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.
