Study 1 Industry Knowledge Flashcards
Insurance
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
Indemnify
To provide compensation for loss or expenses incurred
Premium
The price of insurance protection for a specified risk for a specified period of time
Risk
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.
Contract
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.
Agent
A person licensed and authorized or employed to act on behalf of another
Broker
A licensed independent person or firm who acts on behalf of an insured in placing business with insurance conpanies
Adjuster
One who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements.
Independent adjuster
One who adjusts losses on behalf of the insurance companies but is not employed by any one insurance company
Public adjuster
An insurance claims adjuster representing an insured on a fee basis in a claims settlement
Describe the primary function of insurance
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
Describe the 5 secondary functions of insurance
- 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
Telematics
An interdisciplinary field with telecommunications, vehicular technologies, road transportation, road safety, electrical engineering, and computer science
Loss reserve
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
Incurred but not reported (IBNR) losses
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
Unearned premium
The part of the premium that has not yet been used or earned; premium representing the y expiring portion of a policy.
Earned premiums
(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
Unearned premium reserve
A reserve fund of an insurance company or reinsurance company, representing the unearned premiums
Law of agency
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
Express contract
One in which the terms of the arrangement have been specifically stated and agreed to by both parties either orally or in writing
Implied contract
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
Utmost good faith
A legal principal calling for the highest standards of integrity on the part of the insured and the insurer
Uberrimae fidei
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
Duty of care
The obligation that a person has to exercise reasonable care with respect to the interests of others, including protecting them from harm
Material fact
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
Fiduciary
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
Standard of care
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
Insurer
The insurance company that undertakes to indemnify for losses and perform other insurance related operations
Law of large numbers
The mathematical premise that stars that the degree of uncertainty is reduced as the number of events increases
Reinsurance
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
Exposure
The hazard threatening a risk because of extended or internal physical conditions
Solvency
A business entity’s ability to meet its long term financial commitments
Treaty
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.
Facultative reinsurance
Insurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer.
Reserves
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
Commission
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
Actuary
One who specializes in the mathematics of insurance, mortality rates, and the like
Ratemaking
The process of compiling & analyzing data to establish rates that accurately reflect the level of risk, usually performed by actuaries
Producer
A broker or agent who sells insurance
Underwrite
To insure. More commonly, to scrutinize a risk and then decide on its eligibility for insurance
Underwriter
(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
Claim
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
Rate
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
Trust
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”
Trust account
An account managed by an individual or a corporation for the benefit of another, known as the “beneficiary”
Operating account
An account used to hold funds for the day-to-day operation of a business
Underwriting profit
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
Underwriting loss
The amount of money that an insurance company loses as a result of its insurance operations. It excludes investment transactions and income taxes
Line guide
A listing of the maximum amounts of exposure an insurance company is prepared to accept on various classes of risk
Claims examiner
An employee of an insurance company.
Direct the investigations of staff adjusters & independent adjusters, review their reports, and approve claims settlement
Prescription
(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
Good faith
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
Misrepresentation
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
Non-disclosure
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
Concealment
As applied to insurance, the intentional withholding from an insurance company of information pertinent to a risk
Personal Information Protection and Electronic Documents Act (PIPEDA)
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
Direct billing
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
