General Insurance Flashcards
Risk
The possibility of suffering a loss
Pure Risk
Possibility of either a loss or no loss (fire or no such loss)
Speculative Risk
Possibility of a loss as well as a possible gain. (Stocks.. make or lose money)
Exposure
A condition or situation that presents risk or the a possible financial loss
Peril
Cause of loss. Fire, vandalism, windstorm, etc.
Hazard
Condition that creates or increases the chance of a loss from a peril
Physical Hazard
Physical characteristic that increases the possibility of a loss. The condition of the property itself
Moral Hazard
A person’s sense of right and wrong that may lead them to want the loss to occur.
Morale Hazard
A person’s attitude, as reflected in their personal and business habits. Condition related to carelessness or indifference
Loss
Negative Financial result of a risk, often the damage or injury caused by a peril.
Methods of Managing Risk
Avoidance: Do nothing that would create the possibility of loss
Reduction: Take steps to reduce the chance or amount of loss
Sharing: Distribution of risk. i.e., coinsurance or partnership requiring insurer to pay for part of loss
Retention: Do nothing to avoid or reduce the risk, simply keep or retain the loss.
Transfer: When a pure risk can not be avoided, action has been taken to reduce it, but it is still too great to retain. Insurance is a form of risk transfer.
Adverse Selection
The fact that poorer-than-average risks want insurance coverage to a greater extent than average or better risks. Underwriting guards against too much adverse selection.
Reinsurance
Insurance between insurers. Original insurer is known as the ceding and the other is the assuming insurer
Reinsurance through a Treaty Basis
Reinsurer automatically accepts all exposures from the ceding insurer
Reinsurance through a Facultative Basis
Reinsurance requires and individual reinsurance agreement for each risk insured.
Reciprocal Insurer
(Inter-insurance exchange) is an unreciprocated group of subscribers who insure each other by exchanging indemnity agreements through an Attorney in Fact
Attorney in Fact
A person appointed to represent each subscriber through a written power of attorney
Lloyd’s Association
not an insurance company. A voluntary association of individuals or groups of individuals who agree to insure a particular risk. Individually responsible for an agreed portion of the insurance
Risk Retention Groups (Self-Insurers)
Organizations that are large enough so the law of large numbers enable accurate estimates of losses which have sufficient assets in reserve to cover their own losses to retain their own risk.
Insurer Types
Domestic: In the state in which it was formed and chartered under that state’s law.
Foreign: In any state other than the one in which it was formed
Alien: An insurer formed under the laws of any country other than the US
Authority/Powers of Producers
Express: Stated in the agency agreement
Implied: Not stated, but assumed by the producer to be part of their standard duties
Apparent: Authority the public believes the producer has, based on their actions.
Contract (has 4 parts)
An agreement by competent parties, for good consideration, to do or not to do a specific lawful thing, and enforceable in a court of law
- Competent Parties
- Legal Purpose: Cannot require either party to perform an act that is illegal
- Offer and Acceptance: agreement, meeting of minds and making mutual consent
- Consideration: Something of value which is given by each party to create a contract.
Characteristics of an Insurance Contract
Adhesion: Price, terms, and conditions are not subject to bargaining. Offered by insure and either accepted or denied by insured.
Aleatory: Subject to chance. Premium is small in relation to the amount of insurance.
Personal: Insures the person, not their life or property.
Unilateral: Only one party makes a promise thats legally binding.
Conditional: As each party must perform only if a specified, but uncertain, event takes place.
Indemnify
An insured pays the amount lost by the person covered by the insurance
Principle of Indemnity
States the insured should not make a profit. He should only be placed in the same financial condition he was in before the loss.
Warranty
A guarantee about conditions which are supposed to exist
Representation
A statement considered to be substantially true to the best knowledge of the person making it.
Misrepresentation
A false statement of fact. Fraudulent material, the insurer can refuse payment of a claim or cancel the policy
Fraudulent
False representation about a material fact. Made with intent to harm or gain with recklessness or indifference to the truth, relied upon by the other party, and/or resulted in harm to others.
Concealment
Willful withholding of material info in order to deceive another person.
Waiver
Voluntarily giving up the right by accepting late payments
Estoppel
A court stopping a person from claiming its rights because of prior voluntary statements or conduct.
Fair Credit Reporting Act (FCRA)
A federal law designed to protect the privacy and assure the accuracy of consumer report info.
Pure Premium
The amount to cover claims when expressed in dollars and cents
Loss Ratio
When expressed as a percentage of the gross premium .
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The amount to cover the insurer’s expenses of operation
Expense Ratio
The percentage of the gross premium
Combined Ratio
The total of the loss and expense ratio. When combined and less than 100%, the insurer profits. If it’s greater, the insure loses money.
Types of Rating
Class or Manual: most common for personal lines. Allows insurer to apply a single rate to a large number of insureds. Lumps similar people in a similar class together to apply the same rate to many Individual or Judgement: Rates risk specifically based on the underwriter's judgement of the risk being insured. Merit: Creates rates by applying a schedule of charges and/or credits to a manual rate to determine the appropriate rate for an individual exposure.
Binders
Oral or written agreements to provide immediate temporary coverage until a property or casualty insurance policy can be issued. Includes all usual terms a policy would unless otherwise stated. Good for up to 90 days in OR.
Certificate of Insurance
A document used to show that a policy has been issued.
Liability
Legal responsibility for the loss or injury suffered by another.
Direct Liability
Arises out of injury or damage resulting from one’s own acts or property
Contingent (Indirect) Liability
Has for acts of another party who had direct liability due to a unique relationship between the parties.
Vicarious Liability
For acts of a negligent person because of a certain relationship with that person.
Contracatual Liability
Assumed in contract.
Tort
A civil wrong, other than a breach of contract.
Intentional Tort
Intentional interference with a person or property of another.
Tortfeasor
Someone who commits a civil wrong
Strict Liability
For manufacturers and sellers of products for injuries caused by defective conditions in their products, even if they were not negligent in manufacturing or selling that product.
Absolute Liability
(liability without fault) Imposed in situations by law. For injury to another or their property regardless of negligence or willful wrongdoing.
Negligence
Failure to act as an ordinary, reasonable person would in the same circumstances. Involves carelessness, thoughtlessness, forgetfulness, ignorance, and poor judgment
Elements of Negligence:
- Legal Duty, Breach of duty/failure to act with care, actual damage and/or loss, and breach or failure to act was the proximate cause
Intervening Cause
States that another cause of injury interrupted the chain of events resulting from a negligent person’s original action
Contributory Negligence
An injured party, through their own negligence, contributed to the injury and is unable to recover any damages from the person who caused the injury
Comparative Negligence
Allows injured party who is partly at fault to collect damages but allows his negligence to be used as a defense to reduce the damages they can collect.
Doctrine of Last Clear Chance
Allows negligent party to recover damages if the defendant had an opportunity immediately prior to the accident to prevent it but failed to do so.
Statute of Limitations
State law that limits the period of time a person has to take legal action against a claim.
Damages
The amount paid for a loss
Special Damages
Compensation to reimburse a person for specific expenses or loss of income.
Compensatory Damages
Payments to compensate an injured party for the actual loss suffered.
General Damages
Paid to compensate an injured party for pain and suffering, and mental anguish.
Declarations
Statements made by the insured about the particular risk. Personalize the policy. Involves: name, address, policy period, premiums, endorsements, deductibles, and any other information necessary to creating a contract.
Specific Limits
Has a single amount of insurance on a specific item at a specific location.
Blanket (unscheduled) Limits
Has a single limit of insurance to cover all item sat one or more locations.
Scheduled Policy
Covers one or more items at one or more locations that specifies the amount of insurance for each.
Definitions
Provide the special meaning certain terms have when used in the policy.
Accident
A sudden unexpected and unintended event causing injury.
Occurrence
An accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results in injury or property damage
Vacancy
A building that has no people or contents. After 60 days of vacancy, is not covered from vandalism.
Unoccupancy
A building with no people but does have contents.
Insuring Agreement
Insurance company promises to pay for a loss resulting from any of the perils covered by the contract.
Exclusions
Specify what the insurance company will NOT cover in terms of type of property, perils or losses. i.e., Loss is certain, catastrophic, extra-hazardous, covered elsewhere, or the insured can control hazard
Conditions
Clauses or provisions in a policy that specify the rights and responsibilities/obligations of both insured and insurer to the policy. i.e., cancellation/non-renewal, claim settlements, policy periods, rights and duties of both
Additional/Supplemental Coverages
Provide coverage beyond the principal coverage.
Endorsements
Forms used to add to, delete from or change the standard contents of the policy. They can change the content of the dec page, add or delete perils or property, or change policy conditions.
Actual Cash Value (ACV)
Equal to its replacement cost minus depreciation (loss in value due to age and wear and tear). i.e., a sofa 20% depreciated, costing $1,000 originally to replace new, would have an ACV of $1,000 - 20% = $800.
Market Value
Based on supply and demand of an item at the time it sold on the open market.
Coinsurance Provison
Encourages insureds to insure their property for close to full value by offering an insured who maintain insurance at the specified coinsurance level for extensions of coverage, premium discounts, and replacement cost coverage instead of ACV coverage.
Deductible
Specified dollar amount or percentage of a covered loss the insured must pay or a period of time that must elapse before the insurer is liable for the payment for a loss.
Subrogation
The insured transfers to the insurer their rights to collect damages from a person responsible for a loss up to the amount they received for the claim or in return for immediate settlement of a claim
Abandonment
States that the insured cannot leave damaged property in the hands of the insurer and demand payment of the full value of the property as a total loss.
Salvage
Recover as much of the loss as they can if the insurer pays the insured in full for damaged property.
Non-renewal Provisions
Written advance notice and gives a reason and lender if applicable. Non-paid premiums have a 10 day notice while anything else gets a 30 day written notice.
Loss Payable Clause
Provides that the creditor with a financial interest in personal property covered by the policy will be named as joint payee on any check issued to pay a claim for a loss to that property.
No Benefit to Bailee Provision
States that the insured’s insurance coverage does NOT extend to a bailee
Bailee
A person in possession of another’s property. i.e., a dry cleaner or storage company. They have the duty to return the property to the owner or deliver or dispose of it as agreed.
