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Property/Casualty Insurance. Part 1
Terms in this set (80)
A peril is the cause of loss. Fire and collision are both examples of perils.
A hazard is anything that increases the chance of loss.
A hazard that arises from the condition, occupancy, or use of the property itself.
This means that an individual, through carelessness or by irresponsible actions, can increase the possibility for a loss. An example of a morale hazard is a person who drives a car carelessly because he knows a loss will be insured if an accident occurs.
A moral hazard means that a person might create a loss situation on purpose just to collect from the insurance company. An example of a moral hazard is a prearranged, faked theft of an older vehicle so the owner could collect the insurance money and buy something new.
risk that includes only the possibility, loss. These risks fall outside of human control.
Risk that includes both the possibility of a loss and the possibility of a gain.
A policyholder asked his agent to raise his deductible.
Almost always on the first page of the policy. Contains names, address, and amount insured to the person.
The heart of the agreement. Tells us the type of peril and the amount that would be indemnified if a loss were to occur.
States the ground rules for both the insured and the insurance company.
This part explains the losses for which the insured is not covered.
A contract whereby one person, the insurer, promises and undertakes, in exchange for consideration of a set or assessed amount of money (called a "premium"), to make a payment to either the insured or a third-party if a specified event occurs, also known as "occurrences".
contract of indemnity
states that when a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss, no more and no less.
insurance contract does not insure property; it insures the person who owns the property.
one party has greater power over the other party in drafting the contract.
Dependent on an uncertain event.
Like an agent, but they cannot issue or countersign policies,
Refers to someone who sells insurance, such as a broker, solicitor, or an agent.
Someone who, for a price, offers advice, advantages, and disadvantages on insurance policies.
the 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.
When a stock company first forms, it sells stock to stockholders to raise the money necessary to operate the business. Stockholders are not necessarily insured by the company, and insured's do not necessarily own stock in the company. A stock insurer is managed by a board of directors.
Mutual insurance company
In a mutual company, the insured's are also owners of the company. As owners, they can vote to elect the management of the company. Profits are returned to the insured's in the form of dividends or reductions in future premiums.
A reciprocal is managed by an attorney-in-fact, who is empowered to handle all of the business of the reciprocal. Life insurance and ocean marine insurance are not acceptable risks for reciprocal exchanges.
Each individual, or "syndicate," is individually responsible for the amounts of insurance they write. There are also a limited number of Lloyd's Associations in the United States.
risk retention groups (RRGs)
the act allowed product manufacturers to establish group self-insurance programs or group captive insurance companies to cover their liability loss exposure.
residual market insurance.
Federal government provides war risk, nuclear energy liability, flood, and federal crop insurance.
Types of Property insurance
Dwelling, homeowners, commercial property, inland marine, commercial marine, and crime.
One of the most important risks covered by the casualty line is the liability risk—the risk that we will suffer financial loss as a result of our actions toward others. A good example is the all-too-familiar auto accident in which Allen backs out of his driveway, hits Blanca's car, and causes $500 in damage. If the accident was Allen's fault, he is liable for the damage he caused to Blanca or her auto.
are property and casualty coverage's that protect an individual or family.
the direct link between the company and its insured's.
means the agent signs each new policy prepared by the company before delivering it to the insured. In most states, the agent's countersignature is required to validate the contract.
This means using pre-established criteria to seek out the type of business that is likely to be acceptable to the company. Although the company underwriter makes the final decision to accept a risk, the agent also has a responsibility to seek out quality business.
the authority specifically given to an agent, either orally or in writing, by the principal. Written authority is usually provided through an agency agreement that allows the agent to countersign, issue, and deliver policies and provide other customary services on all contracts accepted by the insurer from the agent.
authority given by the insurance company to the agent that is not formally expressed or communicated. This implied authority allows the agent to perform all of the usual and necessary tasks to sell and service insurance contracts and to fully exercise the agent's express authority.
a doctrine that holds that an agent may have whatever authority a reasonable person would assume the agent has. In the public's eye, an agent acting under apparent authority binds the company as fully as under expressed or implied authority.
exclusive or captive agency system
the insurance company contracts with agencies, which are independent businesses, to represent and sell insurance only for that insurance company.
direct writer system
the insurance company's 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 contract with several different companies to represent and sell insurance for those companies. An agent who represents more than one company is called an independent or nonexclusive agent.
Represents the insured. A company that is seeking insurance could contact a broker, and he/she will find the best insurance company for that specific situation.
It shows the percentage of losses the company incurred for every dollar of earned premium. It is calculated by dividing the amount of incurred losses by the amount of earned premium.
indicates the cost of doing business. The ratio will be "Underwriting Expenses over Written Premium".
= loss ratio + expense ratio
Traditionally, 100% is considered to be the breakeven point. A combined ratio of less than 100% indicates that the company had an underwriting profit; a ratio of greater than 100% indicates a loss.
Claim adjusters or representatives
used to inspect a loss, determine whether there is coverage for the loss, estimate indemnification, and, in some cases, pay for the loss immediately.
Reinsurance helps protect insurance companies from catastrophic losses and from wild fluctuations in underwriting results.
A company that is incorporated in a country other than the United States but doing business in the states
Within states other than the state in which it is incorporated.
Within its home state.
The purpose of the Minnesota Insurance Guaranty Association is to protect policyholders from an insurer's inability to pay claims due to insolvency or bankruptcy.
A fiduciary is a person who stands in a special relationship of trust to another person.
Twisting is a form of misrepresentation in which the agent convinces the client to cancel already existing insurance and buy another policy from the agent, to the detriment of the insured. Twisting is illegal.
Personal solicitation of sales
to a personal solicitation, the producer, or a person acting on behalf of the producer, must disclose the following in writing:
◾The insurance company or agent they represent
◾The fact that they are in the business of selling insurance
Fees for Services
Any producer who charges service fees must disclose the following in writing:
◾The services for which the fees are charged
◾The amount of the fees
◾The fact that the fees are charged in addition to premiums
◾That premiums include a commission
If Joe were to split his commission with his clients, so that he could then get many more sales.
file and use states
a company may begin using forms and rates as soon as they have been filed. The state eventually reviews the filing and officially accepts or rejects it.
Use and file states
insurers must file rates and forms within a certain period after they are first used.
Loss costs represent the key component of an insurance rate—how much an insurance company needs to collect to cover expected losses.
Insurance Services Office (ISO)
ISO files both loss costs and standardized forms on behalf of its member companies.
The National Council on Compensation Insurance (NCCI)
a rating bureau with jurisdiction over workers' compensation.
The Surety Association of America
functions as a rating bureau for surety bonds.
The Gramm-Leach-Bliley Act
The biggest risk is that you will damage others.
this is monitored by financial examinations
The Minnesota Insurance Guaranty Association
is funded by contributions from admitted insurers
This is an oral or written statement made by the agent that the insured has immediate protection that is valid for a specified time. If it is an oral statement, it must be backed up in writing as soon as possible. They expire on the effective date of the policy or the date of expiration on the binder if no policy was issued.
Fair Credit Reporting Act
This 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. One of the purposes of the act is to ensure that credit reporting agencies exercise their responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy.
methods of handling risk:
Elements of Insurable Risk:
Non-catastrophic: Earthquake and war exclusions
Homogenous Exposure: Similarity
Form of insurance between insurers. "The insurance company's insurance company".
The premium is determined by considering the individual risk. No books or tables are used; premiums are established through careful judgment.
The company's rates for a particular state or area are obtained by consulting a manual, which is usually stored on a computer. Rates are arranged by various categories or classes.
a written or verbal misstatement of a material fact involved in the contract on which the insurer relies. Misrepresentation will void the policy only if it concerns a material fact.
a deliberate misrepresentation that causes harm. An act of fraud contains four elements.
• Someone deliberately lies.
• The intent of the lie is for someone else to rely on that lie.
• Another person relies on that lie.
• The other person suffers harm as a result of relying on that lie.
Fraud differs from misrepresentation in that misrepresentation may be intentional or unintentional. Fraud is always intentional and involves an all-out effort by one party to deceive and cheat the other.
similar to misrepresentation except that it involves withholding, rather than misstating, a material fact.
If an insurance company representative intentionally or unintentionally creates the impression that a certain fact exists when it does not, and an innocent party relies on that impression and is damaged as a result
Occurs when the policy is cancelled on the effective date.
Certificate of Insurance
A document that summarizes a policy's coverage and is used to provide proof that insurance coverage has been written
The description can be very specific, designating a particular item to be insured
it can be a blanket description, such as "personal property located at 1550 Willow". Blanket coverage may also mean that the insured's covered property is insured at any location, rather than at only a particular location.
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