P&C Insurance Flashcards
Risk
uncertainly or chance of loss occurring
Two types of risks
Pure risk: loss or no gain (only insurable), no chance of gain
Speculative risk: gain or loss (not covered)
Exposure
Asking how risky are you, that will determine premium. The riskier you’re the higher the premium
Hazard
Increases the chance of risk, hazard makes a risk riskier
Peril
the cause of a loss like fire or hail
Moral hazards
A sense of carelessness
Morale Hazard
Lying on purpose
Loss
the disappearance or reduction of value
Physical Hazard
Hazard you can see and touch
The law of large numbers
data that insurance companies have to make predictions on loss
Indemnity
to restore, put you take to where you where you were before, what the insurance company does for us
Indemnify
to make them whole again
Reinsurance
When insurance gets insurance to indemnify them, to help them out
Replacement cost
is going and buying something brand new at today’s prices. Wallas in roof are basically only thing that will get replacement cost
Cash Value
is the goodwill value, the used value
Certificate of Authority
Makes an ins company admitted and authorized, Admitted=authorized,
never certified
Ins is a state level thing, every state has their dept of ins
Cert of authority is needed to sell ins, just like producer needs ins license to sell ins
Mutual Company
people who buy policy become policy members and you are part owner of the company. Premium money is only saved for claims with the company. Leftover money will be distributed back to policyowners, dividends are not taxed, issue participating polices
Stock Companies
Owned by stock holders, issue non participating polices, dividends are taxed
Where are ins companies domiciled
Alien - outside of USA
Domestic - ins company started here, headquarted here, based here, and selling here
Foriegn - not headquartered but are selling in that state
law of agency
explains the relationship between the ins company and agent selling ins.
Agent represents the ins company
knowledge of the agent is knowledge of the insurer.
Broker
works with customer to find cheapest ins plan
Authority of the agent
Expressed Auth: is written contract that tells agent what they’re allowed to do. Read on contract what your authority is.
Implied: assumed by insurer. things you will do what is not typed in the contract. cannot write everything you can do in the contract.
Apparent/percieved: is assumed by customer from what the agent has told them (stationary, business card, letterhead)
Fiduciary (person of trust)
agent collect premium(money) and then submit to insurer.
Fiduciary = funds
Gramm Leach Braley Law
protects privacy, needs disclosures to give out info.
4 Elements of a contract
Ins policies are contracts,
Agreement - known as offer and acceptance, 1 person makes an offer and the other accepts it. offer = customer submits an app.
acceptance = insurer issues policy
Consideration- both parties must bring value. Consideration on the insured = application + premium. Consideration on the insurer= promise to pay for claim.
Competent parties - not under the influence, sound mind, legal age
Legal Purpose - cannot be against public policy, break the law
adhesion (contract)
insurer writes policy, customer has to buy entire policy. must stick to what they said in policy
Aleatory(contract)
Unequal exchange ( customer pays small premium, and ins pays out big claim)
Assignment
Assign you policy to someone else
Personal(contract)
Between the customer and insurer
unilateral(contract)
1 sided promise, insurer promise to pay
conditional (contract)
both parties have rules and duties they must follow. ways of behaving, obligations.
reasonable expectations
if a agent says you’re covered then you are
warranty
absolute true statements, guarantee. home and auto
representation
life and health, can’t have warranties because you cant guarantee that its true but to best of knowledge its true
misrepresentation
untrue statement
concealment
hiding or withholding information on the application.
fraud
lying or deceiving
Material misrepresentation
INS would’ve made a different decision if they had a piece of info that was not given to them.
co insurance
As long as you have 80 % of insurance e of the property’s value, the policyholder will agree to insure. 80 percent of rebuild
if the insured covers at least 80% for replacement/rebuilt (exam question) if yes then they will pay the full claim, answer is no is then:
Co-ins equation: did carry(amount of coverage) / should carry (80%)(put the number value x loss = claim payout
insurance to value
means that if house is 250k to build then ins will pay 250k
residual Markets
insurance mechanisms that provide coverage for individuals or businesses unable to obtain insurance through the standard or voluntary market. These markets serve as a last resort for those with higher risks or who have been rejected by private insurers.
Pro-rata(fair share)
If insured as multiple ins companies as insurers, each company will pay their fair share.
Pro rata equation: whatever company amt you’re looking for is on top(for ex. payout for comp a / companies added together x loss
Company I’m looking for # / all companies x loss
4 Elements of Negligence
Duty of care
Proximate cause
Breach of duty
Loss or damage - victim
Actuarial Department
gather info to determine the probability of loss
Adverse Selection
is the principle that people will seek insurance more frequently for risks that are hard to insure. Some Insurers may charge a high premium or decline eins altogether
Dwelling Policy
Typically purchased by landlords, for liability
Tort
negligent act that could require compensation. only unintentional torts are insured. wrongful civil act
Compensatory Damages
Special Damages: compensate someone for out-of-pocket, hospital expenses. anything u can put a specific number on it.
General Damages: compensate for pain and suffering.
punitive (punish) damages - teach someone a lesson to prevent an negligent offense.
Liability
Vicarious- libility for others, dog, kids, employees
Strict- Defective products, tires, cars, ladder
Absolute - Hazardous activites, firework shows, swimming pools,
Limits of Liability
Aggregate: max amount will pay out for all claims during policy period
Per occurrence: Max payment in a single accident or occurance
Combined Single: max payment for bodily injury and property damage combined
Per person: max amt payment for bodily injury to single person
Split Limits: max payments for different types of coverages divided into 3 seperate limits of liabilty
Home owner polices - House
What is open and named peril?
Which polices are open and named peril?
Open peril will cover anything not excluded (best)
Named- policy that only covers what is named
Even numbers are named and odd are open perils
HO2(broad), 3(special, open peril) , 5 (Comprehensive, open peril) - for House
Ho 2 broad covers things inside Fire/light, windstorm hail, aircraft, riot, vechiles, volcanic eruption, explosion, smoke, VMM, falling objects, overflow of water, AC/HEAT, freezing plumbing, accidental damage from Artically generated elcetrical current
H0 3 is only open peril on the outside (like roof, walls,) and named peril in the inside
ho5 covers in and out of home open on inside and outside, and disappearance. comprehensive (best)
Homeowner’s Policies - renters/contents only
what is Condo policy number?
What is modified?
Ho4 - (4 rent), no a or b coverage
Ho6 condo(upgrade) - owner of building will pay for your apt but it will be the cheapest base model. get this to upgrade your condo.personal property are settled on an ACV basis
Ho 8 modified - outdated old house not restored - market value(buy or sell house) is less than rebuilt. theft is only covered up to 1k on premise
What are the different Homeowners coverage forms
Section 1: Coverage A- dwelling
B: other structures
C: Personal property(15500 for jewels and firearms)
D: loss of use
Section 2: liability coverage
Section E: Personal liability
Coverage F: liability to others
what is the standard deductible
250
Liberalization
If insurer makes policy better then existing policyholder automatically get the benefits
Subrogation -
process where after insurer pays insured takes legal action against 3rd party.
other insurance
efers to a clause found in many insurance policies that addresses how coverage will be coordinated if more than one insurance policy provides coverage for the same loss or claim.
The Damage to Property of Others Additional Coverage
provides limited coverage for property damage for which the insured is liable, regardless of negligence. Though the coverage would exclude coverage for losses caused intentionally by an insured who is 13 years of age or older, intentional damage by insured children under the age of 13 would be covered.
declarations
contain info specific to individual and property insured,
proximate cause
is the initial event that starts a chain of events leading to an outcome. It’s not always the last thing to happen, but it’s the one that sets everything else in motion. Without this initial event, the outcome wouldn’t have happened. So, it’s like the starting point of a series of events that lead to a result.
occurence
is an accident that includes continuous or repeated exposure to the same general harmful conditions.
salvage
the amount for which it can be sold at the end of its useful life, often determined by the property’s scrap value for insurance purposes.
legal action against us(suit against us)
insurer cannot file against insured
arbitration
resolve difference between insured and insurer
Abandonment condition
the insurance company will not accept property abandoned by an insured. prevents the insured from relinquishing ownership
Insurable interest
exist at time of loss
conditions
Liberalization, subrogation, and other ins
waiver
insurer give up a right that they had
Estoppel
once right is given up cant reclaim it
insuring agreement
is the insurer’s promise of protection to the insured, affirming that the insurer will indemnify the insured for covered losses. The perils insured against by the policy are specified in the Insuring Agreement.
