Property & Casualty Principles Flashcards
Risk
uncertainty concerning loss
pure risk
risk from the standpoint of the insured
speculative risk
risk from the standpoint of the insurer
insurance
transfer of risk
reinsurance
insurance for the insurance company
direct loss
loss to the property itself (house burned down due to a fire)
indirect loss
another financial loss you incur as. a result of a direct loss (house burned down + cost to live in a hotel)
indemnity
obligation of the policy to restore to the insured to the financial condition they enjoyed before the loss occurred
What supports indeminty?
Actual cash value (ACV)
pro-rata liability (other insurance clause)
subrogation
Limit of liability
dollar amount stated on Dec. page and is the maximum amount the ins. company will pay in a loss
reinstatement of limit after loss
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
pro-rata liability (other insurance clause)
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
non-concurrency
when 2 policies insuring the same piece of property have different peril coverage
2 policies, one property, different perils
Liberalization Clause
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
Assignment
Not valid without written consent of the insurance company
short rate cancellation
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
pro-rata cancellation
insurer cancels the policy. insured receives exactly the “unused premium”. (the company cancels you)
Homeowner’s form: Named insured
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
Insured
you and other residents of your house who are:
- your relatives
- others under 21 in your care
Accident
a sudden, unforeseen and unintended event that happens at a known place and a known time
Occurrence
an accident but also including continuous and repeated exposure to injurious conditions that result in bodily injury or property damage
Stock companies: (nonparticipating)
owned by: stockholders
profits paid to: stockholders
board of directors elected by: stockholders
Mutual Insurance Companies: (participating)
owned by: policyholders
profits paid to: policyholders
board of directors elected by: policyholders
Expressed Authority
written and given
Implied authority
not written by necessary
apparent authority
“appear” to have. Creates “Agency by Estoppel” for the company
Agency by Estoppel
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
Competent Parties
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
Consideration
something of value. the parties of a contract must exchange consideration
legal purpose
the purpose for the contract must not be against the law. the purpose cannot be illegal or against public policy. enforceable by law
offer
one party must make an offer to the other party. in P&C ins. company normally makes the offer by issuing a policy
acceptance
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
Insurance contracts are personal in nature:
the ins. company has the right to decide who they enter contract with.
Insurance contracts are contracts of “utmost good faith”
the insurance company trusts the intermediary that they will honestly relay all the info regarding the risk
Insurance contracts are contracts of adhesion
the party that drafts it, must stick to it. insured doesn’t have any say in the terminology
Insurance contracts are unilateral and aleatory
unilateral - one party drafts it
aleatory - one party may benefit more than the other
Insurance contracts are conditional
certain conditions have to occur before any claims can be paid
Declarations (part of the polcy)
a list of who, what, where, which, how much (top page of policy)
Insuring Agreement (part of the policy)
promises/perils, coverage
Conditions (part of the policy)
Rules - biggest part of the policy
Exclusions (part of the policy)
property & perils not covered
Elements of an insurable risk
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
Adverse selection
a risk the insurance company faces that only those who are exposed to a certain type of loss will buy the coverage (Flood Insurance)
Fair Credit Reporting Act
ensures accuracy of information and the privacy of the information used on consumer reports
The FCRA outlines:
who can see your credit info. to obtain a copy, businesses need a legitimate and a permissable purpose
If insurance company rejects an applicant because of information obtained from a credit report:
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)
Class rates
manual rates, apply to everyone in that class (auto/home ins)
Individual rates
manuscript, unique to that insured
Merit rates
based on the likelihood of a loss, experience
Judgement rates
based on the judgement of the underwriter (only in commercial ins)
Avoidance
don’t do it! don’t take on the exposure
retention
self-insure in whole (no insurance) or in part (deductible)
reduction
take steps to reduce the hazards thereby reducing the exposure to loss. safety glasses for workers, wet floor signs
Peril
Cause of loss
Named Perils
perils covered are literally named in the policy EX: fire, wind, hail
Open Perils
policy does not list covered perils but rather states the policy will pay for every conceivable peril (except those specifically excluded)
Hazard
A condition that increases the chance of a loss
Physical Hazard
Generally something you can see (wires hanging from the ceiling)
Moral Hazard
intentionally damaging your own property to collect the insurance (fraud, setting fire to your own building to collect $)
Morale Hazard
carelessness/bad attitude because you have insurance
Legal Hazard
court interpretation of the policy (huge demand verdicts in liability cases)
Actual Cash Value
replacement costs less depreciation
Replacement cost
today’s prices to replace something
function replacement cost
irreplaceable materials are replaced with a “functional” equivalent at substantially less cost. also called repair cost
stated value
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
agreed value
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
fair market value
not a value used in insurance (cannot insure for fair market value)
Deductible
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
Co-Insurance
provides equity among policyholders by requiring them to carry a reasonable amount of insurance, used in commercial property insurance
Co-insurance payouts
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)
Appraisal clause
is used to determine value of a loss
arbitration
is used to determine an insurance dispute (dollar amount and right to recovery)
right of salvage
in cases of clear cut total losses, insurance would pay in full, so the insurer is entitled to the benefit of the salvage
abandonment
prohibits the insured from abandoning damaged property
additional coverages
included in the policy and pay for additional expenses in a loss such as a fire department service charge
extensions of coverage
in property insurance, provide extra benefits - insured must carry 80% coinsurance or better and meet the requirement
Vacant
no property, no people
Commercial insurance: Vacant
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
Vacancy Clause
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)
Unoccupied
no people, but has contents (your home when you are at work)
Subrogation
company assumes insured’s right to recover from negligent party, once the company pays the insured for the loss
Duties of the insured in the event of a loss
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
Proof of loss
a sworn statement and must be filed within 60 days when requested
Mortgagee Rights
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
Proximate cause
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)
Pair and set clause
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
