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Insurance General 1 > Study 1 Industry Knowledge > Flashcards

Study 1 Industry Knowledge Flashcards

1
Q

Insurance

A

A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils

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2
Q

Indemnify

A

To provide compensation for loss or expenses incurred

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3
Q

Premium

A

The price of insurance protection for a specified risk for a specified period of time

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4
Q

Risk

A

The chance of loss. Specifically, the possible loss or destruction of property or the possible incurring of a liability. Sometimes referred to as the subject of an insurance contract.

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5
Q

Contract

A

An agreement or promise between two or more parties that is intended to be legally enforceable and is constituted by the acceptance by one party of an offer made by another party, to do or to abstain from doing a specific act. The offer and acceptance may either be expressed or be inferred through the conduct of the parties.

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6
Q

Agent

A

A person licensed and authorized or employed to act on behalf of another

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7
Q

Broker

A

A licensed independent person or firm who acts on behalf of an insured in placing business with insurance conpanies

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8
Q

Adjuster

A

One who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements.

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9
Q

Independent adjuster

A

One who adjusts losses on behalf of the insurance companies but is not employed by any one insurance company

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10
Q

Public adjuster

A

An insurance claims adjuster representing an insured on a fee basis in a claims settlement

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11
Q

Describe the primary function of insurance

A

The primary function of insurance is to spread risk. The spread of risk can be achieved by:

Volume - insuring a large number of risk

Diversity of the type of risk - writing insurance on as many types of risk as possible. Chance of underwriting profit increases b/c a loss in one class of business may be offset by a better-than-average profit in other classes.

Diversity of location - writing insurance in as many different locations as practicable. Opportunity for profit increases

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12
Q

Describe the 5 secondary functions of insurance

A
  • aiding security: peace of mind by substituting a certain premium payment in place of an uncertain loss payment. Both individuals and business can avoid the need for setting aside reserves of money to meet financial requirements in case of loss
  • aiding credit: virtually impossible to obtain credit without having insurance on the item concerned
  • promoting loss prevention: helps reduce the actual cost of insurance to the consumer and also the inconvenience that results from an accident or loss
  • providing capital: insurers must safeguard the premiums they collect so that funds are available to pay claims and reimburse insured who cancel their policies midterm = large amounts of money to invest in Canadian economy
  • providing employment
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13
Q

Telematics

A

An interdisciplinary field with telecommunications, vehicular technologies, road transportation, road safety, electrical engineering, and computer science

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14
Q

Loss reserve

A

An amount carried as a liability in an insurers balance sheet representing, in respect of each claim, an amount equal to the estimated final settlement cost less any amounts already paid

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15
Q

Incurred but not reported (IBNR) losses

A

An estimate of the amount an insurer’s liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. The sun of IBNR losses plus incurred losses provide an estimate of the insurer’s eventual liabilities for losses during a given period

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16
Q

Unearned premium

A

The part of the premium that has not yet been used or earned; premium representing the y expiring portion of a policy.

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17
Q

Earned premiums

A

(1) that portion of premium earned or chanted for the period of time a policy remained effective, for example, an annual policy paid for in advance would be one-twelfth “earned” at the end of the first full month of its term
(2) an amount calculated by taking the earned premium written during the period, less the unearned premium reserve at the end of the period
(3) premium actually exposed to loss

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18
Q

Unearned premium reserve

A

A reserve fund of an insurance company or reinsurance company, representing the unearned premiums

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19
Q

Law of agency

A

Applies when an agent is authorized to do something on behalf of a principal. The principal is the person or entity for whom the agent or broker acts

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20
Q

Express contract

A

One in which the terms of the arrangement have been specifically stated and agreed to by both parties either orally or in writing

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21
Q

Implied contract

A

One in which the parties have acted in such a way that it is understood that a principal - agent relationship exists, even though no expressed statement may have been made be either

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22
Q

Utmost good faith

A

A legal principal calling for the highest standards of integrity on the part of the insured and the insurer

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23
Q

Uberrimae fidei

A

Of the utmost good faith. The basis of all insurance and reinsurance contracts. Both parties to the contract are bound to exercise good faith and do so by a full disclosure of all information material to the proposed contract

24
Q

Duty of care

A

The obligation that a person has to exercise reasonable care with respect to the interests of others, including protecting them from harm

25
Q

Material fact

A

A fact that would affect a contract of insurance enough to influence an insurer’s decision regarding whether to accept or reject the risk or the premium to be set. Material facts must be disclosed by the applicant if asked

26
Q

Fiduciary

A

A person whom the administration of something is entrusted for the benefit of another. A fiduciary has a greater legal obligation than others to discharge duties honestly and diligently

27
Q

Standard of care

A

A code of conduct prepared by associations and other recognized groups of authority that can be referenced to define what the conduct should be for a particular group

28
Q

Insurer

A

The insurance company that undertakes to indemnify for losses and perform other insurance related operations

29
Q

Law of large numbers

A

The mathematical premise that stars that the degree of uncertainty is reduced as the number of events increases

30
Q

Reinsurance

A

Insurance purchased by an insurance company from another insurance company (reinsurer) to provide it protection against large losses on cases it has already insured. Essentially, insurance for insurance companies. A transaction in which one party, the reinsurer, agrees to indemnify another party, the reinsured, for part or all of the liability assumed by the reinsurance under a policy of insurance that it has issued. The reinsurance may also be referred to as the original or primary insurer or the ceding company

31
Q

Exposure

A

The hazard threatening a risk because of extended or internal physical conditions

32
Q

Solvency

A

A business entity’s ability to meet its long term financial commitments

33
Q

Treaty

A

An agreement between an insurance company and a reinsurer. The reinsurer automatic accepts a portion of a ceding company’s liability for specified class or classes of business. Terms of agreement are set forth therein; for example, premium payment, loss limits, etc.

34
Q

Facultative reinsurance

A

Insurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer.

35
Q

Reserves

A

Funds that are set aside by an insurance company for the purpose of meeting obligations as they fall due. Such obligations include liabilities for unearned premiums & the estimated costs of unpaid claims

36
Q

Commission

A

Compensation based on the amount of production; for example, independent insurance agents are compensated on the basis of a percentage of the premium the percentage varies with different lines of insurance

37
Q

Actuary

A

One who specializes in the mathematics of insurance, mortality rates, and the like

38
Q

Ratemaking

A

The process of compiling & analyzing data to establish rates that accurately reflect the level of risk, usually performed by actuaries

39
Q

Producer

A

A broker or agent who sells insurance

40
Q

Underwrite

A

To insure. More commonly, to scrutinize a risk and then decide on its eligibility for insurance

41
Q

Underwriter

A

(1) the insurance company or group that underwrites or insures a particular risk (2) the individual within an insurance company whose responsibility it is to accept or reject business in the particular line in which he or she specializes and, in this way, choose the risk his or her principals are prepared to underwrite

42
Q

Claim

A

The assertion of a demand made by one party against another for indemnity or restitution for personal injury or property damage arising out of negligence or a contractual right

43
Q

Rate

A

Amount charged to an insured that reflects the expectation of loss for a covered risk, insurance company expenses, and profit. In other words, it is the basis of premium calculation for the insurance provided for the exposure

44
Q

Trust

A

The transference of property to an individual or a corporation, know as the “trustee”, who holds the property for the benefit of an individual, known as a “beneficiary”

45
Q

Trust account

A

An account managed by an individual or a corporation for the benefit of another, known as the “beneficiary”

46
Q

Operating account

A

An account used to hold funds for the day-to-day operation of a business

47
Q

Underwriting profit

A

The amount of money an insurance company gains as a result of its insurance operations. Excess of earned premiums collected over loss payments and expenses

48
Q

Underwriting loss

A

The amount of money that an insurance company loses as a result of its insurance operations. It excludes investment transactions and income taxes

49
Q

Line guide

A

A listing of the maximum amounts of exposure an insurance company is prepared to accept on various classes of risk

50
Q

Claims examiner

A

An employee of an insurance company.

Direct the investigations of staff adjusters & independent adjusters, review their reports, and approve claims settlement

51
Q

Prescription

A

(1) in law, a limitation of time within legal action can be taken by a claimant (2) in insurance, the period of time in which a claim may be brought forward by the policy holder

52
Q

Good faith

A

Most ordinary contracts are good faith contracts. Insurance contracts are made in utmost good faith. This implies a standard of honesty greater than that usually required in most commercial contracts

53
Q

Misrepresentation

A

Incorrect or missing information about a material fact that is offered, or not, by an applicant or insured with or without the intent to mislead

54
Q

Non-disclosure

A

A contract of insurance is based on utmost good faith. An applicant for insurance is required to disclose the company all material facts that are necessary to underwrite a policy. If the applicant does not disclose all these facts, the applicant is guilty of non-disclosure and may risk having the policy voided from inception

55
Q

Concealment

A

As applied to insurance, the intentional withholding from an insurance company of information pertinent to a risk

56
Q

Personal Information Protection and Electronic Documents Act (PIPEDA)

A

A federal statute that governs the collection and use of personal information. It states that the personal information to be collected must be relevant, and that all information that has been collected, is being collected, or will be collected must be held in the strictest of confidencd

57
Q

Direct billing

A

A system for collecting premiums whereby an insurer bills and collects the premium directly from the insured as opposed to the agent or broker being a middle person. Premiums are usually collected monthly by direct debit from the insureds bank account

Insurance General 1 (7 decks)

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