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Insurance > unit1 > Flashcards

unit1 Flashcards

1
Q

underwriting

A

extensive evaluation of information related to a particular risk to avoid an adverse selection

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2
Q

adverse selection

A

tendency for higher-risk Individuals to get and keep insurance as compared to individuals that represent an average level of risk

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3
Q

reinsurance

A

insurance for insurers

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4
Q

ceding

A

the company reducing its risk

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5
Q

reinsurer

A

company assuming risk

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6
Q

treaty

A

reinsurance where the reinsurer accepts all risks of a certain type from the ceding company (insurer reducing its risk)

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7
Q

facultative reinsurance

A

the reinsurer (company assuming risk) considers each risk before allowing the transfer from the ceding company (company reducing risk)

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8
Q

purpose of reinsurance

A

helps insurers spread their risk

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9
Q

stock insurer

A

a.k.a shareholders. is a business formed as a corporation and owned by its stockholders. non-par

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10
Q

what is a non-par

A

non-participating issue- policies issued by stock insurers (business formed as a corporation and owned by its stockholders/ shareholders) called so because dividends (profits from the insurance distributed to stockholders) never go to policyholders in the arrangement but to the stockholder. the dividend is taxable.

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11
Q

a mutual insurer is owned by who?

A

its policyholders (customers) a.k.a policyowners

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12
Q

dividends in a mutual policy?

A

are funds that remain after paying claims and operating costs distributed to the policyowners. considered a refund of overpaid premium and is not taxable.

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13
Q

what kind of policies do mutual companies sell?

A

participating (par) companies

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14
Q

what are participating (par) companies?

A

mutual policies where policyowners participate in the operating results of the company.

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15
Q

Fraternal benefit societies

A

offers insurance to members

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16
Q

fraternal policies are also know as what?

A

a.k.a. certificates. members who have insurance are certificate holders.

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17
Q

what is an open contract

A

policies that may assess additional charges if premiums are not sufficient to pay claims during a given period.

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18
Q

reciprocal insurers

A

unincorporated groups of people that agree to insure each other’s losses under a contract. members are known as subscribers.

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19
Q

what does the attroney-in-fact do?

A

handles administration, underwriting, sales promotion, and claims for the reciprocal insurance

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20
Q

if loss occurs to a member in a reciprocal group what happens?

A

all members are assessed and equal amount to pay the claim.

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21
Q

Lloyd’s association

A

provide a hub for the exchange of information among member underwriters who transact insurance. insure unusual risk i.e., the hair of celebrities. insurance provided by individual underwriters not companies.

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22
Q

risk retention group

A

insurer that provides liability insurance for its policyholders. regulated by the state where they are headquartered and can operate in other states as well. (created for policyholders from the same industry)

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23
Q

risk purchasing group

A

a group of businesses from the same industry that join together to buy liability insurance from an insurance company (different from retention groups- purchasing groups are not insurers themselves)

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24
Q

self insurance

A

means of retaining rather than transferring risk. business pay it owns claims.

25
Q

types of insurance the government provides?

A

war, nuclear energy, flood, federal crop, unemployment

, workers compensation

26
Q

meaning of admitted?

A

a.k.a. authorized which means state require license to sell insurance. the license is called a certificate of authority. vs nonadmitted- allow to sell with license.

27
Q

surplus lines

A

certain types of risks are called surplus line. some states allow companies to sell insurance for these risk without having a license.

28
Q

3 keys to surplus lines

A

has to be on a state approved list, only sold to certain high risk insureds, cannot be sold solely for lower rate. surplus lines a.k.a. excess coverage

29
Q

name financial rating insurers

A

AM Best, Standard & Poor’s, Moody’s, Duff & Phelps, Weiss. evaluate factors to assign insurance rating

30
Q

factors evaluate to determine financial rating

A

insurer’s loss experience, reserves, investment performance, management, and operating expenses

31
Q

who represent the insurer

A

independent agents

32
Q

who represent the insured

A

broker or consultants

33
Q

captive (exclusive) agents

A

independent contractors that represent one company. the insurance company owns the renewals

34
Q

independent insurance agents

A

independent contractors that sell insurance products of several companies, these contractors own the renewals

35
Q

direct-writing

A

companies that have employees sell their product

36
Q

GAs or MGAs

A

general agents or managing general agents. they hire agents and earn overriding commissions

37
Q

direct response marketing

A

no producer or agent. policies are sold directly to the public by the insurer.

38
Q

what is an Agency

A

a relationship in which one person is authorized to represent and act for another person or for a corporation.

39
Q

the person authorized to act on behalf of the other in an agency agreement is called a what

A

agent (the sales representative or producer )

40
Q

what is a principal

A

the person on whose behalf the agent acts. the insurer. the insurance company

41
Q

law of agency

A

contracts made by the agent a.k.a. contracts of the principal

42
Q

Express authority (under the law of agency)

A

wording in the contract telling a producer what they can and cannot do. it’s a producer’s written agency agreement

43
Q

Implied authority (under the law of agency)

A

authority the agent believes the agent has.

not written in the contract but assumed to be granted to an agent. power agent believes they have due to it being necessary for the agent to conduct the business of the insurer.

44
Q

Apparent authority

A

authority others believe the agent has.

45
Q

fiduciary

A

person in a position of financial trust

46
Q

commingling

A

illegal act of mixing personal funds with the insured’s or insurers’s fund

47
Q

speculative risk

A

chance of loss or gain- not insurable

48
Q

pure risk

A

chance of loss only-insurable

49
Q

exposure

A

possibility that a loss will occur ex: house fire

50
Q

peril

A

cause of loss.

51
Q

house burns down. what is the peril

A

fire

52
Q

what is a hazard. name 3

A

a hazard increases the chance of loss. Physical- can be seen, moral-dishonesty intentional loss, morale- carelessness

53
Q

methods of handling risk

A

STARR- sharing, transferring, avoidance, retention, reduction

54
Q

what is a contract policy?

A

an agreement between the insured (the customer- 1st party) and the insurer (insurance company-2nd party)

55
Q

what are the elements of an insurable risk

A

CANHAM - calculable, affordable, non-catastrophic, homogeneous, accidental, measurable

56
Q

what is an adverse selection

A

risks that have a greater-than-average chance of loss

57
Q

facultative

A

the reinsurer accepts the transfer according to an agreement

called a treaty.

58
Q

a report card of the company is what?

A

A Financial strength rating

Insurance (16 decks)

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