Exam Flashcards
What is meant when we say that insurance is a ‘risk transfer’ mechanism?
The risk that the insured runs is transferred to the insurer for a known cost ( The premium)
What are the main stages in the risk management process?
Risk Identification
Risk analysis
Risk control
What are the 2 main elements that are involved in measuring risk?
Frequency ( how often the claim occur)
Severity ( What they cost when they do )
What is the definition of peril?
A peril is what gives rise to a loss
What is the definition of hazard?
What influences the operation of the peril either by making a loss more likely to occur or by increasing the potential size of loss
What is the difference between physical hazard and moral hazard?
Physical- relates to the actual measurable dimensions of a risk
Moral- Attitudes and behaviours of the people closely related to the risk
How does the ‘common pool’ operate in insurance?
Equitable contributions are collected from all those in a pool and valid claims paid out to the few who suffer loss
Which of the items describe an insurable risk ?
Speculative, Pure, Financial, non-financial, fundamental and particular
Pure, Financial, particular
List the elements that must be present for a risk to be insurable.
-Pure, Financial, particular
-Fortuitous (As far as the insurer is concerned)
- Must be insurable interest
-Should not be against public policy
-Have homogeneous exposures
What type of insurance are grouped together as ‘pecuniary’ insurances ?
-Fidelity Guarantee
-legal expenses
-Credit
-Business Interruption
-Political
-Guaranteed asset protection
-Money insurance (Some Classifications)
What are the Characteristics of co insurance ? (Between Insurers)
-The rating and terms to be applied are agreed among the insurers involved
-A collective policy is issued
-Each insurer receives a stated proportion of the premium and pays the same proportion of any loss
-The leading office is the first named insurer and usually carries the bulk of the risk
-Leading office issues the documentation.
- insured has a direct contractual relationship with each individual co-insurer
What are the Characteristics of co insurance ? (Between Insurer and the insured)
-The insurer retains a substantial part of each loss either through choice or as a condition of having the risk accepted by the insurer
-This might be expressed as co-insurance 25% meaning that the insured will bear 25% of each claim under the policy.
What are the 5 main components of the insurance market?
-Buyers
- Intermediaries
- Price comparison website/ aggregators
-Insurers
-Re-insurers
State 3 Types of Buyers in the market
-Private individuals
- Partnerships
-companies
-public bodies
- associations and clubs
What is the difference between a proprietary company and a mutual company, in terms of ownership?
Proprietary- owned by shareholders
mutual- owned by policy holder
Why do reinsurers fall into the category of buyer and seller?
reinsurers fall into both categories as they accept risks and also seek to transfer part of there portfolio of risk to other reinsurers
what significant change took place in Lloyds in 2008 in relation to distribution channels?
The legislative reform order 2008 removed the restriction that only a Lloyds broker can place business at Lloyds
What is the role of the intermediary in the Marketplace?
To bring buyers and sellers together
What are the benefits for a manufacturing company in forming a captive company?
-To obtain the full benefit of the group’s risk control techniques
-Avoidance of the direct insurers overhead
-Buying reinsurance at a low cost
What is a loss adjuster?
An expert in processing claims from start to finish
What are 2 of the functions of claims personnel?
-Deal quickly and fairly with claims
-Distinguish between real and fraudulent claims
-Settle claims with minimum wastage
-Assess the cost of the claim
-Determine weather others, such as loss adjusters, need to be involved.
What is LIIBA’S mission?
London remains where the world wants to do business by continuing the transformation of market processes and maintaining the highest professional standards
What are the current rates of insurance premium tax?
-Standard rate is 12%
- Higher rate is 20%for travel, some insurance for vehicles and domestic/electrical appliances
What are the 2 agreements entered into between MIB and the Uk Government?
-untraced drivers agreement
-uninsured drivers agreement
How does the definition of a valid contract relate to insurance contracts?
An agreement, enforceable by law, between an insurer and an insured. The insured agrees to pay a premium and the insurer to pay a sum of money, or something of monetary value, on the happening of a specified event to the insured
What are the 3 essential elements of a valid contract?
Offer
Acceptance
consideration
What is meant by consideration?
Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.
When is acceptance deemed complete in relation to postal acceptance?
when the letter of acceptance is posted
What are the usual elements of consideration in an insurance contract ?
-The insured consideration is a premium and the promise to comply with policy terms
-compensate the insured in defined circumstances
What rights does an insurer usually have to cancel a policy mid-term ?
-A letter sent by recorded delivery to insured last known address
-This gives a period of notice after which the policy will be cancelled
-This period varies between insurers and can be anything between 10-30 days
-A pro rata return premium is sent to the insured for the unexpired portion on the risk
How may an agency be created?
By consent, Necessity and ratification
What is ratification?
A situation where an agent acted outside the terms of the agency agreement but the principal subsequently accepts the act as having been done on their behalf
Identify 2 situations in which an independent intermediary may be considered as acting for the insured ?
-When an agent advises on the cover or where the insurance should be placed
-When an agent advises the insured on how to formulate a claim
What is apparent authority?
Where the agent appears to a third party to have the authority to commit their principal to a certain course of action. This creates a binding contract even if the agent had not been given authority to act in such a way . This could happen where an agent had acted on several occasions beyond their authority without being challenged or questioned by the principal. If the third party was aware of the agent’s earlier actions then the principal would not be in a position to refuse to be committed on this occasion.
How may an agency be terminated?
-By mutual agreement between agent and principal
-By the principal withdrawing the agency or the agent giving it up
-Through the death, bankruptcy or insanity of either party.
What are the 4 general requirements that should be met when an insurer creates a TOBA that will apply to its dealings with an intermediary?
-Be clear and succinct
-Reflect the business relationship
-Define and allocate responsibilities and rights
-Ensure compliance with regulatory or statutory rules.
What is the subject-matter of an insurance contract ?
The insured’s financial interest in the subject-matter of the insurance
What is the definition of insurable interestt
The legal right to insure arising out of a financial relationship, recognized at law between insured and the subject- matter of insurance.
When must insurable interest exist in general insurance?
Always at the time of the loss and generally at inception, although reasonable expectation at inception may be sufficient
How do insurers insure part of or all of the risk they have assumed under a policy?
By reinsurance
What are the 3 main ways in which insurable interest may arise?
Common law
Contract
Statute
