General Insurance Chapter 1- AD BANKER

Terms in this set (86)

The Fair Credit Reporting Act protects consumer privacy and protects the public from overly intrusive information collection practices. It ensures data collected is confidential, accurate, relevant and used for a proper and specific purpose.

When an application is taken, it must inform the applicant a credit report (from a consumer reporting agency) can be obtained. The purpose of this is to determine the financial and moral status of an applicant (for variety of purposes such as employment screening, insurance underwriting or loan approvals). An applicant has the right to review the report.
Applicant challenge - Credit reporting agency must reinvestigate within 6 months, if applicant challenges accuracy.
Inaccuracies - Agency must forward to applicant inaccurate information given out within previous 2 years.
Disallowed information - Report must not include lawsuits over 7 years old or bankruptcies more than 10 years old.
Disclosure upon request - Consumer reporting agencies must provide the information on file if requested.
Limited access to information - A consumer reporting agency may not provide a credit report to any party that lacks a permissible purpose, such as the evaluation of an application for a loan, credit, service, or employment. Permissible purposes also include several business and legal uses.
Investigation of disputed information - If a consumer's file contains inaccurate information, the agency must promptly investigate the matter with the source that provided the information. If the investigation fails to resolve the dispute, a statement may be added to the credit file explaining the matter.
Correct or delete inaccurate information - A consumer reporting agency must correct or, if necessary, delete from a credit file the information that is found to be inaccurate or can no longer be verified. The consumer reporting agency is not required to remove accurate data from a file unless it is outdated. Adverse information that is more than 7 years old (10 years for bankruptcies) must be removed from the file.
1. Competent Parties
All parties to a contract (i.e., Insurer and Insured must have legal capacity to enter into a contract).
Those without legal capacity include:
Minors - The insurer may be held responsible for its obligations. However, in most cases a minor cannot enter into a contract. Exceptions do exist, such as for the purchase of auto insurance.
The mentally incompetent or incapacitated
Persons under influence of drugs or alcohol

2. Legal Purpose
All parties to a contract must enter it for a legal purpose; public policy cannot be violated by a legal contract.
All parties to a contract must enter it in good faith.

3. Agreement - One party must make and communicate an offer to the other party and the second party must accept that offer. Without an offer, there is nothing to accept, and without acceptance of an offer, there can be no agreement. Offer, acceptance, or agreement can represent this element.
Offer - The offer made to enter into an insurance contract is most commonly an application, accompanied by an initial premium, and submitted by the applicant.
Acceptance - The acceptance of an offer to provide an insurance contract takes place when the insurance company agrees to issue the insurance applied for, after receiving an initial premium and complete application. If the applicant is insurable, but only under less favorable terms, the insurer may make a counteroffer. In such cases, the insured has been determined to be acceptable to the insurance company but a policy will not be in force until the applicant pays a higher premium and/or accepts any conditions imposed on the coverage (such as reduced benefits).

4. Consideration
Something of value is exchanged by each of the parties to the contract; the exchange of money (first premium only) for a promise (the guarantees within the contract).
The consideration made by the applicant is the information on the application and the initial premium payment. If an application is not accompanied by the initial premium, no offer has been made in the technical sense, since the consideration given is incomplete. If the insurer still offers a policy based on the application (notice the policy is now an offer), then acceptance is given when the initial premium is paid. At that point, consideration is complete, and the policy is in force.
The consideration provided by the insurer is its promise to pay for covered losses - the contract itself.
Contract of Adhesion - One party writes the contract, without input from the other party. One party (insurer) prepares the contract and presents it to the other party (applicant) on a "take-it-or-leave-it" basis, without negotiation. Any doubt or ambiguity found in the document is construed in favor of the party that did not write it (insured).

Aleatory Contract - The exchange of value is unequal. Insured's premium payment is less than the potential benefit to be received in the event of a loss. The insurer's payment in the event of a loss may be much greater, or much less (e.g., $0 in the event a loss doesn't occur), than the insured's premium payment.

Personal Contract - A contract between the insurance company and an individual. Personal contract are specific to the person insured at the time the contract is formed. The owner and insured cannot be changed without consent of the insurance company. A property and casualty insurance contract is personal since it cannot be assigned. Life insurance is NOT a personal contract. The policy can be assigned - or a new owner may be named as long as the insurer is notified of the change.

Unilateral Contract - Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract. The policyowner can cancel the policy at any time and for any reason. The policyowner is not required to continue paying future premiums.

Conditional Contract - Both parties must perform certain duties and follow rules of conduct to make the contract enforceable. The insurer must pay claims if the insured has complied with all the policy's terms and conditions. Without premiums being paid on time and in full the insurer is not obligated to pay the claim if the policy lapses.
Principal of Indemnity - The insured is restored to the same financial or economic condition that existed prior to the loss, depending on the amount and type of insurance purchased. The insured should not profit from an insurance transaction.

Utmost Good Faith - Both parties bargain in good faith when forming and entering into the contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.

Representations - Statements made by the applicant on the application are considered representations and not warranties. The representations are statements that are believed to be true to the best of the knowledge and belief of the applicant/insured at the time of application.
Material vs. Immaterial Representations - Statements that impact the acceptance of an insurable risk -whether involving the rating of an acceptable risk, or the decision as to whether to accept or decline a risk - are considered to be material. Immaterial representations do not affect the acceptance or rating of the risk.

Misrepresentations - A false statement contained in the application; usually does not void coverage or the policy, if it is immaterial. If material to the issuance of coverage, meaning the insurer would not have issued a policy had the misrepresentation not been made, or premiums charged would have been higher, or coverage limited, coverage does not apply. A material misrepresentation may void the policy.

Warranties - Statements in the application or stipulations in the policy that are guaranteed true in all respects. If warranties are later discovered untrue or breached (past, present or future), coverage (and sometimes the contract) is voided.

Concealment - The willful holding back or secretion of material facts pertinent to the issuance of insurance (or a claim). Concealment may result in denial of coverage and may void the policy.

Fraud - Intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right. Contains 5 elements:
False statement, made intentionally and that pertains to a material fact
Disregard for the victim
Victim believes the false statement
Victim makes a decision and/or acts based on the belief in, or reliance upon, the false statement
The victim's decision and/or action results in harm
Waiver - Voluntary surrender of a known right, claim or privilege; An example would be an insurer's failure to obtain an answer to an unanswered question in its application for insurance prior to issuing the policy. Such a failure waives the insurer's right to contest a claim based on the information it could reasonably have obtained. It may also be in cases in which the insurer accepts an overdue premium that keeps the policy in-force.

Estoppel - Judicial denial of a contractual right based on prior actions contrary to what the contract requires.
Example: An insurer who routinely does not require an application for reinstatement cannot contest a claim because an application was not submitted even though it is a requirement stated in the reinstatement provision in its contracts. In the law, there are several different forms of estoppel. If the insurer waives its rights, it cannot later then assert those rights.
1. The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator and has the power to issue rules and regulations to enforce state insurance statutes.

2. A stock insurance company issues non-participating policies and is owned by stockholders who may receive taxable corporate dividends as a share of the company's profit.

3. A mutual insurance company issues participating policies and is owned by the policyholders who may receive non-taxable dividends as a return of any divisible surplus.

4. Reinsurance is the transfer of risk between insurance companies. The reinsurer assumes some or all of the risk of the ceding, or primary, insurance company.

5. Domicile refers to the state in which an insurer incorporated. A domestic insurer is organized under the laws of the resident state, a foreign insurer is organized under the laws of another state within the United States, and an alien insurer is organized under the laws of a country outside the U.S.

6. An admitted insurer is authorized to do insurance business in the state and is issued a Certificate of Authority by the state's Department of Insurance.

7. The underwriting department of an insurance company is responsible for the selection of risks (persons and property) to insure and determines the rate to be charged for the amount of coverage to be issued.

8. Under the Direct Writing System, an agent/producer can be the employee of an insurance company that owns the agent's book of business. Under the Independent Agency, a producer is an independent agent that enters into selling agreements with more than one insurance company. They are appointed by more than one insurer. Independent agent retains ownership of their books of business.

9. The Law of Agency is a relationship where a Principal authorizes an Agent to act on its behalf in the business of insurance. An act of the agent is an act of the agent's principal.

10. Express authority is written into the producer's agency contract; implied authority is that which the public assumes the agent possesses; and apparent authority is created when the agent exceeds express authority and the insurer accepts the agent's actions.

11. The 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.

12. A risk is the condition where the chance, probability or potential for a loss exists.

13. A peril is the cause or source of a loss.

14. A hazard increases the probability of a loss. The 3 types of hazards are physical, moral, and morale.

15. The principle of indemnity means that the insured should not profit from a loss. Instead, it restores the insured to the same financial or economic condition that existed prior to the loss.

16. Insurable interest in property and casualty insurance must exist at the time of the loss but for life insurance, it must exist only at the time of application and policy issuance.

17. The insurance contract is one of adhesion; one party (the insurer) prepares the contract and presents it to the second party (the insured), who must accept it on a "take-it-or-leave-it" basis.

18. The underwriting factors used to determine premium include age, gender, tobacco use, medical history, hazardous hobbies and hazardous occupations.