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Insurance > General insurance > Flashcards

General insurance Flashcards

1
Q

Insurance

A

A contract that transfers the risk of financial loss from an individual or business to an insurer.

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2
Q

Risk

A

Uncertainty about whether a loss will occur

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3
Q

Types of risk

A

Speculative- loss or gain could occur (not insurable) EG. Gambling/investments

Pure- only loss can occur (is insurable) EG. Car crash/death etc.

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4
Q

Loss

A

Reduction of value in an asset

Value before loss-value after loss= total amount of loss

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5
Q

Exposure

A

Risks for which the insurance company would be liable

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6
Q

Peril

A

Cause for loss

Death/accidents and sickness

For property fire/lightning etc.

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7
Q

Hazard (and hazard types)

A

Anything that increases the chance that a loss will occur

Physical- can be seen or determined (heart condition or wet floor)
Moral- intentionally causing a loss (dishonesty etc.)
Morale- carelessness or unintentional behaviors (leaving door unlocked etc.)

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8
Q

Methods for Handling Risk

A 
Sharing
Transfer 
Avoidance 
Reduction
Retention
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9
Q

What is the law of large numbers?

A

Makes insurance possible

The larger the group- the more accurately losses can be predicted. Can’t predict exactly who will have a loss, but can predict fairly accurately how much they will have to pay out in claims

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10
Q

Risks that can be insured must have the following characteristics

A

Calculable (calculable based upon prior loss statistics)
Affordable (premium for transferring risk must be affordable)
Non-catastrophic (cannot insure events that cause widespread loss to large numbers of insureds)
Homogeneous (must be similar in odds of loss)
Accidental (if a loss is certain to occur there is no risk)
Measurable (must be possible to have dollar amount)

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11
Q

Adverse selection

A

Risks that have higher than than average chance of loss

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12
Q

Underwriter

A

Determines that the risk is higher than average. Insurance may charge more, limit the amount liable, or refuse application all together

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13
Q

Reinsurance

A

An insurance company paying another insurance company (reinsurer) to take some of the companies risk of catastrophic loss

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14
Q

2 ways reinsurance works

A

Facultative- the reinsurer evaluates each risk before allowing transfer

Treaty- the reinsurer accepts the transfer according to an agreement called a treaty

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15
Q

Stock insurer

A

Owned by stockholders and shareholders

Board of directors chosen by the stockholders and shareholders

If the company makes money a taxable dividend from the profits maybe paid to the stock holders and shareholders

Issues non par policies

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16
Q

Mutual insurer

A

Owned by the policyholders

Board of directors chosen by policy holders

If the company is profitable excess premiums can be returned to its policy holders (non taxable)

Issues participating policies

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17
Q

Fraternal Insurer

A

Provides insurance and other benefits

Must be a member of the society to get the benefits

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18
Q

Reciprocal insurer

A

Unincorporated group of people that agree to pay each others losses under a contract

Members are assessed the amount they have to pay if a loss to my member of the group occurs

Run by an attorney-in-fact

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19
Q

Risk Retention Group (RRG)

A

Liability insurance company created for policy holders from the same industry. Ex. Car dealership RRG- only car dealerships can be policy holders

20
Q

Lloyd’s associations

A

Insurance provided by individual underwriters, not insurance companies

Ex. Hole in one contests. Hair of celebrities, etc.

21
Q

Self insurers

A

A business that pays its own claims. Retain risk. Set aside funds to cover potential losses

22
Q

Residual market

A

Insurance from the state or federal government level

23
Q

Insurance company location

A

Domestic (in the state where a company is incorporated)

Foreign (any state or US territory other than the state where incorporated)

Alien (incorporated in any country other than USA)

24
Q

Authorized vs unauthorized insurers

A

Certificate of authority (state license for insurance company)

Admitted authorized or approved (state requires the insurance company to have a certificate of authority)

Non-admitted (insurance company not required to have a certificate of authority from the state)

25
Q

Surplus line

A

Insurance sold by unauthorized/non-admitted insurers (if on the states approved list of surplus insurers)

Can only be sold to high risk insureds

Can’t be sold just for a cheaper rate than licensed/admitted insurers

26
Q

4 types of agents

A

Independent- sales are made by agents who represent more than one company

Exclusive or captive- sells for one company

General agent- recruits other agents in a certain area who actually sell the insurance to the customer

Direct writing- company sells the insurance through salaried employees of the company

27
Q

Direct response

A

Policy is sold directly from insurer to consumer. No agent required

28
Q

Agency

A

Insurance agent acts on behalf of the principle (insurance company)

29
Q

3 types of agent authority

A

Express (what the agents written contract with the company states)

Implied (not written, but are the actions agents normally do to sell insurance)

Apparant( actions the agent does that a reasonable person would assume as authority, based on the agents actions and statements)

30
Q

Fiduciary

A

Person in a position of financial trust

31
Q

Commingling

A

Mixing personal funds with insureds funds

32
Q

Sustainability considerations

A

An agent has the responsibility to make purchase recommendations that are appropriate in light of clients needs/goals/circumstances

33
Q

5 elements to form a valid contract

A 
Consideration
Legal purpose
Offer
Acceptance
Competent Parties
34
Q

Adhesion

A

Policy written by the insurance company

If ambiguous court will take side of the insured

35
Q

Aleatory

A

Not equal value- small premium for a large amount of coverage

36
Q

Unilateral

A

Only one purpose

Insurance company promises to pay for a covered loss

Insured does NOT promise to pay the premium

37
Q

Personal contract

A

A contract made with one particular person and no one else

38
Q

Conditional contract

A

Require certain conditions to be fulfilled in order for performance under the contract to be enforced

39
Q

Contract of indemnity

A

Restore to the insured’s original ore-loss condition, no better, no worse

40
Q

Representation

A

A statement that is believed to be true

Misrepresentation- information that is not true, but doesn’t affect insurance company’s decision (one number wrong on address)

Material misrepresentation- information that is not true and does affect decision

41
Q

Warranty

A

Statement that is guaranteed to be true

Always made by the insurance company - if promise to pay is broken company could be sued

Maybe made by the insured- if promise is broken insured may have no coverage

42
Q

Concealment

A

Intentional failure to disclose known facts

If intention and the info is material coverage could be voided

If NOT intentional coverage cannot be voided

43
Q

Fraud

A

Intentional act to cheat another

Voids policy

44
Q

Waiver

A

Voluntarily giving up a right

45
Q

Estoppel

A

Actions reasonably relied on by one party can’t be denied by the party that accepted previously

Insurance (11 decks)

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