Chapter 2 History and Functions of Insurance Flashcards

1
Q

How has insurance developed over the centuries?

A

2000 BC - The Code of Hammurabi written by the King of Babylon contains one of the earliest known applications of the principle of insurance. Babylon caravan owners pledged their own assets as security for the safe transport of goods. (robbery, life, cargo and marine)

1666 - The great fire in London sparked the formation of insurance companies and was the beginning of modern insurance.

1735 - In the U.S the first fire insurance was established in Charleston South Carolina.

1809 - The first Canadian insurance company grew from the Nova Scotia Fire Insurance Association founded in Halifax in 1809. The Gore District Mutual and the Halifax Fire Assurance Company launched prior to 1840 still exist as distinct operating entities.

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2
Q

How were early insurance companies involved in fire loss prevention.

A

Early fire brigades were owned and operated by insurance companies.

Rates were based on whether or not the dwelling was serviced by fire-fighting equipment.

Early British insurance companies each had their fire mark, a plaque bearing the company name. When a fire occurred, the company’s fire brigade would respond only if the building was insured by them.

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3
Q

Identify the THREE (3) major categories of insurance and give an example of each.

A

Social Insurance - Hospital and Medical Plans; unemployment insurance benefits; workers compensation.

Life and Health Insurance - life; accident and sickness; disability

General Insurance/Property and Casualty Insurance - automobile; home; liability; commercial; crime

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4
Q

What is the difference between general insurance and property/casualty insurance.

A

General Insurance is also referred to as Property and Casualty Insurance.

Includes all insurance not covered by Social and Life Insurance.

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5
Q

What is a multi-peril policy?

A

Multi-peril policies include crime coverage (theft, burglary and robbery) from fire insurance.

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6
Q

Give example of an automobile insurance and explain what it covers.

A

Largest single class of general insurance. Covers:

- legal liability to third parties

- accident benefits for the insured

- direct damage to the described vehicle

Motorcycle Insurance.

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7
Q

What is an all-risk policy?

A

All risk policies - insure loss or damage resulting from all risks except what is specifically excluded.

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8
Q

What does marine insurance provide?

A

Covers:

-hull (the ship itself)

-cargo insurance

-insurance against liability arising out of bodily injury or death of a person or loss of or damage to property of others.

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9
Q

What is a surety bond?

A

Is a guarantee that the principal will perform the obligation or undertaking he or she has with a third party.

Is not actually insurance

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10
Q

Give an example of a property insurance and explain what it covers.

A

Insures against loss or damage to property.

- personally owned property

- commercial property

Tenant’s Insurance

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11
Q

Give an example of Boiler and Machinery Insurance and explain what it covers.

A

Covers:

- heating and air conditioning installations

- industrial machinery and equipment.

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12
Q

Give an example of Business Interruption insurance and explain what it covers.

A

- provides coverage against loss of income while the damaged property is being rebuilt or the business is being restored.

**- certain extra expenses incurred after the loss **

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13
Q

Give an example of Crime Insurance and explain what it covers.

A

Covers:

- burglary

- robbery

- theft

**- fidelity **

(fidelity refers to the dishonest acts of employees)

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14
Q

Give an example of Liability Insurance and explain what it covers.

A

Covers:

- against claims arising out of bodily injury or death of another person

- loss or damage to property of others resulting from insured’s negligence

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15
Q

Give an example of Aviation Insurance and explain what it covers.

A

Aviation insurance - provides hull (the aircraft) and insurance against liability.

Aviation general liability policy covers ownership, maintenance or operation of airports.

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16
Q

Give an example of a Floater policy and explain what it covers.

A

Covers:

- portable personal or commercial property items

17
Q

Give an example of Personal Property Insurance and explain what it covers.

A

Covers:

- jewellery

- camera equipment

- musical instruments

- fine arts

18
Q

Give an example of a Commercial Property Insurance and explain what it covers.

A

Covers:

- contractor’s equipment

- electric neon signs

- tools

- salesperson’s samples

- agricultural equipment

19
Q

Give an example of Inland Transportation Insurance and explain what it covers.

A

Covers:

- loss or damage to goods while in transit on land

- delay incidental to transit

- motor truck cargo

- parcel post

- registered mail

20
Q

Give an example of Inland Marine Insurance and explain what it covers.

A

Covers:

transportation damage to bridges, wharves, transmission towers.

21
Q

What is the main purpose of insurance?

A

Is to provide a mechanism to spread risk

To share the losses of the few among the many.

22
Q

Explain the TWO (2) facets of spread of risk.

A

1. Insurance makes an individuals existence more stable by removing the burden of loss from one set of shoulders and sharing it with the rest of the community.

2. Insurers aim to achieve a balance of premiums to losses and expenses by having a good spread of risk.

23
Q

How do insurers spread risk?

A

1. Volume - insuring a large number of risks

2. Diversity of type of risk - writing insurance on as many different kinds of risk as possible.

3. Diversity of location - writing insurance in as many different locations as practicable.

24
Q

What are the other functions of insurance?

A
  1. Security - peace of mind
  2. Credit - insurance played a big part in the expansion of credit in modern society.
  3. Capital - the insurance industry manages vast sums of money derived from premiums. Insurers invest heavily in federal and provincial gov’t bonds. Having large pools of capital available within the country is a positive influence on the economy.
  4. Employment - There is probably not another industry that offers such wide-ranging opportunity and variety of occupations.
  5. Loss Prevention - insurers are in the business of spreading risk and paying losses but they are also vitally interested in reducing or preventing losses.
    • Fire Prevention
    • Safe-Driving
    • Crime and Fraud Prevention
25
Q

What benefit does insurance provide to insureds, in addition to paying their claims?

A

Security, credit, capital, employment, and loss prevention.

26
Q

How does insurance affect the availability of credit?

A

Credit underpins research and development of new products and processes.

It is impossible to obtain credit without having insurance on the item concerned.

27
Q

How does insurance provide two-fold protection?

A

It protects the insured’s interest in property

**It protects the lender’s investment. **

28
Q

How does insurance stimulate the economy?

A

1. Spread of risk

2. Security

3. Credit

4. Capital

5. Employment

6. Loss Prevention

29
Q

Outline some loss prevention activities in which insurers are involved.

A
  1. Fire Prevention
  2. Safe Driving
  3. Crime and Fraud Prevention
30
Q

Why can it be said that insurance is much more than a facility for paying losses?

A

- Provides security by providing peace of mind.

- Helps the economy by helping credit expand.

- Creates large pools of capital.

- Employs people in a variety of jobs.

**- Benefits society by loss prevention efforts **

31
Q

If insurance had not evolved along with technology, would we have the highly developed society in which we live today.

A

No.