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Insurance School - CIAB and HSI > Insurance Principles > Flashcards

Insurance Principles Flashcards

1
Q

Define Insurance

A

Insurance is the means of reducing risk by combining a sufficient number of exposure units to make their collective losses individually predictable.

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2
Q

Define Risk

A

Risk is the chance of monetary or economic loss.

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3
Q

What ways can risk be handled, other than insurance?

A

Other methods of risk management include RETENTION, AVOIDANCE, CONTROL, or NON INSURANCE TRANSFER

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4
Q

What is retention in terms of risk management methods?

A

Retention is when one does not purchase insurance and decides to assume the risk on his or her own.

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5
Q

What is avoidance in terms of risk management methods?

A

Avoidance involves either not doing something at all or getting rid of it and not doing it anymore

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6
Q

What is control in terms of risk management methods

A

Control is the minimization of hazards or the minimizing of things that increase the chance of loss. An example would be a burglar alarm.

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7
Q

Non Insurance Transfer is what?

A

Non Insurance Transfer is the transfer of risk to someone who isn’t the insurer. If a SUP company holds your credit card until you bring back their board, that is a non insurance transfer.

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8
Q

What are the characteristics of insurable risks?

A

Catastrophic - The loss insured against should not be catastrophic to the insurer. It shouldn’t hit too many people at the same time.

Accidental - The loss must be unforeseen from the standpoint of the insured.

Large Number - The number of similar risks must be large enough so that losses can be readily predicted.

Monetary - The loss must be measured in money.

Economically Feasible Premium - The cost to the customer must be reasonable.

Definite - the loss must be definite in time and place.

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9
Q

What is the concept of insurable interest

A

In order for an insured to collect on a claim, they must have a monetary interest in the subject being insured.

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10
Q

What is the principle of indemnity?

A

Indemnify means to make whole again, no better or no worse than before the loss.

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11
Q

Is the definition of risk the same across all insurance circles?

A

nope - it can mean:
A peril or cause of loss,
A hazard or something that increases the danger of a peril.
The subject of the insurance, such as a person or object being covered.
The chance of loss.

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12
Q

Where did the modern insurance industry have it’s historical beginnings?

A

Lloyds of London coffee house, 17th century London.

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13
Q

What is a hazard?

A

Something that increases the chance of loss from a peril.

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14
Q

What mathematical principle is insurance based upon?

A

Law of Large Numbers - the more exposure units in the mix, the easier it becomes to predict group losses.

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15
Q

What is the term for the consideration paid by the insured in exchange for the insurer’s promise to indemnify?

A

The Premium.

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16
Q

What are the necessary components of any definition of insurance?

A
  1. The transfer of risk to a third party, the accumulation of a fund to pay the losses, and a large enough number of similar exposure units (the insured).
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17
Q

Is fire a hazard, a peril, or an event?

A

Fire is a peril. Perils cause loss.

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18
Q

The storage of gasoline in a home is an example of a peril, hazard, or event?

A

A hazard. Hazards increase the chance of loss from a peril.

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19
Q

If I don’t buy collision insurance on an older car because the cost of insurance is more than the cars worth or what I’d pay out of pocket, what risk management technique am I using?

A

Retention.

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20
Q

What are the three major types of insurance in property and casualty?

A

Marine
Property
Casualty

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21
Q

What does Marine Insurance cover?

A

Marine Insurance covers property that is in some way related to transportation.

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22
Q

What are the four categories of Ocean Marine insurance?

A

Hull Policies
Liability to third parties
Loss or damage to cargo
Freight

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23
Q

How are hull policies classified?

A

By vessel - sailboat, yacht - as well as by waters where they navigate: coastal areas, inland waterways, etc.

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24
Q

What does the “liability to third party” ocean marine subcategory protect?

A

Collision with another craft, injuries to the ship’s crew, or pollution of the water.

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25
Q

What does the “freight” subcategory of ocean marine insurance cover?

A

Freight covers the money payable by the ship’s customers for shipment of cargo or passengers.

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26
Q

What does Inland Marine insurance cover?

A

Inland Marine covers property in transit over land, to collections, personal property and other coverages for moveable property.

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27
Q

What clause protects cargo from the time it leaves the warehouse until it reaches its destination?

A

The “warehouse to warehouse” clause.

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28
Q

What is the term that describes a policy covering small, valuable articles that can be carried anywhere?

A

Floater

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29
Q

What does CGL stand for?

A

Commercial General Liability policy.

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30
Q

What does a CGL cover?

A

CGL covers business’ liability, including damages due to bodily injury, property damage, personal injury, advertising injury to others. It also provides medical payments for someone injured on the insured premises or by the insured operations.

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31
Q

The Nationwide Marine Definition states what?

A

The lines of insurance that marine companies may write.

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32
Q

NAIC - National Association of Insurance Commissioners - revised the definition of what?

A

The Nationwide Marine Definition.

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33
Q

The lines of insurance marine companies may write include what?

A 
Imports
Exports
Domestic Shipments
Means of Communication
Personal Property Floaters
Commercial Property Floaters.
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34
Q

A Commercial Property Policy includes:

A 
Property covered and not covered
Additional coverages
Coverage extensions
Perils and exclusions
Limits of Insurance
Deductible
Loss Conditions
Additional Conditions
Optional Coverages and definitions.
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35
Q

What type of insurance encompasses the following general areas: liability, personal and property?

A

Casualty Insurance.

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36
Q

What does liability insurance cover?

A

Injuries or damages done by the insured.

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37
Q

What type of insurance covers the losses that result from sickness or injuries?

A

Personal Insurance.

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38
Q

Boiler and Machinery, and crime fall into the realm of Commercial Property Insurance or Casualty Insurance?

A

Casualty.

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39
Q

What type of insurance covers the risk left over after marine, property, and life coverages are excluded?

A

Casualty

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40
Q

What does Section II in the homeowners policy covers what?

A

Personal liability - damages because of bodily injury or property damage. This covers someone who gets hurts on the insured premises, if the insured accidentally hurts someone else, or if the insured damages another person’s property.

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41
Q

What are the two broad types of insurers?

A

Social insurers

Voluntary Insurers

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42
Q

Old age-survivors- disability/social security, workers comp, and unemployment are the three major types of what?

A

Social Insurance.

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43
Q

What is the difference between social insurance and voluntary insurance?

A

Participation is mandatory: employers must purchase workers comp and unemployment compensation. Employees and employers must pay into social security.

44
Q

What are the four types of voluntary insurers?

A
  1. Governmental
  2. Cooperative
  3. Self
  4. Profit making
45
Q

What/who offers insurance typically too hazardous for the private market

A

The government. This is for floods, earthquakes, Wind, Crop, assigned risk plans, and crime and fire.

46
Q

Define self insurer.

A

A company that sets up a fund, makes periodic payments into the fund, and covers their own losses out of the fund.

47
Q

What is the term used to describe the amount of money the insurer spends on both losses and expenses?

A

Combined ratio.

48
Q

What are two social benefits provided by insurance?

A

It forms the basis of the credit system and fuels the stock/investment market.

49
Q

Reciprocal Insurers is what?

A

It’s a group who combine to pay each other’s losses.

50
Q

Which entity is more likely to earn a profit: Reciprocal/Inter insurance exchange or a Mutual Company?

A

A mutual company.

51
Q

What is the preferred term for self insurance?

A

Retention.

52
Q

What is another name for a reciprocal insurer?

A

An inter-insurance exchange.

53
Q

Who owns a mutual insurer?

A

The policy holders.

54
Q

What is the term given to a reciprocal or a mutual that can go back to its policy holders for more money if expenses need to be covered?

A

Assessable

55
Q

The failure to exercise the degree of care that a reasonable and prudent person would use under similar circumstances is defined as what?

A

Negligence.

56
Q

Which of the following is not a characteristic unique to insurance contracts?

  • Negotiation
  • Indemnity
  • Aleatory
  • Adhesion
A

Negotiation

57
Q

Courts interpret ambiguity in the language of an insurance policy in favor of the insurer or the insured?

A

The insured.

58
Q

What does “utmost good faith” mean in the context of an insurance policy?

A

Because of the importance of insurance to the financial security of people and to society as a whole, insurers are held to higher standards of good faith and fair dealing than in other types of private contracts.

59
Q

A contract in which amounts exchanged are not equal are referred to as what?

A

Aleatory Contracts.

60
Q

What is a contract of adhesion?

A

A contract offered to a customer on a take it or leave it basis.

61
Q

Declarations/Dec Page, Insuring Agreement, Exclusions, Conditions, and Endorsements are parts of what?

A

the Insurance Contract.

62
Q

The Dec Page / Declarations page includes what information?

A 
Name of the insurer and agent.
Name and address of the insured.
The policy period. 
Limits of liability.
Forms applicable.
Premium.
63
Q

“We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy” is an example of what from a typical home owners policy?

A

the Insuring Agreement.

64
Q

What section states losses that are not covered by a particular insurance policy?

A

The exclusions section.

65
Q

What does the conditions section of a policy cover?

A

Rules and procedures such as: 1. how to file a claim, 2. how either party cancels the contract, 3. How disagreements are handled, 4. What each party must do after a loss.

66
Q

A means to tailor a basic policy to better meet the needs of a particular insured is what?

A

Endorsements.

67
Q

True or false: Insured status can be extended to individuals not listed on the declarations page.

A

True. A personal auto policy would include residents of the same household, any person using the auto covered by the policy, and any person legally responsible for the use of an auto covered by the policy.

68
Q

What is scheduled property?

A

Scheduled property is insurance coverage on specific items of property, such as an art collection.

69
Q

Coverage for all items of property at a location is referred to as what?

A

Blanket coverage.

70
Q

Open property is used in what kind of insurance?

A

Marine insurance, such as an open cargo policy that covers shipments made within a specified time and over a specific route.

71
Q

True or false: a liability policy covers all situations that might cause the insured to pay damages.

A

False. It covers the insured liability in certain situations to third parties unless otherwise excluded. .

72
Q

What is the difference between open perils and named perils on an insurance policy?

A

Open perils - the burden is on the insurer to show that the loss is not covered. Named perils - the policy lists the causes covered.

73
Q

What two types of losses does insurance cover?

A

Direct and indirect losses.

74
Q

The income loss after a business’ premises are destroyed by an earthquake is what kind of loss?

A

an indirect loss.

75
Q

Physical losses to property are what kind of loss?

A

Direct loss.

76
Q

Define subrogation aka “recovery from others.”

A

Subrogation is a clause that allows the insurer to pay its customer and then pursue the ultimate wrongdoer and collect it’s payment.

77
Q

Subrogation, defense & defense costs, duties of the insured, conformity to statute, fraud, and warranties are all examples of what in a coverage contract?

A

Clauses.

78
Q

What does the term “actual authority” mean?

A

Anything the principle authorizes or instructs the agent do to, express or implied.

79
Q

What are the duties of an agent?

A

Loyalty, lawful obedience, reasonable care, accounting, and giving of information.

80
Q

The person who arranges the insurance coverage for an individual or commercial entity is the what?

A

The agent.

81
Q

The company the insurance agent represents is referred to as what?

A

The principle.

82
Q

Who sells insurance aside from agents?

A

producers, solicitors, brokers, and surplus lines broker.

83
Q 
The following terms describe certain types of what?
Independent
Exclusive
Direct Writers
Direct Reponse
A

Agents

84
Q

An Independent Agent owns his or her business according to what?

A

“Ownership of Expirations.”

85
Q

What is the term given to the practice of an insurance agent using an insurer’s premiums for his/her own benefit?

A

Commingling.

86
Q

What is the term that applies to a third party reasonably inferring that an agency relationship exist and the agent has permission from a principle to do something?

A

Apparent authority.

87
Q

The blanket term for anyone who sells insurance is what?

A

A producer.

88
Q

An agent under contract with one insurer is considered what?

A

An exclusive agent.

89
Q

Direct writing insurers sell through salaried employees or through employees under commission only.

A

Salaried employees.

90
Q

What term describes insurance agents who are agents of the company aka “agents of the insured”?

A

Brokers.

91
Q

What is not the responsibility of the insurance intermediary?

  • Explain the policy
  • Help the insurer obtain reinsurance on a risk
  • Collect premiums
  • Obtain proper coverage for the customer
A

Help the insurer obtain reinsurance on a risk.

92
Q

What three types of hazards does an underwriter look for?

A

Moral, Morale, Physical.

93
Q

Who determines which business the company should accept and reject by committing the insurers assets to cover a particular risk?

A

The underwriter.

94
Q

There is a set rate to offset moral hazards. True or false?

A

False.

95
Q

An indifferent attitude towards loss is what kind of hazard?

A

A morale hazard.

96
Q

What is the bottom line responsibility of an underwriter?

A

Achieve a profitable and safe distribution of insurance, spread over a variety of properties, areas and perils.

97
Q

What is the difference between an alien insurer, a domestic insurer, and a foreign insurer?

A

Alien - An insurance company that is organized under the laws of a foreign country.

Domestic - An insurance company that is organized under the laws of a state where it is seeking to be licensed.

Foreign Insurer - An insurance company that is organized under the laws of a state other than the state where it is seeking to be licensed.

98
Q

An insurance rate must meet what criteria?

A

It must be adequate
It may not be excessive
It must be nondiscriminatory.

99
Q

True or false: an underwriter decides what risks to surcharge, which to discount, and which to modify with endorsements.

A

True.

100
Q

What kind of hazards are an objective characteristic increasing the chance of loss?

A

Physical hazards.

101
Q

Who is assigned to investigate a claim?

A

The adjuster.

102
Q

What the adjuster receives acceptable answers to the following questions, what is issued?

  • Has the policy been issued / still in force?
  • Did an insured peril cause the loss?
  • Was the damaged property covered by the policy?
  • Did the loss occur in a place covered by the policy?
  • Have all policy conditions been met?
A

A “proof of loss” statement.

103
Q

What does the National Association of Insurance Commissioners (NAIC) do?

A

They meet four times a year to help insurance regulation run more smoothly from state to state.

104
Q

Can an insurance agent also act as an adjuster?

A

Yes - the agent typically has “draft authority” allowing the agent to settle first party property claims up to a nomial amount.

105
Q

What kind of adjuster represents the interest of the insured in a claim and is often an attorney.

A

A public adjuster.

Insurance School - CIAB and HSI (2 decks)

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