Unit 1: Intro to Insurance Flashcards
the possibility that a loss will occur
Risk
a contract that transfers the risk of financial loss from an individual / business to an insurance company
Insurance
A risk that may result in a loss or gain
Speculative Risk
only involves the possibility of experiencing a loss, not a gain
Pure Risk
a condition/situation that presents a possibility of loss
exposure
the cause of a loss
Peril
the unintended, unforeseen damage to a property, injury or amount paid
Loss
Physical loss to a property with no intervening cause
Direct Loss
A consequential loss as the result from a direct loss
Indirect Loss
Anything that increases the chance that a loss will occur
Hazard
Hazard created by an individual who would be willing to create a loss situation on purpose just to collect from the insurance company. arise from an individuals character
Moral Hazard
Hazard created by an individual’s tendency to contribute to a loss through his own irresponsible actions or carelessness
Morale Hazard
Hazard that arises from the condition, occupancy, or use of the property itself.
Physical Hazard
Sharing
Transfer
Avoidance
Retention
Reduction
Method of handling risk
two or more individuals or businesses agree to pay a portion of any loss occurred by any member of the group. Stockholders in a corporation do this.
Sharing
eliminating a particular risk by not engaging in a certain activity
Avoidance
the individual or business will pay for the loss if it occurs, or a portion of the loss via a deductible.
Retention
Lessening the chance that a loss will occur, or lessening the extent of a loss if it occurs.
Reduction
An agreement between the insured and the insurer
Contract
first party
Insured (I am INSURED)
second party
Insurer - insurance company
Elements of insurable risk
CANHAM
C - Calculable
A - Affordable
N - Non-catastrophic
H - Homogenous
A - Accidental
M - Measurable
the tendency for higher-risk individuals to get and keep insurance as compared to individuals that represent an average level of risk
Adverse Selection
insurance for insurers
Reinsurance
a business formed as a corporation and owned by its stockholders. The corporation is run by a board of directors elected by the storkcholders
Stock Insurer
Insurance company owned by its policyholders; the policyholders share in profits made by the company through dividends or reduction in future premiums
Mutual Insurers
exist for the benefit of their members and offer insurance as one of the benefits of membership
Fraternal Benefit Societies
unincorporated groups of people that agree to insure each others losses under a contract
Reciprocal Insurance
an insurer formed for the sole purpose of providing liability insurance for its policyholders
Risk Retention Group
a group formed for the sole purpose of obtaining liability insurance for its members
Risk Purchasing Groups
means of retaining, rather than transferring risk
Self-insurers
The state where a company is incorporated
Domestic
company is incorporated in another state or U.S. territory
Foreign
company is incorporated in another country
Alien
state license for an insurance company
cert. of authority
Company that is not authorized to do business in a particular state…
Non-admitted insurer
(unauthorized or non-approved too)
Insurance sold by unauthorized/non-admitted insurers - if on the state’s approved list of insurer’s
surplus lines
Agent who represents many insurance companies, rather than a single company.
Independent Insurance Agent
individuals that represent just one company
Captive ( exclusive ) agents
individuals that hire, train and supervise other agents within a specific geographical area
General Agents (GA’s) or managing general agents (MGA’s)
companies whose products are sold by employees, not independent contractors
Direct-Writing Companies
relationship where one person is authorized to represent and act for another person, or for a corporation
Agency
person authorized to act on behalf of the other
Agent
the person on whose behalf the agent acts…
Principal
authority made explicit in a producer’s written agency agreement with the insurer
Express Authority
is not written in the contract, but is assumed to be granted to an agent in accordance with the general business practices…
Implied Authority
authority that others believe the agent has. tasks the agent does that a reasonable person would assume as authority, based on the agent’s actions and statements
Apparent Authority
a person in a position of financial trust
fiduciary
the illegal act of mixing personal funds with the insured’s or insurer’s funds
Commingling
