OTL Flashcards
What is insurance?
Sharing the losses of a few among the many.
A contract, where the insurer for monetary consideration agrees to cover the insured for loss or liability as defined.
_______is based on the existence of a Risk.
Insurance
Insurance is a contract in which one party (_________). for monetary consideration agree to reimburse another (________) , for loss or liability for a loss on a defined subject caused by specified ________ or _______
Insurer
Insured
Hazard
Perils
The essential concepts of insurance are based upon the ___________________ of Risk.
Chance
Name two types of risk:__________ & ____________________.
Pure
Speculative
The insurance relating individuals in their private capacity. For example, private dwellings, private automobiles, seasonal dwellings, boats, jewelry, etc. are lines
Personal
Which is insurable, and which is not:
Insurable:___________________________________
NOT Insurable:_______________________________
Yes - Pure
Not - Speculative
Risks are classified into categories of risks: ___________________, __________________ , _______________________.
Personal, property, liability
The insurance relating to operations, such as stores, professional offices, trucking operations, and many other similar businesses are _______________________ lines.
Commercial
A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils.
Insurance
Means the chance of a loss. Insurance deals only with the pure risks, which entails a chance of loss but no chance of profit. Speculative risks exist where there is a chance of loss but there is also a chance of profit, and because of the chance of profit these are uninsurable risks.
Risk
An insurance term for a situation where the possibility of either a financial loss or a financial gain exists, such as purchasing shares, or betting on horses.
Speculative Risk
An event, which may cause a loss to occur
Peril
A condition, which may cause a peril to occur or make the loss more severe. A hazard can be either a physical hazard, which deals with nature of the actual risk, or a moral hazard, in that it relates to the human element of the risk.
Hazard
Paul buys a pair of rare sneakers and hopes to re-sell them online for a big profit. What is this an example of?
a. Illegal risk
b. Speculative risk
c. Pure risk
d. Moral risk
B
Insurance is based on the existence of
a. Risk
b. Loss
c. Indemnity
d. Consideration
a. Risk
Which type of risk can be insured?
a. Illegal risk
b. Pure risk
c. Speculative risk
d. Moral risk
b. Pure risk
Which of the following factors is an example of a physical hazard associated with a property risk?
a. Dishonest employee actions
b. Personal habits of the insured
c. Financial and labor problems
d. Poorly maintained heating units
d. Poorly maintained heating units
What is proximate cause?
a. Imagined cause of loss
b. The last link in a chain of events
c. Predetermined cause of damages
d. Immediate and effective cause of a loss
d. Immediate and effective cause of a loss
What is a defining attribute of speculative risk?
a. It is insurable
b. It is pure in nature
c. There is a chance of profit
d. There are no loss exposures
c. There is a chance of profit
What type of insurance salesperson sells policies on behalf of several insurers?
a. Adjuster
b. Broker
c. Underwriter
d. Employee of a direct writer
B - broker
Which of the following is an example of a moral hazard?
a. A building with an outdated, overloaded electric panel and exposed wiring.
b. A business with a good credit score.
c. A landlord with an excellent maintenance record for her rental units.
d. A manager with a careless attitude toward health and safety issues
d. A manager with a careless attitude toward health and safety issues
What is a peril?
a. An event that caused the loss to occur
b. An action that caused a loss to be more severe
c. A situation that increased the frequency of loss
d. A condition related to the physical features of a risk
a. An event that caused the loss to occur
What term is defined as the last link in a chain of events leading to the loss?
a. Remote cause
b. Effective cause
c. Proximate cause
d. Immediate Cause
d. Immediate Cause
A high-risk industrial operation is an example of what type of risk?
a. Niche risk
b. Special risk
c. Personal risk
d. Commercial risk
b. Special risk
Which of the following situations has the correct proximate cause of loss identified?
a. An individual trips and falls on loose carpet on stairs; the individual’s footwear is the proximate cause.
b. A cigarette tossed from an upper balcony lands on a lower balcony, causing a fire that damages the apartment unit; fire is the proximate cause.
c. Water damage to the interior of a home during a severe storm with an old/unmaintained roof; the proximate cause is the storm.
d. A negligent property owner does not clear snow from her sidewalks, and a visitor slips and falls; the fall is the proximate cause.
b. A cigarette tossed from an upper balcony lands on a lower balcony, causing a fire that damages the apartment unit; fire is the proximate cause.
Insurance means the undertaking by one person or organization to ______ another person or organization against loss, or liability for loss, for a certain risk or peril as described in a policy, or to pay a sum of money or another thing of value when a specified event happens
Indemnify
In addition to the Spread The Risk, list five supplementary functions of insurance:
Aid to: Security
Aid to: Credit
Promoting: Loss Prevention Activities
Providing: Capital
Providing: Employment
An insurer must make good the amount of the insured’s financial loss – no more and no less” is a definition of
Indemnity
People need to have what in a in property when they stand in such a legal relationship to it that they would be financially prejudiced by its loss or damage and is financially benefitted from its continued existence.
Insurable Interest
Defined as the value of an equivalent piece of property of the same age and condition and subject to the same wear and tear as the property that was lost or destroyed. This takes into account for depreciation.
ACV Actual Cash Value
Means that the insurer pays the cost of replacing the building, without any reduction for depreciation even of the value of the building was underestimated when the policy was set up.
Guaranteed Replacement Cost
Also known as replacement cost, is the current market value of the cost to replace the lost or damaged insured property.
Replacement Value
General Insurance is often referred to as _____ & ____ Insurance:
Property & Casualty
Actual cash value is calculated in one of three ways
The cost to repair or replace less any depreciation
Fair market value
Consideration of all relevant evidence of the value of the damaged property
Insurers can be divided into three basic groups:
Organizations operating for the profit of their owners Stock Companies
Co-operative organizations operating for the benefit of their members only
Government insurance organizations which can take the form of a government department or a crown corporation.
Captive Insurers: provides insurance to and is controlled by its owners
Under a ____ system of insurance, insured pay a fixed premium as their contribution to the communal fund. If the contributions of all policy holders are not sufficient to cover the losses of all policy holders, the shortfall is provided from the contributed capital of the investors.
stock company
Stock Insurance companies achieve profit from two main sources
Underwriting gain
Interests on investments
What is an assessment or premium note mutual?
assessment is paid in the event that there is not enough money to cover losses.
What is a factory mutual?
operate for the benefits of the members. Initially, it was only for factories. specializes in the field of fire prevention
What is a stock mutual?
originally a mutual, now has shareholders and operates for a profit.
What is Lloyds?
investors can be individuals/corporations that form a “syndicate”. syndicates hire uw specialists.
What is a co-operative stock mutual?
Charges for operating expenses/profit. Can’t ask for premium until renewal. Premium set at the start of the policy period. Can issue dividend checks.
With respect to an insurance company’s organization, list departments that are common to all companies:
Accounting and Finance
Administration
Marketing
With respect to an insurance company’s organization, list departments that are common to INSURANCE companies:
Actuarial
Claims
Underwriting
______ are responsible for analyzing the data and performing the calculations that determine the price of the various classes of insurance; they are responsible for the basic ________
Actuaries
Ratemaking
To insure again by transferring to another insurance company all or part of a liability assumed.
Reinsure
When a company reinsures its liabilities with another, it ______ business. The amount ceded is called the ________.
Cedes
Cession
When a reinsurer cedes part of its business to another reinsurer, that is a ______ and the second reinsurer is the _____.
retrocession
retrocessionaire
There are two types of reinsurance with a brief explanation:
Treaty – an agreement between the insurer and reinsurer that provides for automatic reinsurance without the insurer having to submit every risk
Facultative – reinsurance placed on an individual case by case basis
To provide compensation for loss or expenses incurred
Indemnify
An agreement or promise between two or more persons that is intended to be legally enforceable and is constituted by the acceptance by one party of an offer made to him by the other party, to do or to abstain from doing a specific act. The offer and acceptance may either be expressed or be inferred through the conduct of the parties.
Contract
A person who is employed or authorized to act on behalf of another. Agents can be independent or direct writers.
Agent
One who contracts with at least two or more insurance companies to sell their insurance policies to the public and is paid a commission based on the percentage of each premium paid. This includes a fee for each policy serviced.
Independent Agent
is a person who represents only one company and sells for only one company, and is also paid on a commission basis similar to the independent agent
Direct Agent
A licensed independent person or firm who acts on behalf of an insured placing business with insurance companies
Broker
one who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements
Adjuster
the part of the premium that has not been used or earned; premium representing the unexpired portion of the policy.
Unearned Premium
that portion of premium earned or charged for the period of time a policy remained effective.
Earned Premium
A reserve fund of an insurance company or reinsurance company, representing the unearned premiums
Unearned Premium Reserve
An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer a pecuniary loss
Insurable Interest
A contract, expressed or implied, to repay in the event of a loss. The insured neither gains or loses.
Indemnity
The fair market value of property, taking into account factors that might augment or reduce the value of the property in question.
Actual Cash Value
A clause that pays replacement costs even if these exceed the amount of insurance on the dwelling building if all conditions are met
Guaranteed Replacement Cost
First party insurance that indemnifies the owner or user of property for its loss, or loss of its income producing ability, when the loss or damage is caused by a covered peril.
Property Insurance
Loosely used to describe an area of insurance not particularly or directly concerned with life insurance, fire insurance. It most frequently refers to liability, burglary and plate glass insurance but may include fidelity and surety.
Casualty Insurance
IBNR
funds set aside to pay for losses that have been incurred but not yet reported.
an insurance company that is owned and operated by its policyholders, who assume the risks of profit and loss and establish a corporation for the purposes of insuring one another against the possibility of fortuitous loss.
Mutual Insurance Company
Insurance Companies of the mutual type (as distinct from stock
companies) that specialize in industrial risks and in loss prevention.
Factory Mutuals
The amount of stock sold by a corporation.
Subscribed Stock
Represents that part of the subscribed capital that has been paid in full by shareholders.
Paid-Up Capital
The amount of money an insurance company gains as a result of its insurance operations. Excess of earned premiums collected over loss payments and expenses.
Underwriting Profit
Funds that are set aside by an insurance company for the purpose of meeting obligations as they fall due. Such obligations would include liabilities for unearned premiums and the estimated costs of unpaid claims.
Reserves
An amount carried as a liability in an insurers balance sheet representing, in respect of each claim, an amount equal to the estimated final settlement cost less any amounts already paid
Loss Reserve
compensation based upon the amount of production; for example, independent insurance agents are compensated on the basis of a percentage of the premium.
Compensation
One who specializes in the mathematics of insurance, mortality rates and the like
Actuary
The process of compiling and analyzing data to establish rates that accurately reflect the level of risk.
Ratemaking
The assertion of a demand made by one party against another for indemnity or restitution for personal injury or property damage
Claim
One who adjusts losses on behalf of the insurance companies but is not employed by any one insurer.
Independent Adjuster
Insurance purchased by an insurance company from another insurance company to provide it protection against large losses on cases it has already insured. Essentially, an insurance for insurance companies.
Reinsurance
The measure of an insurers ability to issue contracts of insurance. Measured usually by the largest amount it will accept on a given risk or in certain situations, but the maximum volume of business that the company is prepared to accept.
Capacity
What does insurance provide?
a -A way to profit after a loss
b- A way of sharing the losses of a few people among the many
c- Something for people to complain about
d- A financial burden for car owners
b - A way of sharing the losses of a few people among the many C81 Chapter 3 pg. 3-5
Which of the following situations is an example of insurable interest in property?
a. A homeowner whose personal property is damaged as a result of the fire in his home.
b. The homeowner’s employer who provided the homeowner with a laptop that was damaged as a result of the fire.
c. The homeowner’s neighbour who couldn’t work in his home for the day as a result of the next-door fire-fighting activities
d. The neighbour’s car that was accidentally damaged by fire-fighters as they were putting away their fire-fighting equipment.
a. A homeowner whose personal property is damaged as a result of the fire in his home.
Which of the following methods are commonly used to calculate the indemnity owed for property insurance policies?
a. Market value and manufacturer’s suggested retail price (MSRP)
b. Actual cash value (ACV) and replacement value
c. Actual cash value (ACV) and purchase price
d. Consumer Price Index (CPI) and replacement cost
b. Actual cash value (ACV) and replacement value
What is a valued contract?
a. A contract that provides business interruption insurance up to a specified limit per loss
b. A contract that provides up to fifty percent of the total loss to the insured property
c. A contract that provides a pre-agreed amount if there is a total loss of the property insured
d. A contract that provides life insurance for an amount equal to the insured’s loss
c. A contract that provides a pre-agreed amount if there is a total loss of the property insured
Which of the following perils is covered under an Extended Coverage (EC) Endorsement?
a. Riot
b. Flood
c. Vandalism
d. Earthquake
a. Riot
&
c. Vandalism
Which party acts as an intermediary in arranging the insurance contract?
a. Broker
b. Lawyer
c. Insurer
d. Insured
a. Broker
Which of the following terms is defined as a contract, expressed or implied, to repay in the event of a loss?
a. Indemnity
b. Subrogation
c. Replacement
d. Compensation
a. Indemnity
When are valued contracts typically used?
a. To insure items that do not require an appraisal to pre-determine their value.
b. When an insurer has a history of good experience with a particular insured and wishes to reward the insured’s loyalty
c. To insure items for which it would be difficult to determine a true value after a loss has occurred.
d. When the principle of indemnity does not apply to a particular contract and needs to be overridden
c. To insure items for which it would be difficult to determine a true value after a loss has occurred -
Valued contracts are used when it is otherwise difficult to determine a value after a loss. The predetermined value is agreed to and documented in the policy before
a loss.
Who deals with federal licensing and supervision of insurance companies?
a. The Insurance Companies Act through the Office of the Superintendent of Financial Institutions
b. The lieutenant-governor in council
c. The minister of transportation
d. The superintendent of insurance
a. The Insurance Companies Act through the Office of the Superintendent of Financial Institutions -
The Canadian government has enacted the Insurance Companies Act, which deals with the federal licensing and supervision of insurance companies and solvency standards for insurers. The act is enforced through the Office of the Superintendent of Financial Institutions
What is a valued contract?
a. A contract that provides business interruption insurance up to a specified limit per loss
b. A contract that provides up to fifty percent of the total loss to the insured property
c. A contract that provides a pre-agreed amount if there is a total loss of the property insured
d. A contract that provides life insurance for an amount equal to the insured’s loss
c. contract that provides a pre-agreed amount if there is a total loss of the property insured
A person who may be financially prejudiced by damage to a property he owns is said to have
a. Legal liability in the property
b. Legal capacity in the property
c. Insurable interest in the property
d. Right of subrogation in the property
c. Insurable interest in the property
An ___________ is a request for insurance. It introduces the applicant to the insurance company and recognizes the broker of record. It can be made ______ or in _______. Some forms of Insurance do not require an application to be completed to issue a policy.
Application
Orally or Writing
The duty of __________ is fundamental to the principle of Utmost Good Faith that underlies all insurance transactions.
Disclosure
A factual statement about the risk is known as a _________
Representation
There are eight sections to an application:
Name Insured Policy Term Subject of Insurance Loss Payees Loss History Prior Insurance Brokers Report Signatures
The generic term for someone other than the named insured to whom the proceed of insurance will be paid.
Loss Payee
A _________ is a special class of loss payee. Their interests are protected by a separate insuring clause, known as ta _________.
Mortgagee
Mortgagee Clause
With respect to prior insurance, what may indicate a potential concern for underwriters? (2)
- An unexplained gap in coverage
- Previous insurers declining, denying or refusing to renew insurance could indicate a moral hazard.
The process of establishing rates for each class or insurance.
Ratemaking
The ______ is the price of a unit of insurance. The _______ is arrived at multiplying the ______ times the amount of insurance purchased.
Rate
Premium
Rate
Primarily, the determination of premiums required is an application of the principles derived from the Law of _________, __________ and ________. The probability of an event happening is spoken of as the chance an event may happen but cannot tell you which specific risks will suffer a loss.
Large Numbers
Probability Theory
Loss Probability
