Property and Casualty Fundamentals Flashcards
What is insurance?
Insurance is a method for spreading the risk of a financial loss among a large number of people
What is the basic purpose for insurance?
Spreading risk to make losses more manageable.
By spreading the risk of a financial loss, we are _____________ the financial impact of a an individual loss.
reducing
Define indemnify.
make financially whole again
Define statutes.
laws
Dwelling, homeowners, commercial property, inland marine, ocean marine, and crime are all generally considered to be what type of insurance?
property
How many parties are involved with a property insurance contract? Who are the parties?
Two; the insured and the insurer
What type of insurance mainly protects you against legal liability for Bodily Iinjury and/or Property Damage YOU cause to other people?
Casualty/ Liability
How many parties are involved in a liability insurance contract? Who are the parties?
three; the insured, the insurer, and the injured party
Aviation, auto, liability, worker’s compensation, and surety bonds are included in __________ insurance.
casualty
Personal lines refers to P&C insurance for an _________ as opposed to a __________.
individual; business
Homeowners, renters, auto, and personal umbrella policies are considered ________ ______ and include ________ and ________ coverages.
personal lines; property; casualty
Commercial lines refers to P&C insurance for an _________ as opposed to a __________.
business; individual
The money you pay in exchange for insurance coverage is called the ________ (premium).
consideration
The _________ you make in the insurance application along with the payment of the initial premium are part of the consideration.
statements
T OR F? Statements made in the insurance application do not have to be truthful.
false
What two objectives are accomplished by insurance companies by requiring a deductible?
minimize frequent claims and eliminate small claims
An oral or written agreement that provides temporary insurance until a policy can be issued is called a ______.
binder
T OR F? A binder guarantees that a policy will be issued.
false
T OR F? No binder can be valid beyond the issue date of the policy or beyond its effective date, whichever period is shorter.
true
The process of classification, rating, and selection of risks is called __________.
underwriting
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.
first named insured
Risk is defined as the ______ or _____ of loss.
possibility; chance
______ are the cause of a loss.
Perils
What offers the chance of loss as well as the opportunity for gain?
speculative risk
What offers only the possibility of loss; there is no opportunity for gain or profit.
pure risk
Insurers will only insure __________ risks.
pure
To be insurable, a risk must….
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.
What is a condition or situation that presents the possibility of a loss called?
exposure
What is the amount of financial damage to your property caused by perils for which you are insured for called?
loss
Losses can be ______ or _______ and are stated as a dollar amount.
partial; total
__________ losses occur is the result of a direct loss.
Indirect / Consequential
_________ losses are the cause of a loss.
Direct
____________ 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.
The Law of Large Numbers
Fire, accidents, explosions, flood, disease, and death are examples of _______.
perils
What are perils specifically named in an insurance policy referred to as?
covered perils
A condition or the source that increases the chance and/ or severity of a peril is called a ______.
hazard
Hazards are typically present ________ a peril occurs.
before
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.
moral
A ________ hazard is created when your careless and/ or reckless actions or attitudes cause a loss to occur.
morale
Texting while driving or failing to wear a seatbelt is considered to be a _______ hazard.
morale
A ________ hazard is the physical source that causes or increases the chances of a loss.
physical
What is the continuous or repeated exposure which
results in bodily injury or property damage which is not expected or intended by the insured?
occurrence
Vacant means…
the absence of people and personal property
Unoccupancy means…
only the absence of people
What is specific insurance?
when you insure a specific item or specific kind of property
What is blanket insurance?
coverage for different classes of property under one policy
______ is the taking of property from a premise that is closed and locked tight; must have evidence of forced entry or exit.
Burglary
______ is the taking of property from a person by violence or threat of violence.
Robbery
______ is the unlawful taking of property - money, securities, or other property.
Theft
An unexplained loss of property is called?
mysterious disappearance
A document that serves to provide evidence that you have purchased certain types of insurance coverages and limits is a?
Certificate of Insurance
The part of the policy that states what perils are not covered?
exclusions
Provisions in the policy that qualify or place limitations on the insurer’s promise to pay or perform are?
conditions
A written modification that either adds or deletes one or more provisions of the standard policy to serve particular needs are?
endorsements
What distributes risk among a particular number of individuals?
Risk sharing
What risk management method is being used when you purchase any type of insurance?
risk transfer
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.
hold-harmless agreement
What risk management method is being used when you do not perform an activity that could carry risk?
risk avoidance
What risk management method is being used when you use risk control techniques to reduce the possibility or severity of a loss?
risk reduction
What is choosing to be financially responsible for all or part of a risk?
Risk retention
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)
reinsurance
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?
Principle of Indemnity
What is the extent of your financial interest at the time of a loss?
insurable interest
What is a splitting or spreading of risk among the insurance company and the insured?
coinsurance
What is ACV?
actual cash value; replacement cost - depreciation = ACV
What is RCV?
replacement cost value; the actual cost to replace an item or structure at its pre-loss condition
What is market value?
what the property could be sold for
What is stated value?
pays the cost to repair or replace an insured item or the stated value of the insured item, whichever is less
What is the salvage condition?
allows the insurance company to settle with you by taking possession of the damaged property, then paying the full loss amount
What concept suggests that the people who are poor risks are more likely to purchase insurance than average risks?
adverse selection
Company owned by a group of stockholders who are not necessarily policyholders
stock companies
Company owned by the policyholders (no stockholders involved) that pays dividends to the policyowner when declared by the company
mutual companies
What are the surplus company profits at year end that the insurer divides up among the policyholders?
dividends
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.
fraternal societies
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.
reciprocals
What is an attorney-in-fact?
someone who is authorized to act for the group
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
risk retention group
A society of members, both corporate and individual, who underwrite in syndicates on whose behalf professional underwriters accept risk
Lloyd’s Association
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
Certificate of Authority
Insurers who meet a state’s financial requirements and are approved to transact business in the state are considered ________ or ________
authorized; admitted
Insurers who are not approved to transact business in a state are considered ________ or ________
unauthorized; non-admitted
A company is considered to be a _______ company when operating in their home state/ US territory.
domestic
A company is considered to be a _______ company if they are operating in a location other than their home state/ US territory.
foreign
A company is considered to be an _______ company if they are operating in a country different from where their home office is located.
alien
an agent who represents one insurance company and sells only that company’s insurance products; represents the insurance company, not the insured.
captive or exclusive producer
T OR F? Captive agencies recruit insurance producers who are trained and supervised by a company employee or a General Agent
true
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
independent producer
primary responsibilities are to sell insurance and build/supervise force of producers in which they receive an override commission
MGA, managing general agent
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
brokers
insurance marketing conducted through direct selling methods in the mass media is called; do not normally use agents for the sale of insurance
direct-response marketing
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
direct-writing companies
system where insurance can be purchased online directly from the insurance company or agent
internet insurance sales systems
provides insurance coverage to groups of employees that are too small to
meet the requirements of a group policy
franchise marketing systems
markets insurance products through financial institutions that issue credit cards
non-insurance marketing systems
This law states insurers are generally required
to receive approval from the DOI for a rate change before they can change it
prior approval
States insurers must file rate changes with the DOI, but do not need to wait for approval to put them into effect.
file and use
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
use and file
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
open-compensation laws
What is the exposure unit for property insurance?
each $100 of insurance
What is the exposure unit for auto liability insurance?
each insured month
Rates are determined based on the knowledge and experience of the underwriter, rather than
using an actual premium manual
judgement rating
_______ rates may be modified
by using merit rating or experience rating
manual
Under _________ rating, the manual rate is modified based on the insured’s loss history for claims filed during a specific period.
experience
Under __________ rating, the insured’s premium is based on losses that are incurred during
the policy period
retrospective
_____ rating charges more to those who are more likely to have losses, and charges less to those less
likely to have losses
merit
This is a factor which insurers use in calculating insurance rates. It represents the amount an insurer
should collect to cover expected losses
loss costs
This helps an insurer to determine if the business they are writing is profitable
loss ratio
