Insurance terms Flashcards
transfer of risk from a person to an insurer
insurance
uncertainty/possibility of a loss
risk
chance of loss OR gain
-not insurable
speculative risk
chance of loss only
-insurance companies will insure
pure risk
risks for which the insurance company would be liable
exposure
cause of loss
peril
physical loss
direct loss
consequence of a direct loss
-loss of income
indirect loss
increases the chance of a loss
hazard
hazard can be seen
-ex: wet floor
physical hazard
dishonesty
moral hazard
carelessness
-ex: leaving door open
morale hazard
STARR
methods of handling risk
STARR
-sharing
-transfer
-avoidance
-retention
-reduction
an agreement between the insured and insurer
contract (policy)
insured (customer)
1st party
insurer (insurance company)
2nd party
the larger the group, the more accurately future losses can be predicted
law of large numbers
elements of an insurable risk
CANHAM
CANHAM
-calculable
-affordable
-non-catastrophic
-homogenous
-accidental
-measurable
risks that have greater than average chance of loss
-higher risk = higher rate or refusal to insure
-why underwriting process exists
adverse selection
-owned by stockholders
-dividend taxable
-issues non-participating policies
stock insurer
-owned by the policyholders
-dividend non-taxable
-issues participating policies
mutual insurer
-provides insurance and other benefits
-must be a member of society to get benefits
fraternal insurer
-attorney–in-fact
reciprocal insurer
insurance provided by individual underwriters, not companies
Lloyd’s association
-hole in one contest
-celebrity’s hair
unusual risks
liability insurance company created for policyholder’s in the same industry
risk retention group
group of businesses form the same industry joining together to buy liability insurance from an insurance company
risk purchasing group
business that pays its own claims
-retains risk rather than transfer
self-insurance
-war risk
-nuclear energy
-flood
-federal crop
federal level
-worker’s compensation
-unemployment
state level
state where company is incorporated
domestic
company is in another state or U.S. territory
foreign
company in another country
alien
state requires the insurance company to have certificate of authority
admitted
report card for company
financial strength rating
no agent/producer involved
-direct mail, magazines, TV
direct response
insurance agent acts on behalf of the principal (insurance company)
agency
what the agent’s written contract says
direct
not written; activities an agent normally goes
implied
activities an agent does that a reasonable person would assume as authority
apparent
