Midterm 2

Question 1

Admitted insurer

Answer 1

licensed by the state deparrtment of insurance where they operate

Question 2

unadmitted insurer

Answer 2

not back by state

Question 3

the financial services modernization act (Gramm - Leach Bliley Act)

Answer 3

ended compartmentalization of insurance and banking

Question 4

bancassurance

Answer 4

relationship between banks and insurance companies aimed at providing insurance products/benefits to banking customers

Question 5

facultative reinsurance contract

Answer 5

coverage purchased by a primary insurer to cover a single risk - or block of risk held in book of business

Question 6

treaty reinsurance contract

Answer 6

insurance purchased by an insurance company from another insurer (usually an entire book of business)

Question 7

reinsurance

Answer 7

insurance that an insurance company purchases from another insurer to insulate itself from major claims

Question 8

ceding company

Answer 8

a company that passes all risk associated with a policy to another insurer

Question 9

insurable risk

Answer 9

relationship between the insured and the subject of the insurer such that they will insure some loss in the event of damage or destruction

Question 10

subrogation

Answer 10

the right that the insurer holds over your policy to request reimbursement for the claims paid from the at-fault party

Question 11

risk-based capital

Answer 11

requires insurers to have a certain amount of capital based on the size of the company and the inherent risk of its operations

Question 12

residual market

Answer 12

provides coverage to high risk individuals who are unable to obtain coverage in the standard market

Question 13

finite risk insurance

Answer 13

a transaction where insurers pay a premium that is added to a pool of funds for insurer to cover losses

Question 14

underwriting risk

Answer 14

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

Question 15

pure captive

Answer 15

an insurance company that insures risk of its parent or affiliated company

Question 16

group captive

Answer 16

captive insurance company owned by a group of companies rather than just one

Question 17

loss adjustment expense

Answer 17

the costs insured to investigate a claim

Question 18

alien insurers

Answer 18

located in other countries and operate there

Question 19

domestic insurer

Question 20

foreign insurer

Question 21

cost of risk

Answer 21

a quantitative measure of the total direct and indirect expenditures dedicated to mitigating risk

Question 22

misrepresentation

Answer 22

a false or misleading statement that can lead to void of an insurance contract

Question 23

file and use

Answer 23

allow insurers to change prices and immediately enforce the new price. the company reports it but doesn’t need to wait for approval

Question 24

elements of an insurance contract

Answer 24

1. offer and accept
2. consideration
3. legal purpose
4. competent parts

Question 25

actual cash value

Answer 25

the traditional measure of value for payment of property losses ( minus depreciation)

Question 26

other insurance

Answer 26

when someone has multiple policies for the same person / property

Question 27

alternative risk transfer

Answer 27

use of other techniques other than insurance or reinsurance to provide coverage

Question 28

7 characteristics of an insurance contract

Answer 28

1. insurance is a personal contract - protects the person, not the property
2. insurance is unilateral (ONLY ONE PARTY)
3. insurance is a condition contract - the insured must follow conditions
4. insurance is a contract of adhesion - “take it or leave it” and in event of ambiguity they are always in favor of the insured
5. insurance is aleatory - dollars risked by parties are unequal, and the insured premium is much less than the amount the insurer must pay
6. insurance is a contract of utmost good faith - doctrine enforced by misrepresentation, warranty and concealment
7. insurance is a contract of indemnity - insured should not profit

Question 29

doctrines of insurance

Answer 29

1. insuraable inerest
2. actual cash value
3. other insurance
4. subrogation

Question 30

agent

Answer 30

authorized insurer who creates, modifies and terminates contracts and have binding authority

Question 31

broker

Answer 31

an intermediary between insurer and insured who sells, solicits or negotiates on behalf of client

Question 32

self-insurance

Answer 32

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

Question 33

advantages and disadvantages of captives

Answer 33

advantages: risk control, long-term cost reduction and cost stabilization

disadvantages: organization cost, operational complexity

Question 34

independent agent

Answer 34

represents multiple insurers can buy different policies through them and they own expirations

Question 35

exclusive agent

Answer 35

only one agent ex. state farm agent, do not own expirations

Question 36

direct writer

Answer 36

use only employees from home office, no agent location.

Question 37

retrospective rating plan

Answer 37

rating plan determined by the number of losses in a certain period