Unit 3 Flashcards
Basics of Property and Casualty Insurance
duties after loss
condition lists the named insureds responsibilities after a property insurance loss
PPC & MSP
provisions
conditions section of a property insurance policy, lists the duties and right of both the named insured and insurer
loss provisions
contracts include conditions that specify what the named insured and insurer must do when a loss occurs
contribution by equal shares provision
all insurers pay equal amounts, up to the limit of the policy with the smallest limit prevents gain (indemnity)
property insurance
covers personal belongings and real property
“my stuff”
loss caused by covered peril
first party losses - insurer pays insured
casualty insurance
casualty = liability
always pays the other guy
third party losses
first party
insured
second party
insurer
legally representing or defending the insured
third party
the other guy
E xlusions
not covered
DICEE
E ndorsement
changes to original policy
add, modify or take away coverage
DICEE
C onditions
rules for the policy, duties
DICEE
I nsuring Agreements
promise to pay and perils covered
contractual agreement between insured and insurer
DICEE
D eclarations
who, what, when, where and how much
DICEE
additional/ supplementary coverage
payment for additional expenses not normally covered
may have separate limit of insurance
first- named insured
first in the declarations when there is more than one named
policy territory
where a loss must occur
additional insured
added by endorsement
named insured
in the declarations
person, business or other entity
policy period
when the policy begins and ends
date and time, where, and what timezone
deductible
- amount of the loss paid by the insured out of pocket
- the higher the deductible, the lower the premium
- paid by insured before insurer pays any expenses
primary/ excess
primary policy pays first
excess pays what is left (if any)
other insurance provision
- multiple policies insuring the same loss
- how reimbursement will occur
pro rated basis
the insured will receive a portion of the premium back depending on when the policy is cancelled
equal shares
each policy pays the same up to the smallest policy’s limit
pro rata
each policy pays its share according to the total insurance
calculate: policy limit of one company/ policy limit of all companies X loss
nonconcurrency
- result of two or more policies covering the same property but providing different or non-identical coverage
- commonly seen on commercial policies
nonrenewal process
insurer may choose to not renew a policy for another term or the insured may choose to end their coverage and not pay the premium
- state rules must be followed
flat cancellation
policy is cancelled on the effective date, by either the insurer or the insured
short- rated basis
surcharge or penalty for each cancellation, applied to an account when an insured cancels the policy before the expiration date
cancellation
- occurs before the policy expiration date
- company cancellation requires advanced notice
- full refund of unearned premium (pro rata)
- named insured cancellation requires no advanced notice
- partial refund of unearned premium - short rate
nonrenewal
occurs at the expiration date
company must give advanced notice
no advanced notice required by insured
unearned premium
paid premiums in advance for future months, any unused premium must be returned to the insured upon cancellation of a policy
underwriting expenses
cost to acquire and keep policies
advertising/licensing etc
earned premium
premium the company actually earned by providing insurance protection for the designated preiod
incurred losses
amounts paid and reserved on claims for covered losses and various expense related to handling claims
combined ratio
- 100% is breakeven point
- combined ratio = loss ration + expense ratio
- greater than 100% = underwriting loss
- less that 100% = underwriting gain
retrospective rating
bases the insured’s premium on losses incurred during the policy period
schedule rating
applies a system of debits or credits to reflect characteristics of a particular insured
written premium
gross amount of premium income received from insureds - new policies - policy endorsements - renewals
judgement rating
no set rates
based upon underwriter’s experience
manual (class) rating
set rates for specific risk classes
experience rating (merit)
based on insured’s claim history
increases or decreases premium
usually a three year period
rate per unit X number of units = premium
loss costs
pure claims data
no operating expense included
no profits included
rate components
loss reserves ( estimate of claim costs)
claims handling costs
operating expenses
profit
fair credit reporting act (FCRA)
- all insurers and producers must comply
- notice to the applicant within three days after report was requested
- maximum penalty $5000, 1 year in prison or both
Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPPA)
- result of 9/11 attacks on U.S.
- congress re-enacted until 2020
- limits exposure of insurers in case of another terrorist attack
- triggering event- $100 million
Gramm-Leach-Bliley act
- a consumer is any one about whom information is collected
- a customer is someone who has an ongoing relationship with a financial institution
- the opportunity to opt out must be offered by financial institutions when an account is established, and annually thereafter
fraud and false statements
- it is illegal to make false statements
- if guilty:
fine, up to 10 years in prison or both
up to 15 years in prison if false statements jeopardize insurer
underwriting
- process of evaluating a risk
- field underwriting is performed by the agent or producer
- application is the primary source of information
- company underwriters decide if a policy is to be issued
application
primary source of underwriting information
binder
- temporary insurance
- usually given by the agent verbally or in writing
- can be canceled by the company
- does not guarantee a policy will be issued
- automatically ends if a policy is issued by the underwriter
loss ratio
compares company’s operations year over year
expense ratio
cost of doing business
insurable interest
- financial risk of loss
- must be present at time of loss and application
subrogation
insurer has the right to sue an at-fault party for damages the insurer had to pay the insured
common when at-fault party does not have insurance
liberalization
extended coverage to insured
no additional premium charged
no action required by insured
salvage
insurer has right of salvage, not the insured
salvaged property can lower claim cost for the insurance company
abandonment
insured cannot abandon property that can be repaired and expect to be paid as if the loss was total
assignment
policy cannot be transferred without written consent from insurer
C ooperate
with insurer
S ubmit
to examination under oath (if required)
M ake
property available for inspection
C omplete
fill out proof of loss
P rotect
property from further damage
P rompt
notice to insurer
