General Insurance Flashcards
What are the main elements of a legal contract?
- Agreement (offer and acceptance)
- Consideration
- Competent parties
- Legal purpose
Indemnify
Make whole
Pure risk
Can only result in no loss or no change. Only type of risk that an insurer will cover
Speculautive involves either loss or gain. Not insurable
Exposure
Units of measure used to determine rates for insurance coverage
What factors are determining rates?
Age, medical history, occupation, and sex
Peril
The causes of loss
Methods of handling risk
Avoidance, retention, sharing, reduction, transfer
Retention
Planned assumption of risk through the use of deductibles, co-pays, and self-insurance. The purpose of retention is to:
- Reduce expenses and improve cash flow
- Increase control of claim reserving and claims settlements, and
- Fund for losses that cannot be insured
Reduction
Reducing the possibility of loss, such as installing smoke detectors and having annual physical checkups
Elements of insurable risk
Due to chance Definite and measurable Statistacally predictable Not catastrophic Randomly selected and large loss exposure
Types of insurers
Stock companies Mutual companies Fraternal Benefit Societies Reciprocal companies Risk retention groups Lloyd’s associations Surplus lines
Stock companies
Stockholders own and operate
Nonparticipating policies (policyholders do not receive dividends, but stockholders do)
Mutual companies
Owned by policyholders. Participating policies with non-guaranteed, non-taxable dividends (because they are excess premiums)
Reciprocals
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
Risk retention groups
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
Surplus lines
Offer insurance to high-risk market
AM Best, Fitch, Standard and Poor’s, Moody’s, and Weiss are all what?
Independent rating services that publish guides to insurance companies’ financial integrity
Marketing/Distribution systems
Independent agency /American agency system Exclusive agency system/Captive agents General agency system Managerial system Direct response marketing system
Independent/American agency system
One independent agent represents several companies
Nonexclusive
Commission on personal sales
Business renewal with any company
Exclusice agency system/captive agents
One agent represents one company
Exclusive
Commissions on personal sales
Renewals can only be place with appointing insurer
General agency system
General agent-entrepreneur represents one company
Exclusive
Compensation and commision
Appoints sub-agents
Law of agency
The acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer
Types of agent authority
Express
Implied
Apparent (perceived)
Expressed authority
Expressed in the actual contract
Implied
The agent is assumed to have in order to transact business for the insurer
Apparent authority
(Perceived authority) Appearance or assumption of authority based on actions, words, or deeds of the principal or because of circumstances the principal created
Fiduciary responsibility
In a position of trust
Consideration
Something of value that each party gives to the other.
Legal purpose
Insurable interest and consent
Aleatory
Unequal values
Unilateral
One-sided
Adhesion
Only one party prepares the contract and the other accepts it or rejects it
Representations
Statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true
Estoppel
Process used to prevent a party from reasserting a right, claim, or privilege that has been waived
Broker
An insurance producer not appointer ny an insurer and is deemed to represent the client
Faculative reinsurance
When reinsurance is purchased on a specific policy
Reinsurance treaty
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
Lloyd’s Associations
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.
