Chapter 1 - General Insurance Flashcards
ADMITTED INSURER
authorized to do insurance business in the state and is issued a Certificate
of Authority by the state’s Department of Insurance
1.4
ADVERSE SELECTION
the idea that some risks are less desirable than average risks, and that these risks tend to seek coverage to a greater extent than more favorable risks
LOSS
reduction of value
basis for a claim
AGENT/PRODUCER
can be the employee of an insurance company that owns the agent’s book
of business, or an independent agent that enters into agency agreements with more than one
insurance company. Independent agent retains ownership of their books of business.
a legal representative of an insurance company who represents the best interests of the company
1.5
ALEATORY CONTRACTS
The exchange of value may be unequal
ALIEN INSURER
Organized under the laws of a country outside the U.S.
1.4
BROKER
Insurance producer not appointed by an insurer and is deemed to represent the best interests of the client
CONSIDERATION
In an insurance contract, the value that each party gives the other
DOMESTIC INSURER
Domicile refers to the state in which an insurer is incorporated. Domestic insurer is organized under the laws of the resident state
ELEMENTS OF A LEGAL CONTRACT
- Agreement
a. offer like an application
b. acceptance as an issued
policy - Consideration
a. applicant-representation
and premium
b. insurer-payment of claims - Competent Parties
a. legal age
b. mentally competent
c. not under the influence of
drugs or alcohol - Legal Purpose
a. not against public policy
(contract can’t be a crime)
EXPRESS AUTHORITY
is written into the producer’s agency contract; implied authority is that which
the public assumes the agent possesses; and apparent authority is created when the agent
exceeds express authority and the insurer does not respond.
1.6
FAIR CREDIT REPORTING ACT (FCRA)
protects consumer privacy by ensuring that any data
collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and
specific purpose.
1.7
FOREIGN INSURER
Organized under the laws of another state within the United States
HAZARD
increases the probability of a loss. The 3 types of hazards are physical, moral, and
morale
1.8
INSURABLE INTEREST
in property and casualty insurance must exist at the time of the loss
-/-
When an individual faces the risk of economic loss in the event of property damage
1.9
INSURANCE
transfer of loss
protection
INSURANCE CONTRACT
t is one of adhesion; one party (the insurer) prepares the contract and
presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis
1.10
INSURER
also known as the Principal, the company who issues an insurance policy
LAW OF AGENCY
is a three-party relationship where a Principal authorizes an Agent to act on
its behalf to create a legal relationship with a Third Party.
1.6
MUTUAL INSURANCE COMPANY
Issues participating policies and is owned by the policyholders who receive non-taxable dividends as a return of unused premium
NON-ADMITTED INSURER
an insurer that is not approved by the state Department of Insurance to transact insurance
PERIL
the cause of loss
1.8
POLICY HOLDER
The person entitled to exercise the rights and privileges in the policy
PREMIUM
money paid to the insurance company for the insurance policy
REASONABLE EXPECTATIONS DOCTRINE
the insured is entitled to coverage that a reasonable and what a prudent buyer can expect
REINSURANCE
The transfer of risk between insurance companies. The reinsurer assumes some or all of the risk of the ceding, or primary, insurance company
RISK
the uncertainty of a loss
1.8
RISK MANAGEMENT
S-sharing: investments of a large number of people may be pooled by use of a corporation or partnership
T-transfer: transferring the risk from one party to another, such as from a consumer to an insurance company
A-avoidance: elimination of the risk, avoid the activity that gives rise to the chance of loss
R-reduction: minimizing the chance of loss, but not preventing the risk. Sprinkler systems, burglar alarms and safety guards on machinery
R-retention: assume the responsibility for loss, self insure the entire loss or a portion of the loss. Choosing deductibles is a method of risk retention
STATE COMMISSIONER
The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator who protects the insuring population by regulating all insurers and insurance professionals doing business in the State
STOCK INSURANCE COMPANY
Issues non-participating policies and is owned by stockholders who received taxable corporate dividends as a return of profit
SURPLUS LINES BROKER
places risks with non-admitted insurers when coverage cannot be placed with admitted insurer carriers.
UNDERWRITING FACTORS
used to determine premium include the nature of the risk, hazards,
claims history, and other factors that vary depending upon the risk
1.11
UNILATERAL CONTRACT
a contract that binds only one party to future performance
UTMOST GOOD FAITH
an insurance contract where each party assumes that they can rely on the statements of the other party
