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The transfer of risk from an applicant to an insurer.



A theory based on probability which enables an insurer to spread the risk. The larger the number of events or expenses examined, the better chance of arriving at an accurate estimate of the probability of loss.

The law of large numbers


How does the appraisal process work?

If there is no agreement over amount of damages, each party selects an appraiser within 20 days. If no agreement they have 15 days to select an umpire. If disagreement is over existence of coverage, arbitration is used.


How long is a binder valid

30 days.


Pro rata liability clause

Each carrier pays proportionate share of a loss, based on each insurers proportion percentage of total coverage provided. Ex. Milwaukee policy limit: $100k, Boston policy limit $50k : Milwaukee responsible for 67% and Boston 33%.


A clause which is a method of distributing insurance in instances where more than one policy covers a specific loss. It generally reads "this policy is in excess over any of the other insurance provided whether primary, excess, contingent or on any other basis that is effective prior to the beginning of this policy period". The policy that is in effect first is primary.



What is contribution by equal shares?

A form of proportional coverage in which losses are paid equally by all policies until the limits of one is exhausted and then the remaining policy pays up to its limit. Ex. Safety has $100k, Liberty $400k. If there is a $300k loss both pay equal amounts up to the loss. $100k $100k, then last $100k is paid by liberty.


Explain nonconcurrenc

Nonconcurrent policies can be of the same type but do not cover exactly the same propery. In other words, policies that cover the same property on a different basis. For example, John has two fire policies. One provides coverage for a building and its contents. the second policy covers the building only. If the policies are effective at the same time, liability for a loss is prorated in proportion to each policy's applicable limit of liability. If the first policy is primary, it must pay up to its limit before the second pays any of the loss.


Under this reinsurance agreement, the risks are considered individually by both parties. The ceding insurer submits the risk to the reinsurer and the latter may either accept or reject it on a case-by-case basis.



How does an automatic reinsurance agreement work?

The reinsurer agrees in advance to automatically accept a portion of risk written by the ceding insurer and the ceding insurer agrees to cede a portion of risk to the reinsurer.


A reinsurance agreement where the reinsurer agrees to pay only when a loss exceeds a certain amount.

Excess loss agreement


A reinsurance agreement where the ceding insurer agrees to pay a reinsurer a specific percentage of the premium collected if the reinsurer agrees to pay the same percentage of any loss that occurs.

Quota share agreement.