Unit 3: Basics of Property and Casualty Insurance Flashcards
Property Insurance
- Protect the insured from loss caused by damage from a covered peril to insured property
- Covers first party losses -> “my stuff” (buildings (real property) and personal belongings
Casualty Insurance
- Often called liability insurance, protect an individual or business when it is found legally liable for negligent acts or omissions that cause injury or property damage to others
- Pays the “other guy”
Policy Sections DICEE
- Declarations
- Insuring agreements
- Conditions
- Endorsement
- Exclusions
Additional/Supplementary Coverage
- Payment for additional expenses not normally covered
- May have separate limit of insurance
Insureds
- Named insured – listed on the declarations
- First-named insured – first on the declarations (commercial policies when multiple partners)
- Insureds – by definition (others such as named insured’s resident relatives)
- Additional insured – added by endorsement
Policy Period and Policy Territory
- Policy period: when the policy begins and ends
- Policy territory: where a loss must occur
Cancellation
Occurs before the policy’s expiration date
- Insurer cancellation requires advance notice
- Full refund of unearned premium – pro rata
- 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 th epremium
Multiple policies insuring the same loss
- Primary/excess: 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
Named Insured Duties after Loss (PPC-MSC)
- 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
Liberalization
- Extended coverage to insured
- No additional premium charged
- No action required by insured
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
Insurable Interest
- Financial risk of loss
- Must be present at 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
Binder
- Temporary insurance given by the agent verbally or in writing
- Can be cancelled 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
Loss ratio = (Incurred losses)/(Earned premiums)
Expense Ratio
Cost of doing business
Expense ratio = (Underwriting expenses)/(Written premium)
Combined ratio
Combined ratio = expense ratio + loss ratio
- 100% is breakeven point
- 100% = underwriting profit
- > 100% = underwriting loss
Rating a Risk
- Judgment: no set rates; based upon underwriter’s experience
- Manual (class): set rates for specific risk classes
- Experience rating (merit): based on insured’s claim history; increases or decreases premium
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)
- Result of 9/11 Attacks on US
- Congress originally enacted in 2002
- Limits exposure of insurers in case of another catastrophic event
- Triggering event - $200 million
Gramm-Leach-Bliley Act (GLBA) (15 USC Section 206)
- Consumer: anyone about whom information is collected
- Customer: someone who has an ongoing relationship with a financial institution
- The opportunity to opt out must be offered by financial institution 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
