Property and Casualy Terms

Question 1

What is a Reserve?

Answer 1

Funds held by the company to help fulfill future claims.
Minimum reserves are usually set by the Department of Insurance.

Question 2

What is a Multi-Line Insurer?

Answer 2

An insurance company that provides a one-stop-shop for businesses or individuals seeking coverage for all of their insurance needs.
Example: Many larger companies offer an array of coverages from life, auto, and homeowners insurance.

Question 3

What are Stock Companies?

Answer 3

Insurance companies are owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premiums, and nonparticipating policies.
Their dividends are not guaranteed and are taxed.

Question 4

What is a Nonparticipating plan/policy? (Non-par)

Answer 4

Insurance under which the insured is not entitled to collect the divisible surplus of the company.

Question 5

What are Mutual Companies?

Answer 5

Insurance companies are characterized by having no capital stock. It is owned by its policy owners and issue Participating Polices. Their dividends are not guaranteed and are NOT taxed.

Question 6

What is a participating policy?

Answer 6

Plan in which the policy owners receive shares of the divisible surplus of the company.

Question 7

What is a Reinsurer?

Answer 7

A company that provides financial protection to insurance companies. They handle risks that are too large for insurance companies to handle on their own and make it possible for those companies to obtain more business.

Question 8

What are Fraternal Benefit Societies?

Answer 8

They are non-profit benevolent organizations that provide insurance to their members. Producers or agents who sell within the society do not receive commission and have to stay under a premium threshold.

Question 9

What is the Fair Credit Reporting Act?

Answer 9

Federal Law requires an individual to be informed if they are being investigated by an inspection company. The law also requires the be notified BEFORE inspection.

Question 10

What is a Buyer’s Guide?

Answer 10

An information consumer guide book that explains insurance policies and concepts.
In many states, they are required to be given when certain types of coverage are being considered.

Question 11

What is a Policy Summary?

Answer 11

Summary of the terms of an insurance policy. Conditions, coverage limitations, and premiums.

Question 12

What is the NAIC?

Answer 12

They are the National Association of Insurance Commissioners, an association of all of the state insurance commissioners active in insurance regulatory problems, also informing and recommending model legislation and requirements.

They do not make laws, but they do work on suggesting standards for STATES to adopt with the goal of standardizing the insurance industry.

Question 13

What is Consideration?

Answer 13

Offer and Acceptance. The applicant offers their application and the insurance accepts it.

It is also considered the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

Question 14

What is the Insuring Agreement/Clause/Provision?

Answer 14

The portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured and the scopes / limits of coverage.

Question 15

What is the Declaration Page?

Answer 15

The portion of the policy that provides the basic information about the policy. Usually, the first name insured, address, the policy period, location of the property, description of the property, policy limits, etc.

Question 16

What is a Risk?

Answer 16

the possibility that a loss will occur for an insured/prospect

Question 17

What is the difference between Pure and Speculative Risks?

Answer 17

Pure risks are INSURABLE risks that involve the chance of an unintentional loss; there is no possibility of gain.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Speculative Risks are UNINSURABLE risks that involve the chance of loss AND gain.

Question 18

What is a Peril?

Answer 18

the immediate specified event causing loss.

Question 19

What is the Law of Large Numbers?

Answer 19

The basic principle of insurance is that the larger the number of individual risks combined into one group, the more accuracy there is in predicting the degree/amount of losses incurred in a certain period.

This means the more insureds, the better insurance companies can prepare for loss based on previous data.

Question 19

What is the Law of Large Numbers?

Answer 19

The basic principle of insurance is that the larger the number of individual risks combined into one group, the more accuracy there is in predicting the degree/amount of losses incurred in a certain period.

This means the more insureds, the better insurance companies can prepare for loss based on previous data.

Question 20

What is Risk Sharing / Pooling?

Answer 20

Spreads risk by sharing the possibility of loss over a large number of people. This method transfers risk from one individual to a larger group of people, AKA loss sharing.

Question 21

What is Risk Transfer?

Answer 21

The act of shifting the responsibility of risk to another in the form of an insurance concept. This does not eliminates the risk, but effective in reducing the devastation of certain perils.

Question 22

What is Risk Avoidance?

Answer 22

When individuals avoid risk entirely.
Example: I do not want to get in a car accident, so I will not go anywhere or purchase a vehicle.

Question 23

What is Risk Retention?

Answer 23

Being aware of the risks involved and taking measures for financial protection. AKA Self-Insurance.
Example: You are aware that you may get into an accident, but you will retain that risk financially.

Question 24

What is Risk Reduction?

Answer 24

When the chances of loss are lessened.
Example: Using public transportation instead of driving a personal vehicle to avoid being in an accident.

Question 25

What are the methods of handling risk?

Answer 25

STARR!
Risk Sharing
Risk Transfer
Risk Avoidance
Risk Retention
Risk Reduction

Question 26

What is a Hazard?

Answer 26

Any factor that increases the chance of risk of loss

Question 27

What are the three types of hazards?

Answer 27

PM Me Acronym

Physical
Moral
Morale (with an E)

Question 28

What is a Physical Hazard?

Answer 28

Physical or tangible conditions existing in a manner which makes loss more likely to occur
Example: A dead tree hanging over the driveway

Question 29

What is a Moral Hazard?

Answer 29

the effect of personal reputation, character, associates, personal living habits, financial responsibility, and environment, as distinguished from physical health, upon an individual’s general insurability.
Example: Lying about previous accidents so that your monthly premium is lower.

Question 30

What is a Morale Hazard?

Answer 30

arising from indifference to loss because of the existence of insurance.
Example: Leaving my house unlocked while I am gone because I live in a “safe” neighborhood.

Question 31

What is Reinsurance?

Answer 31

The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer.

Question 32

What is Adverse Selection?

Answer 32

the tendency of insureds with higher-than-average chance of loss to purchase insurance

Question 33

What is the Loss Ratio?

Answer 33

Compares the total incurred losses of the insurer with the total collected insurance premiums, but DOES NOT take into account underwriting expenses

Question 34

What is the Expense Ratio?

Answer 34

Calculated by dividing the total of all incurred losses (including reserves) by all earned premiums.
(losses + Reserves)
————————— = Expense Ratio
all paid premiums

Question 35

What is the Combined Ratio?

Answer 35

Totals an insurer’s losses and expenses (cost to aquire, service, underwriting, and reinsure risks) and divides that by the cumulative amount of earned premiums.

losses and expenses
—————————— = combined ratio
all paid premiums

Question 36

What is Loss cost?
(Pure Premium)

Answer 36

Costs an insurance company must pay for claims, including the expenses of administration and claims investigation.
It’s one of the factors in creating viable premium charges.

Question 37

What is an Open Peril Policy?

Answer 37

They are SPECIAL. They are contracts that don’t list or name perils covered. Instead, they provide a list of perils that are NOT covered (exclusions).

Question 38

What is a Named Peril Policy?

Answer 38

They are SPECIFIC (specified). They are insurance contracts that specifically list perils that are covered.

Question 39

What is Loss Settlement?

Answer 39

Personal property loss is settled at Actual Cash Value, while dwelling and other structures are replacement cost basis - BUT the insured must be in compliance with the coinsurance amount of ≥ 80%.

Question 40

What is the Mortgage Clause?

Answer 40

In a Dwelling Policy the Lender will be paid under Coverage A (Dwelling) and Coverage B (Other Structures) as their interest appears.
If required and notified by the company, the lender has 60 days to file a proof of loss.

Question 41

In a Homeowners Policy, what is considered a business?

Answer 41

Trade, profession or occupation - full , part time or occasional basis including activities engaged for money or other compensation.

Question 42

In a Homeowners Policy, what is NOT considered a business?

Answer 42

Volunteer work, and free at-home daycare. There is also an exception for recieving ledd than $2,000 in the 12 months prior to the policy period.

Question 43

In a Homeowners Policy, what is a Residence Employee?

Question 44

What is the difference between “you and your” and “we and us”?

Answer 44

“You and Your” - refers to the insured and the spouse of the insured IF they live at the same address

“We and Us” - refers to the insurance company

Question 45

What is Bodily Harm?

Answer 45

BI is defined as bodily harm, sickness and disease.
This is includes care, loss of services and death.

Question 46

In a Homeowners Policy, what is considered Landscape?

Answer 46

• Shrubs, trees, plants and lawns are all covered up to 5% of the dwelling coverage amount (A).
  —————————————————– BUT —————————————————–
• Trees are covered with a max $500 per tree.
• Shrubs (HO 4 and HO 6) the coverage limit is 10% of the personal property coverage amount with a max of $500 per item limit

Question 47

In a Homeowners Policy, what is Debris Removal?

Answer 47

Covers the removal of volcanic ash plus debris from tree removal when damaged by a covered peril.

Question 48

In a Dwelling Policy, what is Fair Rental Value?

Answer 48

Pays fair rental value to any part of the premises rented to another MINUS any expenses that do not continue while the premises are not fit to live in.

Question 49

What does ‘Additional Living Expenses’ cover?

Answer 49

Any necessary increase in living expenses incurred by the insured to allow the household to maintain its normal standard of living

Question 50

What is ‘Civil Authority Prohibits Use’?

Answer 50

Additional Living Expenses and Fair Rental Value are covered for up to two weeks if the prohibited use of the insured residence was the result of direct damage to neighboring premises by a covered peril.

Question 51

What does ‘Grave Markers’ cover?

Answer 51

Grave Markers protection pays up to $5,000 (includes mausoleums) on or away from the residence premises for loss caused by a peril under coverage C.

Question 52

What is Diminution in Value?

Answer 52

The actual or perceived loss in market value or resale value which results from a direct and accidental loss..

Question 53

What is considered a Trailer in an Auto Policy?

Answer 53

Semitrailer, or a dolly used to convert a semitrailer into a trailer.
—————————————————– BUT —————————————————–
For “Trailer Interchange Coverage” only, ‘trailer’ also includes a container

Question 54

What is a Trucker?

Answer 54

Any person or organization engaged in the business of transporting property by auto for hire.

Question 55

What are Pollutants?

Answer 55

Any solid, liquid, gaseous or thermal irritant or contaminent.
Smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.

Question 56

What is Waste?

Answer 56

Waste includes trash, materials to be recycled, reconditioned or reclaimed.

Question 57

What is Mobile Equipment?

Answer 57

Any of the following, including attached machinery/equipment:
- Bulldozers, farm macherinery
- Vehicles that travel on crawler treads
- All vehicles mintained primarily to prove mobility to permanently mounted power cranes, shovels, loaders, diggers, drills or road contruction/reserfacing equipment like graders, scrapers, or rollers.