Unit One Flashcards
What is the transfer of risk?
Insurance
What is the uncertainty/possibility of a loss?
Risk
What are the 2 types of risk?
Speculative and pure
What is speculative risk?
Chance of loss or gain. NOT insurable
What is pure risk?
Chance of loss ONLY. Insurable
What is exposure?
Risks for which the insurance company will be liable.
What is peril?
A cause of loss
What is a hazard?
Something that causes an increase in the chance of loss.
What are the 3 kinds of hazards?
Physical
Moral
Morale
What is a physical hazard?
a hazard that can be seen
What is a moral hazard?
A belief that intentionally causing a loss is acceptable
What is a morale hazard?
Carelessness
What are the STARR methods of handling risk?
Sharing
Transfer
Avoidance
Retention
Reduction
What is a contract (policy in insurance)?
An agreement between the insured and the insurer.
Who is the 1st party in a contract/policy?
The customer
Who is the 2nd party in a contract/policy?
The insurer
What is the Law of Large Numbers?
The larger the group, the more accurately losses can be predicted.
What are the CANHAM risk characteristics?
Risks that can be insured if they have the following characteristics:
Calculable
Affordable
Non-catastrophic
Homogenous
Accidental
Measurable
What is adverse selection?
Risks that have a greater than average chance of loss
What is reinsurance?
Insurance for the insurance companies.
Which company is the ceding company in reinsurance?
The company buying the reinsurance
Which company is the reinsurer in reinsurance?
The company insuring the other insurance company
What are the 2 kinds of reinsurance?
Facultative and Treaty
What is Facultative Reinsurance?
The reinsurer evaluates each risk before allowing transfer
What is Treaty Reinsurance?
The reinsurer accepts the transfer according to an agreement called a treaty.
What are the characteristics of a Stock Insurer?
Publically owned by stockholders
Taxable dividends to stockholders
Issues participating policies
What are the characteristics of a Mutual Insurer?
Owned by the policyholders
Nontaxable dividend to policyholders
Issues participating policies
What are the characteristics of a Fraternal Insurer?
Provides insurance and other benefits
must be a member of a society to get benefits
What are the characteristics of a Reciprical Insurer?
Unincorporated
Members are assessed the amount they have to pay if a loss occurs to any member of the group
Run by an attorney-in-fact
What is Lloyd’s Association?
Insurance provided by individual underwriters, not companies
What is a Risk Retention Group?
A liability insurance company created for and owned by policyholders from the same industry.
Ex: care dealers RRG, only care dealers can be policyholders
What is a Risk Purchasing Group?
A group of businesses from the same industry join together to buy liability insurance from an insurance company.
The RPG is NOT the insurance company
What is Self-Insurance?
A business that pays its own claims
What is residual market insurance?
Insurance from the state or federal government
What are the 3 classifications of insurance company location?
Domestic
Foreginq
Alien
What are the 3 classifications of insurance company location?
Domestic
Foreign
Alien
What is domestic insurance?
An insurance company operating in the same state where it is incopporated
What is foreign insurance?
An insurance company operating in a different US state or territory than the one in which it is incorporated
What is alien insurance?
An insurance company incorporated anywhere other than the United States
What is a Certificate of Authority?
the state license for an insurance company
What is an admitted or authorized insurance company?
One required by the state it’s operating in to have a Certificate of Authority
What is a non-admitted insurance company?
One not required to have a Certificate of Authority from the state
What are surplus lines?
Insurance sold by unauthorized/non-admitted insurers, IF on the states approved list of insurers
Can only be sold the certain high-risk insureds
Cannot be sold for a lower rat than licensed/admitted insruers
What is a financial strength rating?
A financial report card for the insurance company
What are the 5 methods of marketing?
Independent
Exclusive or Captive
General Agents or Managing General Agents
Directing-writing companies
Direct response, no agent/producer involved
What is agency?
The authority that allows agents to act on behalf of the insurance company (the principal)
What are the 3 kids of Agent Authority?
Express
Implied
Apparent
What is Express Agent Authority?
What the agent’s written contract with the company says
What is implied Agent Authority?
Authority not written into the contract but that are things agents normally do to sell insurance
What is Apparent Agent Authority?
Authority to do things that a reasonable person would assume as authority, based on the agent’s actions and statements.
What is a fiduciary?
A person in a position of financial trust
What are the duties of a fiduciary?
Promptly sends premiums to the insurer
Is knowledgeable of products
Complies with laws and regulations
No comingling
