Property and Casualty Insurance

Question 1

2 Types of Loss

Answer 1

Direct & Indirect

Question 2

Direct Loss

Answer 2

physical loss to property with no intervening cause

Question 3

Indirect Loss

Answer 3

is a consequential loss as the result or consequence from a direct loss

Question 4

Methods of Handling Risk - STARR

Answer 4

Sharing
Transfer
Avoidance
Retention
Reduction

Question 5

When 2 or more individuals/businesses agree to pay portion of any loss incurred by any member of the group. Stockholders in a corporation share the risk this is called?

Answer 5

Sharing

Question 6

When a risk is passed on to someone else, example - insurance

Answer 6

Transfer

Question 7

When you eliminate a risk by not engaging in certain activities

Answer 7

Avoidance

Question 8

When an individual or business takes on payment for losses

Answer 8

Retention

Question 9

When you lessen the chance that a loss will occur - example - wearing a seatbelt

Answer 9

Reduction

Question 10

Elements of Insurable Risk - CANHAM

Answer 10

Calculable
Affordable
Non-catastrophic
Homogenous
Accidental
Measurable

Question 11

Elements of a Legal Contract - CLOAC

Answer 11

Consideration
Legal Purpose
Offer
Acceptance
Competent parties

Question 12

Adhesion

Answer 12

“take it or leave it” policy written by the insurance company (insurer), insured has NO input

Question 13

Aleatory

Answer 13

a contract that is contingent on an uncertain event (a loss) that provides for unequal transfer of value between parties

Question 14

Warranty

Answer 14

a statement that is guaranteed to be true

Question 15

Concealment

Answer 15

the failure to disclose known facts

Question 16

Policy Structure - DICEE

Answer 16

Declarations - who, what, when, where and how much
Insuring agreements - promise to pay and perils covered
Conditions - rules for the policy
Endorsements - changes to the original policy
Exclusions - items not covered

Question 17

Additional Supplementary Coverage

Answer 17

provides payment for additional expenses not normally covered, may have separate limits

Question 18

Unearned Premium

Answer 18

unused premium that was paid in advance

Question 19

Prorated Basis

Answer 19

the insured will receive a full refund of unearned premium; refunded to insured when cancellation is given WITH notice

Question 20

Short-rated Basis

Answer 20

partial refund of unearned premium; refunded to insured when policy is cancelled WITHOUT notice

Question 21

Loss Ratio

Answer 21

Shows the percentage of losses the company has incurred for every dollar of earned premium, the premium the company actually earned by providing insurance coverage for the designated period. It is calculated by dividing the amount of incurred losses by the amount of earned premium.

Question 22

Expense Ratio

Answer 22

It is an indicator of the cost of doing business. It is calculated by dividing underwriting expenses – the costs to acquire and keep policies - by the amount of the written premium – the gross amount of premium income received from insureds. It includes both earned and unearned premium

Question 23

Combined Ratio

Answer 23

the sum of the loss ratio and expense ratio

Question 24

Judgment Rating

Answer 24

no set rates based upon underwriter’s experience

Question 25

Manual/Class Rating

Answer 25

sets rates for specific risk classes

Question 26

Experience Rating

Answer 26

type of merit rating that determines premium based on previous loss experience, can increase or decrease your premium

Question 27

Open Perils

Answer 27

insures against all risks of direct physical loss except those specifically excluded

Question 28

Named Perils

Answer 28

coverage lists the perils or causes of loss insured against under the contract

Question 29

Basic Perils

Answer 29

fire lightning internal explosion

Question 30

Extended Coverage (EC) Perils - WCSHAVVER & V&MM

Answer 30

W - wind C - civil commotion (large in numbers) S - smoke - not from friendly fire (aka fireplace) H - hail A - aircraft V - vehicles - damage caused by contact w insured's property V - volcanic eruption E - explosion R - riot (usually smaller than a civil commotion) V - Vandalism MM - Malicious Mischief

Question 31

Broad Perils - BIG AFFECT

Answer 31

Basic Perils WCSHAVVER V&MM B- burglary - NOT theft I - ice, sleet and snow (weight of) G - glass breakage A - accidental discharge of water F - freezing objects F - falling objects E - electrical current C - collapse T - tearing asunder *under WCSHAVVER - smoke includes loss caused by fireplace smoke & vehicles includes damage to fences, driveways, and walks when the vehicle is driven by someone who is NOT a resident of the insured's household

Question 32

Special (Open) Perils Exclusions

Answer 32

Flooding Earthquake Intentional damage caused by an insured Losses due to enforcement of building codes Damage caused by a power interruption occurring off premises Government seizure

Question 33

Classes of Contruction

Answer 33

Class 1 - Frame Class 2 - Joisted Masonry Class 3 - Noncombustible Class 4 - Masonry Noncombustible Class 5 - Modified Fire Resistive Class 6 - Fire Resistive

Question 34

Insurable Interest

Answer 34

a legitimate risk of financial loss in the person or thing being insured; may be present at the time of application but MUST be present at the time of loss. example - you may buy property insurance for your home but not your neighbors because there is no interest there

Question 35

Policy Limits

Answer 35

maximum amount the insurance company will pay for a loss

Question 36

Actual Cash Value

Answer 36

is the current cost of replacing an an asset now (NOT what was originally paid for the item) minus the deprecation; most commonly used

Question 37

Cost to Repair

Answer 37

used when this amount is less than the actual cash value

Question 38

Replacement Cost

Answer 38

current replacement cost with no depreciation

Question 39

Functional Replacement Cost

Answer 39

is the cost of acquiring another item of property that will perform the same function with equal efficiency, even if it is not identical to the property being replaced

Question 40

Defenses Against Negligence

Answer 40

Contributory Negligence Comparative Negligence Assumption of Risk Intervening Clause Statues of Limitation Last Clear Chance

Question 41

A doctrine that says if a person contributed to his/her own damage in ANY way, another party CANNOT be held liable for the damages; "other guy" does NOT have to pay a cent

Answer 41

Contributory Negligence

Question 42

Allows a finding of liability to be made when both parties have contributed to the loss, with the award based on the extent of each party's negligence; each party pays a %

Answer 42

Comparative Negligence

Question 43

Compensatory Damages

Answer 43

are damages awarded by a court equivalent to the loss a party suffered; 2 types: special (direct and specific expenses) and general (pain and suffering, mental anguish) damages

Question 44

Punitive Damages

Answer 44

damages awarded to punish the defendant and set an example

Question 45

Aggregate Limit

Answer 45

an insurance contract provision limiting the maximum liability of an insurer; applies to all losses occurring in 1 policy period

Question 46

Supplementary Payments - BAILED

Answer 46

B - Bonds A - Aid (first aid) I - Interest L - Loss of Earnings E - Expenses D - Defense Costs