Chapter 1: General Insurance Flashcards
(156 cards)
1
Q
NAIC
A
National Association of Insurance Commissioners
2
Q
FIO
A
Federal Insurance Office
3
Q
A group owned insurer whose main activity is risk sharing
A
Reciprocal insurance company
4
Q
A _____ insurance company is owned by its policyholders
a) Stock
b) Reciprocal
c) Fraternal Benefits Society
d) Mutual
A
d) Mutual
5
Q
Private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers
A
Residual markets
6
Q
Insurers agree to apportion among them selves those risks that are unable to obtain insurance through normal channels
A
Risk Sharing Plan
7
Q
Reinsurance agreement that allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risks
A
Facultative Agreements
8
Q
- Independent financial rating services evaluate and rate the financial stability of insurance companies
- Assign rating codes to show financial strength
A
Financial rating services
9
Q
If an insurance company wants to transfer all or part of the risk it has accepted, it would buy which of the following types of insurance
a) Residual
b) Reinsurance
c) Reciprocal
d) Insurer
A
b) Reinsurance
10
Q
An insurer organized under the laws of this state, whether or not it is admitted to do business in this state
A
Domestic insurer
11
Q
An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States, whether or not it is admitted to do business in the state or jurisdiction
A
Foreign insurer
12
Q
An insurer organized under the laws of any jurisdiction outside of the United States, whether or not it is admitted to do business in this state
A
Alien Insurer
13
Q
Which of the following is an insurance company that is organized under the laws of another state within the United States?
a) Domestic
b) Alien
c) Foreign
d) Authorized
A
c) Foreign
14
Q
Oversee the operation of the business
A
Executives
15
Q
Gather and interpret statistical information used in rate making. Determines the probability of loss and sets premium rates
A
Actuarial department
16
Q
Responsible for the selection of risks (persons and property to insure and rating that determines actual policy premium)
A
Underwriting department
17
Q
Responsible for advertising and selling
A
Marketing/Sales department
18
Q
Assists the policyholder in the event of a loss
A
Claims department
19
Q
Which insurance company department accepts the insurance risk?
a) Executive
b) Actuarial
c) Claims
d) Underwriting
A
d) Underwriting
20
Q
- A relationship between two or more parties where one party (the agent or producer) acts on behalf of the other party, known as the principal insurer
- The agent or producer binds the actions and words of the principal
A
Law of Agency
21
Q
Producers 3 types of authority
A
- Express
- Implied
- Apparent
22
Q
Authority that is written into the producer’s agency contract
A
Express
23
Q
Authority the public assumes the producer has
A
Implied
24
Q
Authority created when the producer exceeds the authority expressed in the agency contract
A
Apparent
25
Which of the following individuals represents the insurance company when selling an insurance policy
a) Producer
b) Broker
c) Adjuster
d) Insurer
a) Producer
26
Which of the following types of authority does the public assume an agent has when quoting insurance?
a) Authorized
b) Express
c) Implied
d) Apparent
c) Implied
27
A producer has each of the following responsibilities to the Insurer, except:
a) A fiduciary duty
b) Forwarding premiums to the insurer on a timely basis
c) Reporting material facts that may affect underwriting
d) A duty to recommend only high rate policies
d) A duty to recommend only high rate policies
28
- When an application is taken, it must inform the applicant a credit report will be obtained. The purpose of this is to determine the financial and moral status of an applicant
- Applicant has the right to review the report
Fair Credit Reporting Act (15 USC 1681-1681d)
29
Credit reporting agency must reinvestigate within 6 months, of applicant challenges accuracy
Applicant challenge
30
Agency must forward to applicant inaccurate information given out within previous 2 years
Inaccuracies
31
Report must not include lawsuits over 7 years old or bankruptcies over 14 years old
Disallowed information
32
Imposes record keeping and government reporting requirements on banks, financial institutions and non-financial businesses for specific financial transactions and consumer financial records
Financial Anti-Terrorism Act (USA Patriot Act)
33
- Misstatement of materiel fact by a person who knows or believes that statement to be false
- applications and claim forms must contain a disclosure about how false statements and fraud will be treated by the insurer
Fraud and False Statements (Fraudulent Insurance Act)
34
Because Workers' Comp laws do not apply to seamen, the Jones Act allows insured seamen to make claims for injuries suffered during the course of employment
Merchant Marine Act of 1920 (the Jones Act)
35
Deregulated the trucking industry by prohibiting any entity from interfering with a motor carrier's right to set its own rates.
Motor Carrier Regulatory and Modernization Act (the Motor Carrier Act of 1980)
36
- Repealed parts of the Glass-Steagall Act of 1933 to allow the merger of banks, securities companies, and insurance companies.
- The Financial Privacy rule requires "financial institutions," which include insurers, to provide each consumer with a privacy notice
Gramm-Leach-Bililey Act (GLBA, a.k.a. the Financial Services Modernization Act of 1999)
37
Established in the Department of the Treasury. The Secretary of the Treasury administers the Program.
"Act of Terrorism" is defined as any act certified by the Secretary of Treasury, in cooperation with the Secretary of State and Attorney General
Not make payments for any portion of the amount of such losses that exceeds $100 billion (cap on annual liability)
The insurer deductible is 20% of all covered losses
Terrorism Risk Insurance Act and its Extensions of 2005 and 2007 (TRIA)
38
The largest crime bill in U.S. history expands funding to federal agencies such as FBI, DEA, and INS
The act made it a felony for a person to engage in the business of insurance after being convicted of a state or federal felony crime involving dishonesty or breach of trust
Violent Crime Control and Law Enforcement Act of 1994 (18 USC 1033, 1034)
39
Based on fiduciary relationship of parties and the wrongful acts violating the relationship
Breach of Trust
40
A federal regulation called the __________ protects consumers privacy
a) Consolidated Omnibus Budget Reconciliation Act
b) Fraudulent Insurance Act
c) Privacy Protection Act
d) Fair Credit Reporting Act
d. Fair Credit Reporting Act
41
A condition where the chance, likelihood, probability or potential for a loss exists.
Risk
42
Situations where the chance for loss, gain, or neither loss nor gain occur
Speculative risk
43
Situations where there is no chance for gain; the only outcome is for nothing to occur or for a loss to occur
Pure risk
44
Reduction, decrease, or disappearance of value. The basis of a claim for damages under the terms of an insurance policy
Loss
45
The cause of a loss
Peril
46
A specific condition that increases the probability, likelihood, or severity of a loss from a peril
Hazard
47
A physical condition that increases the probability of loss; use, condition, or occupancy of property
Physical hazard
48
Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people.
Moral hazard
49
Attitude that increases the probability of a loss
Morale hazard
50
The condition of being at risk for a loss. Purely by existing, property and people are at risk for loss
Loss exposure
51
An imbalance created when risks that are more prone to losses than the average (standard) risk are the only risks seeking insurance within a specific marketplace
Adverse selection
52
Investments of a large number of people may be pooled by use of a corporation or partnership
Sharing risk
53
Transferring risk from one party to another, such as from a consumer to an insurance company
Transfer risk
54
Elimination of the risk
Avoid risk
55
Minimizing the chance of loss, but not preventing the risk
Reduce risk
56
Assume the responsibility for loss
| ex. choosing deductibles
Risk retention
57
As the number of units in a group increases, the more likely it is to predict a particular outcome
Law of Large Numbers
58
Dishonest tendencies that increase the probability of loss are what types of hazard?
a) Physical
b) Moral
c) Emotional
d) Legal
b) Moral
59
Each of the following must be included in an insurable risk, except:
a) Calculable chance of loss
b) Excluded catastrophic perils
c) Large group with dissimilar members
d) Accidental losses
c) Large group with dissimilar members
60
A legal contact purchased to indemnify the insured against a loss, damage or liability arising from an unexpected event
Exchange of a relatively small and definite expense for the risk of loss that, if it occurs, may be large or small
The insurance contract
61
Insured is restored to the same financial or economic condition that existed prior to the loss
Principle of Indemnity
62
The ability of an applicant to meet an insurer's underwriting requirements
Insurability
63
The process of selecting, classifying, and rating a risk for the purpose of issuing insurance coverage
Underwriting
64
Any event, past or present, that may cause loss or, damage or create legal liability on the part of an insured
Insurable events
65
Insurable interest must exist in every enforceable insurance contract. Depending upon the contract, it must exist at the time of application or at the time of loss
Insurable interest - All policies
66
Insurable interest must exist at the time of application, but not at time of loss
Insurable interest - Life & Health policies
67
Insurable interest must exist at the time of the loss
Property and Casualty policies
68
Which principle of insurance restores the insured to the same economic condition that existed before the loss?
a) Indemnity
b) Insurability
c) Adhesion
d) Underwriting
a) Indemnity
69
Pertains to the formation and enforcement of contracts
Contract law
70
Torts are civil wrongs; they're not crimes or breaches of contract. They result in injuries or harm that constitute the basis of a claim by a third party
Tort law
71
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
Contract of Utmost Good Faith
72
Prevents the denial of a fact, if the fact was admitted to be true previously
Estoppel
73
A contractual agreement that transfers the liability of one party to another party; it is used by landlords, contractors, and others as a way to avoid or reduce risk
Hold harmless agreement
74
A written contract may not be altered without the written consent of both parties
Parol Evidence Rule
75
Voluntary surrender of a known right, claim or privilege
Waiver
76
4 elements of a legal contract
1 Competent Parties
2 Legal Purpose
3 Agreement
4 Consideration
77
All parties to a contract; Insurer and Insured must have legal capacity to enter into a contract
Competent Parties
78
All parties to a contract must enter it for a legal purpose; public policy cannot be violated by a legal contract
Legal Purpose
79
One party must make and communicate an offer to the other part and the second party must accept that offer
Agreement
80
Something of value is exchanged; the exchange of an act for a promise
Premium & Promise to pay
Consideration
81
One party writes the contract, without input from the other party
Contract of Adhesion
82
The exchange of value is unequal
Aleatory contract
83
A contract that pays a stated amount in the event of a loss
Valued contract
84
An agreement to pay on behalf of another party under specified circumstances such as when a loss occurs
Indemnity contract
85
The party submitting an application for insurance
Applicant
86
A document submitted by an applicant to an insurer that provides information needed for the insurer to underwrite a risk; becomes part of the insurance contract
Application
87
A policy form that alters or adds to the provisions of a property and casualty insurance contract
Endorsement
88
Owner cannot transfer or assign ownership of an insurance policy to another person
Personal contract
89
Owner may transfer or assign ownership of a life or health insurance policy to another person
Non-Personal contract
90
Policy owners may not assign or transfer their rights under an insurance contract without the written consent of the insurer
Assignment
91
Insured's original age on the policy issue date
Issue age
92
Insured's age at any point in time at issuance, renewal or conversion
Attained age
93
The date when insurance coverage begins
Effective date
94
The date when insurance coverage ends; if not cancelled prior, policy will terminate by end of grace period if premium is not paid
Lapse date
95
Only one party is legally bound to the contractual obligations after the premium is paid to the insurer.
-insured can cancel @ any time. insurer can not
Unilateral Contract
96
Both parties must perform certain duties
Conditional Contract
97
What a reasonable and prudent policy owner would expect;
Reasonable Expectations Doctrine
98
A false statement contained in the application; usually does not void coverage or the policy.
-not deliberate
Misrepresentations
99
The willful hiding or obscuring of material facts pertinent to the issuance of insurance (or a claim). Concealment results in denial of coverage and may void the policy.
Concealment
100
Statements in the application or stipulations in the policy that are guaranteed true in all respects.
Warranties
101
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:
1. False statement, made intentionally and that pertains to a material fact.
2. Disregard for the victim
3. Victim believes the false statement
4. Victim makes a decision and/or acts based on the belief in, or reliance upon, the false statement
5. The victim's decision and/or action results in harm
Fraud
102
An agreement without legal effect because it was made illegally or it was declared void by the courts because it doesn't contain all the elements of a legal contract
Void contract
103
A valid contract that for reasons satisfactory to a court, may be set aside by one of the parties. An example is an insurer may void or revoke coverage for misrepresentation or fraud
Voidable contract
104
Each of the following is an element of a legal contract, except:
a. Consideration
b. Legal Purpose
c. Agreement
d. Indemnity
d. indemnity
105
A warranty is defined as which of the following?
a. Intentional misrepresentation on the application
b. Statement in the application that is guaranteed to be true
c. A false statement in the application
d. What a reasonable and prudent buyer can expect
b. statements in the application that are guaranteed to be true
106
- The selection of risks to be insured. Also determines the classification, and premium rate if a risk is accepted by the insurer
- Protects the insurer against adverse selection
Underwriter
107
Underwriting factors:
1. nature of the risk
2. hazards that are present
3. claims history
108
A rate charged to a group of policyholders who have similar exposures and experience.
Class rating
109
A rate based on the policyholder's actual loss history when compared to the loss history of similar risks
Experience rating
110
A rate used for a policyholder because a large enough pool of similar risks is not available to any other type of rate.
Individual rating
111
An individual rate that doesn't use loss history as a component and that is derived largely from the underwriter's evaluation and best judgment the risk poses to the insurer
"A" rating or Judgment rating
112
A rating organization provides insurers with the portion of a rate that does not include provisions for expenses or profit
Loss cost rating
113
The use of rates contained in a manual published by the insurer or those of the rating organization of which it is a member
Manual rating
114
The use of rates that rewards a policyholder that takes measures to decrease the probability of loss by the implementation of safety programs, loss control programs, etc.
Merit rating
115
The use of rates that adjust the policy premium to reflect the current loss experience of the policyholder. Premium adjustments are subject to minimums and maximums
Retrospective rating
116
Required initial premium paid into the policy that is subject to adjustment. A premium audit will be used to determine the actual premium based on risk exposures
Deposit premium
117
A method of rating property and liability risks by using charges and credits to modify a class rate based on the nature of the particular risk being rated
Schedule rating
118
Rates must be filed with the state insurance regulatory authority (Department of Insurance) and may be used as soon as they are filed
File and Use
119
Insurers cannot use rates until approved by the Department of Insurance, or until a specific time period has expired after the filing
Prior Approval
120
Some states require that mandatory rates be used for certain lines of insurance
Mandatory rates
121
A state relies on competition between insurers to produce fair and adequate rates
Open competition
122
The net premiums plus interest reflects possible future contract obligations. An accounting measurement of an insurer's future obligation to its policyholders
Loss reserves
123
A loss reserve established for each claim, when reported
Case reserve method
124
A loss reserve established based on average settlements of particular claim types
Average value method
125
A loss reserve formula based upon the expected losses for a particular class or line
Loss ratio method
126
A loss reserve based upon the estimated length of an insured's or claimant's life or expected disability
Tabular method
127
Determined by dividing Paid Losses + Loss Reserves by Total Earned Premiums
Loss ratio
128
Determined by dividing an insurer's Total Operating Expenses by Written Premiums
Expense ratio
129
Sum of the loss ratio and expense ratio
Combined ratio
130
What level is insurance primarily regulated
State level
131
McCarran-Ferguson Act of 1945
Federal government con not regulate insurance in areas over which states have the authority to do so
132
Company owned by stockholders or shareholders
Stock Insurance Company
133
Company owned by policyholder (who may be referred to as members)
Mutual Insurance Company
134
A group-owned insurer whose main activity is risk sharing
Reciprocal Insurance Company
135
Not an insurance company, but consists of groups of underwriters called Syndicates
Lloyds of London
136
Social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members
Fraternal Benefit Societies
137
Group-owned insurer that primarily assumes and spreads the liability related risks of its members
Risk Retention Groups
138
Assume the financial risk of one's self
Self-Insurer
139
- Assumes all or portion of a risk from a primary or ceding insurance company
- Transfers risk among insurance companies
Reinsurance Companies
140
Reinsurance agreement that covers all risks contained in the subject line(s) of business automatically
Treaty Agreements
141
Insurer is authorized by this State's Commissioner of Insurance to do business in this State
Admitted (Authorized)
142
Insurer has either applied of authorization to do business in this state and was declined or they have not applied
Non-admitted (Unauthorized)
143
Finds coverage when insurance cannot be obtained form admitted insuers
Surplus lines insurance
144
Agent represents solely one company or group of companies
Exclusive or Captive Agency System
145
- Producer or agent is an employee of the insurer
| - Insurer owns the accounts
Direct Writing System
146
- An agent or agency that enters into agency agreements wit more than one insurer. It may represent an unlimited number of insurers
- Agency retain ownership of the business
Independent Agency
147
Agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company
Career Agency System
148
Sells insurance for carriers it is contracted with and maintains its own office and staff
Personal Producing General Agent
149
A marketing system utilizing direct mail, newspapers, radio, etc.
Direct Mail or Direct Response Company
150
Target a specific type of insurance
Mass Marketing
151
Producer's responsibilities to the Insurer
Fiduciary duty especially when handling premium funds
152
Producer's responsibilities to the Insurance Applicant or Insured
1. forward premiums on timely basis
2. seek the applicant's insurance needs
3. review and evaluate the applicant's current coverage
4. serve the best interests of the applicant or insured
5. recommend coverage that best protects the insured
153
Licensed individual who negotiates insurance contracts with insurers
Broker
154
Deceit, misrepresentation, untruthfulness, falsification
Dishonesty
155
Each of the following is a factor considered by an underwriter, except:
a. hazards
b. marital status
c. claims history
d. outside factors
b) marital status is not an underwriting factor, but the nature of the risk is also considered
156
Which of the following calculations equals a company's loss ratio?
a. all losses + expenses
b. paid losses + loss reserves ÷ total earned premium
c. losses + total operating expenses ÷ total written premium
d. paid losses + paid expenses ÷ total earned premium
b) the loss ratio is calculated by paid losses and reserves divided by the total earned premium and used to determine the expected losses for a line of business
