Insurance Exam Flashcards
Indemnity
To restore policyholder to pre-loss condition; make whole
- no better, no worse
Insurance
Transfer of risk from insured to insurer
- Transfer chance of loss to insurer - Thru legal contract
Reinsurance
The insurance company’s insurance company
- insurance company determines retention limit and buys reinsurance for the balance - also known as "pooling the risk"
Risk
Uncertainty of Future Outcome, Financial Loss
Pure = Chance of Loss Only > covered by insurance
Speculative = chance of loss or gain > cannot be covered by insurance
STARR - Methods of handling risk
Methods of Handling Risk:
> Sharing = chance of loss is shared among many individuals - called pooling the risk
> Transfer = shifting financial burden of loss from insured to another party. This is thee purpose of insurance
> AVOIDANCE - avoiding a particular activity that could turn into a loss
> Retention - Accepting the possibility of a loss yourself by insuring only above a certain $ amount
- deductible is a certain type of risk retention
> Reduction - Taking action to reduce the possibility of loss - control
CANHAM - Elements of Insurable Risk
Elements of an Insurable Risk
> Calculable - prior loss statistics available
> Affordable - premium affordable to consumers
> NON-CATASTROPHIC - no earthquake, war, terrorism
> Homogenous Exposures - similar exposures
> Accidental - not intentional
> Measurable - # & $ amounts
Perils
- Policy Written in 2 Forms
Causes of Loss = Common Causes incl fire, wind, lightning
Policies written in 2 forms:
- Specified (named) = Perils covered specifically listed in policy
- Open Peril (All Risk) = specifically lists excl, everything else is covered
Hazard
- PMM
Hazards increase the chance of loss
- Physical - material characteristics
- Moral - dishonest tendencies
- Morale - careless irresponsible attitude
> Statement that best describes Hazard
- a condition increasing chance of loss
Hazard increase the chance or severity of loss
- cracked sidewalk - intentionally burn down house - leave keys in unlocked car
Insurable Interest
- PEP
- All ins contracts are required to contain an element of:
All insurance contracts are required to contain an element of insurable interest:
- Personal/ Financial Interest
- Economic Loss ($$) Required
- For Property and Casualty must exist @ time of loss
PQ: All of the following are examples of insurable interest EXCEPT….
- Property person expects to inherit
Loss Valuation
The process of determining the value of the loss:
- Replacement Cost - today’s cost to fully replace lost/damaged property w/ like kind or quality property - w/o deduction for depreciation
- Actual Cash Value (ACV) - replacement cost minus depreciation > wear, tear, obsolescence
Valued Policy
- a loss valuation
- law
- is an exception to the principal of indemnity. Under this provision the insurer is liable for the full amount of damages up to the policy value
- insurer responsible regardless of loss
- 90 days to see
Proximate Clause
The cause responsible for the loss:
- closely related to direct loss; insured peril is required
- unbroken chain of events
- had it not been for THIS occurring THIS would not have occurred
> Look for what started the loss
Limits of Liability
- 3 different ways
Max amount of coverage agreed to be paid in the event of a loss. > Stated 3 Different Ways: - Combined - Split Limits - Aggregate Limit
Deductible
Deductible is an example of Retention
- is a certain type of risk retention
Retention = accepting the possibility of a loss yourself by insuring only above a certain $ amount
Accident / Occurrence
An event that is sudden & unexpected
- financial loss occurs
- the specific time & place can be proven
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An event that happens over time
- can be a series of accidents
- can be continuous or repeated exposure to conditions
- results in injury or disease (black lung disease)
> is not expected
Short Rate / Pro-Rate
> Company keeps penalty (service charge)
Insurer cancelled; insured received full unearned premium; no penalty
- part of policy termination
- how premium is refunded
CLAC
- Elements of Legal Contract
Elements of Legal Contract:
> Competent Parties = not minors, mentally/ legally incompetent, alcohol/drug influence, enemy aliens
> Legal Objective = contract must be purchased for a legal purpose
> Agreement = offer & acceptance
> Consideration = exchange of values ($ = promises)
Unilateral Contract / Aleatory Contract
Part of special features of Ins Contracts
Only enforced by one party to the contract
- one sided, only the insurer has promise to keep
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Insurance Contract is valid even though there are unequal exchanges between parties
- small premium paid or partial accident occurs full limit is paid out regardless
Insured
is policyholder, person, business, or entity whose interest is protected in policy.
- Named Insured = specifically designated by name (Dec page)
- First Named Insured = listed first on Dec, may have a higher level of duties or rights under the policy
- Additional Insured = in addition to the Insured, is listed on Dec Page has an insurable interest
Legal Issues Affecting Insurance Contracts
- RURWCFBW
> Reasonable Expectations = what the avrg persn would infer from a policy or contract
Utmost Good Faith = honest, cooprtn, and full disclosur or parties to a contract
Representations = oral or written statements, true to the best knowledge & belief of party making stmnt
Warranty = guarantees answers on the app, these can void the policy
Concealment = failure to disclose all material facts
Fraud = intentional misrepresentation of a material fact
Binder = temp contract pending issue of the policy
Waiver = voluntary relinquishmnt of a known right
Surplus Lines Insurance
Insurers risks not available in standard market due to unusual risk characteristics
Producer/Principal Relationship
Agent = someone who acts on behalf of another Principal = party to whom action is taken
> Agent (Producer) represents Principal (Carrier)
Broker represents client
3 Types of Authority
- AIA
> Actual/ Expressed = written authority
- authority as specified in the producer’s contract
Implied = authority not expressly granted, but a producer is assumed to have in order to transact the biz of the principal
Apparent = authority a reasonable person would assume a producer has based on the producer’s actions and statements
Insurers/ Insurance Organizations
Domicile
Domestic = w/in state Foreign = outside of state Alien = outside U.S.
