Midterm 2 Flashcards
Admitted insurer
licensed by the state deparrtment of insurance where they operate
unadmitted insurer
not back by state
the financial services modernization act (Gramm - Leach Bliley Act)
ended compartmentalization of insurance and banking
bancassurance
relationship between banks and insurance companies aimed at providing insurance products/benefits to banking customers
facultative reinsurance contract
coverage purchased by a primary insurer to cover a single risk - or block of risk held in book of business
treaty reinsurance contract
insurance purchased by an insurance company from another insurer (usually an entire book of business)
reinsurance
insurance that an insurance company purchases from another insurer to insulate itself from major claims
ceding company
a company that passes all risk associated with a policy to another insurer
insurable risk
relationship between the insured and the subject of the insurer such that they will insure some loss in the event of damage or destruction
subrogation
the right that the insurer holds over your policy to request reimbursement for the claims paid from the at-fault party
risk-based capital
requires insurers to have a certain amount of capital based on the size of the company and the inherent risk of its operations
residual market
provides coverage to high risk individuals who are unable to obtain coverage in the standard market
finite risk insurance
a transaction where insurers pay a premium that is added to a pool of funds for insurer to cover losses
underwriting risk
the risk that the insurance company may insure a loss doe to a change in the occurrence of accidents or the economic state originally predicted
pure captive
an insurance company that insures risk of its parent or affiliated company
group captive
captive insurance company owned by a group of companies rather than just one
loss adjustment expense
the costs insured to investigate a claim
alien insurers
located in other countries and operate there
domestic insurer
foreign insurer
cost of risk
a quantitative measure of the total direct and indirect expenditures dedicated to mitigating risk
misrepresentation
a false or misleading statement that can lead to void of an insurance contract
file and use
allow insurers to change prices and immediately enforce the new price. the company reports it but doesn’t need to wait for approval
elements of an insurance contract
- offer and accept
- consideration
- legal purpose
- competent parts
actual cash value
the traditional measure of value for payment of property losses ( minus depreciation)
other insurance
when someone has multiple policies for the same person / property
alternative risk transfer
use of other techniques other than insurance or reinsurance to provide coverage
7 characteristics of an insurance contract
- insurance is a personal contract - protects the person, not the property
- insurance is unilateral (ONLY ONE PARTY)
- insurance is a condition contract - the insured must follow conditions
- insurance is a contract of adhesion - “take it or leave it” and in event of ambiguity they are always in favor of the insured
- insurance is aleatory - dollars risked by parties are unequal, and the insured premium is much less than the amount the insurer must pay
- insurance is a contract of utmost good faith - doctrine enforced by misrepresentation, warranty and concealment
- insurance is a contract of indemnity - insured should not profit
doctrines of insurance
- insuraable inerest
- actual cash value
- other insurance
- subrogation
agent
authorized insurer who creates, modifies and terminates contracts and have binding authority
broker
an intermediary between insurer and insured who sells, solicits or negotiates on behalf of client
self-insurance
when a company assumes its own risk rather than transferring it to an insurance company
advantages: puts greater emphasis on loss control
disadvantages: cost variation may be difficult to manage
advantages and disadvantages of captives
advantages: risk control, long-term cost reduction and cost stabilization
disadvantages: organization cost, operational complexity
independent agent
represents multiple insurers can buy different policies through them and they own expirations
exclusive agent
only one agent ex. state farm agent, do not own expirations
direct writer
use only employees from home office, no agent location.
retrospective rating plan
rating plan determined by the number of losses in a certain period
