Module 1 Flashcards
Static Risk
Result from factors other than changes in the economy (earthquakes, floods, etc.)
Dynamic Risks
Changes in the economy, insurance does not typically cover dynamic risks
Fundamental Risks
Affects large groups of people
Particular Risk
individuals or small groups of people at risk
Pure risk
only risk of loss, no chance of gain (insurable risk)
Speculative Risk
chance of loss or chance of gain (uninsurable)
Risk
Possibility of a loss
Peril
Cause of the loss
Hazard
increases potential for loss
Seven steps of the risk management process (7 steps)
- Identify and Establish Risk Management Goals
- Gather Pertinent Data to Determine Risk Exposures
- Analyze and Evaluate the Info to Identify Risk Exposures
- Develop a Risk Management Plan
- Communicate Recommendations
- Implement Recommendations
- Monitor the Recommendations for Needed Changes
Step 1: Identify and Establish Risk Management Goals
- How much loss could be tolerated in the current financial situation?
- What general and specific risks does this client face?
- Compare the potential financial loss and consequences to the probability of the risk
- Determine the amount of income to be used for risk mitigation
Step 2: Gather Pertinent Data to Determine Risk Exposures
- Property at Risk
- Personal Illness and Injury
- Liability
Step 3: Analyze and Evaluate the Info to ID Risk Exposures
1) Asset Related Risk
2) Risk of Liability on Contract Law
3) Risk of Liability on Tort Law
What are the four Risk Management Strategies?
1) Risk Avoidance (Risk Control)
2) Risk Reduction (Risk Control)
3) Risk Retention (Risk Financing)
4) Risk Transfer (Risk Financing)
Insurable Risk Elements
- Law of Large Numbers
- Is the loss from risk definite and Measurable
- The loss must be accidental
- The loss must not be catastrophic to the company
Liability of the Insurer
1) Insurable Interest
2) Actual Cash Value of Loss
3) Policy Limits (or FV)
4) Other Insurance
5) Coinsurance
6) Deductibles
7) Subrogation
Insurable Interest
when the insured party will suffer a financial loss if the loss occurs
Actual Cash Value
The replacement value minus the depreciation
Coinsurance
Splitting the cost of insurance
Deductible
A retained risk, the amount that the insured is willing to pay before the insurance pays
Subrogation
the right of the insurance company to get it’s money back if it’s found that another company paid for the same thing, so that someone cannot profit off of the insurance payback
Social Insurance
Mandatory insurance administered by the government (medicare, medicaid, etc)
Public Insurance
Designed to enhance public trust in financial institutions (FDIC, SIPC, etc.)
Private Insurance
Insurance sold in the private sector (disability, health, long-term care, P+C, Liability and Life Insurance)
Self Insurance
Larger companies will self insure their own health care insurance or will combine their self-insurance with other insuracne above a certain level of claims
Independent Agent
represent several insurance companies doing business under the American or Independent Agency insurance system
Captive Agents
sell property and liability insurance for companies that are known as “direct writers.” Represents only 1 company
Career Agents
usually Life Insurance agents in a general agency or a company owned office under the agencies management
Producing General Agents
- Produce majority income selling insurance personally
- No specified territories
- Can hire agents to work for them
Broker
Agent for the insurance buyer, generally cannot bind the prospective insured to a contract. Insurer is not bound by brokers actions.
Surplus-Line, Excess-Line Broker/Agent
handle any insurance that cannot be purchased using normal distribution chance. P+C mostly
Principal
Give an agent the authority to solicit and bind insurance contracts, subject to the limitations of the agency agreement
Agent
Represents the insurer
Types of Authority
- Express Authority
- Implied Authority
- Apparent Authority
Express Authority
specific contract authority
Implied Authority
Authority the agent is assumed to have to transact the business. Between the insurer and agent
Apparent Authority
the appearance of authority based on the actions, words, or deeds the agent/insurer. this is between the client/agent
NAIC
National Association of Insurance Commissioners:
- Composed of the state insurance commissioners of all 50 states
- Set models as recommendations for states to abide by
- Accreddidation program to increase oversight reliability in various states
Aleatory Contract
the outcome is controlled by chance, and the dollars that change hands are often of equal amounts
Contract of Adhesion
Prepared by one party and either accepted or rejected by the other
Conditional Insurance
the insurance company pays on the condition that a covered loss occurs
Indemnity
the insureds are restored to the financial positions they were before they suffered their losses
Collateral Source Rule
If others cause you to suffer a loss, they are still required to pay the full loss even if the insurance covers it.
Bilateral Contract
When either party can enforce the contract in a court of law
Utmost Good Faith
The insurance company doesn’t have to do all the research for every thing.
Misrepresentation
A false statement is made that at least partially induces the company to issue the contract
Warranty
a statement by the applicant that all of the info on the app is absolutely true
Concealment
intentional withholding of material information
Elements of a legally enforceable contract (5)
- Offer and Acceptance
- Consideration
- Legal Object
- Competent Parties
- Legal Form
Void Contract
is not enforceable and lacks one or more of the requirements of an enforceable contract
Voidable Contract
one party has the option of voiding the contract, the other party is bound
Parts of Insurance (4)
1) Declarations
2) Insuring Agreement
3) Exclusions
4) Conditions
Declarations
includes applicant information
Insuring Agreement
ID’s what is insured, for how much and under what conditions
Exclusions
ID’s circumstances or situations that would exclude the company from paying a claim
Conditions
rights and duties of both parties
Parol Evidence Law
Nothing previous to the written contract will be used when determining disputes
Doctrine of Waiver
A party, by her own actions, has voluntarily relinquished a known right.
Doctrine of Estoppel
prevents a party from going back on their word to, for example, pay a claim. Works together with the Doctrine of Waiver
Recission
OG Contract is deemed null from the beginning
Reformation
change contract language to conform with what was originally intended in the contract
Tort
When someone causes physical, emotional or financial harm to another
Tortfeasor
The person who commits a tort
Unintentional Tort
Involved Negligence
Negligence Parts (4)
1) Duty is Owed
2) Duty was Breached
3) Actual Damages
4) Proximate Cause
Proximate Cause
an uninterrupted sequence of events that brought about the damage of a negligent act
Attractive Nuisance
refers to something about a property that is likely to attract and possibly injure children
Negligence Per Se
Duty of care owed is determined by reference to a stature
Absolute Liability (Strict Liability)
The Standard Imposed when a person is held responsible for damages, even when there has been no negligence
Vicarious Liability
When someone is held liable for the actions of another (parent-child)
Contributory Negligence
if neglegence on the part of the injured party contributes to the injury it absolves the other party of liability
Comparative Negligence
has replaced Contributory negligence, in which is just reduces the defendants liability by the amount of fault thaey had
Last Clear Chance
modifies Comparitve negligence if the other party, immediately prior to the accident, had a last clear chance to prevent the accidents but failed to seize the chance.
