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P&C > Chapter 2 - General Insurance > Flashcards

Chapter 2 - General Insurance Flashcards

1
Q

Agent/Producer

A

A person who acts for another person or entity known as the principal with regard to contractual arrangements with third parties; a legal representative of an insurance company

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2
Q

Agent/Agency Contract

A

A contract that is held between an insurer and an agent/producer, containing the expressed authority given to the agent/producer, outlining the duties and responsibilities to the principal.

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3
Q

Applicant or proposed insured

A

A person who requests or seeks insurance from an insurer

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4
Q

Beneficiary

A

The person who receives the benefits from the policy of insurance

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5
Q

Insurance Policy

A

A contract between a policy owner (and/or insured) and an insurance company which agreed to pay the insured or the beneficiary for loss caused by specific events.

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6
Q

Insurer

A

The company who issued a policy of insurance

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7
Q

Policyowner

A

The person who is entitled to exercise the rights and privileges in the policy and who may or may not be the insured

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8
Q

Premium

A

The money paid to the insurance company for the policy of insurance

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9
Q

Risk

A

The uncertainty or chance of loss occurring

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10
Q

Pure risk

A

Refers to situations that can only result in a loss or no change. Insureable. Those that involve only the chance of loss with no chance of gain.

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11
Q

Speculative risk

A

Involves the opportunity for either loss or gain.

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12
Q

Hazard

A

Conditions or situations that increase the probability of an insured loss occurring. 3 types: physical, moral, morale

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13
Q

Physical hazard

A

Are those arising from the material, structural, or operational features of the risk apart from the persons owning and managing it

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14
Q

Moral hazard

A

Refer to those applicants that may lie on the application for insurance, or in the past, have submitted a fraudulent claims against an insurer

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15
Q

Morale hazard

A

Refers to an increase in the hazard presented by a risk, Arising from the inserts in difference to loss because of the existence of insurance

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16
Q

Perils

A

Causes of loss incurred against in the insurance policy

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17
Q

Loss

A

The reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named Peril

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18
Q

Exposure

A

Units of measurement used to determine rates charged for insurance coverage

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19
Q

Homogeneous

A

A large number of units having the same or similar exposure to loss

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20
Q

Avoidance

A

Eliminating exposure to a loss.

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21
Q

Retention

A

Planned assumption of risk by an insured through the use of deductibles, co-payments or self-insurance.

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22
Q

Purpose of retention

A
  1. To reduce expenses and improve cash flow 2. To increase control of claim reserving and claims settlement 3. To fund for losses that cannot be insured
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23
Q

Sharing

A

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group

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24
Q

Reduction

A

Lessen the possibility or severity of a loss such as installing smoke detectors in our homes

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25
Q

Transfer

A

Insurance is the most common method of transferring rest from an individual or group to an insurance company

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26
Q

Insurable risk characteristics

A
  1. Due to chance - A loss that is outside the insured’s control 2. Definite and measurable - a loss that is specific as to the cause, time, place, and amount 3. Statistically predictable - insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates ex. Mortality tables 4. Not catastrophic - insurers need to be reasonably certain their losses will not exceed specific limits 5. Randomly selected and large loss exposure - there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location
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27
Q

Adverse selection

A

The ensuring of risks that are more prone to losses in the average risk. Insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage

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28
Q

Law of large numbers

A

States that the larger the number of people with a similar exposure to loss, The more predictable actual losses will be

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29
Q

Government vs. private insurance

A

The major difference between government and private insurance is that the government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums.

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30
Q

Stock companies

A

Owned and by the stockholders who provide the capital necessary to establish and operate the insurance company and see who share in any profits or losses

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31
Q

Nonparticipating

A

Policies In which policy owners do not share in profits or losses. These policies do not pay dividends to policy owners; however, taxable dividends are paid to stockholders

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32
Q

Mutual companies

A

Owned by the policy owners to issue participating policies

33
Q

Participating Policies

A

Policy owners are entitled to dividends which in the case of mutual companies are a return of excess premiums and are therefore non-taxable

34
Q

Fraternal benefit society

A

Organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government

35
Q

Lloyd’s

A

Is not an insurance company. Provide supports facilities for underwriters or groups of individuals that accepts insurance risk

36
Q

Social insurance programs

A

Federal and state governments provide insurance in the areas where private insurance is not available

37
Q

Certificate of Authority

A

Before insurers may transact business in a specific state, they must apply for and be granted a license

38
Q

Authorized or admitted

A

Insurers who meet the state’s financial requirements and are approved to transact business in the state

39
Q

Unauthorized or nonadmitted

A

Those insurers who have it been approved to do business in the state

40
Q

Surplus lines

A

Insurance for which there is no readily available admitted market. Such coverages are marketed through nonadmitted insurers who specialize in offering insurance to the high risk market on an unregulated basis under each state’s surplus lines laws

41
Q

Location of incorporation

A

Insurance companies are classified according to domicile state

42
Q

Domestic

A

Insurer is an insurance company that is incorporated in this state

43
Q

Foreign

A

Insurer is an insurance company that is incorporated in another state or territorial possession

44
Q

Alien

A

Insurer is an insurance company that is incorporated outside the United States

45
Q

Various Independent Rating Services

A

AM Best, Fitch, Standard and Poor’s, Moody’s, and Weiss

46
Q

Independent agency System / American Agency System

A

1 Independent agent represents several companies
Nonexclusive
Commissions on personal sales
Business renewal with any company

47
Q

Exclusive agency System / captive Agents

A

1 agent represents 1 company
Exclusive
Commissions on personal sales
Renewals can only be placed with the appointing insurer

48
Q

General agency System

A

General agent-entrepreneur represents 1 company
Exclusive
Compensation and commissions
Appoints subagents

49
Q

Managerial system

A

Branch manager
Salaried
Agents can be insurer’s employees or Independent contractors

50
Q

Direct response Marketing Systems

A

No agents
Company advertises directly to consumers (through mail, etc)
consumers apply directly to the company

51
Q

Reinsurance

A

Contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities. The originating company that procures insurance on itself from another insurer is called the ceding insurer ( because it cedes, or gives, the risk to the reinsurer). The other insurer is called is called the assuming insurer, or reinsurer.

52
Q

Facultative reinsurance

A

When reinsurance is purchased on a specify policy

53
Q

Principal (insurer)

A

An agent/producer is an individual licensed to sell, solicit or negotiate insurance contracts on behalf of the principal

54
Q

Law of Agency

A

An agent represents the insurer, not the insured

55
Q

Express

A

Is the authority a principal intends to grant to an agent by means of the agent’s contract

56
Q

Implied

A

Is authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal

57
Q

Apparent

A

Authority ( also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created

58
Q

Fiduciary responsibility

A

Is someone in a position of trust. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds

59
Q

Code of Ethics

A

Market conduct describes the way companies and producers should conduct their business. Some regulations: conflict of interest, a request of a gift or loan as a condition to complete businesses, and supplying confidential information

60
Q

Contact

A

An agreement between two or more Parties enforceable by law

61
Q

Agreement- offer and acceptance

A

In insurance the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.

62
Q

Consideration

A

Is something of value to each party gives to each other

63
Q

Competent parties

A

The parties to a contract must be capable of entering into a contract in the eyes of the law

64
Q

Legal purpose

A

The purpose of the contract must be legal and not against public policy

65
Q

Contract of adhesion

A

Is prepared by one of the parties (insurer) and accepted or rejected by the other party (insurer)

66
Q

Aleatory contract

A

There is an exchange of an unequal amounts of values

67
Q

Personal contract

A

It is between the insurance company and an individual. A policy owner can transfer ownership to another person. However the insurer must still be notified in writing

68
Q

Unilateral contract

A

Only one of the parties to the contract is legally bound to do anything

69
Q

Conditional contract

A

Requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed and before each party fulfills it’s obligations

70
Q

Indemnity

A

Aka reimbursement. Is a provision in an insurance policy that states that in the event of loss an insured is permitted to collect only to the extent of the financial loss

71
Q

Utmost good faith

A

Implies that there will be no fraud, misrepresentation or concealment between the parties

72
Q

Representation

A

Are statements believed to be true to the best of one’s knowledge but they are not guaranteed to be true

73
Q

Material misrepresentation

A

A statement that if discovered would alter the underwriting decision of the insurance company. Intentional. Fraud

74
Q

Warranty

A

Is an absolutely true statement upon which the validity of the insurance policy depends

75
Q

Concealment

A

Is a legal term for the intentional withholding of information of a material fact that is crucial in making a decision. May void a policy

76
Q

Rescission

A

The policy owner loses any right to file a claim on the policy and the insurer refund all money paid

77
Q

Fraud

A

Is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract or to deceive or cheat a party. Grounds for voiding insurance contract

78
Q

Waiver

A

Voluntary act of relinquishing a legal right, claim or privilege

79
Q

Estoppel

A

Is a legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived

P&C (2 decks)

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