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Property and Casualty Insurance Exam Flashcards > Property and Casualty Fundamentals > Flashcards

Property and Casualty Fundamentals Flashcards

1
Q

What is insurance?

A

Insurance is a method for spreading the risk of a financial loss among a large number of people

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2
Q

What is the basic purpose for insurance?

A

Spreading risk to make losses more manageable.

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3
Q

By spreading the risk of a financial loss, we are _____________ the financial impact of a an individual loss.

A

reducing

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4
Q

Define indemnify.

A

make financially whole again

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5
Q

Define statutes.

A

laws

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6
Q

Dwelling, homeowners, commercial property, inland marine, ocean marine, and crime are all generally considered to be what type of insurance?

A

property

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7
Q

How many parties are involved with a property insurance contract? Who are the parties?

A

Two; the insured and the insurer

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8
Q

What type of insurance mainly protects you against legal liability for Bodily Iinjury and/or Property Damage YOU cause to other people?

A

Casualty/ Liability

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9
Q

How many parties are involved in a liability insurance contract? Who are the parties?

A

three; the insured, the insurer, and the injured party

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10
Q

Aviation, auto, liability, worker’s compensation, and surety bonds are included in __________ insurance.

A

casualty

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11
Q

Personal lines refers to P&C insurance for an _________ as opposed to a __________.

A

individual; business

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12
Q

Homeowners, renters, auto, and personal umbrella policies are considered ________ ______ and include ________ and ________ coverages.

A

personal lines; property; casualty

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13
Q

Commercial lines refers to P&C insurance for an _________ as opposed to a __________.

A

business; individual

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14
Q

The money you pay in exchange for insurance coverage is called the ________ (premium).

A

consideration

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15
Q

The _________ you make in the insurance application along with the payment of the initial premium are part of the consideration.

A

statements

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16
Q

T OR F? Statements made in the insurance application do not have to be truthful.

A

false

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17
Q

What two objectives are accomplished by insurance companies by requiring a deductible?

A

minimize frequent claims and eliminate small claims

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18
Q

An oral or written agreement that provides temporary insurance until a policy can be issued is called a ______.

A

binder

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19
Q

T OR F? A binder guarantees that a policy will be issued.

A

false

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20
Q

T OR F? No binder can be valid beyond the issue date of the policy or beyond its effective date, whichever period is shorter.

A

true

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21
Q

The process of classification, rating, and selection of risks is called __________.

A

underwriting

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22
Q

The person or entity listed first on the declarations page is referred to as the __________. They are the primary insured and holds the highest rank among all insureds and has broader rights and obligations under the contract than any other insured.

A

first named insured

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23
Q

Risk is defined as the ______ or _____ of loss.

A

possibility; chance

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24
Q

______ are the cause of a loss.

A

Perils

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25
Q

What offers the chance of loss as well as the opportunity for gain?

A

speculative risk

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26
Q

What offers only the possibility of loss; there is no opportunity for gain or profit.

A

pure risk

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27
Q

Insurers will only insure __________ risks.

A

pure

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28
Q

To be insurable, a risk must….

A

Be predictable, unexpected/ accidental/ uncertain, not be catastrophic, be measurable and definitive, and must cause financial or economic hardship to the insured and/or their family.

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29
Q

What is a condition or situation that presents the possibility of a loss called?

A

exposure

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30
Q

What is the amount of financial damage to your property caused by perils for which you are insured for called?

A

loss

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31
Q

Losses can be ______ or _______ and are stated as a dollar amount.

A

partial; total

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32
Q

__________ losses occur is the result of a direct loss.

A

Indirect / Consequential

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33
Q

_________ losses are the cause of a loss.

A

Direct

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34
Q

____________ tells us that it is possible to accurately predict what will happen to
a large group of similar risks. The larger the group becomes, the more accurate the predictions become.

A

The Law of Large Numbers

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35
Q

Fire, accidents, explosions, flood, disease, and death are examples of _______.

A

perils

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36
Q

What are perils specifically named in an insurance policy referred to as?

A

covered perils

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37
Q

A condition or the source that increases the chance and/ or severity of a peril is called a ______.

A

hazard

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38
Q

Hazards are typically present ________ a peril occurs.

A

before

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39
Q

A _______ hazard results from a decision to do something wrong or to be less conscious of your actions since you know your insurance will pay for the loss.

A

moral

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40
Q

A ________ hazard is created when your careless and/ or reckless actions or attitudes cause a loss to occur.

A

morale

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41
Q

Texting while driving or failing to wear a seatbelt is considered to be a _______ hazard.

A

morale

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42
Q

A ________ hazard is the physical source that causes or increases the chances of a loss.

A

physical

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43
Q

What is the continuous or repeated exposure which

results in bodily injury or property damage which is not expected or intended by the insured?

A

occurrence

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44
Q

Vacant means…

A

the absence of people and personal property

45
Q

Unoccupancy means…

A

only the absence of people

46
Q

What is specific insurance?

A

when you insure a specific item or specific kind of property

47
Q

What is blanket insurance?

A

coverage for different classes of property under one policy

48
Q

______ is the taking of property from a premise that is closed and locked tight; must have evidence of forced entry or exit.

A

Burglary

49
Q

______ is the taking of property from a person by violence or threat of violence.

A

Robbery

50
Q

______ is the unlawful taking of property - money, securities, or other property.

A

Theft

51
Q

An unexplained loss of property is called?

A

mysterious disappearance

52
Q

A document that serves to provide evidence that you have purchased certain types of insurance coverages and limits is a?

A

Certificate of Insurance

53
Q

The part of the policy that states what perils are not covered?

A

exclusions

54
Q

Provisions in the policy that qualify or place limitations on the insurer’s promise to pay or perform are?

A

conditions

55
Q

A written modification that either adds or deletes one or more provisions of the standard policy to serve particular needs are?

A

endorsements

56
Q

What distributes risk among a particular number of individuals?

A

Risk sharing

57
Q

What risk management method is being used when you purchase any type of insurance?

A

risk transfer

58
Q

This is an agreement or contract in which one party agrees to hold the other free from the responsibility
for any liability or damage that might arise out of the transaction involved.

A

hold-harmless agreement

59
Q

What risk management method is being used when you do not perform an activity that could carry risk?

A

risk avoidance

60
Q

What risk management method is being used when you use risk control techniques to reduce the possibility or severity of a loss?

A

risk reduction

61
Q

What is choosing to be financially responsible for all or part of a risk?

A

Risk retention

62
Q

A risk management tool used by most insurance companies to lessen their risk exposure is called ________. (i.e. companies purchase insurance from another insurance company to transfer some risk)

A

reinsurance

63
Q

What states that the insurance company will restore you to the same financial position you were in before
the loss occurred—no profit, no loss?

A

Principle of Indemnity

64
Q

What is the extent of your financial interest at the time of a loss?

A

insurable interest

65
Q

What is a splitting or spreading of risk among the insurance company and the insured?

A

coinsurance

66
Q

What is ACV?

A

actual cash value; replacement cost - depreciation = ACV

67
Q

What is RCV?

A

replacement cost value; the actual cost to replace an item or structure at its pre-loss condition

68
Q

What is market value?

A

what the property could be sold for

69
Q

What is stated value?

A

pays the cost to repair or replace an insured item or the stated value of the insured item, whichever is less

70
Q

What is the salvage condition?

A

allows the insurance company to settle with you by taking possession of the damaged property, then paying the full loss amount

71
Q

What concept suggests that the people who are poor risks are more likely to purchase insurance than average risks?

A

adverse selection

72
Q

Company owned by a group of stockholders who are not necessarily policyholders

A

stock companies

73
Q

Company owned by the policyholders (no stockholders involved) that pays dividends to the policyowner when declared by the company

A

mutual companies

74
Q

What are the surplus company profits at year end that the insurer divides up among the policyholders?

A

dividends

75
Q

Company that has memberships based on religious, national, or ethnic affiliations. They are for the benefit of their members, and have no stockholders, yet they pay dividends to policyholders.

A

fraternal societies

76
Q

This is an unincorporated group of individuals or organizations (called subscribers) that agree to
pool their risks together for the purpose of paying losses and purchasing reinsurance. They are
managed by an attorney-in-fact.

A

reciprocals

77
Q

What is an attorney-in-fact?

A

someone who is authorized to act for the group

78
Q

This will allow members who engage in similar or related business or activities to
write liability insurance for all or any portion of the exposures of group members

A

risk retention group

79
Q

A society of members, both corporate and individual, who underwrite in syndicates on whose behalf professional underwriters accept risk

A

Lloyd’s Association

80
Q

Before an insurer may transact business in a specific state, they must apply for and receive a _______ from the Insurance Commissioner and meet the capital and surplus requirements required by that state

A

Certificate of Authority

81
Q

Insurers who meet a state’s financial requirements and are approved to transact business in the state are considered ________ or ________

A

authorized; admitted

82
Q

Insurers who are not approved to transact business in a state are considered ________ or ________

A

unauthorized; non-admitted

83
Q

A company is considered to be a _______ company when operating in their home state/ US territory.

A

domestic

84
Q

A company is considered to be a _______ company if they are operating in a location other than their home state/ US territory.

A

foreign

85
Q

A company is considered to be an _______ company if they are operating in a country different from where their home office is located.

A

alien

86
Q

an agent who represents one insurance company and sells only that company’s insurance products; represents the insurance company, not the insured.

A

captive or exclusive producer

87
Q

T OR F? Captive agencies recruit insurance producers who are trained and supervised by a company employee or a General Agent

A

true

88
Q

an agent who usually works for themselves, or for a General Agent (GA), or Managing General Agent (MGA); represents the insured rather than the insurer; may represent as many insurers as they desire, and are paid commissions on the business they write

A

independent producer

89
Q

primary responsibilities are to sell insurance and build/supervise force of producers in which they receive an override commission

A

MGA, managing general agent

90
Q

independent producers who sell insurance through many different insurance companies; represents the insured in selecting the best coverage available from the various companies they represent; do not have binding authority

A

brokers

91
Q

insurance marketing conducted through direct selling methods in the mass media is called; do not normally use agents for the sale of insurance

A

direct-response marketing

92
Q

sell their policies through company employees who are compensated by salary or a combination of salary plus commission; representatives do not own the policy expirations, so they do not have the choice of moving a policy to another company when the policy renews; producers are salaried employees

A

direct-writing companies

93
Q

system where insurance can be purchased online directly from the insurance company or agent

A

internet insurance sales systems

94
Q

provides insurance coverage to groups of employees that are too small to
meet the requirements of a group policy

A

franchise marketing systems

95
Q

markets insurance products through financial institutions that issue credit cards

A

non-insurance marketing systems

96
Q

This law states insurers are generally required

to receive approval from the DOI for a rate change before they can change it

A

prior approval

97
Q

States insurers must file rate changes with the DOI, but do not need to wait for approval to put them into effect.

A

file and use

98
Q

This law allows the insurance company to change rates immediately, but must file the new rate with the DOI within a specific time—typically 15 to 60days

A

use and file

99
Q

These laws eliminate all filing requirements; however, insurers may be required to furnish rate schedules to the DOI, if requested. Rates under this law are naturally regulated by competition

A

open-compensation laws

100
Q

What is the exposure unit for property insurance?

A

each $100 of insurance

101
Q

What is the exposure unit for auto liability insurance?

A

each insured month

102
Q

Rates are determined based on the knowledge and experience of the underwriter, rather than
using an actual premium manual

A

judgement rating

103
Q

_______ rates may be modified

by using merit rating or experience rating

A

manual

104
Q

Under _________ rating, the manual rate is modified based on the insured’s loss history for claims filed during a specific period.

A

experience

105
Q

Under __________ rating, the insured’s premium is based on losses that are incurred during
the policy period

A

retrospective

106
Q

_____ rating charges more to those who are more likely to have losses, and charges less to those less
likely to have losses

A

merit

107
Q

This is a factor which insurers use in calculating insurance rates. It represents the amount an insurer
should collect to cover expected losses

A

loss costs

108
Q

This helps an insurer to determine if the business they are writing is profitable

A

loss ratio

Property and Casualty Insurance Exam Flashcards (1 decks)

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