Unit 3 - Basics Of Property And Casualty Insurance Flashcards
Property Insurance
•Covers buildings and personal belongings
•Loss caused by covered peril
•First party losses-insurer pays insured
Casualty Insurance
•Casualty=Liability
•Always pays the other guy, never me
•Third party losses
•First party - me (insured)
•Second party - my insurer
•Third party - Other guy
Policy Sections (DICEE)
•Declarations:
Who, What, When, Where, and How much
(First Page of Policy)
•Insurring agreement(s):
Promise to pay and perils covered
•Conditions:
Rules for the policy
•Endorsement:
Changes to original policy
•Exclusions:
Not covered
Additional/Supplementary Coverage
•Payment for additional expenses not normally covered
•May have separate limit of insurance
Insureds
•Named insured-in the declarations
•First named insured-first in the declarations (commercial policies when multiple partners)
•insureds-by definition
•Additional insured-added by endorsement
Policy Period
When the policy begins and ends
•Common policy periods:
6 mon, 1 yr, 3 yr
Policy Territory
Where a loss must occur
Typically includes:
•US
•Canada
•Puerto Rico
•Other US territories and Possessions
Cancellation
Occurs before the policy expiration date
•Company cancellation requires advance notice
- Full refund of unearned premium, pro rata
•Named insured cancellation-no advance notice
- Partial refund of unearned premium, short rate
Nonrenewal
Occurs at the expiration date
•Company must give advance notice
•No advance notice required by the insured
Deductible
•Amount of the loss paid by the insured
•The higher the deductible, the lower the premium
Primary/Excess policies
Primary policy pays first, excess pays what’s left (if any)
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
(Policy limit of one company/policy limit of all companies x loss)
Named insured Duties after loss (PPC-MSP)
•Prompt notice to insurer
•Protect property from further damage
•Complete proof of loss (if asked)
•Make property available for inspection
•Submit to examination under oath if required
•Cooperate with insurer
Assignment
Policy cannot be transferred without written consent from the insurer
Abandonment
Insured cannot abandon property that can be repaired and expect to be paid as if the loss was total
Salvage
INSURER has the right of salvage, not the insured
•salvaged property can lower claim cost for the insurance company
Liberization
•Extended coverage to insured
•No additional premium charged
•No action required by insured
Subornation
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
Insurable interest
•Financial risk of loss
•Muat be present as time of loss
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-Verbal 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
Combined Ratio
•100% is breakeven point
•Greater than 100% - underwriting loss
•Less than 100% - underwriting gain
Rating a Risk - Judgement
No set rates; based upon underwriter’s experience
Rating a Risk - Manual (class)
Set rates for specific rush classes
Rating a Risk - Experience rating (merit)
Based on insured’s claim history. Increases or decreases premium.
•Usually a three-year period
Loss Costs
Pure claims data
•No operating expenses included
•No profits included
Rate Components
•Loss Costs (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 - $5,000, 1 year in prison, or both
TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT OF 2019 (TRIPRA)
•Results of 9/11 Attacks on U.S.
•Congress originally enacted in 2022
•Limits exposure of insurers in case of another catastrophic event
•Triggering event - $200 million
GRAMM-LEACH-BLILEY ACT
(15 USC section 206)
•A CONSUMER is anyone about whom information is collected
•A CONSUMER is someone who has an ongoing relationship with a financial institution
•The opportunity to opt out must be offered by financial instructions when an account is established and annually thereafter
Fraud and False statements
•It is legally to make false statements
•If Guilty:
-Fine, up to 10 years in prison, or both
-Upt o 15 years in prison if false statements jeopardize insurer
