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