Introduction to Insurance Flashcards
Name the two categories of Risk:
Speculative and Pure
Define “Speculative” Risk
Possibility for Loss AND Gain
Define “Pure” Risk
Possibility of Only Loss
Name the two categories of Loss:
Direct and Indirect
Define Direct Loss
Physical Damage: House Burnt Down
Define Indirect Loss
Consequential Damage: Hotel Stay
Name the three categories of Hazards:
Physical, Moral, and Morale
Define “Physical Hazard”
A tangible threat
Define “Moral Hazard”
An individual’s character
Define “Morale Hazard”
State of mind/Careless attitude
Name the five methods of handling Risk
STARR: Sharing/Transfer/Avoidance/Retention/Reduction
What is the purpose of STARR?
STARR categorizes the five ways to manage Risks.
What are the six elements necessary for insuring Risk?
CANHAM: Calc/Afford/Non-Cat/Homo/Acci/Meas
What does “CANHAM” stand for?
Calculable/Affordable/Non-Catastrophic/Homogenous/Accidental/Measurable
What is a ceding Insurer?
The company reducing risk by insuring with a reinsurer
What is a reinsurer?
The company assuming risk by insuring an insurance company
Name the two categories of Reinsurance:
Facultative and Treaty
Define “Facultative Reinsurance”
When the reinsurer chooses to insure individual policies on a case by case basis
Define “Treaty Reinsurance”
When the reinsurer chooses to insure all policies of one specific type
What is a stock insurer?
An insurance company that is owned by its shareholders. These companies are considered “non-participating,” as their policy holders do not receive a share of dividends
What is a mutual insurer?
An insurance company that is owned by its policy holders. These companies are considered “participating,” as their policy holders receive a share of dividends in the form of a premium refund.
What are Fraternal Benefit Societies?
A society that includes insurance as a benefit of membership
What are reciprocal insurers?
A group of insurance companies who agree to insure each other, thereby agreeing to split losses.
What is the Lloyd’s Association?
An association of independent underwriters selling policies
What is a risk retention group?
An insurance group formed by various businesses, created solely for obtaining liability insurance
What is a risk purchasing group?
A group formed by various businesses, created solely for purchasing liability insurance
What is self-insurance?
When a business or individual purchases no insurance, and chooses to retain the risk on their own
What are the three categories of insurance, based on where an insurance company is headquarted in relation to where they practice?
Domestic (practices in same state they’re HQed in), Foreign (practices in a difference state from where they’re HQed), Alien (practices in a different country than they’re HQed in)
What are the four types of agency systems?
Independent, Captive, General, Direct-Writing
What is an “Independent Agent”?
An agent who sells for different companies, is an independent contractor, and keeps all policy renewals
What is a “Captive Agent”?
An agent who sells for one insurance company, is an independent contractor, and does not keep policy renewals
What is a “General Managing Agent”?
An agent who trains and hires agents to work for them, and has overriding commission on all policies
Direct-Writing
An agent who works for a single insurance company, is a formal employee, and does not keep policy renewals
What are the three types of agent authorities?
Express (written), Implied (reasonably assumed by the agent), Apparent (reasonably assumed by the customer)
What is a fiduciary?
A person in a position of financial trust
What is the meaning of commingling in insurance?
The illegal act of mixing a customer’s premium with an agents’ own funds
