Chapter 1 Flashcards
When dealing with risks, identify and explain four alternatives
- Avoidance of Risk - All chance of financial loss has been eliminated
- Controlling of Risk – Taking measures to reduce frequency and severity of losses
- Retention of Risk – Insured assumes responsibility for their own losses
- Transfer of Risk – Transferring responsibility for losses to others (insurance)
What is the most popular method of dealing with risks?
Insurance is the most popular method to deal with risks
What are five elements required to create legally enforceable contracts?
Agreement
Consideration
Legality of object
Legal capacity of the parties
Genuine Intention
Who may not have competence to form contracts?
Minors, mental incompetents, persons under the influence of alcohol or drugs and trade names do not have the competence to form contracts.
Identify three additional elements required to form legally enforceable insurance contracts.
Insurable interest
Utmost good faith
Indemnity
What duties do brokers owe to clients and insurance companies?
Brokers owe clients the duty to provide:
a careful and prompt response to instructions; expert advice;
competitive pricing of products.
Brokers owe insurance companies the duty: to collect premiums;
to pass on any relevant information obtained from clients.
When is an indemnity measured?
An indemnity is measured immediately prior to loss
How is binding authority provided to brokers?
Brokers receive binding authority through their agency agreements with insurers
What should occur after oral binders have been provided by brokers?
Oral binders should be followed up immediately in writing
What risk do brokers face when they exceed their binding authorities?
When brokers exceed binding authority and losses occur, they may face an errors and omissions loss
How can brokers exceed their binding authorities?
Brokers may exceed their binding authority when they bind risks with values above the limits allowed in their agency agreements
What are three elements found in Indemnity Agreements?
Actual cash value of property at the time of loss
Interest of insured in the property
Limit of insurance on policy
What considerations are used to determine depreciation?
Condition of the object
Resale value
Normal life expectancy
Why do governments play a role in the insurance industry?
Government wants to ensure that insurers are financially competent, that forms of insurance are drafted fairly and that business is conducted to the general benefit of the public
What is the PACICC and what limits are available from this organization?
The PACICC is an organization that will pay valid claims when federally licensed insurers become insolvent. Limits available are up to $250,000 per claim and refunds of unearned premiums up to 70% or $700 per policy
What are the three coverages that must be present in Fire policies?
Fire
Lightning
Explosion of natural, coal and manufactured gas
What are two proximate losses, other than fire damage, arising from fires?
Damage caused by water and other extinguishing agents and physical damage to buildings caused by firefighters are examples of other proximate losses arising from fires
Why are there exclusions?
Exclusions exist because there often are more specialized forms of insurance available and some losses are uninsurable
Covered or Not covered:
1. Resultant fire damage to home when fire arises from clothes dryer
2. Damage to clothes in clothes dryer
3. Damage to television from lightening strike
4. Fire damage to dwelling from television damaged by lighting strike
5. Damage to blender from power surge
6. Fire damage to kitchen resulting from blender damaged by power surge
7. Fire resulting from nuclear attack
- C
- NC
- NC
- C
- NC
- C
- NC
When do policies come into effect and expire.
Policies come into effect and expire at 12:01 am standard time at the address of the insured
Describe “Removal” coverage.
Removal coverage provides protection when property is removed from the named location to protect it from loss or further loss. Coverage at the new, unnamed location is limited to amount of coverage not used at the loss at the named location. Coverage at the new, unnamed location is limited to seven days or the unexpired term of the policy, whichever is least.
What rules must be followed when Insurers include clauses that may limit amount payable to clients?
Insurers must provide a warning label on the declaration page in red ink that states, “This policy contains a clause(s) that may limit the amount payable”
Explain subrogation.
Subrogation is the right of the insurer to pursue responsible parties for amounts paid to the insured.
Explain who may make changes to policies.
Only persons authorized by the insurer may make changes. Brokers do not have this authority
