Chapter One Flashcards
Understanding the Basics (22 cards)
What is…
Risk Sharing
Insuring the losses of a few by the insuring of the many. Spreading out the risk.
Risk Sharing is the basic concept of insurance.
What are…
Insurance Brokers
Intermediaries who represent and work on the behalf of the client. Brokers seek the best deal and fit for the client’s needs and are not associated with the insurance company. Brokers are also given similar ‘Agent’ authority and can also represent insurance company.
“Financial Ethics”
What is…
Indemnity
The attempt to return the insured person to the same position they were in immediately prior to their loss.
Insurance can only be purchased for risks which have the potential for financial loss, and no chance for financial gain, as insurance contracts are not instruments for profit.
The insurance company is required to pay only the amount of the insured’s loss - no more and no less.
What are…
Direct Writers
- Employees under an insurance company which does all its own policy issuing.
- Premiums are paid directly to the company by the insured.
- All employees must be licensed.
What is…
Risk Transfer
Responsibility of financial loss is transferred. Insurance companies are in business to for this purpose. This is the most common and practical way to deal with risk.
“Risk Management”
What is a…
Government Insurer
Incorporated by specific legislation. Not subject to legislation that applies to other insurance companies.
“Other Insurance Legal Forms”
Other examples: WCB, Federal (EI, CPP)
What are…
Captive / Exclusive Agents
- Sells the products of only one insurance company or gives one company first refusal rights on sales.
- They receive commission.
- The insurance company retains the client files.
- Must be licensed.
“Distribution of Insurance”
What is a…
Stock Mutual Insurance Company
Policy holders are no longer owners.
* No assessments can be made on policy holders if the corporation is unprofitable.
* Operates the same as other Stock Companies.
“Types of Insurance Companies”
What is the role of…
Provincial Governments
Provide medical or hospitalization plans which are paid for in most provinces by the residents.
“Other Insurance Legal Forms”
Other examples: WCB, Federal (EI, CPP)
What is…
Risk Retention
Being prepared to personally pay for all losses incurred. Usually chosen by large companies to cope with small losses. Also known as self-insurance.
“Risk Management”
What is…
Property Risk
The loss or damage to property which is personally owned, rented, or leased.
“Types of Risk”
What is…
Risk Avoidance
Choosing not to own certain property or to avoid certain actions in an attempt to prevent all chances of loss.
“Risk Management”
What is a…
Mutual Insurance Company
A corporation which does not operate on capital from outside parties. It is 100% owned by policy holders.
* Insurance provided at cost, with profit as a secondary importance.
* Profits can be distributed as dividends among policy holders or used to reduce rates.
* Premiums are not a fixed amount and may change.
* Policy holders may or may not be subject to assessments if the corporation is not profitable.
“Types of Insurance Companies”
What is…
Pure Risk
Risks which provide only the potential for financial loss with no chance of gain or profit. This type of risk is insurable.
A classification given to risks. Risks are either speculative or pure.
What is…
Liability Risk
Being held financially responsible for causing damage to people or property.
“Types of Risk”
What is a…
Stock Company
A corporation shared by its shareholders. Pays dividends upon reaching profit goals. Policy holders:
- Pay fixed premiums
- Typically have no financial interest in the corporation
“Types of Insurance Companies”
What are…
Insurance Agents
Intermediaries who represent and work on behalf of the Insurance Company. An Agent will issue policies, make policy changes, and settle claims under specific amounts.
“Financial Ethics”
What are the…
Departments of Insurance Companies
- Marketing Department
- Underwriting Department
- Lines Department
- Claims Department
- Accounting Department
- Administration Department
What is…
Speculative Risk
Risks such as gambling which can cause a potential loss or gain. This type of risk is not insurable.
A classification given to risks. Risks are either speculative or pure.
What is…
Personal Risk
A type of risk which includes becoming ill, unemployed, disabled, or dying.
“Types of Risk”
What are…
Independent Brokers
- Brokers sell the products of many insurance companies.
- They pay their own operating expenses and receive commission from insurance companies.
- They retain ownership and right to sell off client files.
- Must be liscenced.
What is…
Risk Control
Taking steps to reduce the frequency and severity of losses.
“Risk Management”
