Chapter 3 Flashcards
List five kinds of people who need to apply for insurance
- People who have no coverage at all, such as first time insured were those who have had a lapse in coverage
- People who are looking for an alternative quote for an expiring policy
- People who want to evaluate the services provided by another agent or broker because they’re not satisfied with their current agent or broker
- People have an existing policy but require additional coverages
- People who are in a situation that has changed and their current agent or broker can no longer service them
Define disclosure
1) general Dash the process of revealing all relevant facts
2) law - the requirement that party is to a litigation disclose relevant information, or the material documents that are partying tends to rely on to support his or her case, to the opposing side
Define misrepresentation
Incorrect or missing information about a material fact that is offered, or not, by an applicant or an insured with or without the intent to mislead
Define representation
A statement or conduct made to influence and ensure to decide on a risk. The decision includes declining or accepting the risk and deciding the rate and premium to be charged. And insurance, these statements are said to be material to the risk and are enough to be void a policy ab initio
What becomes critical when the application is oral?
On the application is oral, note taking becomes critical, as these notes may be the only record of the transaction. Some agencies and brokerages make it a practice to record all phone calls. In these cases, the recording can be used as confirmation of the application and the client’s requests, and can be used in place of written signature. If the conversation is in person is unlikely there will be any recording made.
List five things a broker agent can do to avoid misunderstandings for oral applications
- Retain and organize their notes
- Identify which client and policy the notes belong to
- Sign and date the notes
- File the notes appropriately
- Follow the notes with written confirmation to the client and to the insurer
What is the main written application resource for forms?
A main source for such forms is the center for a study of insurance operations. ( CSIO )
What is the center for study of insurance operations?
The csio is a National association of property and casualty insurers and independent insurance brokers working together to achieve electronic business solutions for the insurance industry. One of its projects is the creation of industry standard application forms. Copies of these are available in electronic format from the csio website or they can be ordered in paper format.
List six benefits of a written application
- Permits recording of information only once, eliminating the risk of making errors while transcribing the information
- Reduces delays and improves customer service Dash getting all the information the first time, as prompted by the application, eliminates the needs for follow-up calls
- Produces documentation for cases where the law requires it as part of the policy, such as with automobile and life insurance
- Produces documentation where the interior requires it, even though the law does not insist on a written application- for coverages such as bonds, valued covers, personal floaters, and liability insurance
- Provides proof of the questions asked by the intermediary and the information given by the applicant, as well as the date and time it was disclosed
- Ensures the correct legal and privacy disclosures as required by privacy legislation are given to the client and that the client agrees to them
List 8 sections required on an application
- Named insured
- Policy term
- Subject of insurance
- Loss payees
- Loss history
- Prior insurance
- Agents and brokers report
- Signatures
List four entities that can be sued or who can sue
- An individual
- A group of individuals
- An incorporated business
- Any of the above operating as a business
Define subject of insurance
The subject of insurance is the thing that is being insured. This could be a home, a car, commercial equipment, business property, or the insurance responsibility for injury or damages to others. That is to be insured will affect the lines of insurance coverage required and the limits of coverage
Define loss payee
A person or an entity other than the named insured who the proceeds of insurance will be paid
Define mortgagee
A special class of loss payee that has a registered interest on real property offered as security for the money that the mortgage has loaned the property owner
define mortgage clause
A clause in an insurance policy that stipulates the rights and obligations of the insurer and the mortgage e. The main characteristics of this clause are that the mortgage is granted protection in the event a loss is denied due to the actions of the insured provided that the mortgage was not aware of the insurance wrongful action and, in return, the mortgage accepts responsibility to advise the insurer of any misrepresentation or change in risk of which the mortgage is aware
Define the three underwriting concerns that relate to a possible financial instability into moral hazards that could arise out of that instability
- The presence of many lost payees could indicate that the insured is suffering financial hardship
- When cash flow is poor, the result could be poor or delayed maintenance - and a property that is not well cared for
- Too much debt might tempt an unscreptuous insured to alleviate the problems by staging a loss
What what two things for prior insurance indicate a potential concern for Underwriters?
- An unexplained Gap in coverage - Underwriters May question why alternative coverage was not in place to continue protection
- Previous insurers declining, denying, or refusing to renew insurance - this could indicate a possible moral hazard or the applicants are no longer qualified to be insured with particular insurers, but it might also be due to insurers withdrawing from a class of business
What is the agent and brokers report used for?
The agent and brokers report is an opportunity for intermediaries to present any additional information about clients based on their personal knowledge of them. Insurers are interested in knowing such things as whether accounts are new, and whether intermediators know applicants, have personally seen the properties to be insured, or know the drivers of vehicles
What are the practices of signing applications and how do they vary by coverage line?
The law requires all automobile applications to be signed, personal insurance applications are sometimes, but not always signed, and all commercial insurance applications are only rarely signed. When the application forms part of the insurance contract, the application must be signed and dated.
List four reasons why a signature is important to have on an application even if it’s not mandatory
- It becomes a declaration made by the applicant confirming that the statements made are accurate
- Even when it does not form part of the policy, the application is the basis on which the contract is issued
- Privacy legislation must be compiled with
- It is required by the insurance company to meet its binding requirements
Having a signed application reduces the possibility of dispute at a later date. Misunderstandings can and do a rise. Assigned application shows exactly what passed between the parties.
List three specific notes the privacy laws required that app can be advised and give their express permission for the agent or broker to share
- To obtain insurance and financing
- For investigation if Underwriters want to obtain information from the investigative services division of the Insurance bureau of Canada
- To perform credit checks
Normally, agents and brokers assist for clients in completing application since they’re more familiar with the forms and clients are. List three types of applications that can either be paper or online and can be processed.
- Rating tools - some intermediaries have access to rating tools that will return quotes from multiple insurers at once, which can make providing comparative quotes to clients easier. Once the client accepts a quote from the ones generated, a paper application can be created for review and signing or, depending on the technology utilized by the intermediary the selected quote can be uploaded to the insurers portal for binding
- Insurers system: applications are submitted individually through each insurers quoting tool, this can be keyed from a paper application or notes, or it can be uploaded from the intermediaries quoting tool or management system
- Sent to insure - in some cases, the individual submission must be sent to the underwriter for manual quoting
How does an insurer qualify a client
Agents and brokers can qualify clients by establishing where the client heard from The brokerage or agency, reviewing the prospectives lost history, and assessing their financial condition
Assessing needs and providing advice for their customers
An assessment of a client’s exposure is helped the intermediary establish what types of coverage may be needed, whether he or she can assist this client, which market will best be able to ensure the client, and what advice the intermediary can offer the client. Agents use this assessment for most of the same reasons brokers do, but, when they only have one insurer, part of that assessment is to confirm whether that insurer can provide coverage for the client.
List three things that the application for changes of an existing client might consist of
- Notes taken verbally to add a specific coverage, transcribed and transmitted to the other insurer, either manually or through the insurers portal
- Copy of an expiring policy plus the intermediaries notes detailing updated information from the client and or the coverage enhancements intermediary wishes to offer to the client, which are recorded as an application for the insurer
- A formal written application
If the agents are broker fails to be careful to transmit all relevant information about the insurance what could be the result?
If the intermediary is not careful to transmit all relevant information about insurds and their lost history, their insurance circumstances and needs for the insurer, could result in the intermediary being held responsible for an insured loss rather than loss being a claim under the insurance policy
Verifying lost history
Verifying lost history is done by either by checking with the previous insurer or by use of an automated database. It is normal to make use of industry databases to confirm lost history, however, a few insurers results are not included on these databases, so under writers ask these prior insurers to confirm the loss history.
What are the three major Insurance databases
- Habitual insurance tracking system ( HITS) FOR HABITATIONAL RISKS
- Auto plus for automobile risks
- Commercial tracking system for commercial risks
What are some following steps after loss history has been confirmed?
- Quote the risk - assuming it meets the underwriting guidelines of the insurer and is within the authority that has been granted to the intermediary. If the client then accepts the quote, the lost history record becomes a part of the submission and the insurer when the policy is ordered.
- Submit the risk to the insurer with the lost history record from the database for quotation if it is beyond the intermediators authority to quote. In the situations, if the underwriter wants to surcharge or decline coverage, they intermediary may be able to provide details or advocate for deductibles or recommendations that could enhance the risk profile and lead to the availability of coverage
- Decline the risk at the loss history is unsatisfactory and, if after considering all market options, including placement in a high risk market, the intermediary is unable to place coverage. Due to the special rules for automobile business and some provinces, agents and brokers will not decline an automobile risk. These risks would always be submitted to an insurer, whether private or government, for its determination.
When the decision is made to purchase insurance, an application is submitted to the broker agent or directly to an insurer, giving the details of the risk to be insured. The generators will look at both of the risk and the applicant. It is the underwriters responsibility to decide which of the following actions to take
- Accept the risk
- Accept the risk to certain conditions
- Reject the risk
Underwritters look at the risk and make their decision based on the following
- Personal information about the applicant used to determine if there is a moral hazard
- Details of physical hazards and exposures of the risk under consideration
- Special factors pertaining to the class of risk or type of insurance
Define special hazards
Forcing hazards / risks common to certain types of businesses that are not covered in an ordinary policy. For example, woodworking plans and paint jobs
Define the underwriting rules
The rules used by insurance companies to assess the insurability of a particular risk. These rules are set individually by insurance companies and may differ for each class of business
What are the three reasons an underwriter May reject a risk
- The insurer may not ensure that class of business. For example, some insurers do not underwrite automobile insurance for vehicles used for pizza delivery services
- The risk may be so much more hazardous than the average that the potential for a loss is almost certain
- The risk may be substandard, and although the potential for improving or upgrading exists, the applicant is not prepared to carry out suggested improvements
What are two factors that the amount of an insurer will insure on a given risk depends on?
- The concentration of values of this and other nearby risks, if the risk in question involves coverage against loss by fire or subject to catastrophic loss probability
- Reinsurance facilitates available to reduce the risk to average proportions and to keep the amount of retention within the maximum limit laid down and overall company policy by the directors.
Define manual rating
A pricing method in which an insurer uses rates that are based on its own experience rather than on that specific group for which it is calculating a premium
Define loading
An additional charging included in an insurance rate to reflect a hazard not contemplated in the basic rate for that class
What is the calculation to obtain the premium price?
Rate x amount of insurance= premium
