General Insurance - chapter 1 Flashcards
who protects the insuring population by regulating all insurers and insurance professionals doing business in the State.
The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator
Who issues non-participating policies and is owned by stockholders who
received taxable corporate dividends as a return of profit.
A stock insurance company
Who issues participating policies and is owned by the policyholders
who receive non-taxable dividends as a return of unused premium.
A mutual insurance company
What is Reinsurance
Reinsurance is the transfer of risk between insurance companies. The reinsurer assumes some or
all of the risk of the ceding, or primary, insurance company
what is a domicile?
Domicile refers to the state in which an insurer is incorporated.
what is a domestic insurer?
A domestic insurer is organized
under the laws of the resident state
what is a foreign insurer?
foreign insurer is organized under the laws of another state
within the United States
what is a alien insurer?
alien insurer is organized under the laws of a country outside
the U.S.
who is authorized to do insurance business in the state and is issued a Certificate
of Authority by the state’s Department of Insurance.
An admitted insurer
what department of an insurance company is responsible for the selection of risks to
insure and determines the rate to be charged.
Underwriting
A person or agency appointed by an insurance company to represent it and to present
policies on its behalf.
Producer
can be the employee of an insurance company that owns the agent’s book
of business, or an independent agent that enters into agency agreements with more than one
insurance company.
Agent/producer
is a three-party relationship where a Principal authorizes an Agent to act on
its behalf to create a legal relationship with a Third Party.
The Law of Agency
is written into the producer’s agency contract; implied authority is that which
the public assumes the agent possesses; and apparent authority is created when the agent
exceeds express authority and the insurer does not respond.
Express Authority
protects consumer privacy by ensuring that any data
collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and
specific purpose
Fair Credit Reporting Act (FCRA)
the uncertainty of a loss.
A risk
the cause of loss
A Peril
increases the probability of a loss.
A hazard
The 3 types of hazards are?
physical, moral, and
morale.
does not allow the insured to profit from a loss; instead, it restores
the insured to the same financial or economic condition that existed prior to the loss.
The principle of indemnity
what is Insurable interest?
property and casualty insurance must exist at the time of the loss
is one of adhesion; one party (the insurer) prepares the contract and
presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis
insurance contract
used to determine premium include the nature of the risk, hazards,
claims history, and other factors that vary depending upon the risk.
Underwriting Factors
Contract of Adhesion is?
Insurer writes the contract, presents it to the applicant on a “take-it-or leave-
it” basis, without negotiation.
Aleatory Contract
The exchange of value is unequal
Valued Contract
A contract that pays a stated amount in the event of a loss
***Most insurance
policies are NOT valued contracts unless they are endorsed.
An agreement to pay on behalf of another party under specified
circumstances, such as when a loss occurs
Indemnity Contract
A policy form that alters or adds to the provisions of a property and casualty
insurance contract.
Endorsement
Personal Contract is when…
Owner cannot transfer or assign ownership of an insurance policy (property
and casualty) to another person.
A Non-Personal Contract is when
Owner may transfer or assign ownership of a life or health insurance
policy to another person.
what is assignment?
Policy owners may not assign or transfer their rights under an insurance contract
without the written consent of the insurer.
Unilateral Contract
Only one party is legally bound to the contractual obligations after the
premium is paid to the insurer.
***Only the insurer makes a promise of future performance, and
only the insurer can be charged with breach of contract.
Conditional Contract
Both parties must perform certain duties and follow rules of conduct to
make the contract enforceable.
***The insurer must pay claims if the insured has complied with all
the policy’s terms and conditions.
Reasonable Expectations Doctrine
What a reasonable and prudent policy owner would expect;
the reasonable expectations of policyowners are honored by the Courts although the strict terms
of the policy may not support these expectations.
Representations
Statements made by the applicant on the application that are believed to be
true to the best of the knowledge and belief of the applicant
A false statement contained in the application
Misrepresentations
The willful hiding or obscuring of material facts pertinent to the issuance of
insurance (or a claim).
Concealment
Statements in the application or stipulations in the policy that are guaranteed true
in all respects
Warranties
Intentional deception of the truth in order to induce another to part with something of
value or to surrender a legal right
Fraud
what are the 5 elements of fraud
■ False statement, made intentionally and that pertains to a material fact.
■ Disregard for the victim.
■ Victim believes the false statement.
■ Victim makes a decision and/or acts based on the belief in, or reliance upon, the false
statement.
■ The victim’s decision and/or action results in harm.
An agreement without legal effect because it was made illegally or it was
declared void by the courts because it doesn’t contain all the elements of a legal contract.
Void Contract
A valid contract that for reasons satisfactory to a court, may be set aside by
one of the parties.
Voidable Contract
company is owned by stockholders or shareholders.
Stock Insurance Company
company is owned by policyholders (who may be referred to as members)
Mutual Insurance Company
A group-owned insurer whose main activity is risk sharing.
Reciprocal Insurance Company
This is not an insurance company, but consists of groups of underwriters called
Syndicates, each of which specializes in insuring a particular type of risk.
Lloyds of London
primarily social organizations that engage in charitable and
benevolent activities that provide life and health insurance to their members
Membership typically consists of members of a given faith, lodge, order, or society.
Fraternal Benefit Societies
what does the risk retention group do
spreads the liability related risks of its
members.
***Each member assumes a portion of the risks insured.
A ______________ insurance company is owned by its policyholders.
a. Stock
b. Reciprocal
c. Fraternal Benefits Society
d. Mutual
D. Mutual
Insurers agree to apportion among themselves those risks that are unable
to obtain insurance through normal channels.
Risk Sharing Plan
*Residual Markets
A private coverage source of last resort for businesses and individuals who have been
rejected by voluntary market insurers.
types of reinsurance companies are?
Treaty Agreements – Reinsurance agreement that covers all risks contained in the subject
line(s) of business automatically.
and
Facultative Agreements – Reinsurance agreement that allows ceding and reinsurance
companies the opportunity to negotiate coverage for individual risks
If an insurance company wants to transfer all or part of the risk it has accepted, it
would buy which of the following types of insurance?
a. Residual
b. Reinsurance
c. Reciprocal
d. Insurer
B ) reinsurance
Which of the following is an insurance company that is organized under the laws of another state within the United States? a. Domestic b. Alien c. Foreign d. Authorized
C. Foreign
Insurer Management
What do executives do?
Oversee the operation of the business.
Insurer Management - Actuarial Department?
determines the probability of loss and sets premium rates.
Insurer Management - Underwriting Department?
Responsible for the selection of risks
***and rating that determines actual policy premium
Insurer Management- Marketing/Sales Department
Responsible for advertising and selling
Insurer Management - Claims Department?
Assists the policyholder in the event of a loss
Which insurance company department accepts the insurance risk?
a. Executive
b. Actuarial
c. Claims
d. Underwriting
D. Underwriting
A licensed individual who negotiates insurance contracts with insurers, on behalf of the
applicant.
Broker
Which of the following individuals represents the insurance company when selling an insurance policy? a. Producer b. Broker c. Adjuster d. Insurer
a. Producer
Which of the following types of authority does the public assume an agent has when quoting insurance? a. Authorized b. Express c. Implied d. Apparent
c. Implied
A producer has each of the following responsibilities to the Insurer, except:
a. A fiduciary duty
b. Forwarding premiums to the insurer on a timely basis
c. Reporting material facts that may affect underwriting
d. A duty to recommend only high rate policies
D. A duty to recommend only high rate policies
Protects consumer privacy
Fair Credit Reporting Act
Imposes record keeping and government reporting requirements on banks, financial institutions
and non-financial businesses for specific financial transactions and customer financial records (a
part of the Bank Secrecy Act).
Financial Anti-Terrorism Act
regulates maritime commerce in U.S. waters, transportation of cargo, and the rights of seamen.
Merchant Marine Act of 1920
established the Financial Privacy Rule and
Safeguards Rule for the protection of consumers’ privacy.
Gramm-Leach-Bliley Act
Enacted in direct response to the terrorist attacks
Terrorism Risk Insurance Act
The Act made it a felony for a person to engage in the business of insurance after being
convicted of a state or federal felony crime involving dishonesty or breach of trust.
Violent Crime Control and Law Enforcement Act of 1994
A federal regulation called the ___________ protects consumer privacy.
a. Consolidated Omnibus Budget Reconciliation Act
b. Fraudulent Insurance Act
c. Privacy Protection Act
d. Fair Credit Reporting Act
D. Fair Credit Reporting Act
What are the types of risk
Speculative Risk & Pure risk
Situations where there is a chance for loss, gain, or neither loss nor gain to occur example gambling
what type of risk is this?
Speculative Risk
Situations where there is no chance for gain; the only outcome is for nothing to occur
or for a loss to occur.
what type of risk is this?
Pure Risk
A physical condition that increases the probability of loss; use, condition, or occupancy of property. Example: Flammable material stored near a furnace.
what type of hazard is this?
Physical Hazard
Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people. Example: An insured burns down his/her own house to collect the insurance payout.
Moral Hazard
Attitude that increases the probability of a loss. Example: Indifference or carelessness of leaving one’s house or vehicle unlocked.
Morale Hazard
The condition of being at risk for a loss. Purely by existing, property and
people are at risk for loss.
Loss Exposure
An imbalance created when risks that are more prone to losses than the average
(standard) risk are the only risks seeking insurance within a specific marketplace. For
example, only those living in earthquake-prone areas seek to buy earthquake insurance.
Adverse Selection
Analyzing exposures that create risk and designing programs to minimize the possibility
of a loss.
Managing Risk
Ways of managing risk?
STARR
SHARING - Investments
TRANSFER -Transferring the risk from one party to another, such as from a consumer to
an insurance company.
ADVOIDANCE - Elimination of the risk.
REDUCTION - Minimizing the chance of loss
RETENTION -Assume the responsibility for loss
Insurable risks must include
Large number of homogeneous units or groups with the same perils
Law of Large Numbers
As the number of units in a group increases, the more likely
it is to predict a particular outcome.
Dishonest tendencies that increase the probability of loss are what types of hazard?
a. Physical
b. Moral
c. Emotional
d. Legal
b. moral
Each of the following must be included in an insurable risk, except:
a. Calculable chance of loss
b. Excluded catastrophic perils
c. Large group with dissimilar members
d. Accidental losses
C. Large group with dissimilar members
Both parties bargain in good faith when forming and entering into the contract.
The two parties rely upon the statements and promises of the other and assume
no attempt to conceal or deceive has been made.
Contract of Utmost Good Faith
what does estoppel do?
Prevents the denial of a fact, if the fact was admitted to be true previously
All of the following are producer responsibilities, EXCEPT:
A. Issue policies
B. Represent the insurer
C. Solicit and accept applications, and forward them to the insurer
D. Provide quotes and collect premiums
A. Issue policies
*** Producers do not issue policies. Insurers issue policies. Producers represent the insurer in soliciting, receiving, and forwarding applications, providing quotes, and collecting premiums.
Which of the following powers describes the authority stated in an agent’s agency contract?
A
Implied
B
Apparent
C
Assumed
D
Express
D. Express
***The agency contract, which exists between an insurer and a producer, sets forth the powers that are granted to the producer. These powers are referred to as express because they are directly stated in the contract.
The principle of indemnity helps avoid which of the following?
A. Loss exposure
B. Underinsurance
C. Overpayment of a claim
D. Adverse selection
C. Overpayment of a claim
***The principle of indemnity restores the insured to the same financial status as before the loss, protecting against overpayment and making a profit from a loss.
