[Prop&Cas] Ch1- General Insurance

DELETE

DELETE

Case Reserve Method

A loss reserve established for each claim when reported

Which kind of agent enters into agreements with more than 1 insurer?

Independent

DELETE

DELETE

Transfer, Enhancement, Retention, Avoidance..All of the following are risk management techniques, except?

Enhancement

Risk Retention Groups (RRG)

group-owned insurer that primarily assumes and spreads the liability related risks of its members & Owned by its policyholders

What risks may be protected against by insurance?

Pure Risk

A potential cause of loss, such as fire, explosion, flood, or theft is considered to be a(n):

Peril, a cause of potential loss to property

Experience Rating

Rates based upon employers prior loss experience

The Principle of Indemnity helps avoid which of the following?

Overpayment of a claim

When an insurance policy is not clear, the court will usually interpret in favor of the insured because of which characteristic?

The policy is a contract of adhesion

parol evidence rule

a written contract is the final expression of agreement and may not be altered by oral/written negotiations without the written consent of both parties

An agent has authority to do all of the following, except:

Represent the insured's interest

voidable contract

a valid contract that may be voided by one of the parties for reasons satisfactory to a court

fraternal benefit societies

non profit organizations that generally sell insurance only to members

DELETE

DELETE

valued contract

contract that pays a stated amount in event of a total loss

DELETE

DELETE

merchant marine act/jones act

allows insured seamen to make claims for injuries suffered during the course of employment, regulates maritime commerce in U.S. waters

Each participant of a Lloyds association

Is individually liable for each risk they assume

loss

a reduction/decrease/disappearance of value

4 elements of a legal contract

(1) competent parties (2) legal purpose (3) agreement (4) consideration

an example of risk reduction

taking action to minimize the severity of a potential loss

risk reduction involves reducing the severity/frequency of potential loss, without eliminating the risk exposure entirely (t/f)

true

DELETE

DELETE

3 insurable interests

(1) life & health (2) property (3) casualty

insurer

insurer is the source of the authority in which the producer/agent must abide

Who do producers represent when transacting the business of insurance?

The insurer

Loss Ratio

Determined by dividing paid losses plus loss reserves by total earned premiums
Paid Losses + Loss Reserves Total Earned Premiums

Which insurance company department determines the probability of loss and sets the premium rates?

Actuarial Department, interprets the statistical information used in rate making

Expense Ratio

Determined by dividing an insurer's total operating expenses by total earned premium
Total Operating Expenses / Total Earned Premium

What is not true about insurance?

It eliminates risk

Which of the following is not a function of insurance?

To act as an investment vehicle for the insured

Risk Management

determination of what types of protection are required to meet an insured's needs.
Survey of an insured's operations, assets, exposures, that could give rise to losses

Contract of Adhesion

One party prepares a contract (insurer) and submits it to the other party on a take-it-or-leave-it basis (insured).

Loss Exposure

The extent to which one may be affected by a peril

Assignment

Specifies that the insured may not transfer rights of ownership/interest in an insurance policy to another party without the insurer's written consent

Joint Underwriting Association

Requires insurers writing specific coverage lines in a given state to assume the profits/losses accruing their share of the total voluntary market premiums written in that state, Participating insurers accept every eligible risk, and then may choose to re

Alien Insurer

insurer organized under laws outside of the United States

Pure Risk

Situations where only the chance of loss and no chance for gain exists

Indemnity

restore individual to the same financial or economic condition that existed prior to a loss

Premium Assumptions

Must charge an adequate premium for the risk based on the same factors used in evaluating the risk, Premium rates are considered inadequate when they do not cover projected losses and expenses, Rates must not be excessive

Stock Insurance Company

Owned by stockholders.
Dividends, if declared are taxable as profits

Terrorism Risk Insurance Extension Act of 2005 and 2007 (TRIA)

provides a temporary program in the event of major terrorist attack, allows the insurance industry and federal government to share losses according to a specific formula

Motor Carrier Act
of 1980

Motor carriers and private motor carriers that transport property are required to establish evidence of financial responsibility in the form of insurance, a bond, a guarantee, or qualification as a self-insurer

Domestic Insurer

insurer organized under the laws of this state, whether or not it is admitted to do business in this state

Aleatory Contract

Parties to a contract exchange unequal amounts of money, Insured's premium paid is less than the potential benefit to be received in the event of loss

Career Agency System

Agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company

Moral Hazard

Dishonesty

Endorsement

A form changing the provisions of a policy

National Association of Insurance Commissioners (NAIC)

Association of all insurance commissioners, No legal authority over insurance regulations, Promotes uniformity & recommendations for state policy

Peril

cause of a potential loss

Lapse Date

date when insurance coverage ends

Exclusive or Captive Agency System

Agent represents solely one company or group of companies having common ownership, Insurer retains ownership rights to the business written by the agent, Insurer may or may not provide office and agency support services

Contract Law

Law that pertains to the formation and enforcement of contracts

Hold Harmless Agreement

A contractual agreement removing the liability of one party from a second party

Retrospective Rating

Initial premium is charged, then adjusted at end of policy period to reflect actual loss experience

Contract of
Utmost Good Faith

Both parties bargain in good faith in forming the contract, and rely upon the statements and promises of each other

Reciprocal Insurance Company

A group owned insurer, Each subscriber assumes a part of the risk of all other subscribers, Pro rata sharing of risk (assessment is possible), managed by attorney-in-fact

Individual Rating

A rate used for a policyholder because a large enough pool of similar risks is not available to any other type of rate, Primarily used for commercial and specialty risks because of the number of unique variables involved

Average Value Method

loss reserve established based on average settlements of particular claim types

Personal Producing General Agent

Does not recruit career agents, Sells insurance for carriers it is contracted with, Maintains its own office and staff

Express

Written in a producer contract

Non-Personal Contract

Owner may transfer or assign ownership of a life or health insurance policy to another person

Insurable Events

Any event, whether past or present, that may cause loss or damage to a person having an insurable interest or create a liability against him/her

State Commissioner

chief insurance regulator who protects the insuring population by regulating all insurers and insurance professionals doing business in the State

stock insurance company

issues non-participating policies and is owned by stockholders who received taxable corporate dividends as a return of profit

mutual insurance company

issues participating policies and is owned by the policyholders who receive non-taxable dividends as a return of unused premium

Reinsurance

transfer of risk between insurance companies. The reinsurer assumes some or all of the risk of the ceding, or primary, insurance company

underwriting department

responsible for the selection of risks to insure and determines the rate to be charged

Fair Credit Reporting Act (FCRA)

protects consumer privacy by ensuring that any data collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and specific purpose

principle of indemnity

does not allow the insured to profit from a loss; instead, it restores the insured to the same financial or economic condition that existed prior to the loss

underwriting factors

used to determine premium include the nature of the risk, hazards, claims history, and other factors that vary depending upon the risk