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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
Reinsurance
An insurance company (the ceding company) paying another insurance company (reinsurer) to take some of the company’s risk
26
Reinsurer’s help spread…
The insurer’s risk
27
Facultative
The reinsurer evaluates each risk before allowing the transfer
28
Treaty
The reinsurer accepts the transfer according to an agreement called a treaty
29
Stock insurer
• Owned by stockholders • Dividend is not guaranteed • Dividend is paid to stockholders • Dividend is taxable to stockholders • issues non-participating policies
30
Mutual Insurer
• 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
Fraternal Issurer
• Provides Insurance and other benefits • Must be a member of the society to get the benefits
32
Reciprocal Insurer
• 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
Lloyd’s association
Insurance provided by individual underwriters, not companies
34
Lloyd’s association Insures unusual risks such as…
Examples: • Hole-in-one contest • Athlete’s arm • Celebrity’s hair
35
Risk Retention Group
•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
Risk purchasing Group
• 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
Self-Insurance
A business that pays its own claims •Reserves funds to cover losses •Retains risk rather than transfers
38
Federal Government provides residual market insurance
Insurance from the state of federal government
39
Federal government insurance ex…
•War risk insurance •Nuclear energy insurance •Flood insurance •Federal crop insurance •Unemployment insurance (at state level) •Workers’ compensation (at state level)
40
Domestic
The state where a company is incorporated
41
Foreign
Company is incorporated in another state or U.S. territory
42
Alien
Company is incorporated in another country
43
Certificate of authority
State license for an insurance company
44
Admitted or Authorized
State requires the insurance company to have a certificate of authority
45
Nonadmitted or unauthorized
Insurance company not required to have a certificate of authority from the state
46
Surplus lines
•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
Financial strength rating
A report card of the company
48
Methods of Marketing
•Independent •Exclusive or Captive •General agents or Managing general agents •Direct-Writting companies
49
Methods of marketing also known as…
Agency Systems
50
Direct response
No agent/producer involved
51
Direct response also known as…
Marketing Examples: •Direct Mail •Magazines •Television •Internet •Radio advertisements
52
Agency
The insurance agent acts on behalf of the principal
53
Principal
Insurance company
54
Agent Authority
Express, Implied, Apparent
55
Express
What the agent’s written contract with the company says
56
Implied
Not written, activities, an agent normally does to sell insurance
57
Apparent
Activities an agent does that a reasonable person would assume as authority, based on the agent’s actions and statements
58
Fiduciary Trust
•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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