Chapter 1 - Introduction to Insurance Flashcards
Major function of insurance
To achieve a spread of risk.
Definition of “spread of risk”
To Share losses of few among many
What are the five important points contained in the definition of insurance?
- Means of shifting one’s financial responsibility for a loss to another party.
- Payment made only when a certain risk or peril occurs.
- Payment restricted to amount required to indemnify the insured.
- Insurance covers losses to which the object of insurance may be exposed.
- The indemnity can be money or other thing of value.
Define “Risk”
The chance of financial loss to which the object of insurance may be exposed.
It has also come to mean “the object of insurance” I.e., a building
Define “Peril”
The cause or causes of loss.
I.e., fire, wind, hail
Identify three types of insurance included in the broad area of “property and casualty insurance” - otherwise known as General Insurance
- Auto Insurance
- Property Insurance
- Liability Insurance
There are two major types of insurers. Identify them & provide examples.
- Private Insurers
a) Stock Companies: Ownership rests in the
hands of company shareholders whose main purpose is to derive profit from their investments.
b) Mutual Companies: Corporation owned by its mutual policy holders. The main goal is to provide policy holders with insurance at as low a cost as possible. Money made by the company gets refunded to policy holders through dividends. - Government Insurers: Federal & Provincial gov’ts are involved in providing various insurance plans. I.e., Compulsory Auto Insurance (ICBC), medical insurance, EI, Workers’ Compensation
Identify two methods used by insurers to sell their products.
- Direct Writing System
- Independent Brokerage System
Explain how a Direct Writing System works.
Insurers are employees of the insurer & limited to selling products of that insurer.
Remuneration is either on a salary or commission basis, or a combination of the two.
Insurer owns all of the business written & performs all administrative functions.
Explain how an Independent Brokerage System works.
Brokerage owners are NOT employees of insurers & can choose to represent more than one insurance company as well as the Facility Association.
Brokerage is paid commission by the insurer on all business it writes. ]
Brokerage owns all business it writes & is responsible for providing policy holders with a number of client services.
Of Direct Writer & Independent Brokerage, which is most common?
Independent Broker
Definition of Insurance
A means to shift financial responsibility for a loss to another.
Property & Casualty Insurance also means:
General Insurance
What are the four other functions of insurance?
- Basis of Credit System
- Loss Prevention and Loss Reduction
- Eliminates Worry - Encourages Entrepreneurship
- Source of Employment and Investment Capital
