The Insurance Transaction Flashcards
What are binders?
An oral/written statement made by the agent that the insured had immediate protection that is set for a specified time.
Binder does NOT guarantee that a policy will be issued, only that there is a temporary coverage.
What is an application?
The application is the insureds offer it contains underwriting info and rating info to determine if applicant should be accepted and if so at what premium
What sources do underwriters use to determine risk of applicant?
Inspection services, government bureaus, insurance industry bureaus, financial info devices, previous insurers and companies own claim files
What is the Fair Credit Reporting Act?
Protects consumers by requiring that the consumer be notified in certain situations and by establishing provisions for the removal of outdated and incorrect info
What is adverse selection?
The tendency for people with greater than average exposure to loss to purchase insurance
How many construction classifications do underwriters recognize?
6
What is the first class of construction underwriters recognize?
Class 1: frame structures have outside support walls, roof, and floors constructed of wood or other combustible materials. The exterior walls may be covered with stucco or brick veneer and the interior walls are typically lath and plaster.
What is the second class of construction underwriters recognize?
Class 2: Joisted masonry; have outside support walls made it non combustible masonry materials (such as increase, brick, hallow concrete block stone or tile) and roof and floor made of combustible materials.
What is the third construction classification underwriters recognize?
Class 3: noncombustible; one whose exterior walls floors and roof are constructed of an supported by non combustible materials such as metal asbestos or gypsum
What is the fourth class of construction recognized by underwriters?
Class four: masonry noncombustible; have exterior walls constructed of masonry materials and a roof and floor made of metal or other non combustible materials
What is the fifth class of construction recognized by underwriters?
Class five: Modified fire resistive; buildings that are modified fire resistive have exterior walls floors and roof constructed of masonry or fire resistive materials with a fire resistive rating of two hours less
What is the sixth class of construction underwriters recognize?
Class 6: fire resistive; constructed of masonry or fire resistance materials with a fire resistance rating of 2 or more hours.
What are the three basic ways in which a premium can be computed?
Judgement rating, manual rating, and merit rating
What is judgement rating?
The premium is determined by considering the individual risk
What is manual rating?
The company’s rates for a particular state or area are obtained by consulting a manual which is stored on a computer
What is merit rating?
Starts with class or manual rates which are then modified to reflect the unique characteristics of the risk that are not reflected in the manual rate
What is experience rating?
A form of merit rating that modifies the manual premium in the basis of the insureds loss experience over some period (usually 3 years)
What is retrospective rating?
Bases the insureds premium on losses incurred during the policy period
What is schedule rating?
Applied a system of debts and credits to reflect characteristics of a particular insured
What is misrepresentation?
A written or verbal misstatement of a material fact involved in the contract on which the insurer relies
What is concealment?
Similar to misrepresentation except that it involves withholding rather than misstating a material fact
What is fraud?
A deliberate misrepresentation that causes harm
What four elements does an act of fraud contain?
- ) someone deliberately lies
- ) the intent of the lie is for someone else to rely on that lie
- ) another person relies on that lie
- ) the other person suffers harm as a result of relying on that lie
What are warranties?
Agreements made between the insurance company and the insured that certain conditions will be met. They can void the contract if breached.
What is a waiver?
The intentional relinquishment of a known right
