Unit 3 - Basics Of Property And Casualty Insurance

Question 1

Property Insurance

Answer 1

•Covers buildings and personal belongings
•Loss caused by covered peril
•First party losses-insurer pays insured

Question 2

Casualty Insurance

Answer 2

•Casualty=Liability

•Always pays the other guy, never me
•Third party losses

•First party - me (insured)
•Second party - my insurer
•Third party - Other guy

Question 3

Policy Sections (DICEE)

Answer 3

•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

Question 4

Additional/Supplementary Coverage

Answer 4

•Payment for additional expenses not normally covered

•May have separate limit of insurance

Question 5

Insureds

Answer 5

•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

Question 6

Policy Period

Answer 6

When the policy begins and ends

•Common policy periods:
6 mon, 1 yr, 3 yr

Question 7

Policy Territory

Answer 7

Where a loss must occur

Typically includes:
•US
•Canada
•Puerto Rico
•Other US territories and Possessions

Question 8

Cancellation

Answer 8

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

Question 9

Nonrenewal

Answer 9

Occurs at the expiration date

•Company must give advance notice
•No advance notice required by the insured

Question 10

Deductible

Answer 10

•Amount of the loss paid by the insured
•The higher the deductible, the lower the premium

Question 11

Primary/Excess policies

Answer 11

Primary policy pays first, excess pays what’s left (if any)

Question 12

Equal Shares

Answer 12

Each policy pays the same up to the smallest policy’s limit

Question 13

Pro rata

Answer 13

Each policy pays its share according to the total insurance

(Policy limit of one company/policy limit of all companies x loss)

Question 14

Named insured Duties after loss (PPC-MSP)

Answer 14

•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

Question 15

Assignment

Answer 15

Policy cannot be transferred without written consent from the insurer

Question 16

Abandonment

Answer 16

Insured cannot abandon property that can be repaired and expect to be paid as if the loss was total

Question 17

Salvage

Answer 17

INSURER has the right of salvage, not the insured

•salvaged property can lower claim cost for the insurance company

Question 18

Liberization

Answer 18

•Extended coverage to insured
•No additional premium charged
•No action required by insured

Question 19

Subornation

Answer 19

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

Question 20

Insurable interest

Answer 20

•Financial risk of loss
•Muat be present as time of loss

Question 21

Underwriting

Answer 21

•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

Question 22

Application

Answer 22

Primary source of underwriting information

Question 23

Binder

Answer 23

•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

Question 24

Loss Ratio

Answer 24

Compares company’s operations year over year

Question 25

Expense Ratio

Answer 25

Cost of doing business

Question 26

Combined Ratio

Answer 26

•100% is breakeven point
•Greater than 100% - underwriting loss
•Less than 100% - underwriting gain

Question 27

Rating a Risk - Judgement

Answer 27

No set rates; based upon underwriter’s experience

Question 28

Rating a Risk - Manual (class)

Answer 28

Set rates for specific rush classes

Question 29

Rating a Risk - Experience rating (merit)

Answer 29

Based on insured’s claim history. Increases or decreases premium.

•Usually a three-year period

Question 30

Loss Costs

Answer 30

Pure claims data

•No operating expenses included
•No profits included

Question 31

Rate Components

Answer 31

•Loss Costs (estimate of claim costs)
•Claims handling costs
•Operating expenses
•Profit

Question 32

Fair Credit Reporting Act (FCRA)

Answer 32

•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

Question 33

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT OF 2019 (TRIPRA)

Answer 33

•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

Question 34

GRAMM-LEACH-BLILEY ACT
(15 USC section 206)

Answer 34

•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

Question 35

Fraud and False statements

Answer 35

•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