Intro: Risk Allocation and Regulation Flashcards
What is risk?
Risk is the inherent uncertainty of events described in terms of chance and probability.
What is Contract Reformation?
Contract Reformation is an equitable remedy where a court modifies or alters a written instrument to conform it to the parties’ actual intent.
What is an insurable interest?
An insured has an insurable interest in his life and any property in which he derives a benefit from its existence or would suffer a loss from its destruction.
What is an Omnibus Clause?
An omnibus clause specifies which persons, in addition to the named insured, are covered by the policy; this provision may also attempt to confine what actions are covered and which are excluded.
What is a First-Party Claim?
A first-party claim is a claim made by a policyholder to his own insurance company, in which he seeks a payment of money as compensation for a loss whose claim for relief arises directly out of the contract.
What is a Third-Party Claim?
A third-party claim (also called a liability claim) occurs when an injured party brings suit against the at-fault insured person; the at-fault insured person’s insurer has a duty to defend the claim on his behalf.
What is an Uninsured Motorist Clause (UM)?
An uninsured motorist clause is a clause in an automobile insurance policy that enables a driver to recover damages for any injury he receives from an uninsured, negligent driver.
What is Underinsured Motorist Coverage (UIM)?
UIM is separate coverage purchased as part of an auto insurance policy which provides coverage when the injured party’s damages exceed the liability limits of the at-fault motorist.
What is Subrogation?
Subrogation is a right reserved by an insurance company to pursue a third party that caused an insurance loss to the insured; usually accomplished by recovering the claim amount paid to the insured for the loss.
So how does insurance work?
By purchasing insurance, a party contracts with an insurer to pay a premium for a policy of coverage and the insurer agrees to compensate the party for any loss covered under the agreement.
How do insurance companies handle the risk that the amount of money they pay out in claims will exceed the amount of money they receive in policy premiums?
Policy rates are carefully calculated by underwriters working for the insurance company that evaluate the risk and exposure of potential claims to determine the expense of the coverage the company is willing to provide.
What is the purpose of governmental regulation in the insurance industry?
Governmental regulation of the insurance industry is meant to:
- prevent insurance companies, often in a position of superior bargaining power, from taking advantage of clients;
- ensure that innocent parties do not suffer where an insurance company is in a better position to absorb the loss; and
- prevent clients and 3rd Ps from filing fraudulent claims.
