Post 5yr Exam Review Flashcards
Insurance
A contract in which one party, for monetary consideration agrees to reimburse another party for a loss
Proximate Cause
A cause that, in a natural and continuous sequence unbroken by any new and independent causes, produces an event and without which the event would not have happened. ‘Immediate and effective cause’
To claim, the insured peril needs to be the proximate cause
What is the difference between Pure and Speculative Risk
Pure Risk - there is no chance for gain
Speculative Risk - there is a chance to gain/profit
The difference is that only pure risk is insurable. (Principle of indemnity)
What is a Peril?
An event that may cause a loss
What is a Hazard?
A) A risk or probability that the event insured against might occur
B) a condition that engenders or increases the chances of a loss
What are the two types of Hazards (give examples)
Physical Hazard
- slippery floors, loose tiles, poorly maintained heating and air conditioning units, dangerous manufacturing process
Moral Hazard
- Past record of claims causes by carelessness or even recklessness, dishonesty, poor reputation, labour problems, financial problems
Which kind of Hazard is more difficult to detect?
Moral Hazard
What are the responsibilities of a Risk Manager?
- Identifying loss exposures
- preventing loss
- reducing loss
- financing loss
- educating other corporate managers
- acting as a resource to other managers
(Changing insurers or brokers or accepting policy renewal costs usually require senior management approval)
What are Pre-Loss Objectives? (4)
- Social Responsibility
- Externally Imposed Obligations
- Peace of mind (tolerance for uncertainty)
- Cost of Risk
What are the 5 steps in the Risk Management Process?
1) Identifying and analyzing exposures
2) Formulating options
3) Selecting the best techniques
4) Implementing the risk management plan
5) Monitoring results and modifying the plan
What are Post-Loss Objectives? (5)
- Social Responsibility
- Survival
- Operational Continuity
- Stable Earnings
- Sustained Growth
Loss Control Techniques
- Avoidance
- Loss Prevention
- Loss Reduction
- Separation or Diversification
- Non-insurance Loss Control Transfers
What is a Hold-Harmless Agreement?
An agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity.
- Also known as an indemnity agreement.
- An example of Non-insurance Loss Financing Transfer
What are the 5 secondary functions of Insurance?
- Aiding security
- Aiding credit
- Promoting loss prevention
- Providing capital
- Providing employment
What is the primary function of Insurance?
To spread risk. The losses of the few are shared by the many
What is the purpose of the Unearned Premium Reserve Fund?
To be able to refund premiums that have not yet been earned (unearned premium)
UPRF is a reserve fund of an insurance company, representing the unearned premiums
What is the Principle of Indemnity?
Should a loss occur, the insured will be put back into the same financial position that they were in before the loss (no more, no less)
Insurable Interest
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.
Life: there must be legitimate insurable interest in the continuance of the life insured
Property: people have insurable interest in property when they stand in such a legal relationship to it that they would be financially prejudiced by its loss or damage and financially benefitted by its continued existence (mortgagees, tenants, lienholders, owners, etc.)
Liability: people have an insurable interest in their potential capability to pay damages in the event they are found responsible for having caused injuries to others or damage to their property.
Typical calculations of Indemnity
Actual Cash Value
Replacement Value (also, guaranteed replacement cost - property only)
Valued Contracts
What is Property Insurance?
First-party insurance that indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril, such as fire or explosion.
What is Casualty Insurance?
Loosely used to describe an area of insurance not particularly or directly concerned with life, fire, or auto insurance. Most frequently refers to liability, burglary, and plate glass insurance but may include fidelity and surety.
Types of General Insurance
General Insurance = Property + Casualty insurance
Fire - cover for losses resulting from fire, lightning, and limited explosion
Extended Coverage - covers losses resulting from explosion, falling object, impact by aircraft or land vehicle, lightning damage to electrical appliances, riot, water escape, rupture, freezing, smoke, vandalism or malicious acts, windstorm, and hail
Business Interruption - Covers loss of income while the insured property is being rebuilt or the business restored after a loss
Liability - covers the entire spectrum from personal liability to liability resulting from ownership of premises, operations, products, rendering of professional services, libel, slander, and virtually any other situation where on individual might hold another responsible for some action or lack of action that resulted in injury or damage to that individual or that persons property
Commercial Property Floaters
Liability
- Contractors equipment
- Installation floaters
- Business Signs
- Salesperson’s samples
- pattern floaters
- Agricultural equipment floaters
- Tool floaters
- Livestock floaters
Personal Articles and Personal Effects Floaters
- Jewellery
- Fine arts
- Furs
- Musical Instruments
- Silverware
- Cameras
- Computer equipment and software (personal use)
- Sports equipment
- Stamp and coin colletions
- Firearms
- Travellers effects
What is Reinsurance?
Insurance for Insurer’s. A mechanism to allow insurance companies to transfer some of its risk to another insurance company
What are the 4 main delivery systems of P&C insurance?
- Independent Agency System
- Independent Brokerage System
- Exclusive Agency System
- Direct Writers
What are the Requirements of Contract in Quebec
Consent
Capacity to contract
Cause of contract
Object of contract
What are the requirements for a Contract under Common Law
Genuine Intention Agreement Capacity to Contract Consideration Legality of Object
What 4 things can nullify a contract in Quebec?
Error
Fraud
Violence or fear
Lesion
What 3 principles are required for an insurance contract?
Indemnity
Utmost Good Faith
Insurable Interest
What is an endorsement?
An amendment added to a written document, particularly an agreement between parties, altering its provisions
What are the 5 sections of a typical Insurance Policy
1) Coverage Summary (declarations)
2) Insuring Agreements
3) Statutory Conditions/General Conditions
4) Policy Conditions
5) Signature Clause
What is in the Coverage Summary of an insurance policy?
Parties to the contract
Commencement date, term, and expiry date
The premium and rate
The amounts insured
What is in the Insuring Agreements of an insurance policy? (4)
The subject matter of the insurance
The perils insured against
The exclusions
The circumstances under which the insured may receive the proceeds of the insurance
What information is required on an Insurance Application? (8)
1) Named insured
2) Policy Term
3) Subject of Insurance
4) Loss Payees
5) Loss history
6) Prior Insurance
7) Broker’s Report
8) Signatures
What is a Loss Payee
A person or an entity other than the named insured to whom the proceeds of insurance will be paid
What is a Mortgagee and what is a Mortgage Clause?
Mortgagee - a special class of loss payee that has a registered interest on real property offered as security for the money that the mortgagee has loaned the property owner. Mortgage Clause - a clause in an insurance policy that stipulates the rights and obligations of the insureR and the mortgagee. The main characteristics of this clause are that the mortgagee is granted protection in the event of a loss is denied due to the actions of the insured and, in return, the mortgagee accepts responsibility to advise the insurer of any misrepresentation or change in risk of which the mortgagee is aware.
How is a premium determined?
rate * the amount of insurance purchased = premium
Who carries out ratemaking?
Actuaries. They may be employed by individual insurers, or they may work for an organization that specializes in determining advisory rates.
The reliability of predictions is dependent on which 3 main factors?
- The size of the sample
- The period over which the sample was taken
- Conditions in the past relative to future conditions
What is the ratemaking process?
1) Classify risks
2) Gather statistics on past losses
3) Calculate Pure Premium
4) Determine Total Premium
5) Calculate the rate or unit cost
What is Pure Premium?
Portion of the total premium that is needed to pay expected losses. It does not take into account money needed for company expenses.
What does retention mean?
The amount of liability the ceding company (primary insurer) retains for its own account. Usually in reference to Reinsurance
From which principles is the required premium derived from? (theories)
Law of Large Numbers
Probability Theory
Loss Probability
What does Contribution mean?
When more than one policy has been issued to insure a given risk, a loss must be divided equitably among the various policies. According to their amount and terms, each “contributes” its share of the loss.
What are the two definitions of Prescription?
Law - a limitation of time within which legal action can be taken by a claimant
Insurance - the period of time in which a claim may be brought by the policyholder.
What is a Subscription Policy?
A single policy covering a risk that is divided among a number of insurers; the policy is issued by the “lead” company (usually with the biggest %) and signed by all participating companies.
What is Coinsurance (clause)?
a distinct section or provision in an insurance policy that requires an insured (property* owner) to carry separate insurance for a specified amount stated in the policy to be eligible for full coverage.
What is a main difference between Stat. Cond. and Gen. cond.?
General Conditions, in Quebec under the Civil Code, specifies the points that must be addressed in the General conditions, but it does not regulate the exact form or wording in which they must appear.
Accident vs Occurrence Basis
Liability Policies
Occurrence - can be defined as an accident including any continuous event or exposure to substantially the same general harmful conditions
Accident - more restrictive, because it implies that suddenness and definiteness are part of the criteria needed to establish coverage
What is the major cause for E&O claims? Why does it occur (5)?
Inadequate Coverage, occurs because of a failure to:
- provide cover for exposures
- explain the effects of exclusion, exemptions, and restrictions
- Place cover at all
- Provide correct cover
- Provide cover in time
What are the essential elements of good client service by intermediaries? (5)
- a reputation as a dependable source of insurance advise
- Adequate capacity and range of coverages
- Accurate and adequate accounting and office methods
- Good handling of claims
- Appropriate handling of complaints
The Office of the Superintendent of Insurance regulates which provinces and territories? (7)
AB NFL and Lab NW territories Nova Scotia Nunavut PEI Yukon
Who is the insurance regulator for BC?
Financial Institutions Commission (FICOM)
Who is the insurance regulator for Ontario?
Financial Services Commission of Ontario (FSCO)
In auto insurance, what does the 60-90-60 Rule refer to?
Proof of Loss
60 - the insureR has 60 days to present a blank POL form to the insureD
90 - Insured has 90 days to return it completely filled out
60 - The insureR has 60 days to pay the loss to the insureD
What does the Insurance Bureau of Canada do?
- Advocating industry positions with consumers, government, members, and other stakeholders
- Identifying and monitoring issues, developing policy positions, and responding to legal developments
- Staying on top of issues of strategic importance to the industry
Membership is voluntary, they also provided these services for members:
- issues management
- Investigating services
- Insurance information
What is the Office of the Superintendent of Financial Institutions responsible for?
constant supervision and enforcement of safeguards so that inadequately financed insurance companies are not established and existing ones remain financially healthy.
What does the Highway Traffic Act deal with?
registration and licensing of motor vehicles, licensing of drivers, and traffic control of vehicles on highways.
Also, plays a role in automobile insurance relating to the requirements of proof of financial responsibility and safety responsibility
What does the Insurance Institute of Canada do?
- Maintenance and upgrading of professional education programs in property and casualty (P&C) insurance on a uniform and national level
- Conducting national examinations, grading the entries, and awarding diplomas to graduates
- Providing independent study courses accessible from any location for members
- Reaching out to the next generation of industry employees by supplying information about careers
What does the Institute for Catastrophic Loss Reduction do?
An industry initiative to reduce the human and financial cost of natural disasters
What does the Centre for Study of Insurance Operation do?
An association of P&C insurers, brokers, and software providers. Focused on improving the efficiency of the broker distribution channel by overseeing the development, implementation, and maintenance of technology standards and solutions
What does the Underwriters Laboratories of Canada do?
Not-for-profit
operates laboratories and a certification service for the examination, testing, and certification of devices, construction materials, and services to determine their effect on fire, accident, and property hazards
What does the Insurance Brokers Association of Canada do?
Not for profit
goal is to elevate status of independent insurance intermediaries through professional development and to safeguard the public interest by establishing standards of qualification and ethics
What does the Canadian Independent Adjusters’ Association do?
To provide leadership for Canada’s independent adjusters through advocacy, education, and recognized professional standards.
What does the Canadian Insurance Claims Managers Association do?
Organization of insurance company claims managers that promotes a high standard of ethics in the handling of claims
What does the Facility Association do?
Not for Profit
a pooling arrangement whereby all high-risk drivers could be underwritten in a common pool and the profits or losses of the pool would be shared by all automobile insurers in the province or territory
Where does the Facility Association operate?
AB, NB, NFL and Lab, NS, NWT, Nunavut, Ont, PEI, Yukon
Everywhere except BC, Man, Sask.
Priority Payments In Canada
BC, Man, NB, NFL&L 180,000 - Bodily Injury (always the priority) 20,000 - Property Damage AB, NWT&N, Ont., PEI, Sask., Yukon 190,000 - BI 10,000 - PD
What is Absolute Liability?
Liability associated with very dangerous actions. Often found in cases involving explosives and in many automobile laws. Negligence does not have to be proven
What is Direct Compensation?
In the event of an accident, each insured will obtain compensation from his or her insurer according to the insured’s degree of fault for an accident
What is Own Damage
Damage to the insured’s own vehicle.
- insureds damaging their own car
- unknown persons damaging the car (theft, vandalism)
- natural occurrences damaging the car (hail, lightning)
- Third party damages the car (read-end collision)
What are Accident Benefits?
Indemnity provide to an insured on a first-party basis towards the cost of medical and rehabilitative care for the treatment and recovery of injuries arising out of the use or operation of an insured’s property
Accident Benefits may include provisions for the Partial reimbursement of wage loss and home care expenses.
What is SPF 1 and what does it do?
Standard Owner’s auto policy
provides coverage for owners of vehicles that are used for commercial or personal purposes
What is SPF 2 and what does it cover?
Standard Drivers Automobile Policy
provides coverage for drivers who are driving vehicles they don’t own (lease)
What is SPF 4 and what does it cover?
Standard Garage Auto Policy
provides certain types of auto-related businesses (generally referred to as garage’s, but could also include dealerships, repair shops, parking operations, etc.) with coverage for owned automobiles, non-owned automobiles, and customers’ automobiles
What is SPF 6 and what does it cover?
Standard Non-Owned Automobile Policy
Provides non-owned automobile insurance where there is responsibility for the use and operation of non-owned vehicles
What is SPF 7 and what does it cover?
Excess Automobile Policy
Provides excess insurance for liability exposures. For use along with an SPF 1, 2, 4, or 6
What is SPF 8 and what does it cover?
Lessor’s Contingent Automobile Policy
Provides contingent insurance for businesses that lease vehicles on a long-term basis
What is SPF 9 and what does it cover?
Transportation Network Policy
covers accidents that arise from the use or operation of the automobile as a transportation network automobile (Alberta only)
What is the difference between Contingent Insurance and Excess Insurance?
Contingent - refers to a policy that is contingent on the absence of other insurance and does not apply if there is another policy providing coverage
Excess - is a policy that will begin paying when all other similar insurance on the same subject is exhausted, or the loss exceeds a previously agreed-upon amount.
What is negligence?
Failure to use the degree of care expected from a reasonable and prudent person
What is Third Party Liability?
Insurance coverage to pay compensation to anyone who sustains loss or damage resulting from an insured’s negligent conduct or omission.
What are the 4 Coverage Options for Automobile Insurance?
All Perils
Collision or Upset
Comprehensive
Specified Perils
What is Collision or Upset coverage?
protects the insured against damage to the vehicle caused by colliding with another object or tipping over
What are the specified perils of Automobile insurance?
Fire Lightning Theft or attempted theft Windstorm Earthquake Hail Explosion Riot or civil commotion Falling or forced landing of aircraft or parts thereof Rising water Stranding, sinking, burning, derailment, or collision of any conveyance in or upon which the automobile is being transported on land or water (train/ferry)
What are the exclusions of Automobile Coverage
- Wear and Tear damage
- Damage caused by theft of the vehicle by any person who is in lawful possession of the automobile (mortgage, conditional sale, lease)
- Damage caused by the voluntary parting with title of ownership
- Damage to contents of trailers or to personal effects,
- Damage to media and equipment for use with a sound system (detached)
- Insurer is not liable for any damage to the insured automobile when the insured operates it while under the influence of drugs or alcohol
- Loss or damage caused by theft by anyone living in the same dwelling as the insured
Uninsured Motorist
One who drives an automobile without properinsurance
Uninsured Motorist Coverage
A form of insurance that pays for the Bodily Injury or Property Damage caused by the owner or operator of an automobile that is not insured. Insurance is available to a policyholder and family members if they are injured by a hit and run motorist or driver who carries no liability insurance and is at fault for the accident. Where the person at fault is not insured or there is a verifiable hit and run, a government fund may provide coverage up to the statutory limit.
Basic Home Insurance - What are the named perils?
Fire or lightning
Explosion
Smoke (released from a malfunctioning heating or cooking appliance, but not a fireplace)
Falling object
Impact by aircraft or land vehicle
Riot
Vandalism or malicious acts
Water damage arising from an indoor plumbing, sprinkler, and from water that enters the dwelling through an opening created by an insured peil
Glass breakage in windows and doors
Transportation of personal property
Theft (including damage to the building caused by attempted theft)
Electric current damage to electrical appliances
Exclusions of BASIC homeowners policies (2 kinds)
Property exclusions
- buildings for business or farming
- Property on exhibit
- Property illegally acquired
- Evidence of debt or title
- Data, which are not tangible
Loss or Damage not insured (exclusions)
- Damage from freezing of indoor plumbing
- Flooding or damage caused by floodwater due to an overflow of a body of water
- Damage from freezing outside the home, melting or moving snow and ice
- certain kinds of theft, including by tenants, theft from secondary locations if not residing there, theft of building materials
- property that is lawfully seized
- losses in vacant buildings
- Nuclear incidents
- Radioactive contamination
- War risks
- Intentional or criminal acts
- Application of heat
- Earth Movement
- Leakage of fuel oil from residential oil tanks
- terrorism
Personal Liability (homeowners insurance) coverage (4)
Legal liability (coverage E)
Voluntary medical payments
Voluntary payment for damage to property
Voluntary compensation for residence employees
What are the Coverages under All-Risks Coverage Home Insurance (property)
Coverage A - Dwelling Building
Coverage B - Detached Private Structures
Coverage C - Personal Property
Coverage D - Additional Living Expenses
Comprehensive Policies - Extensions of Coverage (11)
- Debris Removal
- Property removed to protect it from loss
- Property being moved to a new residence
- Fire department charges
- Change of temperature
- Freezer food
- Lock replacement
- Tear out
- Arson conviction reward
- Credit or debit cards, forgery, and counterfeit money
- inflation
