unit1 Flashcards
underwriting
extensive evaluation of information related to a particular risk to avoid an adverse selection
adverse selection
tendency for higher-risk Individuals to get and keep insurance as compared to individuals that represent an average level of risk
reinsurance
insurance for insurers
ceding
the company reducing its risk
reinsurer
company assuming risk
treaty
reinsurance where the reinsurer accepts all risks of a certain type from the ceding company (insurer reducing its risk)
facultative reinsurance
the reinsurer (company assuming risk) considers each risk before allowing the transfer from the ceding company (company reducing risk)
purpose of reinsurance
helps insurers spread their risk
stock insurer
a.k.a shareholders. is a business formed as a corporation and owned by its stockholders. non-par
what is a non-par
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.
a mutual insurer is owned by who?
its policyholders (customers) a.k.a policyowners
dividends in a mutual policy?
are funds that remain after paying claims and operating costs distributed to the policyowners. considered a refund of overpaid premium and is not taxable.
what kind of policies do mutual companies sell?
participating (par) companies
what are participating (par) companies?
mutual policies where policyowners participate in the operating results of the company.
Fraternal benefit societies
offers insurance to members
fraternal policies are also know as what?
a.k.a. certificates. members who have insurance are certificate holders.
what is an open contract
policies that may assess additional charges if premiums are not sufficient to pay claims during a given period.
reciprocal insurers
unincorporated groups of people that agree to insure each other’s losses under a contract. members are known as subscribers.
what does the attroney-in-fact do?
handles administration, underwriting, sales promotion, and claims for the reciprocal insurance
if loss occurs to a member in a reciprocal group what happens?
all members are assessed and equal amount to pay the claim.
Lloyd’s association
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.
risk retention group
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)
risk purchasing group
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)
self insurance
means of retaining rather than transferring risk. business pay it owns claims.
types of insurance the government provides?
war, nuclear energy, flood, federal crop, unemployment
, workers compensation
meaning of admitted?
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.
surplus lines
certain types of risks are called surplus line. some states allow companies to sell insurance for these risk without having a license.
3 keys to surplus lines
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
name financial rating insurers
AM Best, Standard & Poor’s, Moody’s, Duff & Phelps, Weiss. evaluate factors to assign insurance rating
factors evaluate to determine financial rating
insurer’s loss experience, reserves, investment performance, management, and operating expenses
who represent the insurer
independent agents
who represent the insured
broker or consultants
captive (exclusive) agents
independent contractors that represent one company. the insurance company owns the renewals
independent insurance agents
independent contractors that sell insurance products of several companies, these contractors own the renewals
direct-writing
companies that have employees sell their product
GAs or MGAs
general agents or managing general agents. they hire agents and earn overriding commissions
direct response marketing
no producer or agent. policies are sold directly to the public by the insurer.
what is an Agency
a relationship in which one person is authorized to represent and act for another person or for a corporation.
the person authorized to act on behalf of the other in an agency agreement is called a what
agent (the sales representative or producer )
what is a principal
the person on whose behalf the agent acts. the insurer. the insurance company
law of agency
contracts made by the agent a.k.a. contracts of the principal
Express authority (under the law of agency)
wording in the contract telling a producer what they can and cannot do. it’s a producer’s written agency agreement
Implied authority (under the law of agency)
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.
Apparent authority
authority others believe the agent has.
fiduciary
person in a position of financial trust
commingling
illegal act of mixing personal funds with the insured’s or insurers’s fund
speculative risk
chance of loss or gain- not insurable
pure risk
chance of loss only-insurable
exposure
possibility that a loss will occur ex: house fire
peril
cause of loss.
house burns down. what is the peril
fire
what is a hazard. name 3
a hazard increases the chance of loss. Physical- can be seen, moral-dishonesty intentional loss, morale- carelessness
methods of handling risk
STARR- sharing, transferring, avoidance, retention, reduction
what is a contract policy?
an agreement between the insured (the customer- 1st party) and the insurer (insurance company-2nd party)
what are the elements of an insurable risk
CANHAM - calculable, affordable, non-catastrophic, homogeneous, accidental, measurable
what is an adverse selection
risks that have a greater-than-average chance of loss
facultative
the reinsurer accepts the transfer according to an agreement
called a treaty.
a report card of the company is what?
A Financial strength rating
