Study 1: Introduction to Underwriting - Key Terms Flashcards
Physical hazard
A hazard arising from the physical condition or characteristics of the object that is insured.
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,” in consideration of a premium paid to it, agrees to indemnify another party, the “reinsured,” for part or all of the liability assumed by the reinsured under a policy of insurance that it has issued. The reinsured may also be referred to as the “original” or “primary” insurer or the “ceding company.”
Direct writer
Insurance company selling directly to the public and not through independent agents or brokers.
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.
Moral hazard
A hazard arising from the character, interest, habits, and lack of integrity of the insured or person concerned.
Insurer
The insurance company that undertakes to indemnify for losses and perform other insurance-related operations.
Line guide
A listing of the maximum amounts of exposure an insurance company is prepared to accept on various classes of risk.
Schedule of insurance
A list of items individually covered by a policy; for example, a list of jewels under a jewellery floater, a list of cars under one automobile policy, or a list of buildings under a fire policy.
Facultative reinsurance
Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer.
Managing general agent (MGA)
An independent business operation given authority by a number of insurance companies to solicit business on behalf of such companies. Responsibilities include recruiting, training, and supervising agents.
Treaty
An agreement between an insurance company and a reinsurer. The reinsurer automatically accepts a portion of the ceding company’s liability for a specified class or classes of business. Terms of the agreement are set forth therein; for example, premium payment, loss limits, etc.
Speculative risk
An insurance term for a situation where the possibility of either a financial loss or a financial gain exists, such as in purchasing shares, or betting on horses. Speculative risk is usually not insurable, unlike pure risk.
Broker
A licensed independent person or firm who acts on behalf of an insured in placing business with insurance companies.
Cyber risk
Any risk of financial loss, disruption of business, or damage to an organization’s reputation due to a failure of its information technology systems.
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 they specialize and, in this way, choose the risks their principals are prepared to underwrite.
