property insurance polices
-protect the insured frm loss caused by damage from a covered peril to insured property
-pays insured for covered losses to the property
fisrt party losses
-property such as buildings (real property)
Casualty polices
-liability insurance
-protect an individual business when it is found legally liable for negligent acts or omissions that cause injury or property damage to others
-never pays the insured : always pays "the other guy"
-third party losses
Parts of policy
DICEE
-Declarations
-Insuring agreements
-Conditions
-Endorsements & additional supplementary coverages
-Exclusions
Declarations
Lists named of insured, current address, legal description of the insured property, policy deductibles, and term of the coverage are contained in this section
Insuring agreement
descibed the covered perils or risks assumed by the insurer and makes reference to the contractual agreement between the insuruer and insurered
-summerizes major promises of the insurance company as well as states what is covered
conditions section
-states the policy provisions, rules of conduct, duties and obligations required for covered
Endorsements
add, modify, or take away coverage
-attached to the policy and is part of the legal contractq
Exclusions
take coverage away from the insuring agreement by describing property, perils, hazards or losses arising from specific causes which are not covered by the policy
Definitions
-clarifies the meaning of certain terms
additional/supplementary coverage
-provides payment for certain additional expenses
-may have separate limits of insurance and may be paid in addition to the max limit of liability
Unearned premium
-if the insured had paid premiums in advance for futre months, any unsued premium must be reunted to the insured upon cancellation of a policy
prorated basis
-in a case where the insurer cancels the insured's policy the entire unearned premium is returned
-means that the insured will receve a portion of the premium back, depending on when the policy is canceled
short-rated basis
-when an insured cancels a policy before the expiration date, the insurer is entitled to retain a larger percentage of the unearned premium
-surcharge or a penalty for early cancellation
flat cancellation
when a policy is canceled on the effective date, by either the insurer or insured
nonrenewal process
has mandated state rules that must be followed
deductible
amount that must be paid out of pocket by the policy owner before an insurer pays any expenses
nonconcurrency
-result of two or more polices covering the same property but providing different or non-identicle coverage
-not ideal because it can cause gaps or disputed payments
-most commonly seen in commercial insurance policies
primary insurance
attached immediately upon the occurrance of loss
excess coverage
pay whatever is not paid by the primary policy up to the amount of the loss or excess ocverage limit, whichever is less
pro rata
-each company will pay part of the loss according to the percentage of the total amount of insurance the policy provides
-(policy limit of one company)/(policy limit of all companies) X loss
contribution by equal shares provisions
all insurers pay equal amounts, up to the limit of the policy with the smallest limit
-when that company pays its policy limit, it stops paying and the other companies share in the remainder of the loss
-continues until each company has paid its policy li
Duties after loss
-PROMPT notice of claim to insurer or agents
-PROTECT the property from further damage
-COMPLETE detailed proof of loss
-MAKE the property available for inspection by the company
-SUBMIT to examination under oath if required
-COOPERATE with the insurer as
Assignment condition
-a policy must not by transferred to anyone else without the written consent of the insurer
abandonment condition
-the insured may not abandon property to the insurance comapny and ask to be reimbursed for its full value
Salvage condtion
-the insurance company can take possession of damaged property after payment of a total loss
-when insurance company detaermines it will cost more to fix the vody damage than its actual cash value, the company will pay a total loss
Liberalization condition
-if the insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will be construed to contain the broadened coverage
Subrogation
-the transfer to the insurance company of the insrued's right of recovery against others
Insurable interest
legitimate risk of financial loss in the person or thing bein insured
underwriting
process of evaluating the risk and exposures of potential clinets
-premium amount and coverage amount of the applicant is determined
application
primary source of underwriting information
binder
temporary oral or written statement made by the agent that gives the insured immediate coverage for a specified time
-must be backed up in writing as soon as possible
-does not guaruntee that a policy will be issued
coverage will end at later of...
-effec
loss ratio
-calculated by dividing the amount of incurred losses by the amount of earned premium
-used to comparethe company's operations from year to year
-percentage of losses the company incurred for every dollar of earned premium
-incurred losses/ earned premium
earned premium
premium the company actually earned by providing insurance protection for the signated period
incurred losses
include amount paid on claims for covered losses and various expenses related to handling claims
expense ratio
underwriting expenses / written premium
underwriting expenses
costs to acquire and to keep policies
-includes expenses for advertising, commissioins, salaries, other admin costs and regulatory costs such as taxes and licesning fees
written premium
gross amount of premium income received from insureds
-includes both earned and unearned premoum
combined ratio
loss ratio + expense ratio
-100% is considered to be the breakeven point
Judgment rating
-premium is determined by considering the individual risk
-established premiums through careful judgment and experience of the underwriter
Manual/class rating
-uses company rates for a particular state or area that are contained in a manual
-rates are arranged by various categories or classes
-underwriter classifies risk according to defined criteria, and looks up appropiate rate
-rate per unit X number of unit
experience rating
-most commonly assiciated with workers' compensation
actual loss experience
-compared to historical loss data for a particular rating class
-can either increase or decrease the premium on a policy based on loss experience
retrospecitve rating
-bases the insured's premium on losses incurred during the policy period
scheduled rating
applies a system of debits or credits to reflect characateristics of a particular insured
Loss costs
company will use claims data from outside organizations for the purposes of estimating claim costs on different types of risk
rate components
-loss costs
-claims handling costs
-operating
-expenses
-profit
Fair Credit Reporting Act
-requires consumer reporting agencies to adopt reasonable procedures for exchanging information on credit, personnel, insurance and other subjects in a manner that is fair and equitable to the consumer with respect to the condientiality, accuracy, relevan
notice to applicant
-must be issed to all applicants for property or casualty and life or health insurance coverage
-informs applicant that a report will be ordered concerning their credit history and any other life or health insurance for which they have previously applied
Terrorism Risk Insurance Program Reauthorization Act of 2015
-defines acts of terrorism and imposes certain obligations on insurers
-designed to limit the exposure of individual insurers and the insurance industry as a whole, and to make insurance available and affordable under a system where the federal government
Gramm-Leach-Bliley Act
-passed to allow finacial holding companies to engage in any acitivies that are financial in nature
-regulatory authroity is based on what activity is occuring, rather tahn on what type of company is engaging in the activity
-requires fiancial institution
customer
consumer who has an ongoing relationship with the financial institution