unit1

Question 1

underwriting

Answer 1

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

Question 2

adverse selection

Answer 2

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

Question 3

reinsurance

Answer 3

insurance for insurers

Question 4

ceding

Answer 4

the company reducing its risk

Question 5

reinsurer

Answer 5

company assuming risk

Question 6

treaty

Answer 6

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

Question 7

facultative reinsurance

Answer 7

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

Question 8

purpose of reinsurance

Answer 8

helps insurers spread their risk

Question 9

stock insurer

Answer 9

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

Question 10

what is a non-par

Answer 10

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.

Question 11

a mutual insurer is owned by who?

Answer 11

its policyholders (customers) a.k.a policyowners

Question 12

dividends in a mutual policy?

Answer 12

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

Question 13

what kind of policies do mutual companies sell?

Answer 13

participating (par) companies

Question 14

what are participating (par) companies?

Answer 14

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

Question 15

Fraternal benefit societies

Answer 15

offers insurance to members

Question 16

fraternal policies are also know as what?

Answer 16

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

Question 17

what is an open contract

Answer 17

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

Question 18

reciprocal insurers

Answer 18

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

Question 19

what does the attroney-in-fact do?

Answer 19

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

Question 20

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

Answer 20

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

Question 21

Lloyd’s association

Answer 21

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.

Question 22

risk retention group

Answer 22

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)

Question 23

risk purchasing group

Answer 23

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)

Question 24

self insurance

Answer 24

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

Question 25

types of insurance the government provides?

Answer 25

war, nuclear energy, flood, federal crop, unemployment | , workers compensation

Question 26

meaning of admitted?

Answer 26

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.

Question 27

surplus lines

Answer 27

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

Question 28

3 keys to surplus lines

Answer 28

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

Question 29

name financial rating insurers

Answer 29

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

Question 30

factors evaluate to determine financial rating

Answer 30

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

Question 31

who represent the insurer

Answer 31

independent agents

Question 32

who represent the insured

Answer 32

broker or consultants

Question 33

captive (exclusive) agents

Answer 33

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

Question 34

independent insurance agents

Answer 34

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

Question 35

direct-writing

Answer 35

companies that have employees sell their product

Question 36

GAs or MGAs

Answer 36

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

Question 37

direct response marketing

Answer 37

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

Question 38

what is an Agency

Answer 38

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

Question 39

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

Answer 39

agent (the sales representative or producer )

Question 40

what is a principal

Answer 40

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

Question 41

law of agency

Answer 41

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

Question 42

Express authority (under the law of agency)

Answer 42

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

Question 43

Implied authority (under the law of agency)

Answer 43

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.

Question 44

Apparent authority

Answer 44

authority others believe the agent has.

Question 45

fiduciary

Answer 45

person in a position of financial trust

Question 46

commingling

Answer 46

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

Question 47

speculative risk

Answer 47

chance of loss or gain- not insurable

Question 48

pure risk

Answer 48

chance of loss only-insurable

Question 49

exposure

Answer 49

possibility that a loss will occur ex: house fire

Question 50

peril

Answer 50

cause of loss.

Question 51

house burns down. what is the peril

Answer 51

fire

Question 52

what is a hazard. name 3

Answer 52

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

Question 53

methods of handling risk

Answer 53

STARR- sharing, transferring, avoidance, retention, reduction

Question 54

what is a contract policy?

Answer 54

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

Question 55

what are the elements of an insurable risk

Answer 55

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

Question 56

what is an adverse selection

Answer 56

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

Question 57

facultative

Answer 57

the reinsurer accepts the transfer according to an agreement | called a treaty.

Question 58

a report card of the company is what?

Answer 58

A Financial strength rating