Chapter 2 Flashcards
Risk Management
Process of identifying and managing or treating the loss exposures of an insured
Risk
Uncertainty of financial loss, person or property which is the subject of insurance
Exposure
Circumstances or factors leading to the possibility of a loss to a person or property
Hazard
Specific condition or situation increasing the probability of loss or extent of loss
Peril
Cause of loss
Loss
Monetary value of some property(property) amount of the claim or payment made on behalf of insured(liability)
5 methods of handling risk
- Avoidance- eliminating an exposure by choosing to not participate in a particular activity or own a particular property
- Retention- acceptance or assumption of the risk of loss, which means you pay any loss out of your pocket
- Sharing- the potential loss exposure being distributed among a number of persons
- Loss control- not allowing the opportunity for an event to happen(prevention), used to minimize the loss or damage after an event occurs(reduction)
- Transfer- one party transferring the uncertainty of loss and/or the financial consequences of loss to another party or parties
7 elements of and insurable exposure
- Definite Loss
- Accidental loss
- Financial Hardship
- Not Catastrophic
- Large group of similar exposure units
- Chance of loss must be calculable
- Reasonable cost to insure
Law of large numbers
Larger the number of exposures, the closer the actual results will equal the expected outcome
Stock Company
Incorporated insurance company owned by its stockholders
Mutual Company
Owned by Policyholders
- Assessable Mutuals- have the right to require policyholders to pay an additional premium is loss experience is poorer than expected
- Non-Assessable Mutuals- cannot asses their policyholders if premiums are insufficient to cover operating costs
Admitted and Non-admitted insurers
- Admitted- one that is authorized and licensed to do business in the state
- Mom-Admitted- one not authorized and licensed to transact business in the state
Domestic, foreign, and Alien insurers
- Domestic- Prganized under the laws of PA, and has home office in PA
- Foreign- Organized outside of PA
- Alien- Organized outside of USA
Rep. Of consumer & rep. Of insurer
- Rep. Of Consumer(Broker)- producer who is not representing a particular insurer may still sell, solicit, and negotiate the placement of insurance products
- Rep. Of Insurer(Agent)- producer is appointed, producer is empowered to act on behalf of the insurance company as specified in their written agreement
3 types of authority
- Express- authority expressly given by insurer either orally or in writing
- Implied- producer which is not specifically expressed or communicated, but which is consistent with the producer fully exercising the express authority granted by insurer
- Apparent- based on circumstances that create a reasonable belief to a third party that the producer had authority
