General Insurance Flashcards
Stock Insurance Company
A stock company owned by stockholders. Stockholders receive corporate dividends as a return of profit.
Mutual Insurance Company
Owned by policyholders. A board of Trustees or Director direct the company operations and is elected by policyholders. Policyholders receive dividends!
Reciprocal Insurance Company
A group-owned insurer whose main activity is risk sharing. Each subscriber assumes a part of the risk of all other subscribers.
Lloyds of London
Consist of groups of underwriters called Syndicates, each of which specializes in a particular type of risk. Members are individually liable for each risk they assume.
Fraternal Benefits Societies
Are primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members. They are usually organized on a non-profit basis.
Risk Retention Groups (RRG)
A group-owned insurer that primarily assumes and spreads the liability related risk of its members. Owned by POLICYHOLDERS. Must be made up of similar units. Must have sufficient liquid assets to meet loss obligations.
Self-Insurer
To assume the financial risk one’s self. Generally only and option for large companies who may even re-insure for risk above certain maximum limits.
Residual Markets
A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers.
Reinsurance Companies
An insurance company that assumes all or a portion of a risk from a primary or ceding insurance company. Transfers risk among insurance companies.
Types of Reinsurance:
a. Treaty Agreements - Covers all risk contained in the subject lines of business automatically.
b. Facultative Agreements - Allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risk.
Financial Rating Services
Services evaluate and rate the financial stability of insurance companies. Rating are available to the public.
Domestic Insurer
An insurer organized under the laws of this state, whether or not it is admitted to do business in this state.
Foreign Insurer
An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States, whether or not it is admitted to do business in the state or jurisdiction.
Alien Insurer
An insurer organized under the laws of any jurisdiction outside of the US, whether or not it is admitted to business in this state.
Admitted
Insurer is authorized by this State’s Commissioner of Insurance to do business in this State. Has received a Certificate of Authority.
Non-admitted
Insurer has applied for authorization to do business in this sate and was declined or they have not applied. They are not authorized to transact insurance in this state.
-Surplus and Excess lines insurance can be placed through non-admitted carriers.
Surplus Lines
Coverage when insurance cannot be obtained through non-admitted carriers.
- State Regulated.
- Must go through a Surplus Lines Brokers or Producers.
Actuarial Department
Collect and interpret statistical information used in rate making. Determines the probability of loss and sets premium rates.
Underwriting Department
Responsible for the selection of risks and rating that determines actual policy premium
Exclusive or Captive Agency System
Deals with the insured through an exclusive or captive agent.
Law of Agency
A relationship between two or more parties where one party(the AGENT or PRODUCER) acts on behalf of the other party, known as the PRINCIPLE
Insurer (Principle)
Source of authority from which the producer must abide.
Three Types of Authority?
Express - Authority that is written into the producer’s agency contract.
Implied - Authority the public assumes the producer has.
Apparent - Authority created when the producer exceeds the authority expressed in the agency contract.
Broker
A licensed individual who negotiates insurance contracts with insurers on behalf of the applicant.
Fair Credit Reporting Act
Protects consumer privacy. States data collected from applicant is secure and private.
Financial Anti-Terrorism Act (USA Patriot Act)
Imposes record keeping and government reporting requirements on banks, financial institutions, and non-financial businesses for specific financial transactions and customer financial records.
Fraud and False Statements (Fraudulent Insurance Act)
Federal law prohibits the commission of fraud. Insurance applications must contain a disclosure about how false statements and fraud will be treated by the insurer.
Merchant Marine act of 1920 (The Jones Act)
Workers Comp laws don’t apply to seamen, the Jones Act allows insured seamen to make claims for injuries suffered during the course of employment.
-Regulates maritime commerce in US waters, cargo transportation, and the rights of seamen.
Motor Carrier Regulatory and Modernization Act (Motor Carrier Act of 1980)
Deregulate the trucking industry by prohibiting any entity from interfering with a motor carrier’s right to set its own rates. Motor carriers that transport property are required to establish evidence of financial responsibility/
Gramm-Leach-Bliley Act
Financial Privacy rule requires institutions to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter.
- Allows mergers of banks, securities,and insurance companies.
- Give consumer’s right to opt out of the information being shared per in compliance with the Fair Credit Reporting act.
Risk
A condition where the chance or potential for a loss exist.
Management
Determination of what types of protection are required to meet an insured’s needs.
What are the two types of Risk?
Speculative - Situations where there is a chance for loss, gain, or neither loss nor gain to occur. Think gambling. Speculative risk can’t be insured.
Pure - Situations where there is no chance for gain. Pure risk can be insured.
Peril
Cause of loss.
Hazard
A specific condition that increases the probability of a loss.
What are the three types of hazard?
Physical - A physical condition that increases the probability of loss; Flammable material stored near a furnace
Moral - Dishonest tendencies that increase the chance of a loss; I burned down my crib to collect that insurance money $$$
Morale - Attitude that increase the probability of a loss; I live in the hood and always leave my doors unlocked.
Ways of Managing Risk
Hint: S.T.A.R.R.
Sharing - Investments of a large number of people pooled by use of a corporation or partnership.
Transfer - Moving risk from one party to another; such as from a consumer to an insurance company
Avoidance - Elimination of the risk, avoid the activity that causes the loss.
Reduction - Minimizing the chance of loss; Sprinkler systems, burglar alarms, pollution controls, etc. Also, pooling or spreading risk among a large number of ppl or entities.
Retention - Assuming responsibility for loss. Self insure the entire loss or a portion.
Law of Large Numbers
As the number of units increases, the more likely it is to predict a particular outcome.
Principle of Indemnity
Insured is restored to the same financial or economic condition that existed before the loss. Insured shouldn’t profit.
Tort Law
Torts are civil wrongs; NOT CRIMES OR BREACHES OF CONTRACT.
Estpoppel
Prevents the denial of fact, if it was admitted prior to be true.
Hold Harmless Agreement
Contractual agreement that transfers the liability of one party to another party;used by landlords, contractors, etc to avoid or reduce risk.
Contract of Adhesion
One party writes the contract without input from the other party; any doubt is construed in favor of the party that did not write it.
Indemnity Contract
An agreement to pay on behalf of another party under specified circumstances; when a loss occurs.
Unilateral Contract
Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer can be charged with breach of contract.
Conditional Contract
Both parties must perform certain duties and follow rules of conduct to be enforceable.
