Property & Casualty

Insurer

Insurance Company

Insured

Policyholder

Agent AKA Producer

Acts as a legal representative of the Insurance company

Broker

Representative of the Insured
Not a representative of the insurance company

Speculative risk

A chance of loss of one thing and gaining something

Pure risks

The chance of experiencing a loss w/o gaining
Excess of the insurance industry

techniques to manage risks

Risk Avoidance
Risk Reduction
Risk shifting
Risk Retention ( self Insuring )

Indemnification

Insurance policy is meant to make the Insured, after suffering, whole
Purpose of an insurance policy is indemnity,or the indemnify
the insured

Indemnity

Security or protection against a loss or other financial burden

Indemnify

Compensate (someone) for harm or loss.

Law of Large Numbers

Mathematical concept that says its easier to predict loss based on
historical data

Economic losses

Insurance companies will deal only w/ economic losses

What characteristics do economic loss have to meet by insurance
companies ?

Insurance companies prefer that economic losses meet the following characteristics:
Predictable Accidental Measurable
Non-Catastrophic

Types of Insurers

Stock Companies Mutual Companies Reciprocal
Companies Fraternal Benefit Societies Government
Insurers

Stocks Companies

Owned by stockholders
Purpose to generate profits for stockholder
Non-participating Companies
Policyholders do not share in companies profits

Mutual Companies

Owned by the policy holders
If it has a surplus of profit

Reciprocal Companies aka Cooperative

a group of affiliated policyholders who have a reciprocal agreement
of indemnification.
Attorney-in-fact- person who manages a reciprocal

Fraternal Benefit Society

Are formed to sell insurance to policyholders with a common ethnic,
religions, or charitable heritage.

Government Insurers

Medicare and Medicaid

NAIC
National Association of Insurance Commissioners

Body or organization that helps in the creations of similar or
uniform policies across various insurance companies or organizations
Most regulations are done by state level, not at federal level.

Insurance

1. Contract whereby an Insurer agrees to protect an Insured against
injury, damaged or liability arising from future events.
2. Transfer of risks.
3. Paying premium fee/ Purpose of an insurance policy is
indemnity, or the indemnify the Insured.

Perils

Causes of the loss
We insure against perils .
ex. Fire, wind, hail, and smoke
The more perils covered by the policy, the more expensive the
policy will be

Underwriters

Review policy applications and determine whether the application are
acceptable risks.
You have to know who you are insuring, insuring the wrong
person- or right person for the wrong price can cost the company.

Actuaries

Person who compiles and analyzes statics & uses them to calculate
insurance risks and premiums

Underwriting

its job is to
Identify the hazards (what are the hazards)
Assess the risks of a particular peril occurring
Determine the premium

Field Underwriters

Insurance agents are sometimes called field underwriters, in a
preliminary way, are making decisions about whom to insured or not insure.
An agent has an important responsibility to provided any helpful
info to the underwriters.

Hazards

is any factor that increases the chance of a loss occurring
The more hazards, the greater the risks of a peril occurring.
Greater risk, less likely underwriter will advise the insurer to
issue the policy.
Greater risk, less likely the underwriter will advise the
Insurer to issue the policy.
Ex. Playground equipment, swimming pool, slippery floors, car in motion.

3 Types of Hazards

Physical Hazard Morale Hazard Moral
Hazard

Physical Hazard

is a tangible condition that makes the occurrence of a peril more likely,
Ex. Faulty wiring, worn tires, slippery floor, icy roads, a
loose handrail on a staircase, inadequate lightning, store
merchandise left outside unguard at night
More physical hazards, the higher the policy premium.

Morale Hazards

Carelessness or sloppiness creates a morale hazard. People who aren't carefull
Ex. Employee who tosses a lit cigarette into trash.
*** Careful underwriting process will help to determine the
number of hazards before the premium is set or the decision whether
to issue the policy is made.

Moral Hazard

Insured's intentional act or disregarding that may cause loss or make
a loss more likely to occur.
E. Parking you car in a bad neighborhood, (Insured's deliberate
act or disregard that either causes the loss or makes a loss more
likely to occur. ) (People who say "why should I care? I'm
covered" ) intentionally leaving keys in the car, running red lights.
Insurance companies try hard to minimize hazards by inspecting
the premises for physical hazards & by researching the Insured's
history, financial status, reputation before issuing the policy.
Insurance covers physical, morale, and moral hazards.

Insurable Interest

financial interest in the covered property.
Prevents insured from coming out ahead by insuring property they
don't own.
Upholds the principal of Indemnification.

When must the insurable interest exist?

At the time of the loss, not when the policy is issued.

Limit of Liability

The maximum the policy will pay for a loss.
Doesn't mean that the Insured will always pay the maximum.

Liability Policies

Protects the Insured against negligence lawsuits filed by other
parties; may feature on limit for property damaged and another for
bodily injury.

Can the Insured over-insure the property and collect more than it is worth?

NO, Violate the principle of Indemnification.
(Indemnification, Make the Insured, after suffering a loss, whole.)
If the property was worth less than the policy would pay the
lower value rather than the policy limit.
Property Coverage may specify for certain kinds of possessions
like furs or guns.

What do you call the maximum amount the policy will pay for any one loss?

That's the limit of liability and every policy has one.

Deductible

Is the portion of the loss that the Insured must absorb before the
insurance company begins to pay.
***Liability policies have no deductible, they provided first
dollar coverage to the injured party without the use of a deductible.
Purpose - To discourage Insured from filing small claims.
Thereby reducing the
insurance company's administrative expenses.

Raising the deductible

Insured may up for higher deductible in order to bring the premium down.
Raising the deductible, lowers the premium

Deductibles and Indemnification

The deductible actually prevents the Insured from being made a whole. .
Deductible does not upholds the principal of
Indemnification.

Deductibles

Deductibles apply only to property insurance-- Not to Casualty
(Liability) Insurance policies, which almost always pay the total loss
without a deductible. The deductible with the typical liability policy
is $0.

What if our Insured has a liability policy and wants to reduce the
amount of the premium?

Insurer may create a Per-Loss Deductible where no deductible
previously existed.
This is a special kind of deductible used ONLY with
liability insurance.

Other Insurance Clause

Specifies that each policy will pay only portion of the loss.
Upholds the principal of Indemnification to prevent double
recovery for Insured's losses. PROperty policies will share
the loss PRO-data. (Proportionally) Liability policies
often share losses equally.

Endorsement/rider/extension

simply an addition to the policy.
You may add or subtract coverage

How many of the Insureds must agree to change in the policy?

Only the FIRST NAME INSURED.

Assignment

Refers to the transfer of a policy to a new policy owner.
An assignment must be agreed to in writing by the old policy
owner (ASSIGNOR) and the new policy owner (ASSIGNEE), and the
insurance company, Assignments are rare with personal
homeowner's or auto policies, but fairly common in commercial
insurance.

Assignor

Old policy owner

Assignee

New policy owner

Nonrenewal

Involves termination of the insurance coverage by either the Insurer
or the Insured at the end of the existing policy period.
end of term, no problem. If Insurer chooses to
nonrenew, it must provided written notice to the Insured.
Insured isn't require to give the Insurer any notice of decision
to nonrew the policy.
A nonrenewal situation, neither the Insurer nor Insured needs to
have or provide a reason for their decision to nonrew, but the Insurer
must provided advance notice.
Nonrenewal - No money

Cancellation

Refers to termination of the policy during the policy period.
more serious issues than nonrenewal Quite difficult
for the Insurer to cancel a policy. Insured can cancel
anytime w/o reason
Cancellation- Money refund.

Three Key Cancellation

Cancellation by the Insured
Cancellation by the Insurer
Refund after Cancellation

Cancellation by the Insured

All the Insured has to do to cancel is to give Insurer written notice.
Come in letter, email, Easy/written/No advance
notice/No reason If Insured canceled, they should get a
premium back

Cancellation by the Insurer

Nasty Insurer is required to give the Insured (and
lender/ mortgagee) written advance notice (typically 10 days) prior
to cancellation. Insurer must have one of the following
specific reasons to justify cancellation. The Insured's
nonpayment of premium The Insured's material
misrepresentation or concealment Financial impairment
of the Insurer A substantial increase in the risk (a
driver's licenses is suspended, or a person with an auto policy
is declared blind)
The Insurer CANNOT cancel policy due to
Claims filed or Failure to file a claim

Refund after Cancellation

When cancel, there some unearned premium that must be refunded to the Insured.
The amount of the refund is dependent on which party
initiated the cancellation. Insurer cancels the insured
is entitled to a Proportional or PRO-rata refund.
Insured cancels, the refund will be Short-rate refund.

Certificate of Insurance

Requested by most governmental agencies, and many larger business.
Its signed by the Insurer will name the insurer and the
insured, describes the policy coverage and limits of liability, as
well as the coverage period. Proof of coverage
A summary of the policy's coverage.

Causes of loss form

In a property policy determines the degree of peril coverage
Basic Broad Special (All risk)

Which section of the policy will tell me whether a particular peril
is covered?

Exclusions
If my peril isn't listed in the exclusions, its covered with
all-risk policy.

Exclusion

A peril or item not covered by the policy.
Most common exclusions are
War Nuclear Catastrophe Sewer Back-up
flood earthquakes intentional destruction
More perils covered, more expensive the policy. Exclusions reduces
the cost.
-Some losses aren't covered b/c they are expected to happened.
Roofs wear out Pipes rust brakes need
replacing paint fades Natural Deterioration
(Inherent Vice)

Liberalization Clause

Automatically updates the policy
Only works if the old & new policies are sold at the same
premium rate & the new policy has better coverage. If
new policy provides improvements over the old- no increase in
price- the old policy gets new features too. . If new
policy is sold at a higher premium rate with increased benefits,
the Liberalization clause does NOT apply.

Coinsurance Clause

Cheapskates Purpose of Coinsurance clause is to
encourage Insureds to insure for fill-value or at least, close to
full value. 80% Coinsurance Clause may reduce the
amount I will paid if I underinsure.

3 Separate issues with Coinsurance Clause

Coinsurance and total loss If there is a total loss
the policy will pay the policy's limit of liability regardless
of coinsurance clause. The coinsurance clause is not
even applied in situations where property is a total loss.
The underinsured property owner will collect the
limit of liability.
Coinsurance and partial loss Meet Coinsurance
Percentage How much insurance do I need to full cover a
12,000 loss, assuming that the house is value at 100,000 and
the policy contains 80 percent Coinsurance Clause?
80,000 Coinsurance
helps more for partial loss. If you have 80% covered
and the loss of 12,000 it would be paid in full.
Not meet the Coinsurance Percentage.
Coinsurance Formula Did Carry/ Required
Coverage x Amount of the loss = Claim Paid. If
they try to cheat the system paying less &
covering half of the value property. The insurance
can do the same.