Insurer
Insurance Company
Insured
Policyholder who purchases insurance
Agent or Producer
Licensed individuals representing the insurance company.
NAIC
National Association of Insurance Commissioners; Group of all state insurance commissioners that provide resources and recommendations for state insurance regulators.
Stock Companies
Insurance Company owned by stockholders (shareholders), typically the stockholders do not purchase insurance from the carriers, as the carriers can be penalized for insuring too many of their own stockholders. Dividends are paid out from profits to the st
Mutual Companies
Insurance Company owned by the policyholders (members). Being a policyholder (member) means they own insurance with this carrier.
Fraternal Benefit Society
Social organization that provides insurance to its members, typically life or health insurance (Ex: Knights of Columbus, Fraternal Order of Police)
Risk Retention Groups
Group owned by its members which are typically businesses all with the same potential risk. This group assumes and spreads the liability risks of its members. Members are usually higher risk businesses such as Theme Parks, Trucking Companies, Water Slides
Self-Insurers
Someone who assumes their own risk
Residual Markets
Last resort coverage for those who cannot obtain insurance in the voluntary market (ex: High Risk drivers).
Risk Sharing Plan
A plan where insurers agree to equally share risks from the residual market s no one insurance company gets stuck with all the high risks. There is a separate RSP in each state for both Auto and Home insurance risks. These can also be called FAIR plans.
Resinsurance
The transfer or sharing of risk from one insurer to another through an agreement between the two companies. (Insurance for Insurance Companies).
Treaty (Automatic) Agreements
Reinsurance agreement without negotiation. The Reinsurer automatically takes on all risk from the other insurer under the agreed category.
Facultive Agreements
Reinsurance agreements with negotiation. The reinsurer negotiates, using a third party called a reinsurance intermediary, which risks they will take and which the original insurance company will have to keep for themselves.
Admitted Company
Insurer who is permitted to do business in the state.
Non-Admitted Company
Insurer who is not permitted to do business in the state.
Surplus Lines
Insurance from a non-admitted company because no admitted insurer has coverage available. This usually happens when new technology or a new business comes into the marketplace. In order to get this insurance you would need to go through a Surplus Lines Br
Broker
Licensed individual that works on behalf of the customer, not the insurance company.
Law of the Agency
Relationship between the agent/producer and the insurer. The insurer is the "principal" in this relationship.
Express Authority
Agent's written authority
Implied Authority
What the general public believes that a producer can do
Apparent Authority
Created when a producer oversteps their express authority and the insurer does nothing to counter the decision.
Ex: You reinstate a policy for a policyholder that does not qualify to be reinstated and the company does not correct the decision.
Risk
Chance of loss to exist (ex: Driving a car)
Pure Risk
No chance for gain, only chance for loss or nothing to happen (Insurable)
Speculative Risk
Chance of gain, loss, or nothing to happen; not insurable (ex: Gambling, Stock Market)
Loss
Reduction, decrease, or disappearance in value
Peril
Cause of a loss (ex: Fire, Lightning, Theft)
Hazard
A condition that increases the chance of a loss
Adverse Selection
Imbalance created when higher risks outweigh standard risks
Law of Large Numbers
Method used by actuaries to predict losses, the higher the number of similar risks the more accurate the loss predictions will be.
Indemnity (Principle Of)
Restoring the insured to the same condition they were at before the loss without gain or profit. (To make whole again).
Insurable Interest
Parties that have financial interest in the property insured in the case of a loss. Must be present at time of loss.
Contract of Utmost Good Faith
Two parties (insurer and insured) rely on the other's statements and promises when entering into a contract.
Hold Harmless Agreement
A contract where one party agrees to not sue the other party for any legal claims such as expenses, damages, or losses arising from a transaction of activity conducted between the two parties. It is a risk transfer technique. (Landlords and Contractors us
Estoppel
Prevents the denial of a fact that has been admitted before (no take backs)
Waiver
Surrender of a right or privilege
Consideration
Something of value that is exchanged (premium for Insurer's promise to pay)
Aleatory Contract
Contract of unequal exchanges ($500 in premium for $35,000 in coverage)
Contract of Adhesion
Only one party writes the contract (insurer). "Stick to it" "Take it or leave it" Any ambiguities (vagueness, double meaning) in the document would be ruled in favor of the party that did not write the contract (the insured).
Valued Contract
Contract that pays the full stated amount in the event of a loss. (Ex: Life Insurance: you buy $100,000 of coverage and when you die your beneficiary gets the face value of $100,000)
Endorsement
Policy form that changes coverage or alters the contract language.
Personal Contract
Cannot transfer ownership of contract to another
Assignment
Insured cannot transfer rights of the policy without written consent of the insurer. Ex: Policyholder calls water company before notifying the insurer of a loss and allowing insurance company to send an adjuster out or set up emergency services. Then they
Unilateral Contract
Only one party is legally bound to an ongoing contractual obligation
Conditional Contract
Both parties must perform certain duties
Representations
Statements made by applicants on an insurance application.
Misrepresentations
False statements made by the applicant on an insurance application whether intentional or unintentional. "Asked a question and you gave the wrong answer
Concealment
The willful hiding of material facts. "They didn't ask so I'm not telling
Warranties
Statements that are guaranteed to be true on an insurance application.
Fraud
Intentional deception (false statements) with the intent to cause financial harm to either the insurance company or the insured.
Underwriting
Selects the risks to be insured and protects the insurance company from adverse selection.
Loss Ratio
(Paid Losses + Loss Reserves) / Total Earned Premium
Expense Ratio
Total Operating Expenses / Written Premium
Combined Ratio
loss ratio + expense ratio
Domestic insurer
An insurer organized under the laws of this state, whether or not it is admitted to do business in this state
Foreign Insurer
An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States, whether or not it is admitted to do business in the state or jurisdiction.
Alien Insurer
An insurer organized under the laws of any jurisdiction outside of the United States, whether or not it is admitted to do business in the state.
Physical
Overstuffing an electrical outlet is an example of a ________ Hazard.
Moral
Your house catches on fire and you intentionally wait to call emergency services. This is an example of a _____ Hazard.
Morale
You go to the grocery store and leave your keys in the ignition of your car with the doors unlocked. This is an example of a ______ Hazard.
STARR
Acronym for the elements of risk management. Sharing, Transfer, Avoidance, Reduction, Retention.
Sharing
In Risk Management, a large number of people pooling money together.
Transfer
In Risk Management, transferring risk from one party to another.
Avoidance
In Risk Management, eliminating the risk by avoiding any activity that could give rise to loss
Reduction
in Risk Management, Minimizing the chance of loss but not preventing the risk.
Retention
In Risk Management, Assuming the responsibility of the loss yourself.
CLAC
Acronym for Four Elements of a Contract
Competent Parties, Legal Purpose, Agreement, Consideration
Lloyds of London
An association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverages.