
Casualty result from property or a contract rates in potential legal liability
Which principle of insurance restores the insured to the same economic condition that existed before the loss
Indemnity
Competent parties
All parties to a contract must have leave a capacity to enter into a contract must be of age, legally and aware of their actions
Legal purpose
All parties to a contract must enter it for a legal purpose. Public policy cannot be violated by a legal contract in good faith.
Agreement
One party must make and communicate an offer to the other party in the second party must accept that offer
Two step process offered and acceptance
Consider consideration
Something of value is exchanged by each other parties to the contract exchange of the money for premium only for a promise and guarantees within the contract
Considerations provided by the insurer is it’s promised to pay for recovered losses and contract itself compensate any arising from their actions
Conditional contract
Both parties must perform certain duties
Fraud
Intentional deception of the truth
Intentional
Warranties
Statements in the application in a policy that I guarantee true and all respect
Each of the following is an element of the legal contract except
Indemnity
A warranty is defined as which of the following
Statement in the application that is guaranteed to be true
An applicant accidentally, including inaccurate information in the insurance application is guilty of
Misrepresentation
Is a false statement contained in the application fraud is an intentional deception of the truth to induce another to part with something or value or two surrender a league of right
Concealment is the willful holding back
ESTOPPEL applies to the insurer, not the applicant
Jay has been insured with XYZ insurance company for many years. Jay’s policy includes an accidental death benefit if death occurs within 90 days of an accident. Jay has an accident, and dies 91 days later. XYZ company chooses to pay the accidental death benefit, even though they are not legally bound to do so. This is an example of.
Waiver
Waiver is a voluntary surrender of a league of right or privilege. When insurer decides not to enforce a contract condition, they are waiving their rights to enforce it.
Risk managing
Managing risk
Analyzing exposure that creates risk and designing programs to handle them
T owns an insurance agency and is authorized to represent 12 different insurers. T must be.
An independent agent, because T is in the agency system, but it’s not limited to the number of insurers they may represent, team must be an independent agent. T cannot be a broker because brokers represents consumers, not inurers
If an advocate fails to present all material facts, or a producer fails to fully describe the terms of the contract, which principle has been violated
UTMOST good faith
The principle of UTMOST good faith requires each party to disclose any information that could influence the other party decision. It assumes no party has withheld critical information
