STUDY 8-UNDERWRITING AND RATING Flashcards
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.
Turn
disclosure
The process of revealing all relevant facts.
mortgagee
A special class of loss payee that has a registered interest on real property offered as security for the money that the mortgagee has loaned the property owner.
effective date
The date of inception of an insurance policy, or the date additional coverages become effective.
manual rating
A pricing method in which an insurer uses rates that are based on its own experience rather than on that of a specific group for which it is calculating a premium.
loss payee
A person or an entity other than the named insured to whom the proceeds of insurance will be paid.
retention
(1) The amount of liability the ceding company (primary insurer) retains for its own account. It may be a percentage or a dollar amount of each risk. (2) Also refers to the part of the risk retained by clients without insuring it (either because insurance is deemed too expensive or the loss is not insurable).
mortgage clause
A clause in an insurance policy that stipulates the rights and obligations of the insurer and the mortgagee.
named insured
The person or party designated in the policy as the insured, who has certain rights under the policy, as opposed to someone who may be covered by the policy but is not specifically named and does not have the same rights as the named insured.
expense loading
The part of a premium rate that represents the cost to the insurer of producing and maintaining the policy.
underwriting rules
The rules used by insurance companies to assess the insurability of a particular risk. These rules are set individually by insurance companies and may differ for each class of business.
special hazards
Foreseen hazards/risks common to certain types of businesses that are not covered in an ordinary policy. For example, woodworking plants and paint shops.
loading
An additional charge included in an insurance rate to reflect a hazard not contemplated in the basic rate for the class.
acquisition cost
The cost of putting business on the books and acquiring the premium. The items involved are not standard with all insurers, but generally may include such items as agents’/brokers’ commissions, field representatives’ costs, premium tax, and perhaps some of the relevant head office acquisition costs of operation.
loss probability
The likelihood of a risk resulting in a loss, taking into account all its various hazards and protections.
application
A request by an insured for insurance. Applications may be done verbally, in writing, or online. The insured provides information relating to the subject for insurance. The insurer then assesses this information and decides whether to accept the risk for insurance and on the terms of such acceptance.
expiry
End of the policy period.
frequency of loss
This is a measure of how often losses are likely to occur in the future. Assuming the average size of loss is constant, the higher the loss frequency, the worse the loss experience.
applicant
The person or firm requesting insurance. That party answers oral questions or completes and signs written forms that contain information to assess the risk.
pure premium
Portion of the total premium that is needed to pay expected losses. It does not take into account money needed for company expenses.
exposure
The hazard threatening a risk because of external or internal physical conditions.
representation
A statement or conduct made to influence an insurer to decide on a risk. The decision includes declining or accepting the risk and deciding the rate and premium to be charged. In insurance, these statements are said to be “material to the risk” and are enough to void a policy ab initio (Latin term meaning “from the beginning”).
severity of loss
This is the average size of the losses. The larger the average loss, the higher the loss severity is said to be. And assuming the loss frequency is constant, the higher the loss severity, the worse the loss experience.
broker of record
The broker currently receiving a commission to handle a policy.
