Chapter 3: Property & Casualty Basics Flashcards
Insurable Interest
financial interest a person has in the person/property being insured
liberalization
if coverage is changed during policy period, insureds under the insurance company’s existing insurance policies will receive the benefit of broadened coverage
*must broaden coverage, no increase in premium
Underwriting- Purpose/Process
Performed by both producers and underwriters during the risk selection process
Information gathered from producer’s application, physical inspections, government reports (vehicle, credit, financial)
Avoid adverse selection
Rate vs. Premium
Rate is price per unit, Premium is rate per unit multiplied by the number of units
Rate
price structure to cover claims and other expenses; provides a profit for the insurer
Judgement Rates
rates determined & applied to individual insureds by the insurance company
Manual or Class Rates
insureds with similar characteristics (homogeneous) are placed into classes, charged same rate.
Manual rates are only rate used in many lines of insurance, used to start developing a merit rate
Merit Rate
Consider the characteristics of a particular risk which increases/decreases a premium. They measure individual loss history and actions taken to reduce/prevent loss
Experience Rating (merit)
looks to past individual experience to predict future rates
Retrospective Rating (merit)
applies the loss history for the current policy period to develop a “final premium” for that same policy year
Hazard
specific condition/situation which increases the probability of loss or the extent of loss
Physical Hazard
structural, operational, or material characteristics of a risk
Moral Hazards
character flaws in a person that could lead to create a loss or expand a loss
Morale Hazard
irresponsibility, carelessness or indifferences to a loss
Named peril
will list each and every peril covered
Open Perils (special form)
covers all causes of loss or damage except those which are specifically stated to not be covered
Basic Named Perils
Fire, lightning, windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism, sprinkler leakage, sinkhole collapse, volcanic action
Broad Named Perils
theft, falling objects, weight of snow/ice accidental discharge/overflow of water, sudden/accidental tear apart of appliance, freezing of plumbing, sudden and accidental damage from artificially generated electrical current
Direct loss
loss/damage as a direct result of a covered peril or cause of loss
Consequential/indirect loss
loss results in insured’s inability to use property because it suffered a direct loss
Specific Insurance
specific limit of insurance on a specific property at one specific location
Blanket Insurance
specific limit of insurance applying to more than one type of property or more that one location; uses total blanket limit to pay losses
Scheduled Coverage
specific insurance covering more than one location; specified limit is provided for each item on location
Frame Construction
generates the most expensive premium
Types of Construction (numbered)
- Frame
- Joisted Masonry
- Non-combustible
- Masonry non-combustible
- Modified Fire Resistant
- Fire Resistant
Fire Resistive
fire insurance premium is least expensive
Replacement Cost
cost to replace damaged property (new for old)
Actual Cost Value (ACV)
replacement cost at the time of loss minus physical depreciation
Functional Replacement Cost
original insured property can be replaced with more commonly used material functionally equivalent at lower cost
Market Value
value of property as determined by the amount of money people would pay for the property knowing relevant facts
Agreed Value
Insured and insurance company agree on a value, amount of insurance carried must be equal to the agreed value
Valued Policy
declares the amount which will be paid in the case of a total loss of the property
Declarations Page (what is found)
Information that personalizes the policy
Named insured, address, location, coverages, amounts of insurance, effective dates, limits of endorsements
Insuring Agreement (clause)
outlines promises made by insurance company to insured
Additional/Supplementary Coverages
specifically list additional coverages that provide coverage beyond the basic policy, at no additional cost
Conditions
obligations/duties required of the insured and insurance company to carry out the policy provisions
Exclusions
limit/restrict coverage
Endorsements
add, modify or exclude coverage, changing the original terms of the policy
Certificate of Insurance
Requested by third party to verify existence of insurance coverage
Named insured
specifically named on dec pages
First Named Insured
more than one named on dec pages, the first listed
Additional Insured
not usually named on dec pages, added to policy as insured by endorsement
Automatic Insureds
granted insured status because they fit into category described in policy provisions
3 Cancelation Provisisons
Pro Rata- insured gets back exactly what entitled to, based on cancelation date
Short Rate- company changes small fee for cancelation
Flat Rate- policy not taken by insured, no coverage taken and no premium earned
Earned Premium
applies to the time the policy was in effect
Unearned Premium
applies to the unused time left in a policy
Nonrenewal
action by the insurance company to terminate insurance coverage at the expiration date or renewal of the policy date
Other Insurance (what is it & how to handle)
insured has more than one policy to pay the loss
Primary Insurance, Excess Insurance, Pro Rata, Contribution by equal shares
Other Insurance Options- Primary & Excess
Primary- insurance coverage pays first
Excess- policy only responds after other insurance is paid out full limit
Other Insurance - Pro Rata
each policy will pay its proportionate share based on its limit of insurance written compared to the total limit of all insurance written
Other Insurance- Contribution by equal shares
each company will pay an equal amount of each loss, remaining policy continues to pay
Nonconcurrancy
policies do not insure for the same level of perils, resulting in gap in coverage
Coinsurance (did/should)
- Requires insured to carry specified percentage of the value of the property; only for partial losses
- Insured has not insured the property to the required values, insured will be required to share in a portion of most covered losses
Vacancy
absence of both people/personal property
Commercial prop.- must rent/use at least 31% of the building
Unoccupency
building contains furnishings and other personal property but has not had people occupying the space for a period of time
Duties of insured after a loss
report claims, cooperate in investigation, submit damages for inspection, make inventory of lost property, submit proof of loss
Assignment
insured giving away ownership of the policy/rights to another person
Waiver of Rights
Either party to contract voluntarily gives up one of the rights/requirements in Conditions section of policy
Insurer Provisions (liberalization & subrogation)
Liberalization- if policy is changed during policy period, insureds under existing policies will receive benefit of broadened coverage
Subrogation- insurance company seeks recovery from a negligent third party who caused a loss to insured’s property
Claims Settlement Options
Options to put insured into previous financial condition
- Repair
- Replace
- Pay cash to repair/replace
Third Party Provisions- Standard Mortgage Clause (Lienholders Rights)
rights/duties of a mortgagee when the lender is named in the policy as the mortgagee
Third Party Provisions- Loss Payable Clause
any loss payment must include the financial interest of the lender named on the dec page or attached endorsements
Third Party Provisions- No Benefit to the Bailee
Bailee- rightful possession of the property of another
avoid situation where bailee tried to escape legal liability for a loss to an insured’s property (preserve insurer’s subrogation rights)
Legal Liability
established under Common Law, Statutory Law, Contract Law
Tort
civil wrong against another party
Common Law
One party has committed a tort
Statutory Law
person violates a statue(law)
Contractual/Contract Law
assumed the responsibility of another through a contract
Negligence
failure to exercise that amount of care an ordinarily prudent person would use to protect others from unreasonable risk/harm/injury
*must have all four elements for negligence
Legal Duty/Standard of Care (negligence)
legal duty to act or not act in a given situation
Breach of Duty (negligence)
you didnt do what others would have in a similar situation
Proximate Cause (negligence)
unbroken chain of events leading to the damages
Actual Loss or Damage (negligence)
third party must suffer actual injury or damage
4 Common Law Defenses
Assumption of Risk, Act of God/Nature, Intervening Cause, Contributory Negligence
Assumption of Risks- Law Defense
one knowingly/voluntarily exposes a known danger and the consequences of that danger
Act of God/Nature- Law Defense
event produced by a physical cause of nature, not within human control or intervention
Intervening Cause- Law Defense
separate act that breaks the direct connection between the proximate cause of loss and sets in motion a new chain of events causing injury/loss
Contributory Negligence- Law Defense
person adds in any way and is not entitled to collect damages from the other party
Comparative Negligence
an injured party can recover damages as long as their % is not great than the negligence of the other party
Statute of Limitations
any statute which prescribes the time limit in which a legal action must be brought
Injury suit- 2 years
Contractual Liability suit- 4 years
Damages
sum of money which compensates an injured party
Compensatory Damages
compensate the injured party for damages incurred
Special Damages (economic)
measurable dollar amounts of an actual loss or out of pocket costs
General Damages (non-economic)
subjective and hard to measure; pain and suffering, disfigurement, loss of consortism
Punitive Damage
sum of money in excess of the amount required to compensate for loss and which is imposed to punish the negligent party for the reckless indifference now and deter similar conduct in the future
Absolute/Strict Liabaility
imposes liability w/o regard to fault or negligence
Strict- holds sellers, distributors and manufacturers responsible for hazardous products
Absolute- explosives, mining or blasting, lions and tigers
Accident
taking place in an instant rather than continuously over time
Occurance
including continuous or repeated exposure to substantially the same general harmful conditions
Duty to Defend
policy to provide a defense to the insured for any/all covered claims under the policy
Per person liability limit
the most the policy will pay for bodily injury to any one person
Per Occurrence (accident) Liability Limit
the most an insurance company will pay arising out of any one occurrence of a covered loss, no matter how many people were injured
Split Limit Liability
limit that is divided between two types of insurance coverages; usually Bodily injury and property damage
Combined Single Limit Liability
combined single limit for bodily injury and property damage; advantage is flexibility
Aggregate Limit Liability
the most we will pay for all claims that occur during one policy period, also contain a per occurrence limit. Written on per policy, per location, per project basis; not reinstated until next policy term
Purpose of PA Property & Casualty Insurance Guaranty Association
pay covered claims under certain property & casualty policies which have not been paid by an insurance company because of insolvency (inability to pay debts)
Guaranty Association- Range of Authority
only covers property/casualty policies written by admitted/authorized insurers
Standard Fire Policy
conditions/provisions are basis of most property policy’s (dwellings, homeowners, comm. property and businessowners policy)
Binder
temporary contract of insurance; issued for a period not to exceed 30 days
Insurance Consultation Services Exemption Act
protects insurers from liability actions resulting from performing or failing to perform services.
