Chapter 6,7

Question 1

Application

Answer 1

A request for insurance by an insured. Applications may be done verbally, in writing or online. The insured provides information relating to the subject for insurance. The insurer then assesses this information and decides whether to accept the risk for insurance and the terms of such acceptance.

Question 2

Applicant

Answer 2

The person or the firm requesting insurance. That party answers oral questions or completes written forms that contain information to assess the risk.

Question 3

Utmost Good Faith

Answer 3

A legal principle calling for the highest standard of integrity from the insured and insurer.

Question 4

Personal Information Protection and Electronic Documents Act

Answer 4

A federal statute that governs the collection and use of personal information. It states that personal information to be collected must be relevant, and that all information that has been collected, is being collected, or will be collected must be held in the strictest of confidence.

Question 5

Privacy Breach

Answer 5

The unauthorized collection, disclosure, use, access, destruction, or modification of personal information.

Question 6

Misrepresentation

Answer 6

Incorrect or missing information about a material fact that is offered, or not, by an applicant or insured with or without intent to mislead.

Question 7

Premium

Answer 7

The price of insurance protection for a specified risk for a specified period of time.

Question 8

Driver Abstract

Answer 8

A three year record of a driver. Includes information such as a driver’s name, license number, class, expiry date, conditions/restrictions, and/or status information.

Question 9

Rate

Answer 9

Amount charged to an insured that reflects the expectation of loss for a covered risk, insurance company expenses, and profit. In other words, it is the basis of premium calculation for the insurance provided for the exposure.

Question 10

Policy Period

Answer 10

Duration of policy, most often one year for property and casualty insurance. Also called “policy term”.

Question 11

Lienholder

Answer 11

One who holds a registered claim against a given property or collateral against a loan or workmanship performed in relation to that property. The financial commitment associated with a registered lien must be fully discharged and satisfied before the property in question may be liquidated, sold, or transferred to another property.

Question 12

Insurable Interest

Answer 12

An interest that the insured must have in the subject of the insurance purchased so that if the event insured against occurs, the insured will suffer an economic loss.

Question 13

Driver Training Credit

Answer 13

A premium discount or rebate given under private passenger automobile insurance for all new drivers that have successfully completed an approved driver training program.

Question 14

Minimum Retained Premium

Answer 14

A premium specified on an individual policy that is the minimum amount retained by the insurer in the event that the policy is cancelled midterm by the insured.

Question 15

Earned Premium

Answer 15

1. That portion earned or charged for the period of time a policy remained effective.
2. Amount calculated by taking the earned premium reserve at the beginning of the period plus the premium written during the period, less the unearned premium reserve at the end of the period.
3. Premium actually exposed to loss.

Question 16

Underwrite

Answer 16

To insure. More commonly, to scrutinize a risk and then decide on its eligibility for insurance.

Question 17

Facility Association

Answer 17

An entity established by the Canadian automobile insurance industry to ensure that automobile insurance is available to all owners or drivers of motor vehicles where such owners or drivers are unable to obtain automobile insurance through the voluntary insurance market.

Question 18

Rate Manual

Answer 18

A manual containing rates and underwriting rules for use by a company’s staff, agents, and/or brokers.

Question 19

Retention

Answer 19

1. The amount of liability the ceding company (primary insurer) retains for its own account. It may be a percentage or a dollar amount of each risk.
2. Also refers to the part of the risk retained by clients without insuring it.

Question 20

Risk

Answer 20

The chance of loss. Specifically, the possible loss or destruction of property of the possible incurring of a liability. Sometimes referred to as the subject of an insurance contract.

Question 21

Moral Hazard

Answer 21

A hazard arising from the character, interest, habits, and lack of integrity of the insured or person concerned.

Question 22

Physical Hazard

Answer 22

A hazard arising from the physical condition or characteristics of the object that is insured.

Question 23

Exposure

Answer 23

The hazard threatening a risk because of external or internal physical conditions.

Question 24

Underwriting Rules

Answer 24

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.

Question 25

Manual Rating

Answer 25

A pricing method in which an insurer uses rates that are based on its own experience rather than on that of a specific group for which it is calculating a premium.

Question 26

Loading

Answer 26

An additional charge included in an insurance rate to reflect a hazard not contemplated in the basic rate for the class.

Question 27

Total Loss

Answer 27

1. Loss of all the insured property.
2. A loss involving the maximum amount for which a policy is liable.

Question 28

Law Of Large Numbers

Answer 28

The mathematical premise that states the degree of uncertainty is reduced as the number of events increases.

Question 29

Pure Premium

Answer 29

Portion of the total premium that is needed to pay expected losses. It does not take into account money needed for company expenses.

Question 30

Expense Loading

Answer 30

The part of a premium rate that represents the cost to the insurer of productng and maintaining the policy.

Question 31

Acquisition Costs

Answer 31

a. The cost of putting business on the books and acquiring the premium. The items involved are not standard with all insurers, but generally may include such items as agents’/ brokers’ commissions, field representatives’ costs, premium tax, and perhaps some of the relevant head office acquisition costs of operation.

Question 32

Commission

Answer 32

Compensation based on the amount of production.

Question 33

Reinsurance

Answer 33

Insurance purchased by an insurance company from another insurance company to provide it protection against large losses it has already insured. Essentially insurance for insurance companies.

Question 34

Automobile Statistical Plan (ASP)

Answer 34

A collection of statistical information that all automobile insurers who write business in Canada must record and file as prescribed by the superintendent of insurance. Commonly known as the Green Book.

Question 35

Commercial Liability Statistical Plan Ontario (CLSP)

Answer 35

A manual that sets out the statistical data reporting requirements of each participating jurisdiction. Currently, only Ontario participates in this plan.

Question 36

Ontario Statutory Accident Benefits Statistical Plan (OSABSP)

Answer 36

Every insurer that writes automobile insurance in Ontario must report its data in accordance with the OSABSP manual. The OSABSP was introduced in 1994 to provide insight into the cost of drivers of accident benefits claims.

Question 37

Fleet Policy

Answer 37

In automobile insurance, a policy insuring a number of cars for one owner.

Question 38

Private Passenger Vehicle

Answer 38

Four wheeled motor vehicle of the private passenger, station wagon, or van type, designed for use on public highways and subject to motor vehicle registration.

Question 39

Paid Losses

Answer 39

The amount actually paid in losses during a specified period of time.

Question 40

Outstanding Losses

Answer 40

Losses that have been incurred but have not yet been paid.

Question 41

Incurred But Not Reported (IBNR) Losses

Answer 41

An estimate of the amount of an insurer’s liability for claim generating events that have taken place bit have not yet been reported to the insurer or self insurer. The sum of IBNR losses plus incurred losses provide an estimate of the insurer’s eventual liabilities for losses during a given period.

Question 42

Loss Costs

Answer 42

The proportion of the insurance rate that covers costs of claims. Rates generally also include proportions for expenses, profit, and contingencies.

Question 43

Incurred Losses

Answer 43

The total amount of paid claims and loss reserves associated with a particular period of time, usually a policy year. Incurred losses are customarily computed in accordance with the following formula: losses incurred during the period, plus outstanding losses at the beginning of the period. This does not ordinarily included incurred bit not reported losses.

Question 44

Actuary

Answer 44

One who specializes in the mathematics of insurance, mortality rates, and the like.

Question 45

Trending

Answer 45

The process of adjusting statistics for premiums and losses to current or anticipated future levels to represent changes in insurance experience from economic and demographic forces, and to use data to determine present and anticipated future levels of cost.

Question 46

Canadian Loss Experience Automobile Rating (CLEAR)

Question 47

Insurance Bureau Of Canada (IBC)

Answer 47

The trade association of the property/casualty insurance industry in Canada. It concerns itself with such matters as public relations, the collection of statistics, the promulgation of forms, etc. It has a substantial permanent staff but also many committees made up of volunteers from the senior ranks of insurance companies.

Question 48

Third Party Liability

Answer 48

Insurance coverage to pay compensation to anyone who sustains loss or damage resulting from an insured’s negligent conduct or omission.

Question 49

Adverse Selection

Answer 49

Occurs when those with higher risks may purchase insurance in greater amounts than those with lower risks. Much of insurance law and practice is designed to control adverse selection. Insurers protect themselves from adverse selection by attempting to measure risk and either charging more for the higher risks or refusing to cover them at all.