Unit 2 Fundamentals of Comm Ins Flashcards
Risk
2-3
The chance or possibility of loss or misfortune or the object of insurance.
What are some common business risks?
- Property Damage
- Slander
- Product Liab
- E&O
- Prof Liab
- Accidents
- Injury to Customers or EEs
Risk Management
2-5
A systematic approach to identify, analyze, and address potential exposures to financial loss.
Methods to Manage Risk
2-9
- Avoid
- Reduce
- Transfer
- Retain
Avoid Risk (2-10)
Avoid or not incurring risk in the first place
Reduce Risk
2-10
Minimize risk by attempting to reduce the frequency or severity of the losses to which the business is exposed.
Focus on:
- Identifying Exposures
- Correcting Deficiencies
- Modifying Behaviors or Processes
- Preventing Future Exposures
Transfer Risk
2-11
Transfer or shifting risk to another party, such as to an Ins Co or to a non-ins vehicle, such as through a contract, agreement, or lease.
Retain Risk
2-12
Retain all or part of the risk through:
- Self Insurance
- Deductible
- Retention
- Risk Retention Group
Self-Insurance
2-12
A form of risk mgmnt that retains rather than xfers risk to an Ins Co and that typically sets aside funds for unexpected losses.
Deductible
2-12
The portion of a loss that the insured must bear and that may apply to the indemnity paymnt, defense costs, or both. The insurer only pays if the loss exceeds the deductible amount.
Retention
2-12
A designated amount an insured pays before an insurer has any obligation to indemnify for a covered loss and that applies when the insured is typically responsible for handling claims.
Risk Retention Group
2-12
An Ins Co that is owned and controlled by a group engaged in similar or related businesses for the purpose of insuring the liab exposures of its members.
Indemnity
2-16
A principle that requires an Ins Co to protect and compensate an injured party for the financial consequences of a covered loss that does not result in a profit or loss for the insured.
Self-Insured Retention (SIR)
2-18
A specific sum or % of loss that is the insured’s responsibility and that is not covered under the ins policy. The insurer is not liable for any of the loss until after the insured pays the retained amount.
Actuary
2-22
Establishes prices and premiums for ins products using statistical models and tools. They are involved in all areas of ins. Also, estimate what actual losses and associated costs may be. They use past history or experience, industry statistics, and data from many other sources in their rate calculations.
Underwriter
2-22
Responsible for the selection, classification, and acceptance or rejection of a proposed insured.
Agent
2-22
Represents the insurer
Broker
2-22
Represents the insured and solicits and negotiates ins on their behalf.
Retail Agent/Broker
2-23
Acts an intermediary between an insured or applicant and the insurer.
Wholesale Agent/Broker
2-23
Used by a retail agent/broker to negotiate, sell or solicit ins w/ or from an insurer w/ whom the retail broker has no relationship.
Wholesale Broker provide expertise for specialized accts, assist in negotiations, and provide proposals for ins.
Managing General Agents (MGA)
2-23
Specialized brokers who have authority to manage ins on the insurer’s behalf and who serves a variety of functions, such as underwriting, claims, reinsurance, and agent supervision.
What are 3 areas that fall under state regulatory control?
2-28
- Premium Rates & Policy Forms
- Sales and Claims Practices
- Formation of Ins Cos
- Monitoring of Insurer to Prevent Insolvency
What is the function of state administrative agencies?
2-29
- Provide procedures for licensing and enforcement
- Conduct reviews of Ins Co EEs
- Conduct reviews of insurers’ financial stability
What regulations apply in the Admitted Market?
- Are licensed under the state
- Must comply w/ regulations regarding rate and form filing
- Participate in the state solvency fund
- Operate w/in the state.
What are some of the common parts of contracts (policy)?
DICEE
- Dec Page - 5 Ps - Policy Holder, Policy #, Policy Term, Policy Limit, Premium
- Insuring Agreement - Coverage Provided & Perils Covered
- Conditions - Obligations of each party to the contract. States ground rules
- Exclusions
- Endorsements
How do insurance contracts different from other contracts?
Are based on an unexpected, or fortuitous event, are heavily regulated by the states, and have been extensively tested and shaped by case law.
What is required of Definitions in a policy?
Must be clear and understandable to the policyholder
