Unit 3: Property and Casualty Insurance

Question 1

Property Insurance

Answer 1

Covers “My Stuff”

“My Stuff” = Personal belongings

Question 2

Casualty Insurance

Answer 2

Casualty = Liability

Always pays the other guy, never me.

Question 3

Describe third-party losses

Answer 3

First party - Me (insured)
Second party - my insurer
Third party - other guy

Question 4

Policy Structure DICEE

Answer 4

Declarations - Insuring agreements - Conditions - Endorsments - Exclusions

Question 5

Policy Structure: Declarations

Answer 5

Who, what, when, where and how much

Question 6

Policy Structure: Insuring Agreements

Answer 6

Promise to pay and perils covered

Question 7

Policy Structure: Conditions

Answer 7

Rules for the policy

Question 8

Policy Structure: Endorsements

Answer 8

Changes to the original policy

Question 9

Policy Structure: Exclusions

Answer 9

Items not covered

Question 10

Additional Supplementary Coverage

Answer 10

Payment for additional expenses not normally covered.

may have separate limit of insurance

Question 11

Insureds

Answer 11

Name insured - Listed on the declarations
First-named insured - First on the declarations
Insureds - by definition
Additional insured - added by endorsment

Question 12

Policy Period

Answer 12

When the policy begins and ends

Question 13

Policy Territory

Answer 13

Where a loss must occur

Question 14

Cancelation

Answer 14

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

Question 15

Nonrenewal

Answer 15

Occurs at the expiration date.
Insurer must give advanced notice
No advanced notice required by the insured

Question 16

Deductible

Answer 16

Amount of the loss paid by the insured

The higher the deductible, the lower the premium

Question 17

Other Insurance

Answer 17

Restore insured to pre-loss condition
More than one policy covers the same loss or claim
No more, no less!

Question 18

Nonconcurrency

Answer 18

The result of two or more policies covering the same property but providing different or non-identical coverage

Question 19

Primary and Excess

Answer 19

Primary insurance pays first; excess pays what’s left (if any)

Question 20

Pro rata

Answer 20

Each policy pays its share according to the total insurance

Question 21

Other Insurance: Pro Rata Responsibility

Answer 21

Noncurrency: Non-identical coverage

Primary Excess: Excess pays what is not covered by primary

Pro Rata: Each insurer’s liable for a portion of the loss

Question 22

Contribution by Equal Shares

Answer 22

Each policy pays the same up to the smallest policy limit
Prevents gain (indemnity)

Question 23

Named Insured Duties after Loss (PPC-MSC)

Answer 23

■ 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 24

Assignment

Answer 24

CONSENT

Policy cannot be transferred without written consent from the insurer. Transfer of right

Question 25

Abandonment

Answer 25

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

Question 26

Salvage

Answer 26

Insurer has the right of salvage, not the insured

Question 27

Liberalization

Answer 27

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

Question 28

Subrogation

Answer 28

insurer has the right to sue an at-fault party for damages the insurer had to pay the
insured

Question 29

Insurable Interest

Answer 29

■ Financial risk of loss

■ Must be present at time of loss

Question 30

Underwriting

Answer 30

■ 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 31

Application

Answer 31

Primary source of underwriting information

Question 32

Binder

Answer 32

■ 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 33

Financial Ratios

Answer 33

Loss ratio
Expense ratio
Combined ratio

Question 34

Loss ratio

Answer 34

Compares company’s operations year over year

Question 35

Expense ratio

Answer 35

cost of doing business

Question 36

Combined ratio

Answer 36

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

Question 37

Underwriting Expenses

Answer 37

The cost to acquire and to keep policies

Question 38

Written premium

Answer 38

is the gross amount of premium income received from insureds.

Question 39

Rate

Answer 39

Three ways to assign rates:
Judgement - no set rates, based upon underwritters experience

Manual (class) - set rates for specific risk classes

Experience rating - modification factor based on loss experience (increase or decreases premium, usually a three-year preiod)

Question 40

Loss Cost

Answer 40

CLAIM COSTS

Pure claims data. No operating expenses included No profits included

Question 41

Rate Components

Answer 41

Loss costs (estimate of claim cost)
Claim handling costs
operating
expenses
profit

Question 42

Fair credit reposting act

Answer 42

All insurers and producers (agents) must comply
Notice to the applicant within three days after report was requested
maximum penalty: $5,000, 1 year in prison or both

Question 43

TRIPRA (Terrorism risk insurance)

Answer 43

■ Result of 9/11 Attacks on U.S.
■ Congress enacted in 2002
■ Limits exposure of insurers in case of another catastrophic event
■ Triggering event—$100 million (increases to $200 million from 2015–2020 in $20 million
increments)

Question 44

GRAMM-LEACH-BLILEY ACT

Answer 44

■ A consumer is anyone 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.

Question 45

Fraud and False Statements

Answer 45

■ 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