Primary Insurance Key Info Flashcards
Types of Loss Exposures
(1) Property Loss Exposure
(2) Liability Loss Exposure
(3) Human Resources Loss Exposure
Peril v Hazard
Peril – cause of a loss
Hazard – conditions that create or increase the chance of loss
Types of Hazards
(1) Physical - property, persons, or operations
(2) Moral - dishonesty or immoral behavior
(3) Morale - carelessness, indifference, or don’t care attitude
Adverse Selection
Tendency of those more exposed to risk to buy more insurance coverage
Risk Management Steps (6)
(1) Identifying Loss Exposures
(2) Analyzing Loss Exposures (Frequency, Severity, Tail)
(3) Examining feasibility of risk management techniques
(4) selecting appropriate risk management techniques
(5) implementing selected risk management techniques
(6) monitoring results and revising the risk management program
Risk Management Techniques
Risk Control (6)
(1) Avoidance
(2) Loss Prevention – reduce frequency
(3) Loss Reduction – reduce severity
(4) Separation – isolate loss exposures to minimize severity of a single loss
(5) Duplication – use backup or spare parts or copies
(6) Diversification – spread loss over various components
Risk Financing (2)
(1) Retention – absorb the loss
(2) Transfer – pass on the risk
Characteristics of Ideally Insurable Risks (6)
(1) Pure Risk – cannot benefit or gain; only loss or no loss
(2) Large # of similar loss exposures – for law of large numbers
(3) Determinable, definite, measurable loss – can quantify the loss
(4) accidental loss – must not be intentional
(5) Losses that are not catastrophic
(6) Premium and losses are economically feasible to insure – not too small or too large
Benefits for insurance (7)
(1) payment in event of loss
(2) reduction in uncertainty
(3) loss control
(4) more efficient use of resources
(5) support for credit
(6) satisfaction of legal requirements
(7) reduction of social burdens
Unique Characteristics of Insurance Contracts (6)
(1) Contract of Indemnity (requires insurable interest and allows for subrogation)
(2) Not usually transferable
(3) Conditional (on policy conditions)
(4) Exchange of Unequal Amts
(5) Adhesion (Insured must adhere to contract drawn up by insurer)
(6) Utmost good faith (disclose all relevant facts)
Types of Torts
(1) Intentional
(2) Negligence (requires duty, breach of duty, causation, and damages)
Other notes impacting proof:
(3) Strict or Absolute liability – business sponsoring a dangerous situation
(4) Negligence per se – criminal law broken, burden of proof on defendant
(5) Res Ipsa Ioquitor – thing speaks for itself, burdon of proof removed
Types of Damages
Compensatory or Actual
(1) General – pain, suffering, etc.
(2) Special / Consequential – out of pocket expenses, lost time from work, hospital bills
Punitive or Exemplary
Types of Insurance Orgs (6)
(1) Stock
(2) Mutual
(3) Reciprocal (like mutual but policy holders insure each other individually and not jointly and they have an attorney-in-fact)
(4) Lloyd’s – marketplace for insurance, not an insurer
(5) Pools – insurers pooling resources to cover loss exposures otherwise uninsurable
(6) Government insurers – fed or state
Insurance Operations (3)
(1) underwriting – process of selecting and classifying loss exposures, avoid adverse selection
(2) Loss adjustment – claims settlement, includes LAE
(3) Ratemaking – predicting future losses and allocating to classes of policyholders
Underwriting – Field vs Line vs Staff underwriters
Field underwriting performed by agents
Staff underwriters set underwriting policy
Line underwriting performs actual evaluation
Rates must be (3) by state regulations
(1) not unfairly discriminatory
(2) not too high
(3) must be adequate to support the exposures
Rate
price per unit of coverage
Rating Systems
Class or Individual
Purpose of insurance regulation
Consumer protection
Preservation of insurer solvency
Rate regulation
How regulators monitor insurers (5)
(1) licensing insurers
(2) licensing insurance company representatives
(3) policy form approval
(4) market conduct examinations
(5) consumer complaint investigation
Loss Ratio
Incurred losses (including loss expense) / earned premium
Expense ratio
incurred underwriting expenses / written premium
UW expenses includes commissions, general expenses, and taxes
Combined ratio
Loss ratio + Expense ratio
measures underwriting performance
Investment Income Ratio
Net investment income / earned premium
Overall operating ratio
combined ratio - net investment income
