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Insurance-Personal Lines > Unit 1 - Introduction to Insurance > Flashcards

Unit 1 - Introduction to Insurance Flashcards

1
Q

Insurance

A

Transfer of risk from a person or business to an insurer

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2
Q

Risk

A

Uncertainty/possibility of a loss

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3
Q

What are the 2 types of Risk?

A
  1. Speculative risk
  2. Pure risk
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4
Q

Speculative Risk

A

Chance of loss or gain, not insurable

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5
Q

Pure Risk

A

Chance of loss only; insurance companies will insure

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6
Q

Exposure

A

Possibility that a loss will occur

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7
Q

5 examples of Exposure

A
  1. Auto accident
  2. Luggage lost on a trip
  3. Pet bitting a mailman
  4. Employee hurt on job
  5. House fire
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8
Q

Peril

A

A cause of loss
(House burns down, peril is the fire)

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9
Q

Direct

A

physical Loss

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10
Q

Indirect

A

Consequence of the direct loss

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11
Q

Hazard

A

Increases the chance of loss

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12
Q

Physical Hazard

A

The hazard can be seen

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13
Q

Moral Hazard

A

Dishonesty

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14
Q

Morale Hazard

A

Carelessness

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15
Q

STARR!

A

The Method of handling Risk

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16
Q

S T A R R stands for?

A

S share
T transfer
A avoid
R retention
R reduction

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17
Q

Contract (policy)

A

An agreement between the insured and the insurer

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18
Q

1st party

A

Insured (customer)

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19
Q

2nd party

A

Insurer (insurance Company)

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20
Q

Law of large numbers

A

The larger the group, the more accurately future losses can be predicted

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21
Q

CANHAM

A

Elements of an Insurable risk

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22
Q

CANHAM stands for…

A

C calculated
A affordable
N non-catastrophic
H homogeneous
A accidental
M measurable

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23
Q

Adverse selection

A

Risks that have a greater-than-average chance of loss

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24
Q

Adverse selection examples…

A

• Not wanted by insurers
• Tendency for high-risk individuals to get and keep insurance
• Why insurers go through the underwriting process
• High risk = higher rate or refusal to insure

25
Q

Reinsurance

A

An insurance company (the ceding company) paying another insurance company (reinsurer) to take some of the company’s risk

26
Q

Reinsurer’s help spread…

A

The insurer’s risk

27
Q

Facultative

A

The reinsurer evaluates each risk before allowing the transfer

28
Q

Treaty

A

The reinsurer accepts the transfer according to an agreement called a treaty

29
Q

Stock insurer

A

• Owned by stockholders
• Dividend is not guaranteed
• Dividend is paid to stockholders
• Dividend is taxable to stockholders
• issues non-participating policies

30
Q

Mutual Insurer

A

• Owned by the policyholders (customers)
• Dividend is not guaranteed
• Dividend is paid to policyholder
• Dividend is not taxable; considered refund of premium
• Issues participating policies

31
Q

Fraternal Issurer

A

• Provides Insurance and other benefits
• Must be a member of the society to get the benefits

32
Q

Reciprocal Insurer

A

• Unincorporated
• Members are required to pay an assessed amount if a loss to any member of the group occurs
• Managed by an attorney-in-fact

33
Q

Lloyd’s association

A

Insurance provided by individual underwriters, not companies

34
Q

Lloyd’s association Insures unusual risks such as…

A

Examples:

• Hole-in-one contest
• Athlete’s arm
• Celebrity’s hair

35
Q

Risk Retention Group

A

•Liability insurance company created for policyholders from the same industry
Example:
A car dealers risk retention group in which only car dealer’s can be policyholders

36
Q

Risk purchasing Group

A

• A group of businesses from the same industry joining together to buy liability insurance from an insurance company
•The Risk purchasing group is not the insurance company

37
Q

Self-Insurance

A

A business that pays its own claims

•Reserves funds to cover losses
•Retains risk rather than transfers

38
Q

Federal Government provides residual market insurance

A

Insurance from the state of federal government

39
Q

Federal government insurance ex…

A

•War risk insurance
•Nuclear energy insurance
•Flood insurance
•Federal crop insurance
•Unemployment insurance (at state level)
•Workers’ compensation (at state level)

40
Q

Domestic

A

The state where a company is incorporated

41
Q

Foreign

A

Company is incorporated in another state or U.S. territory

42
Q

Alien

A

Company is incorporated in another country

43
Q

Certificate of authority

A

State license for an insurance company

44
Q

Admitted or Authorized

A

State requires the insurance company to have a certificate of authority

45
Q

Nonadmitted or unauthorized

A

Insurance company not required to have a certificate of authority from the state

46
Q

Surplus lines

A

•insurance sold by unauthorized/nonadmitted insurers if on the state’s approved list of surplus insurers
•can only be sold to certain high-risk insureds
•cannot be sold solely for a cheaper rate than licensed/admitted insurers

47
Q

Financial strength rating

A

A report card of the company

48
Q

Methods of Marketing

A

•Independent
•Exclusive or Captive
•General agents or Managing general agents
•Direct-Writting companies

49
Q

Methods of marketing also known as…

A

Agency Systems

50
Q

Direct response

A

No agent/producer involved

51
Q

Direct response also known as…

A

Marketing

Examples:
•Direct Mail
•Magazines
•Television
•Internet
•Radio advertisements

52
Q

Agency

A

The insurance agent acts on behalf of the principal

53
Q

Principal

A

Insurance company

54
Q

Agent Authority

A

Express, Implied, Apparent

55
Q

Express

A

What the agent’s written contract with the company says

56
Q

Implied

A

Not written, activities, an agent normally does to sell insurance

57
Q

Apparent

A

Activities an agent does that a reasonable person would assume as authority, based on the agent’s actions and statements

58
Q

Fiduciary Trust

A

•Promptly sends premiums to insurer
•Has knowledge of products
•Complies with laws and regulations
•Does not commingle funds

Insurance-Personal Lines (9 decks)

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