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Property and Casualty > Unit 1 - Introduction to Insurance > Flashcards

Unit 1 - Introduction to Insurance Flashcards

1
Q

What is Insurance?

A

transfer of risk from a person or business to an insurer

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2
Q

What is Risk?

A

uncertainty/possibility of a loss

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3
Q

What are the Types of risks?

A

Speculative risk
Pure risk

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4
Q

What is speculative risk?

A

Speculative Risk - chance of loss or gain. NOT INSURABLE

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5
Q

Is speculative risk insurable?

A

NO WAY BRO

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6
Q

What is pure risk?

A

Pure risk - chance of loss only. CAN INSURE

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7
Q

Is Pure risk insurable?

A

YES

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8
Q

What is Exposure?

A

possibility that a loss will occur

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9
Q

What is a Peril?

A

Cause of loss

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10
Q

What are examples of a peril?

A

if a house burns down, the peril is the FIRE

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11
Q

What is a direct loss?

A

Physical loss

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12
Q

what is an indirect loss?

A

consequence of the direct loss

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13
Q

What is a hazard?

A

Increases the chance of loss

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14
Q

What are the three types of hazards?

A

Physical
Moral
Morale

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15
Q

Physical hazard?

A

the hazard can be SEEN

TANGIBLE

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16
Q

example of physical hazard?

A

wet floor

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17
Q

Moral hazard?

A

dishonesty that intentionally causing a loss is acceptable

UNETHICAL
FRAUDULENT

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18
Q

Morale hazard?

A

carelessness

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19
Q

example of Morale hazard?

A

Leaving door open (careless)

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20
Q

Method of handling risk?

A

STARR!

Sharing - Risk sharing

Transfer - Insurer agrees to pay insured if there is a loss

Avoidance - eliminate risk by not engaging in a certain activity (avoids risk)

Retention - ind/business will pay for loss or portion of loss (deductible) if occurs

Reduction - lessening chance loss occurs (sprinkler system)

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21
Q

Contract? (policy)

A

an agreement between the insured and the insurer

1st party - insured (customer)

2nd party - insurer (insurance company)

22
Q

Law of large numbers?

A

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

23
Q

Adverse Selection?

A

risks that have GREATER THAN AVERAGE chance of loss

24
Q

Adverse selection (notes)

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

Stock insurer is owned by?

A

Stockholders

26
Q

Stock insurer – is a dividend guaranteed?

A

NO

27
Q

Who is a dividend paid to?

A

Stockholder

28
Q

Stock Insurer – Is a dividend taxable?

A

YES – to the STOCKHOLDER

29
Q

Stock insurer – Issue participating or non-participating policies?

A

non-participating policies

called non-participating policies because dividends never go to policyholders in this arrangement

30
Q

Mutual Insurer is owned by?

A

policyholders (customers)

31
Q

Mutual Insurer – is a dividend guaranteed?

A

NO

32
Q

Mutual insurer – who is the dividend paid to?

A

policyholder

33
Q

Mutual Insurer – is the dividend taxable?

A

NO

It is considered a refund of the premium

34
Q

Mutual Insurers issue:

participating or non-participating policies?

A

participating policies

participating (par) policies because the policyowners PARTICIPATE in the operating results of the company

35
Q

Domestic?

A

STATE where a company is incorporated

36
Q

Foreign?

A

company is incorporated in another state or U.S. Territory

37
Q

Alien?

A

company is incorporated in another COUNTRY

38
Q

Certificate of Authority?

A

state license for an insurance company

39
Q

Admitted or authorized?

A

state requires the insurance company to have a certificate of authority

40
Q

nonadmitted or unauthoriaed?

A

insurance company not required to have certificate of authority from the state

41
Q

purpose of surplus lines insurers

A

Sometimes an individual or business will have exceptionally large or specialized risk that no authorized insurer can sell or will cover. in some cases insurance may be obtained from insurer on a surplus lines basis.

42
Q

examples of Surplus Lines Insurance

A

gaming, casinos and entertainment, mining, and skyscrapers, etc.

43
Q

Surplus lines – notes!!

A

Insurance sold by unauthorized/non-admitted 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

44
Q

Agency?

A

the insurance agent acts on behalf of the principal (insurance company)

45
Q

Agent authority – Express?

A

what the agent’s written CONTRACT with the company SAYS

46
Q

Agent authority – Implied?

A

NOT WRITTEN; activities an agent normally does to sell insurance

47
Q

Agent authority – Apparent?

A

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

48
Q

Fiduciary trust notes:

A

promptly sends premiums to insurer

Has knowledge of products

Complies with laws and regulations

Does not commingle funds

a fiduciary is a person in a position of financial trust

49
Q

Independent insurance agents?

A

UNLIMITED

sell products of several companies and are independent contractors

50
Q

Captive agents?

A

represent only one company

51
Q

What is commingling?

A

the illegal act of mixing personal funds with insured’s or insurer’s funds

52
Q

Elements of Insurable Risk

A

CANHAM
Calculable
Affordable
Non-catastrophic
Homogeneous
Accidental
Measurable

Property and Casualty (20 decks)

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