underwriters
review the application to verify information and to decide if this risk is one acceptable by the company.
Sources of Underwriting Information
The application
The agent report
Credit reports
Prior insurance
Acceptable with Standard Rates
The insurance policy will be issued as applied for, subject to full premium payments.
Acceptable with Substandard Rates or with Exclusions
The application will be issued, but the insured must sign an endorsement showing that he or she accepts the changes and/or increased premium and must pay the increased premium to keep the policy in force
Unacceptable and Denied Coverage
If the insurer denies coverage to an applicant, the insurer must give a detailed, written explanation as to why the coverage was denied. Any paid or unearned premium is returned. The insured must seek insurance elsewhere, either through a high risk insure
loss ratio
is one way of measuring the insurer's profitability. It takes claim expenses and compares them to premiums.
Judgment Rating
Premiums are determined without manuals or tables. Instead, the underwriter evaluates the individual risk to determine the probability of loss, the extent of possible loss, and the premium that would need to be charged to cover possible claims, other expe
Manual Rating
This method separates risks into category groupings or classes. The agent or underwriter decides the class into which the risk would fit and then consults a rating manual. The printed manual rate is per unit of insurance, such as per $1,000 of coverage. T
Merit rating
generally modify a manual rating by taking particular aspects of the individual risk into account. Experience Rating, for instance, takes the particular risk's past loss history (usually the past three (3) years) and compares it to an average claim experi
Loss costs
represent the portion of insurance rates used to cover claims and the costs of adjusting claims. Insurers determine rates by estimating their future loss costs and adding a provision for expenses, profit, and other contingencies
cause of loss
is the event insured against. Examples include: fire, lightning, and theft.
Named Peril Policies
These policies protect only against perils specifically listed in the policy.
Open-Peril Policies
Also called Special Peril Policies (previously known as All-Risk), these policies have much broader coverages. They protect against all physical loss risks, except perils specifically limited or excluded by the policy.
Strict Liability
Workers Compensation
Absolute Liability
Especially dangerous activities (i.e., using dynamite, or owning a pet rattle snake)
Vicarious liability
arises out of imputed negligence in which one individual becomes liable for the negligent behavior of another. Employers are generally held liable for the negligent acts of employees while those employees are acting within the scope of their employment. I
proximate cause
An event that, in natural and sequential order, is responsible for a loss
proximate cause
In Property insurance, rain coming in an open window would not be covered. However, if lightning struck, breaking the window, the lightning would be the proximate cause for rain coming in the window, and the loss would be covered.
In Casualty (Liability)
specific policy
would cover only those objects or perils named in the policy
blanket policy
would be one that covers a class of objects or perils. A property blanket policy, for instance, might be one that covers all apartment buildings owned by the insured, while a casualty blanket policy would cover the liability associated with those apartmen
Scheduled
personal property protects valuable items that are out of the ordinary and need to carry separate coverage to ensure that their full value is covered in the event of a claim.
2 types of property covered by property insurance
Real property (land and buildings)
Personal property (belongings such as clothes and furniture)
Basic Types of Construction
Wood Frame (most common construction for residences in the U.S.)
Masonry (brick)
Reinforced Concrete (multi-family units)
Structured Steel
Steel Frame (garages and outbuildings, especially around farms)
Prefabricated Structures (most commonly used for res
Framed Construction
means buildings with floors, walls, and roofs constructed of combustible material(s).
Joisted Masonry Construction
consists of buildings with exterior walls of masonry or fire-resistive construction rated for not less than one hour and with combustible floors and roofs.
Non-Combustible Construction
has floors, walls, roofs, and building supports that must be made of non-combustible or slow-burning materials.
Masonry Non-Combustible Construction
means buildings with fire-resistive masonry walls and non-combustible or slow-burning floors and roofs.
Modified Fire-Resistive Construction
is buildings with exterior bearing walls and load-bearing portions of exterior walls made of masonry or non-combustible materials (exterior non-bearing walls may be slow-burning, combustible, or have no fire-resistive rating).
Fire-Resistive Construction
Solid masonry, including reinforced concrete not less than four inches thick.
Hollow masonry not less than 12 inches thick.
Hollow masonry less than 12 inches thick, but not less than eight (8) inches thick with a listed fire-resistance rating of not less
Replacement Cost
The cost to rebuild or replace property with materials of like kind and quality, and at the same location
Functional Replacement Cost
This is the cost to repair or replace damaged property with less expensive but functionally equivalent materials. An example would be custom woodwork that is replaced with standard woodwork.
Guaranteed Replacement Cost
The actual cost to rebuild or replace the property after a loss, even if that cost is more than the stated value insurance amount
Market value
The price a property would fetch if sold in a local market. May cost the same as a house in a larger city, but the price might be less in a small town. (lower land and property values)/Less buyers
Agreed Value
A provision that specifies a certain value that will satisfy policy co-insurance requirements
stated amount.
An agreed upon policy amount that is paid in the event of a total loss, regardless of the property's actual value
Valued Policy
in the event of a total loss, the entire face amount is payable without regard for depreciation. This is common with Ocean Marine policies, and required coverage in many states.
fire legal liability
A form of liability insurance that covers damage to leased or rented property caused by fire or other specified perils
Declarations and Definitions
Who? Identifies both the insured's and the insurer's name and address
What? Identifies both the real and the personal property insured
Where? Identifies the territory covered by the policy
When? Identifies the policy period (inception and expiration dates
Insuring Agreement or Clause
Summarizes covered risks, additional or supplementary coverages, and the
insurer's responsibility to indemnify against losses suffered as a result of the perils
Conditions
Lists the insured's responsibilities both at the time of application (truthful representations in the application and payment of premium) as well as at the time of loss (notice of and proof of loss, which is a sworn statement made by an insured verifying
Exclusions and Endorsements
Lists the property, perils, and other hazards not covered by the policy or which have a reduction of coverage in the policy
Supplementary
payments that the insurer will pay over and beyond the policy's liability limits include the following:
Legal fees for defending the insured if a lawsuit goes to trial
Claims expenses
First aid expense for others
Damage to property, or person, of others'
Policy period
Loss must occur between the policy inception and cancellation dates
Non-Concurrency
happens when two (2) or more policies do not cover a risk in the same way at the same time. This can create coverage gaps for the insured
Excess insurance
is coverage that starts when the underlying policy's coverage ends, also known as an umbrella policy.
Pro Rata
If a loss occurs that is covered by more than one insurance policy that was purchased by the insured, each policy pays a portion of the loss that is proportional to the amount of that policy over the total amount of all policies for the loss.
Policy limits
are the maximum lifetime benefit of an insurance policy
Named Insured
Only the first named insured is responsible for interactions with the insurance company, including the making of policy changes, receiving returned premium, and giving or receiving notice of cancellation.
Insured's Duties After Loss
Fully cooperate with the insurer's investigation, settlement, or defense of a claim
Provide proof of loss and take reasonable steps to prevent further loss
A third party claimant must make a claim against the insured. The insured must then submit the clai
assignment
is the transfer of a policy, or some of the policy's rights, from the insured to another entity.
The Assignment Clause states that the policy cannot be assigned or transferred to another without written authorization, signed by an officer (not the agent)
Abandonment
Property cannot be abandoned to the insurer. The insured cannot declare something a total loss and turn it over to the insurer and demand payment without the insurer's consent.
Duty to Defend
The insured will only be defended up to the limits of the policy.
The only time the insurer cannot settle a lawsuit without the permission of the insured is when the insured is covered under an Errors and Omissions policy.
Liberalization Clause
If the insurer changes the same type of policy the insured owns in any way, providing for more coverage without additional premium, the insured's original policy will be extended for those coverages without need for additional forms or premium.
Subrogation
The insurer has the right to pursue legal action in its own name, or the name of a policy owner, against a third party who is liable for a loss that has been paid by the insurer. The insured must assign rights to make a claim against the other party to th
Salvage
The insurer may pay either the cost to repair or replace the damaged vehicle or property, or the Actual Cash Value. Any replaced personal property then belongs to the insurer.
An example of this would be if a valuable vase is declared a loss as the result
Claim Settlement Options
The insurer may pay either:
The cost to repair the damaged property
The cost to replace the damaged property
The Actual Cash Value
Standard Mortgagee Clause
A provision in a Property insurance policy that gives a mortgage holder (such as a bank) three (3) rights:
The right to be given 10 days notice if either the insured or the insurer cancels the policy
Claims settlement will be made directly to the mortgage
Loss Payable Clause
A loss payee listed in the Declarations page is considered an insured with respect to the property he/she is linked to. The Loss Payee will be notified in writing if the insured cancels or does not renew the policy.
No Benefit to the Bailee
is someone who holds the property of another and is responsible for its safe return. This provision does not allow the bailee to receive payment for coverage to insured property while it is being held, stored, repaired, or moved for a fee by the bailee. T
Insolvency
refers to being unable to pay debts as they arise or a company in bankruptcy
Private residence
The notification for canceling Homeowners policies requires more advance notice
Commercial policy
Because the notification is being sent to a corporation instead of an individual a notice must be sent 60 days before the effective date of the cancellation or non renewal.
Death of named insured
coverage still exists for:
The legal representative of the deceased.
The spouse.
Relatives residing in the property.
Any person having custody of the property until a legal representative is appointed
Four (4) Basic Categories of Individuals that Cannot Be Held Negligent
Infants
The mentally ill
Governmental bodies
Charitable institutions
Assumption of Risk
A person who understands the danger involved in a particular activity and voluntarily chooses to do the activity anyway can be acknowledged to have assumed the risk him/herself. For an example, an individual who goes to a hockey game assumes the risk of g
Contributory Negligence
Any negligence on the part of an injured party will normally defeat a claim. A few states use the doctrine of contributory negligence.
Comparative Negligence
is more lenient and used by more states than contributory negligence. Contributory negligence on the part of the injured party will not necessarily defeat the claim, but will be used in some way to lessen the damages payable by the other party.
Mississippi Rule
states that any defendant who is partly at fault must pay in proportion to their share of the fault.
Wisconsin Rule
is used by most states, and states that the defendant who is least at fault is not required to pay for any of the damages.
Intervening Cause/Last Clear Chance
The injured party would be able to collect damages even if he/she had contributory negligence if the other party had an opportunity (last clear chance) to avert the accident but did not do so.
Statutes of Limitations
are the time limits on how long an injured person can sue for damages. The injured party must act to collect for damages during the given time period or forfeits the right to do so.
Common Law Fellow Servant Rule
An employer cannot be held liable for the actions of a co-worker if an employee is injured due to the negligence of that co-worker.
Fair Credit Reporting Act
is a federal law that regulates the collection, dissemination, and use of consumer information, including consumer credit information
Gramm Leach Bliley Act
regulates the disclosure of non-public information to non-affiliated third parties. When insurers gather information from prospects and insureds, they must be informed that information will not be so shared, and the insured must sign forms showing they ha
TRIA
this federal law provides a federal backstop for defined acts of terrorism and imposes certain obligations on insurers
certified loss
a loss that fits the definition of an insured loss as described in the Act.
non-certified loss
a loss that is not covered as described in the Act
Certified vs. Non-Certified Losses
The main difference between a certified and a non-certified act of terrorism is that a certified act always involves a foreign person or interest, while a non-certified act may not.
Extension Act of 2005
It updates Section 102(B) so that the term "Property and Casualty insurance" does not include the following types of insurance:
Commercial automobile
Burglary and theft
Surety
Professional liability
Farm owners multiple peril