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Custom RIBO 1 > Intro to Insurance Chp. 1-4 > Flashcards

Intro to Insurance Chp. 1-4 Flashcards

1
Q

Contents of Insurance Policies: Must appear on the Declarations Page (1st page) (Insurance Act #1) 6 think who, what, where, when, how much?

A
  1. Parties to the contract (ie. Insured, Insurer)
  2. Loss Payable or Payee: All parties with insurable interest
  3. Policy Period: Starts @ 12:01 AM Standard time @ address of the named Insured
  4. Coverage and amount of Insurance: Types of coverage and limits
  5. Subject matter of Insurance: Property Insured and location (address)
  6. Rates and Premiums: Cost of Insurance
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2
Q

Functions of Insurance S.I.P.S.S

A

S.I.P.S.S
Spread Risk: From few to many (Most important function) premiums are use to pay loss
Insurers participate in Loss Prevention / Reduction Measures
Peace of Mind: Eliminates worry and and lets people take risk ie. starting a business
Supply Credit: lender won’t lend for unprotected property
Source of Jobs and Capital: Insurers invest their premium $$

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3
Q

Principle of Indemnity

A

Amount of claim payment = Amount of Loss based on value of the object immediately prior to loss

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4
Q

Payment can be in money or repairing/replacing the property (ACV,RC)
T/F?

A

True

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5
Q

Insurance is an agreement between…

A

Insurer and Insured to transfer risk

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6
Q

Insurance pays only for accidental losses that happen after the agreement starts
T/F?

A

True

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7
Q

Insurance promises to pay when…

A

A specific peril damages an object of insurance OR when insured causses loss to others

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8
Q

General P&C (Property and Casualty) Categories:

A

1.Automobile Insurance: Largest volumes. required by law
2.Property: Perosnal and business property 2nd biggest
3.Liability: provides protection if legally responsible for causing injury or damage to a 3rd party

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9
Q

2 (Technically 3) ways to distribute insurance?

A
  1. Direct Writer: insurer sells its own products direct to consumer (D2C)
  2. Independent Broker System: represents more than 1 insurer and gets commission. Clients belong to the broker
  3. Agency System = small business owners (agents get commissions and own their book of business) They typically represent 1 insurer and the Facility Association
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10
Q

Types of Insurers:

A

Government Insurance: IE, Provincial Health Plan. Workers Comp., etc (Compulsory)
Private Insurance Companies:
a) Stock Companies: Owned by shareholders and are profit oriented
b) Mutual Companies: Owned by policy holders and not profit oriented
i. This is the cheapest insurance
ii. If the company loses money: policy holders pay the difference
iii. If surplus pay to policy holders as dividend

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11
Q

Licensing of Insurers: Federal and Provincial
Names and their respective jurisdictions

A

Federal: Office of the Superintendent of Financial Institutions
a. Licenses insurers that operate in multiple provinces
b. Monitors and sets strict financial standards to ensure stability
Provincial: BC of Superintendent of Financial Institutions (OR same name as Federal)
a. Regulate terms of insurance policies (they approve all policy wordings)
b. Licenses insurers that operate in their province
c. Monitors financial stability of provincially licensed insurers
d. Administers the Insurance Act (Act varies among provinces) Monitoring Solvency

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12
Q

What is the PCICC and what do they do?

A

Property & Casualty Insurance Compensation Corporation: Covers policy holders even when insurer goes bankrupt (no more than $250,000 per claim, refund premiums no more than 70% or $700)

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13
Q

Fiduciary Definition:
and the responsibility of brokers and insurers in relation to Fiduciaries

A

Handles other people’s money
Broker: hold commissions in trust and return unearned commissions (In Ontario, remit premiums to insurer in 30-60 days and hold $$ in trust)
Insurer: return unearned premiums: Premiums are earned pro-rata and is fully earned upon policy expiry

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14
Q

What is pro-rata mean?

A

Proportional ex: if premium is $2400, premium earned after 3 months is $600. The $1800 unearned premium must be held in trust ready to be returned

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15
Q

What is the Removal Clause (Insurance Act #3)

A

It covers property for up to 7 days if moved to a location not stated on the policy to prevent (further loss) AKA necessary removal
a. Limit available at new location = amount remaining after paying for loss @ primary
b. Important because there is usually no coverage for property not @ stated location

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16
Q

What is excluded in Basic Fire Policy Coverages (Insurance Act #2)

A

Excludes explosion of boilers or pressure vessels

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17
Q

Statutory Conditions (Insurance Act #5)

A
  1. Misrepresentation (3 types: False Description of property, Misrep. of material fact, Fraudulent omission of material fact) VOID if found
  2. Fraud = VOID entire claim if found
  3. Insured must provide proper documentation upon loss
  4. Giving notice or proof of loss can be from: Agent authorized by insured or anyone with insurable interest
  5. Termination responsibilities: Insured notifies termination = immediate if Insurer: must give 15 days notice through registered mail after receiving or 5 days if hand delivered
  6. Notice: Insured in writing to the provincial head office/chief agency of the insurer. Insurer in writing to the last known address of the insured
  7. Property of others not covered unless insured
  8. Change of interest: If insured no longer has insurable interest in the property, coverage does not automatically extend to new owner UNLESS for transfers under bankruptcy, succession, death (Legally-mandated actions)
  9. Salvage: Insured must take reasonable steps to protect property from (further) loss
  10. Entry, Control, Abandonment or ACE rights after loss
    i. Abandonment: insured cannot abandon property to insurer
    ii. Control: Insurer cannot take control of the property after loss
    iii. Entry: Insurer can enter immediately after loss to investigate
  11. Appraisal: Stipulates procedures for claims disputes
  12. Losses Payable: within 60 days of receiving Proof of Loss
  13. Replacement: when insurer decides to repair or replace instead of paying cash give…
    i. Written notice to Insured: within 30 days of receiving Proof of Loss
    ii. Repair or replacement: start within 45 days of Proof of Loss
  14. Action: legal action must be taken within 1 year of date of loss (ie. if insurer denies claim) Alberta 2 years
18
Q

Limitation of Liability Clause is… (Insurance Act #6)

A

mark any terms that may reduce amount of payment in red ink (Ie. Deductible, co-insurance)

19
Q

Delivery of Policy means the insurer must… (Insurance Act #7)

A

Pay for losses even when the premium has not been paid

20
Q

What is Subrogation (Insurance Act #8)

A

Insurer can sue in place of the insured after paying a claim.
a. Subrogation = to “stand in the shoes of another” and assume their legal rights
b. Insured can claim with insurer for loss caused by others
c. Insurer can recover all amounts (including deductible) form the responsible party

21
Q

What are the 3 types of risk?

A
  1. Personal Risk: Financial hardship due to accident, sickness, or death
  2. Property Risk: Damage or destruction of tangible property (more property = more risk)
  3. Liability Risk: Actions of individuals or businesses that result in injury or damage to others
22
Q

Dealing with risk (C.A.R.T)

A
  1. Controlling: Try to reduce frequency and severity of loss (can’t control everything IE. Earthquake)
  2. Avoidance: Avoid the activity (no chance of loss but not practical)
  3. Retention: Paying for losses yourself (not practical for most people)
  4. Transfer: Shift the financial risk to someone else (most realistic) (IE. Buy Insurance)
23
Q

Types of FINANCIAL Risk

A
  1. Pure Risk: Can only lose (this is the only type of risk that is insurable)
  2. Speculative Risk: Might win or lose (IE. Gambling)
24
Q

Definition of “Contract”

A

Legally enforceable agreement (IE. to do or not do something)

25
Q

Definition of “Legally Enforceable”

A

Courts agree to enforce terms of the contract (IE. force performance of obligaton)

26
Q

Elements of ALL contracts (To be legally Enforceable)

A
  1. Agreement: Offer + acceptance. All terms have been agreed to with no further negotiations
  2. Genuine Intentions: All parties freely enter and are aware of all terms
  3. Consideration: All parties bring something of value (everyone benefits)
  4. Legality of Object: Purpose of the contract is legal (IE. Not contrary to the publics good)
  5. Legal Capacity: all parties understand the obligations undertaken
27
Q

Elements Special to Insurance:

A
  1. Insurable Interest: only those who actually suffer loss are entitled to benefit from policy (Ie. Mortgagee. bailee, etc.)
  2. Indemnity: Establishes amount of entitlement (rmbr. pays actual amount of loss ONLY)
  3. Utmost Good faith: both parties mist be honest and comply with terms and conditions exactly and must meet both types of requirement or VOID
28
Q

changing an insurance contract (via documents): both parties must agree

A
  1. Floater: insures mobile property IE cell phones and contractors’ equipment.
  2. Rider: adds coverage. Additional premium required.
  3. Endorsement: issued by insurer to show change has been made.

EXTRA: Separate policy’s: For special property risks. [IE building under construction, automobiles, aircraft, etc.]

29
Q

What is a Binder?

A

Interim Policy: Broker commits the insurer to an insurance contract without checking with them

30
Q

What is Agency Agreement?

A

gives broker authority to commit the insurer to a contract. [subject to limit/conditions can’t bind everything]

31
Q

Entities involved in Insurance:

A
  1. Agent/Broker
  2. Underwriters
  3. Claims Adjuster
32
Q

Agent responsibility:

A

Represents Insurer’s interest IE. Agent of the insurer = a broker with binding authority

33
Q

Broker responsibility:

A

A Broker represents client’s interest: determines the insurance needs and selects insurer.
a. Duty to clients: legal requirement to exercise “reasonable skill, care and diligence
b. Duty to insurers: tell the truth and not conceal important information
c. Failure to meet duties and legal standards may cause financial loss to client or insurer = get sued = E&O claims

34
Q

What is an E&O Claim?

A

Errors and Omissions is the insurance purchased by brokers to insure against mistakes. Failure to meet duties and legal standards may cause financial loss to client or insurer = get sued = E&O claims
a. Inadequate coverage = major source of E&O claims
b. Others (Basically bad advice) I.E. Failure to advise of exclusions / to place coverage, Incorrect coverage, etc.

35
Q

Underwriters Responsibility:

A

Non-client facing insurance company employees not selling insurance. No license required. They do…
a. Risk Selection: choose risks most likely to be profitable for the insurer (ie. Least risky
b. Rate Making: different prices for different risks
c. Policy Holder Services = paperwork: quotes, policies, changes, renewals/cancellations, etc.

36
Q

Underwriters sources of information in regards to Risk Selection:

A

a. Application: gives info on risks and hazards
b. Broker: info on client’s personal and business reputation
c. Inspection Reports: helps evaluate hazards on commercial risk (provided by insurers’ Advisory Organization and others)
d. Loss Experience Data: Info on loss experience data for that type of risk

37
Q

Definition of a Hazard?

A

A condition that might cause a peril to occur

38
Q

Physical Hazard: conditions related to premises. Characteristics (3)

A
  1. Construction: potential for loss (ie. Fire)
  2. Housekeeping: maintenance
  3. Occupancy: use of premises by applicant and others
39
Q

Moral Hazard: subjective characteristic of applicant. Characteristics (3)

A
  1. Moral Character: ethics, honesty, questionable losses/claims
  2. Financial Condition: payment history, previous cancellations due to non payment
  3. Indifference to loss: carelessness, lack of loss prevention
40
Q

Claims Process:

A
  1. Insured reports to broker
  2. Broker reports to insurer
  3. Insurer assigns company adjuster to deal with the claim
    a. Independent adjust for specialized or far off losses
  4. Brokers responsibility: Determine status of claim, monitor progress, ensure client satisfaction via good service and relationship

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