General Insurance

Question 1

What are the main elements of a legal contract?

Answer 1

1. Agreement (offer and acceptance)
2. Consideration
3. Competent parties
4. Legal purpose

Question 2

Indemnify

Answer 2

Make whole

Question 3

Pure risk

Answer 3

Can only result in no loss or no change. Only type of risk that an insurer will cover

Question 4

Speculautive involves either loss or gain. Not insurable

Question 5

Exposure

Answer 5

Units of measure used to determine rates for insurance coverage

Question 6

What factors are determining rates?

Answer 6

Age, medical history, occupation, and sex

Question 7

Peril

Answer 7

The causes of loss

Question 8

Methods of handling risk

Answer 8

Avoidance, retention, sharing, reduction, transfer

Question 9

Retention

Answer 9

Planned assumption of risk through the use of deductibles, co-pays, and self-insurance. The purpose of retention is to:

1. Reduce expenses and improve cash flow
2. Increase control of claim reserving and claims settlements, and
3. Fund for losses that cannot be insured

Question 10

Reduction

Answer 10

Reducing the possibility of loss, such as installing smoke detectors and having annual physical checkups

Question 11

Elements of insurable risk

Answer 11

Due to chance
Definite and measurable
Statistacally predictable
Not catastrophic
Randomly selected and large loss exposure

Question 12

Types of insurers

Answer 12

Stock companies
Mutual companies
Fraternal Benefit Societies
Reciprocal companies
Risk retention groups
Lloyd’s associations
Surplus lines

Question 13

Stock companies

Answer 13

Stockholders own and operate

Nonparticipating policies (policyholders do not receive dividends, but stockholders do)

Question 14

Mutual companies

Answer 14

Owned by policyholders. Participating policies with non-guaranteed, non-taxable dividends (because they are excess premiums)

Question 15

Reciprocals

Answer 15

Results from an interchange of indemnity of subscribers, collectively known as Reciprocal Insurance Company or Exchange. Put into effect and adminstered through an attorney-in-fact common to all persons

Question 16

Risk retention groups

Answer 16

Liabilitiy insurance companies owned by its members, which spreads out liability throughout as long as the other members are of the same or similar business or trade

Question 17

Surplus lines

Answer 17

Offer insurance to high-risk market

Question 18

AM Best, Fitch, Standard and Poor’s, Moody’s, and Weiss are all what?

Answer 18

Independent rating services that publish guides to insurance companies’ financial integrity

Question 19

Marketing/Distribution systems

Answer 19

Independent agency /American agency system
Exclusive agency system/Captive agents
General agency system
Managerial system
Direct response marketing system

Question 20

Independent/American agency system

Answer 20

One independent agent represents several companies
Nonexclusive
Commission on personal sales
Business renewal with any company

Question 21

Exclusice agency system/captive agents

Answer 21

One agent represents one company
Exclusive
Commissions on personal sales
Renewals can only be place with appointing insurer

Question 22

General agency system

Answer 22

General agent-entrepreneur represents one company
Exclusive
Compensation and commision
Appoints sub-agents

Question 23

Law of agency

Answer 23

The acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer

Question 24

Types of agent authority

Answer 24

Express
Implied
Apparent (perceived)

Question 25

Expressed authority

Answer 25

Expressed in the actual contract

Question 26

Implied

Answer 26

The agent is assumed to have in order to transact business for the insurer

Question 27

Apparent authority

Answer 27

(Perceived authority) Appearance or assumption of authority based on actions, words, or deeds of the principal or because of circumstances the principal created

Question 28

Fiduciary responsibility

Answer 28

In a position of trust

Question 29

Consideration

Answer 29

Something of value that each party gives to the other.

Question 30

Legal purpose

Answer 30

Insurable interest and consent

Question 31

Aleatory

Answer 31

Unequal values

Question 32

Unilateral

Answer 32

One-sided

Question 33

Adhesion

Answer 33

Only one party prepares the contract and the other accepts it or rejects it

Question 34

Representations

Answer 34

Statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true

Question 35

Estoppel

Answer 35

Process used to prevent a party from reasserting a right, claim, or privilege that has been waived

Question 36

Broker

Answer 36

An insurance producer not appointer ny an insurer and is deemed to represent the client

Question 37

Faculative reinsurance

Answer 37

When reinsurance is purchased on a specific policy

Question 38

Reinsurance treaty

Answer 38

When an insurer has an automatic reinsurance agreement between itself and the reinsurer in ehich the reinsurer is biund to acceot all risks ceded to it

Question 39

Lloyd’s Associations

Answer 39

Acts as an insurance market rather than companies. Insurance underwriters and brokers work together to conduct transactions that are facilitated by their members in the same organization.