Fair Credit Reporting Act
Protects consumers by requiring that the consumer be notified in certain situations and by establishing provisions for the removal of outdated and incorrect information.
Fraud and False Statements
anyone engaged in the insurance business who makes a false material statement or report or willfully and materially overvalues any land, property, or security in connection with financial reports or documents presented to an insurance regulatory official
Risk
Chance or uncertainty of loss
Exposure to Risk
a condition or situation that presents a possibility of loss
Hazard
Anything that increases the chance of loss
Peril
The cause of a loss
Avoidance (avoid risk)
Not doing something at all to not have a risk
Retention (retain a risk)
Self insurance is a form of risk retention - individual personally retains the risk & must accept the economic loss if it becomes reality
Transfer
Shifts liability from one person to another
Speculative Risk
Risks in which there exists both the possibility of gain and the possibility of loss
Pure Risk
Only possibility of loss
4 primary sources of application information
-agent or producer info
-consumer report
-government records
-financial rating
Adverse Selection
The tendency for people with a greater-than-average exposure to loss to purchase insurance.
Law of Large Numbers
Predicting the number of losses that will occur, an insurance company can provide large amounts of insurance for relatively little money
Reinsurance
Help cover the insurers exposure to loss
Stock Company
When it first forms, it sells stock to stockholders to raise the money necessary to operate a business
Mutual Companies
The insured's are owners of the company, profits are returned to the insured's in the form of dividends or reductions in future premiums.
Fraternal Benefit Societies
An incorporated society or order, without capital stock, that is operated on the lodge system and conducted solely for the benefits of its members and their beneficiaries and not for profit.
Reciprocals
Agree to insure each member and share the losses with each other.
Lloyd's Association
Voluntary association of individuals, or groups of individuals , who agree to share in insurance contracts
Risk Retention Groups
Owned by policy holder, must be licensed by at least 1 state, only liability insurance.
Purchase liability insurance on a group rate basis
Surplus lines
Highly specialized insurance coverage such as auto racing liability and tuition refund insurance
Admitted or Authorized Insurer
A company that meets the insurance departments standards and is authorized to do business in a state
Nonadmitted or Unauthorized Insurer
An insurance company that is not authorized to do business in a state
Federal Government
Provides war risk insurance, nuclear energy liability insurance, flood insurance, federal crop insurance
State Level Government
Government is involved in providing unemployment insurance and may provide workers compensation benefits through state funds
Domestic
Within home state
Foreign
Within states other than the state in which it is incorporated
Alien
a company that is incorporated in a country other that the US by doing business in the states
Independent Rating Services
A++,A+ Superior - strongest
A, A- Excellent
B++,B Very Good
B,B- Good
C++,C+ Fair
C,C- Marginal
D Below minimum standards
E Under state supervision
F In liquidation
Exclusive or Captive Agency System
The insurance company contracts with agencies, which are independent business, to represent and sell insurance only for that insurance company.
Direct Writer System
The insurance companys agents are actually employees. They may receive a salary, be paid by commission or a combination of both.
Direct Response System
There are no agents. These companies sell through direct mail or over the phone.
Independent Agency System
Agencies that are independent contractors with several different companies to represent and sell insurance for those companies.
Independent or Nonexclusive Agent
An agent who represents more than one company
Agency
A relationship exists when a one party (an agent) is authorized to act on behalf of another (principal).
Express Authority
The authority specifically given to an agent, either orally in writing by the principal.
Implied Authority
The authority given by the insurance company to the agent that is not formally expressed or communicated. Allowed to bind coverage for auto applicants.
Apparent Authority
A doctrine that holds that an agent may have what-ever authority a reasonable person would assume the agent has.
Offer and Acceptance
The contract involves two parties; one who makes an offer and one who accepts it.
Agreement
An offer is a promise that requires and act or another promise in exchange.
Consideration
A thing of value exchanged for the performance promised in the contract.
Competent Parties
A contract is not valid unless it is made between two parties who are considered competent under the law.
Legal Purpose
A second requirement for a valid contract is that is be formed for a ________.
Adhesion
One party has greater power over the other party in drafting the contact.
Doctrine of Reasonable Expectations
States that a policy includes coverage's that an average person would reasonably expect it to include, regardless of what the policy actually provides.
Aleatory Contract
A contingent on an uncertain event (loss) that provides for unequal transfer of value between the parties.
Personal Contract
It does not insure property; it insures the person who owns the property.
Unilateral Contract
One sided
Conditional Contract
A contract that contains a number of conditions that both parties must comply with; an insurance policy.
Principle of Indemnity
When a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss, no more or no less.
Utmost Good Faith
Relies on the truthfulness and integrity of the applicant when issuing a policy.
Misrepresentation
A written or verbal misstatement of a material fact involved in the contract on which the insurer relies.
Material Fact
A fact that would cause an insurer to decline a risk, charge a different premium, or change the provisions of the policy that was issued.
Concealment
Involves withholding, rather than misstating, a material fact.
Fraud
A deliberate misrepresentation that causes harm.
Warranties
Become a part of the policy and can void the policy if they are breached, whether the breach was intentional or unintentional.
Waiver
Intentional relinquishment of a known right.
Estoppel
Principle that states that if one intentionally or unintentionally creates the impression that a certain fact exists, and an innocent party relies on that impression and is injured as a result, the guilty party may be legally prohibited from asserting tha
Insurable Interest
Must have a financial loss or a financial interest in the property.
Loss Ratio
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Expense Ratio
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Underwriting Expenses
Costs required to acquire and maintain a book of business.
Written Premium
Gross amount of premium income on the companies book.
Combined Ratio
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Underwriting
Process of selecting certain types of risks and rejecting others so the insurance company will have a book of business that will produce the company's desired results.
Judgment Rating
Premium determined by considering the individual risk. Established through judgement.
Manual or Class Rating
Rate per unit x number of units = premium
Merit Rating
Method of determining premiums where a manual rate is modified to reflect the risk's unique characteristics
Experience Rating
Type of merit rating that determines premium based on previous loss experience.
Retrospective Rating
Type of merit rating that bases the insured's premium on losses incurred during the policy period.
Schedule Rating
Type of merit rating that applies a system of debits and credits to reflect characteristics of particular insured.
Ratification
Approval of the policy forms, endorsements, and rates used by companies doing business in their states.
Prior Approval
Insurance company must obtain official approval before using new forms and rates.
File and Use
A company may begin using forms and rates as soon as they have been filed.
Use and File
Insurers must file rates and forms within a certain period after they are first used.
Open Competition
Allow companies to compete openly with the forms and rates they select, subject only to requirements of adequacy and nondiscrimination/
Rates
Basic charges an insurance company sets for various types of insurance
Moral
Person might create a loss situation on purpose to collect
Morale
Through carelessness or irresponsible actions, can increase the possibility of loss.
Tort
A civil wrong that violates the rights of another.
Negligence
Lack of reasonable care required to protect others from the unreasonable chance of harm.
Proximate Cause
A loss is an action that, in a natural and continuous sequence, produced the cause.
Intervening Cause
When an independent action breaks the chain of causation and set in motion a new chain of events.
Contributory Negligence
If a person contributed to his own damages in any way, another party cannot be held liable for them.
Comparative Negligence
Allows finding a liability to be made even when both parties have contributed to the loss, with an award based on the extent of each party's negligence.
Assumption of Risk
Applies when a person knowingly exposes himself to danger or injury.
Statues of Limitations
Law that provides that certain types of suits must be brought within a specified time of the occurrence to be valid under the law.
Compensatory Damages
Reimburse the injured party only for loss that were actually sustained
Special Damages
All direct and specific expenses involved in a particular loss, such as medical expenses, lost wages, funeral expenses, and the cost to report or replace damaged property.
General Damages
Pain & Suffering and disfigurement
Punitive Damages
Intended to punish the defendant and make an example of him to discourage others from behaving the same way.
Absolute Liability
Imposed by law on those participating in certain activities that are considered especially hazardous.
Strict Liability
Products liability
Vicarious Liability (imputed liability)
involves the relationship between an employer and an employee
Named Peril or Specific Peril
Policies that list the specific perils or cause of loss insured against under the contract. Such as lightning, fire, windstorm
Open Peril
Insures against all risks of physical loss except those specifically excluded in the policy.
Direct Loss
A financial loss resulting directly from a loss to property.
Indirect Loss
A consequence of the original loss.
Blanket Insurance
May insure the covered property at any location rather than at a specific location.
Specific Insurance
Very specific, designating a particular item to be insured.
Class 1 - Frame
Outside Support walls, roof, and floors
Class 2 - Joisted Masonry
Have outside support walls made of noncombustible masonry materials(concrete, brick, hollow concrete block, stone, or tile) and roof and floor from wood
Class 3- Noncombustible
All walls, floors, and roofs made from noncombustible material (metal)
Class 4 - Masonry Noncombustible
Exterior walls constructed of masonry materials and roof and floor made of metal or other non-combustible materials
Class 5 - Modified Fire Resistive
Fire resistant for a rating of 2 hour or less
Class 6 - Fire Resistive
Fire resistive for 2 hours or more
Actual Cash Value (ACV)
#NAME?
Replacement Cost
The cost to repair damaged or destroyed item of property without deduction for depreciation
Functional Replacement Cost
Method to determine reimbursement for some losses, particularly those to antique, ornate, or custom construction
Market Value
What the item could be sold for at the time of loss
Agreed Value
Condition found in some property insurance policies that stipulates a certain value that will meet the coinsurance requirement
Stated Amount
Same as agreed value
Declarations
First pages of the policy contain such information as the name of the insured, the address, the amount of coverage provided, a description of the property, and the cost of the policy
Definitions
Clarifies the meanings of certain terms used within the policy
Insuring agreement
Heart of the policy, state in general what is to be covered or in other words, the losses for which the insured will be indemnified
Supplementary Payments
Paid in addition to policy
Conditions
State the ground rules for the policy. Describe the responsibilities and the obligations of both the insurance company and the insured
Exclusions
Describe the losses for which the insured is not covered.
Endorsements
Changes to a policy
Named Insured
Person or business or other entity named in the declarations to whom the policy is issued
First Named Insured
The person listed first on the Declarations page
Additional Insured
Individual or business may be listed on the declarations
Policy Period
The date and time specific in the declarations for when coverage begins and ends
Policy Territory
Place where coverage under a policy applies
Policy period or term
The time between the effective date and the expiration date
Deductible
The insured pays the first part of every loss up to the amount of _______.
Nonconcurrency
Results in coverage gaps or disputed payments and should be avoided.
Primary Insurance
First listed insurance
Excesses Insurance
after first listed insurance
Pro Rata
Method for handling other insurance is to agree to pay only a proportion of any loss that is also covered by other insurance.
Contribution of Equal Shares
All insurers pay equal amounts, up to the limit of the policy having the smallest limit. then that company, having paid its policy limit, stops paying and the other companies share the remainder of the loss. Continues until each company has paid it policy
Limit of Coverage, Limit of Liability or Limit of Insurance
Maximum amount the insurance company will pay for a loss.
Policy Limit
Maximum the company will pay on behalf of the insured is stated
Split limits
Separate limits for BI & PD
Single or Combined Limits
Same limit for BI & PD
Per Occurrence
A loss the occurs at a specific time and place
Per Accident
Same as per occurrence
Per Person
How much will be paid for injury to any one person in an occurrence or accident.
Aggregate Limit
Limit that is applied to all losses occurring within any one policy period.
General Aggregate Limit
most that will be paid for the sum of Coverage A, B, C, expect for damages arising out of the products - completed operations hazard
Products-completed operations aggregate limit
Represents the most that will be paid under coverage A because of injury and damage arising out of the products - completed operations hazard.
Restored
Policy limits are ______ after payment of loss.
Coinsurance
Encourages policy holders to insure property to value. It lists the minimum amount of insurance the insured should carry on the property, expressed in percentages.
Vacant
Absence of both people and property from the premises
Unoccupied
Absence of people
Duties after loss
Condition lists the insured's responsibilities after a loss
Assignment
Condition specifies that a policy may bot be transferred to anyone else without the written consent of the insurer unless the named insured dies.
Abandonment
Condition states that the insured may not abandon property to the company and ask to be reimbursed for its full value.
Liberalization
Provides that if the insurer broadens coverage under a policy form or endorsement without requiring an additional premium.
Subrogation
The transfer to the insurance company of the insured's right of recovery against others.
Salvage
Condition that provides that the insurance company can take possession of damaged property after payment of loss.
Loss Payable or Mortgage Condition
The rights and duties of the mortgagee or loss payee under the policy
No Benefit to Bailee
Condition states that the bailee is not covered under the insured's policy while the bailee as possession of the insured's property.
Dwelling Policy
Provides protection for individuals and families against loss to their dwelling and personal property.
Basic (DP-1)
Coverage A - Dwelling
Coverage B - Other structures
Coverage C - Personal Property
Coverage D - Fair Rental Value
Broad (DP-2)
Named peril policy that lists the perils that dwellings, other students, and personal property are insured against.
Special (DP-3)
Open peril coverage on the dwelling and other structures, insuring against all risks of direct physical loss that are not specifically excluded in the policy.
HO-2
Broad Form for broad coverage for the dwelling and personal property
HO-3
Special Form provides open peril coverage for loss to the dwelling and other structures
HO-4
Contents Broad Form insures tenants
HO-5
Comprehensive form provides open peril coverage for both the dwelling and other structures and personal property
HO-6
Unit owners form provides broad coverage on the personal property of condo owners
HO-8
Modified coverage form, designed for older homes with replacement values that may far exceed their market values