Insurance Flashcards
Insurance
transfer of risk.
Risk
uncertainty / possibility of a loss
What are types of risk
Speculative Risk and Pure Risk
Speculative risk
chance of loss or gain. Not insurable
Pure risk
chance of loss only. Insurance companies will insure.
Exposure
Risk for which the insurance company would be liable.
Peril
Cause of loss
Hazard
Something that causes an increase in the chance of loss
Physical Hazard
the hazard that can be seen
Moral hazard
a belief that intentionally causing a loss is acceptable
Morale Hazard
Carelessness
Starr
Methods of handing risk
What are Starr terms
Sharing, Transfer, Avoidance, Retention and Reduction
Insurance
Risk Transfer
Contract
(policy) an agreement between the insured and the insurer
1st party
Insured (customer)
2nd party
Insurer (the insurance company)
Law of large numbers
Larger the group, the more accurate losses can be predicted
Canham Risks
That can be insured have the following characteristics
Canham risks
Calculable, Affordable, Non-catastrophic, Homogeneous, Accidental and Measurable
Adverse selection
Risk that have a greater then average chance of loss
Reinsurance
An insurance company (the ceding company) paying another insurance company (re insurer) to take some of the companies risk of catastrophic loss
Stock insurer
pubically owned by stockholders/shareholders If the company makes money, a taxable dividend from the profits may be paid to the stockholders/shareholders. issue non-par policies
Mutual insurer
Owned by policy holders (customers) if the company is proitable. can return excess premium to its policyholders. nontaxable dividend. issue participating polcies
Fraternal Insurer
Provides insurance and other benefits, must be a member of the society to get the benefits.
Reciprocal insurer
Unincorporated, members are assessed the amount they have to pay if a loss to any of the member of the group occurs. Run by attorney in fact.
Lloyd’s association
Insurance provided by underwriters not companies
Risk retention group
Liability insurance company created for and owned by policyholders from the same industry
Risk purchasing group
a group of businesses from the same industry joining together to buy liability insurance from an insurance company
Self insurance
a business that pays its own claims
Residual market
insurance from the state or federal government
Insurance company locations
Domestic =state where company is incorporated
Foreign =any state or Us territory other then the state where incorporated
alien =incorporated in any country other then the USA
Certificate of authority
state license for an insurance company
Admitted or authorized
state requires the insurance company to have a certificate of authority
Non-admitted
unauthorized insurance company not required to have a certificate of authority from the state
Surplus lines
insurance sold by unauthorized/non-admitted insurers, if the state approved list of surplus insurers. Can only be sold to certain high risk insureds. Cannot be sold just for a cheaper rate then licensed/admitted insurers.
Financial strength rating
a report card of the company
Methods of marketing
independent, exclusive or captive. general agents or managing general agents, direct writing companies and direct response no agent/producer involved
Agency
The insurance agent acts on behalf of the principal (insurance company)
Agent authority
Express =What the agents written contract with the company says
Implied =not written but are things agents normally do to sell insurance
Apparent =Things the agent does that a reasonable person would assume as authority, based on the agents actions and statements
Fiduciary trust
Promptly sends premiums to insurer, knowledge of products, comply with laws and regulations and no commingling
Legal contract (CLOAC)
Consideration giving something of value, insured gives information and money (premium) to the insurance company. insurance company gives a promise to pay(policy) to the insured
■ Legal purpose—risk transfer doesn’t violate the law
■ Offer (made by insured)
–– Insured submits application and first month’s premium to insurer
–– Counteroffer (made by insurer)
■ Agrees to issue policy but with higher premium or restrictions/exclusions
■ Insured either accepts the conditions or withdraws her application
■ Acceptance—insurer accepts risk as presented
■ Competent parties—insured age 18 and sane
Adhesion
Policy written by insurance company
■ If ambiguous(not clear)—court will take the side of the insured
Aleatory
not equal value small premium for a large amount of coverage
Upmost good faith
the insured and insurance company have a right to expect honestly from each other
Unilateral
Only one promise made, insurance company promises to pay for covered loss insured does not promise to pay premium
Personal
Contract between the insurance company and the insured, cannot be changed to someone else
Conditional
Insured must pay the premium for coverage and file a claim if a loss occurs
Indemnity
pay for the loss but with no gain
Representation
Believed to be true
Misrepresentation—information given that is not true—however, the correct information
would not affect the insurance companies decision – insured mistakenly gives one number of
their address wrong—doesn’t void coverage
■ Material misrepresentation— information give that is not true—this information DOES affect the
insurers decision—insured has a conviction for driving while intoxicated—could void coverage
Warranty
A promise
Always made by the insurance company—if promise to pay is broken—company could be sued
by the insured.
■ May be made by the insured—if promise is broken—insured may have no coverage
■ Guaranteed to be true
Concealment
Failure to disclose
If intentional, and the information is material (important)—coverage could be voided
■ If NOT intentional—coverage cannot be voided
Fraud
intentional act to cheat another
Waiver
voluntarily giving up a right
Estoppel
Actions reasonably relied on by one party can’t be denied by the party that accepted same previously
Fraud and false statements
Fine and or imprisonment (10-15 years) Embezzlement included
