State Insurance Code
Body of law designed to protect the public. Vary by state. Cal insurance code (statutes by legislature) & Cal Code of Regulations (admin rules/regs by insurance commissioner)
Insurance
Is a contract where one party undertakes to indemnify another party against loss.
loss
is a claim
Risk
Chance, possibility or uncertainty of loss.
Pure Risk
The chance of loss, but no chance of gain.
Speculative Risk
A chance loss and the possibility of gain. (not insurable)
Peril
Cause of loss (fire, flood, sickness, accident, earthquake etc.)
Open Peril
Covers all perils (except excluded).
Named Peril
The specific peril is named in the policy under the insuring agreement (also known as specified peril).
Hazard
Increases the risk.
Types of Hazards
1. Physical (smoker) 2. Moral (may lie) 3. Morale (careless person)
law of Large Numbers
Proposes that when the sample of observations increases, variation around the mean observation declines.
loss Exposure
A result of something a person is exposed to over a period of time.
Risk Management Techniques
1. Avoid 2. Reduce 3. Retain 4. transfer (buying insurance)
Self-Insured
Meaning you do not have insurance.
Identifying Risk Solutions
1. Fill out Application 2. Physical Exam 3. Check Credit
Requisites of An Ideally Insurable Risk
1. Must be a large # of Homogenous units 2. Loss must be ascertainable 3. Loss must be uncertain
Adverse Selection
Not covering claims that are known high risk.
Insurable Events
Any contingent or unknown event whether past of future with an insurable events.
Insurable Interest Principle Of Indemnity Utmost Good Faith
Mediate family and economics (like business partner) interest at the time of application. Known as third party ownership.