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Property Exam > Property & Casualty Principles > Flashcards

Property & Casualty Principles Flashcards

1
Q

Risk

A

uncertainty concerning loss

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2
Q

pure risk

A

risk from the standpoint of the insured

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3
Q

speculative risk

A

risk from the standpoint of the insurer

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4
Q

insurance

A

transfer of risk

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5
Q

reinsurance

A

insurance for the insurance company

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6
Q

direct loss

A

loss to the property itself (house burned down due to a fire)

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7
Q

indirect loss

A

another financial loss you incur as. a result of a direct loss (house burned down + cost to live in a hotel)

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8
Q

indemnity

A

obligation of the policy to restore to the insured to the financial condition they enjoyed before the loss occurred

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9
Q

What supports indeminty?

A

Actual cash value (ACV)
pro-rata liability (other insurance clause)
subrogation

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10
Q

Limit of liability

A

dollar amount stated on Dec. page and is the maximum amount the ins. company will pay in a loss

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11
Q

reinstatement of limit after loss

A

the limit of insurance will not be reduced by the payment of any claim, except for total loss or damage of a scheduled item, in which event we will refund the unearned premium on that item

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12
Q

pro-rata liability (other insurance clause)

A

used when more than one company insures a property
each company is responsible for its share of the loss based on the total amount of insurance in force at the time of loss

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13
Q

non-concurrency

A

when 2 policies insuring the same piece of property have different peril coverage
2 policies, one property, different perils

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14
Q

Liberalization Clause

A

the insured receives any positive changes to the policy that occur during the policy period, where the premium is not charged.
EX: other structures limit is increased from 10% to 15% without charging extra premium

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15
Q

Assignment

A

Not valid without written consent of the insurance company

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16
Q

short rate cancellation

A

insured cancels the policy. refund is less than the “unused premium” (cancelled in the middle of the policy period)
annual premium / 365 = per day earned premium

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17
Q

pro-rata cancellation

A

insurer cancels the policy. insured receives exactly the “unused premium”. (the company cancels you)

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18
Q

Homeowner’s form: Named insured

A

person or persons specifically names in the policy and includes a spouse if a resident

  • authorizes changes and cancellation
  • verifies claim details
  • named on the claim checks, premium overpayments/refunds
  • receives premium and cancellation notices
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19
Q

Insured

A

you and other residents of your house who are:

  • your relatives
  • others under 21 in your care
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20
Q

Accident

A

a sudden, unforeseen and unintended event that happens at a known place and a known time

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21
Q

Occurrence

A

an accident but also including continuous and repeated exposure to injurious conditions that result in bodily injury or property damage

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22
Q

Stock companies: (nonparticipating)

A

owned by: stockholders
profits paid to: stockholders
board of directors elected by: stockholders

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23
Q

Mutual Insurance Companies: (participating)

A

owned by: policyholders
profits paid to: policyholders
board of directors elected by: policyholders

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24
Q

Expressed Authority

A

written and given

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25
Q

Implied authority

A

not written by necessary

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26
Q

apparent authority

A

“appear” to have. Creates “Agency by Estoppel” for the company

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27
Q

Agency by Estoppel

A

where the conduct of the principal causes the 3rd party reasonably and in good faith to believe that the agent has authority to act on behalf of the principal

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28
Q

Competent Parties

A

the parties to the contract must be competent, which means that they must be of legal age, sane, sober and under no pressure or duress

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29
Q

Consideration

A

something of value. the parties of a contract must exchange consideration

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30
Q

legal purpose

A

the purpose for the contract must not be against the law. the purpose cannot be illegal or against public policy. enforceable by law

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31
Q

offer

A

one party must make an offer to the other party. in P&C ins. company normally makes the offer by issuing a policy

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32
Q

acceptance

A

the 2nd party must accept the 1st party’s exact offer. the insured normally accepts the offer by paying the premium, combo of an offer and acceptance = agreement

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33
Q

Insurance contracts are personal in nature:

A

the ins. company has the right to decide who they enter contract with.

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34
Q

Insurance contracts are contracts of “utmost good faith”

A

the insurance company trusts the intermediary that they will honestly relay all the info regarding the risk

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35
Q

Insurance contracts are contracts of adhesion

A

the party that drafts it, must stick to it. insured doesn’t have any say in the terminology

36
Q

Insurance contracts are unilateral and aleatory

A

unilateral - one party drafts it

aleatory - one party may benefit more than the other

37
Q

Insurance contracts are conditional

A

certain conditions have to occur before any claims can be paid

38
Q

Declarations (part of the polcy)

A

a list of who, what, where, which, how much (top page of policy)

39
Q

Insuring Agreement (part of the policy)

A

promises/perils, coverage

40
Q

Conditions (part of the policy)

A

Rules - biggest part of the policy

41
Q

Exclusions (part of the policy)

A

property & perils not covered

42
Q

Elements of an insurable risk

A

law of large numbers - large number of similar risks
loss must be large enough to cause financial hardship
loss must be measurable (no sentimental value)
loss cannot be catastrophic

43
Q

Adverse selection

A

a risk the insurance company faces that only those who are exposed to a certain type of loss will buy the coverage (Flood Insurance)

44
Q

Fair Credit Reporting Act

A

ensures accuracy of information and the privacy of the information used on consumer reports

45
Q

The FCRA outlines:

A

who can see your credit info. to obtain a copy, businesses need a legitimate and a permissable purpose

46
Q

If insurance company rejects an applicant because of information obtained from a credit report:

A

the applicant can request, in writing, a copy of the information that was provided. The request must go directly to the agency that reported the information (not the ins. company)

47
Q

Class rates

A

manual rates, apply to everyone in that class (auto/home ins)

48
Q

Individual rates

A

manuscript, unique to that insured

49
Q

Merit rates

A

based on the likelihood of a loss, experience

50
Q

Judgement rates

A

based on the judgement of the underwriter (only in commercial ins)

51
Q

Avoidance

A

don’t do it! don’t take on the exposure

52
Q

retention

A

self-insure in whole (no insurance) or in part (deductible)

53
Q

reduction

A

take steps to reduce the hazards thereby reducing the exposure to loss. safety glasses for workers, wet floor signs

54
Q

Peril

A

Cause of loss

55
Q

Named Perils

A

perils covered are literally named in the policy EX: fire, wind, hail

56
Q

Open Perils

A

policy does not list covered perils but rather states the policy will pay for every conceivable peril (except those specifically excluded)

57
Q

Hazard

A

A condition that increases the chance of a loss

58
Q

Physical Hazard

A

Generally something you can see (wires hanging from the ceiling)

59
Q

Moral Hazard

A

intentionally damaging your own property to collect the insurance (fraud, setting fire to your own building to collect $)

60
Q

Morale Hazard

A

carelessness/bad attitude because you have insurance

61
Q

Legal Hazard

A

court interpretation of the policy (huge demand verdicts in liability cases)

62
Q

Actual Cash Value

A

replacement costs less depreciation

63
Q

Replacement cost

A

today’s prices to replace something

64
Q

function replacement cost

A

irreplaceable materials are replaced with a “functional” equivalent at substantially less cost. also called repair cost

65
Q

stated value

A

the insured requests property be insured for a certain amount, prior to the policy issuance. after the loss, the value can still be challenged by the insurer

66
Q

agreed value

A

a specific value is set for each item, and listed on the policy, before the contract is written. in the event of a loss, that is the amount paid

67
Q

fair market value

A

not a value used in insurance (cannot insure for fair market value)

68
Q

Deductible

A

that portion of the loss that the insured absorbs. Deductibles apply to property coverages only and not liability (casualty).
Flat deductible - flat amount applied oncer per loss

69
Q

Co-Insurance

A

provides equity among policyholders by requiring them to carry a reasonable amount of insurance, used in commercial property insurance

70
Q

Co-insurance payouts

A

if insured to at least the % specified = pays 100% of all partial losses

fails to carry % specified = insured is penalized according to formula
(insurance carried/insurance required * loss = payment)

71
Q

Appraisal clause

A

is used to determine value of a loss

72
Q

arbitration

A

is used to determine an insurance dispute (dollar amount and right to recovery)

73
Q

right of salvage

A

in cases of clear cut total losses, insurance would pay in full, so the insurer is entitled to the benefit of the salvage

74
Q

abandonment

A

prohibits the insured from abandoning damaged property

75
Q

additional coverages

A

included in the policy and pay for additional expenses in a loss such as a fire department service charge

76
Q

extensions of coverage

A

in property insurance, provide extra benefits - insured must carry 80% coinsurance or better and meet the requirement

77
Q

Vacant

A

no property, no people

78
Q

Commercial insurance: Vacant

A

if there is no enough property in the building to conduct normal business operations, the building is considered vacant. EX: a restaurant has tables and chairs but no kitchen equipment

79
Q

Vacancy Clause

A

when a building is vacant beyond 60 days, coverage will be suspended for certain perils (vandalism, glass breakage, sprinkler leakage, water damage, theft) and all other losses may be reduced by 15% (fire/lightning, etc)

80
Q

Unoccupied

A

no people, but has contents (your home when you are at work)

81
Q

Subrogation

A

company assumes insured’s right to recover from negligent party, once the company pays the insured for the loss

82
Q

Duties of the insured in the event of a loss

A

provide notice of loss
take all steps to protect property from further loss
do not do anything to inhibit insurance company
cooperate with insurance company
provide a list of damage
burglary, theft, robbery = police report

83
Q

Proof of loss

A

a sworn statement and must be filed within 60 days when requested

84
Q

Mortgagee Rights

A

Will not be affected by:
-any act of neglect or an increase in hazard

Has the right to receive:

  • 10 day notice of intent to cancel
  • additional 60 days to file for a proof of loss in the insured fails to do so
85
Q

Proximate cause

A

your breach of duty must be the proximate cause of the “other guys” injury or property damage (you cut down a tree and in doing so it lands on another guys car causing loss)

86
Q

Pair and set clause

A

insured entitled to elect one of the following when part of a set is damaged:

1) the value of that part that was damaged
2) the value of the entire set

Property Exam (4 decks)

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