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General Insurance > General Insurance > Flashcards

General Insurance Flashcards

1
Q

Insurance

A

The transfer of risk. -Transfers the risk from an individual or business to an insurer

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2
Q

Risk

A

Uncertainty about whether a loss will occur. -if a loss is certain to occur, it is not a risk

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3
Q

Speculative Risk

A

Chance of loss or gain. Not insurance.

I.e. gambling loss

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4
Q

Pure Risk

A

Chance of loss only. Can be insured.

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5
Q

Exposure

A

Risks for which the insurance company would be liable. Risk assumed by insurer. Expressed in units.

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6
Q

Loss

A

A reduction in the value of an asset

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7
Q

Peril

A

A cause of loss. The insurer agrees to cover losses caused by a specified peril like death (life) or sickness/accidents (health)

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8
Q

Hazard

A

Something the increases the chance that a loss will occur

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9
Q

Three types of hazards

A

Physical, moral and morale

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10
Q

Moral Hazard

A

Arise from an individual’s character. Dishonesty. A belief that intentionally causing a loss is acceptable.

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11
Q

Physical Hazard

A

Physically identifiable hazard (a heart condition)

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12
Q

Morale Hazard

A

A state of mind or careless attitude. I.e. forgetting to lock a door

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13
Q

Methods of handling risk

A

-Sharing
-Transfer
-Avoidance
-Reduction
-Retention

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14
Q

Sharing of risk

A

Two or more individuals agree to pay a portion of any loss incurred by any member of the group

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15
Q

Transfer of risk

A

Insurance. Spreads a risk of loss among many.

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16
Q

Avoidance

A

Eliminating a particular risk by not engaging in a certain activity

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17
Q

Reduction

A

Lessening the chance that a loss will occur, or lessening the extent of the loss that does occur

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18
Q

The Law of Large Numbers

A

The larger the group-the more accurately losses can be predicted

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19
Q

Elements of Insurable Risk

A

-Calculable
-Affordable
-Non-catastrophic
-Homogeneous
-Accidental
-Measurable

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20
Q

Adverse Selection

A

Risks that have a greater than average chance of loss

-The tendency for higher-risk individuals to get and keep insurance

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21
Q

Underwriting

A

An extensive evaluation of information related to a particular risk. Used to avoid adverse selection. Determines level of risk

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22
Q

Reinsurance

A

Transfers the risk from one insurer to another, like insurance for insurers

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23
Q

Facultative Reinsurance

A

Reinsurer considers each risk before allowing the transfer to be made from the ceding company

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24
Q

Treaty Reinsurance

A

The reinsurer accepts all risks of a certain type from the ceding company

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25
Q

Stock insurer

A

A business formed as a public or private corporation and owned by its stockholders
-if company makes money, a taxable dividend may be paid to the stock/shareholders
-issues non-par policies

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26
Q

Mutual Insurer

A

Does not have stock or stockholders and is owned by its poly holders/owners. If company is profitable, excess premiums can be returned to its policyholders as non taxable dividends
-issues participating policies

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27
Q

Fraternal Benefit Societies

A

Exist for the benefit of its members and offers life insurance as one of the benefits of membership
-organized under a lodge system
-operate as nonprofit societies and receive some income tax advantages
-policies are called certificates

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28
Q

Reciprocal Insurer

A

Incorporated groups of people that agree to insure each other’s losses under a contract
-members are known as subscribers
-members are assessed the amount they have to pay if a loss to any member occurs
-run by an attorney-in-fact

29
Q

Risk Retention Group

A

An insurer formed for the sole purpose of providing liability insurance to its policyholders
-owned by the insured or members
-must all be members of the same type of business

30
Q

Lloyd’s Associations

A

Insurance provided by individual underwriters, not insurance companies
-insure oddities like hole-in-one contests, quarterback’s arm etc

31
Q

Self-Insurance

A

Retaining risk and is a business that pays its own claims with savings set aside to cover losses

32
Q

Domestic Insurer

A

The state where a company is incorporated

33
Q

Foreign Insurer

A

Operates in any state or U.S. territory other than the state where incorporated

34
Q

Alien Insurer

A

Incorporated in any country other than the U.S.

35
Q

Certificate of Authority

A

State license for an insurance company

36
Q

Admitted/Authorized Company

A

Has a state certificate authority to sell insurance

37
Q

Non-Admitted, Unauthorized, Nonapproved Insurance Company

A

Companies allowed to sell insurance to certain types of risks (surplus) without having to have a license

38
Q

Surplus Lines Insurance

A

Sold by unauthorized/non-admitted insurers approved by the state
-only be sold to certain high risk insureds
-can’t be sold just for a cheaper rate than licensed/admitted insurers

39
Q

Independent Insurance Agents

A

Individuals that sell the insurance products of several companies and are independent contractors, not employees of the insurer

40
Q

Exclusive or captive agents

A

Represent only one company. Are independent contractors, not employees.

41
Q

General Agents (GAs) or Managing General Agents (MGAs)

A

Hire, train, and supervise other agents within a specific geographical area. Receive overriding commissions on the business produced by agents they manage.

42
Q

Direct-writing companies

A

Pay salaries to employees whose job function is to sell the company’s insurance products from the company office. Not usually paid a commission and insurer owns all business produced

43
Q

Direct response marketing

A

-no producer/agent
-policies are sold directly to the public by the insurer

44
Q

Agency

A

One person is authorized to represent and act for another person or corporation

45
Q

Agent

A

Person authorized to act on behalf of the principal (insurance company)

46
Q

Principal

A

The insurer, on whose behalf the agent acts

47
Q

Express authority

A

The authority made explicit in a producer’s written agency agreement

48
Q

Implied authority

A

Not written in the agency contract but is assumed to be granted to an agent in accordance with general business practices
-actions agents normally do to sell insurance like make business cards

49
Q

Apparent authority

A

Authority that others believe the agent has
-actions agent does that a reasonable person would assume as authority

50
Q

Fiduciary

A

A person in a position of financial tryst. Obligated to act in best interest of trustee.

51
Q

Commingling

A

Mixing personal funds with the insured’s or insurer’s funds

52
Q

Suitability considerations

A

Agent has a responsibility to make purchase recommendations that are appropriate or suitable, in light of a client’s particular needs, objectives and circumstances

53
Q

Elements of a Legal Contract

A

-Consideration
-Legal purpose
-Offer
-Acceptance
-Competent parties

54
Q

Consideration

A

Exchange of value. In insurance, applicant provides consideration in the form of information and premium, insurer provides consideration in the form of priories to pay if certain loss occurs

55
Q

Adhesion

A

Provisions are written by only one party to the contract, and the other party is required to adhere to them

56
Q

Aleatory contract

A

The value received from the contract by each party may be unequal.
-small premium for large amount of coverage
-lots of premium paid with no loss

57
Q

Utmost Good Faith

A

The insured and insurance company have a right to expect honesty from each other

58
Q

Insurance policies are __________, or one-sided, because only one party is legally bound to perform under the contract

A

Unilateral

59
Q

Insurance policies are conditional contracts because:

A

They require certain conditions to be fulfilled in order for performance under the contract to be enforced. Insured must pay the premium for coverage and file a claim if a loss occurs.

60
Q

Indemnity

A

Contact is intended to restore the insured to the financial state prior to the loss- no more and no less

61
Q

Representation

A

A statement that is believed to be true, to the best of one’s knowledge at the time it is givenm

62
Q

Misrepresentation

A

Information that is given that is not true

63
Q

Material misrepresentation

A

Information given that is not true and DOES affect the insurer’s decision. False information must have been a determining (material) factor in the insurer’s acceptance of the risk

64
Q

Warranty

A

A statement that is guaranteed to be true

65
Q

Concealment

A

Intentional failure to disclose known facts

66
Q

Fraud

A

An intentional act designed to deceive and induce another party to part with something of value

67
Q

Waiver

A

The intentional and voluntary giving up of a known right

68
Q

Estoppel

A

A legal doctrine that prevents a party from denying an action if it had been accepted previously

69
Q
A

General Insurance (20 decks)

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