3 - P&C Insurance Basics

Question 1

Underwriting

Answer 1

“Classifies” the applicant to match the risk presented with the premium charged by the insurer

Question 2

Loss ratio

Answer 2

The percentage of claims paid in comps is on to the total premiums collected during a period of time.

Question 3

Judgement rating

Answer 3

The underwriter determines the individual rate using their intuition and experience instead of a rating manual.

Question 4

Manual rating

Answer 4

The underwriter refers to rates as published in the insurer’s rating manual (law of large numbers)

Question 5

Merit rating

Answer 5

The underwriter modifies a he manual rate based in past loss experience

Question 6

Retrospective rating

Answer 6

A rating plan, subject to minimum and maximum premiums, where the final premium is not determined until the end of the policy period and is based in prior loss experience

Question 7

Experience rating

Answer 7

Used to calculate premiums on a large group life or health insurance policy. Modifies the manual premium based in the insureds own loss experience

Question 8

Insurance Services office

Answer 8

A rating bureau that develops and Giles rates and policy forms with different states for their members (insurance companies)

Question 9

What is the difference between a rate and a premium?

Answer 9

The rate is the cost per unit.
The premium is the # of units multiplied by the rate.

Ex: if one unit is $100 and if the rate is $0.25 per $100 in f coverage. For a $100,000 policy, it would be $250/year.

Question 10

Tort lawyers

Answer 10

Lawyers who handle negligence lawsuits

Question 11

Assumption of the risk

Answer 11

You agree to take the risk of engaging in certain activities and if you are injured during the course of that activity, you may not sue.

Question 12

Tort threshold

Answer 12

You assumed risk up to a certain level

Question 13

Statute of limitations

Answer 13

Limits the time during which a lawsuit may be filed after the occurrence of claim.

Question 14

Special damages

Answer 14

Consist of medical expenses and lost wages. Exact and verifiable figures.

Question 15

General damages

Answer 15

The insurer is attempting to compensate the injured party for their mental and physical distress

Question 16

Punitive damages

Answer 16

Awarded when injury was caused by gross negligence if the defendant

Question 17

Absolute or strict liability

Answer 17

So dangerous that the liability is absolute or statutory.
Ex: keeping a wild tiger makes you absolutely responsible for injury or damage.

Question 18

Vicarious liability

Answer 18

Some state statutes spell out situations where one party may be responsible for the negligent activities of another party.

Ex: you let your secretary drive her own car for your business, you can be sued if she negligently hurts someone.

Question 19

Named perils

Answer 19

They only cover the causes of loss that are named in the contract

Question 20

Open peril policy

Answer 20

All risk policy
Covers all perils UNLESS excluded

Question 21

Direct loss

Answer 21

One that happens suddenly due to a coveted peril

Question 22

Indirect loss

Answer 22

A loss that occurs as a consequence of the direct loss

Question 23

Blanket property insurance

Answer 23

Provides a single amount of insurance that may apply to different types of property or to different locations

Question 24

Specific property coverage

Answer 24

A specific amount of insurance for specific types of property at a specific location

Question 25

ACV (Def & equation)

Answer 25

Find the replacement cost and subtract any depreciation. RC - D = ACV

Question 26

Declarations

Answer 26

1st page Named insured. Location of the property. Premium & effective date.

Question 27

Definitions

Answer 27

Who is covered as an insured: HO: people in the home PAP: a covered auto

Question 28

Insuring agreement:clause

Answer 28

Coverage is provided, perils to be covered and insurers promise to pay coveted claims

Question 29

Additional/supplementary coverage

Answer 29

Debris removal, coverage for trees, shrubs and plants and fire department service charges.

Question 30

Conditions

Answer 30

Apply to insured and insurer. Notice of claim and proof of loss. Protect from further damage

Question 31

Exclusions

Answer 31

Provisions in the policy taking coverage away for certain claims. (Flood)

Question 32

Endorsements

Answer 32

Added to the policy to make it better/more coverage

Question 33

Named insured

Answer 33

The person listed on the declarations page, including their spouse, if they live together.

Question 34

First Named Insured

Answer 34

The person named 1st on the declarations page of a commercial policy, if there are more than one named on the policy. Only person that has to be notified for a cancellation notice.

Question 35

Additional/Other Insureds

Answer 35

Any additional insured is another party listed in your policy (Ex/ contractor puts you additional on their liability policy while working on YOUR home)

Question 36

Policy Period & Policy Territory

Answer 36

On declarations to let you know when coverage ends and begins and let’s you know what locations are covered

Question 37

Cancellation

Answer 37

Can be requested by the insured or the insurer. The policy is being canceled at some point other than the normal date, mid-term

Question 38

Non-Renewal

Answer 38

Insurer gives the client advanced notice (by law) that their policy will not be continued beyond the normal date. No refund is required.

Question 39

Deductibles

Answer 39

Selected by the client at policy inception, the higher the deductible chosen, the lower the premiums will be.

Question 40

Other insurance clause/ pro rata liability clause

Answer 40

Designed to reinforce the principle of indemnity by keeping clients from collecting more than they lost

Question 41

Limits of liability

Answer 41

The most the insurer will pay for a single occurrence. On the declarations page.

Question 42

Aggregate limit

Answer 42

Total limit

Question 43

Restoration of limits

Answer 43

Coverage is restored with a new aggregate limit on the anniversary date

Question 44

Split limit definition: 15/30/10

Answer 44

15 is the amount the insurer will pay to any one person 30 is for BI, no matter how many people are injured 10 is for PD *MOST to be paid for one claim is 40k + defense

Question 45

Coinsurance

Answer 45

Are contained in many property insurance policies to assure that the insurance risk is commensurate to the amount of premium charged

Question 46

Insuring agreement

Answer 46

Contains their promise to pay coveted claims as per the terms of the policy

Question 47

Liberalization clause

Answer 47

The insurer can change the terms of the contract at any point one as long as the insured benefits and no additional premium is charged

Question 48

Subrogation clause

Answer 48

The insurer may required and assignment of all rights of recovery against any negligent 3rd party