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Flashcards in General Insurance Deck (86)
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1
Q

Risk

A

The possibility of suffering a loss

2
Q

Pure Risk

A

Possibility of either a loss or no loss (fire or no such loss)

3
Q

Speculative Risk

A

Possibility of a loss as well as a possible gain. (Stocks.. make or lose money)

4
Q

Exposure

A

A condition or situation that presents risk or the a possible financial loss

5
Q

Peril

A

Cause of loss. Fire, vandalism, windstorm, etc.

6
Q

Hazard

A

Condition that creates or increases the chance of a loss from a peril

7
Q

Physical Hazard

A

Physical characteristic that increases the possibility of a loss. The condition of the property itself

8
Q

Moral Hazard

A

A person’s sense of right and wrong that may lead them to want the loss to occur.

9
Q

Morale Hazard

A

A person’s attitude, as reflected in their personal and business habits. Condition related to carelessness or indifference

10
Q

Loss

A

Negative Financial result of a risk, often the damage or injury caused by a peril.

11
Q

Methods of Managing Risk

A

Avoidance: Do nothing that would create the possibility of loss
Reduction: Take steps to reduce the chance or amount of loss
Sharing: Distribution of risk. i.e., coinsurance or partnership requiring insurer to pay for part of loss
Retention: Do nothing to avoid or reduce the risk, simply keep or retain the loss.
Transfer: When a pure risk can not be avoided, action has been taken to reduce it, but it is still too great to retain. Insurance is a form of risk transfer.

12
Q

Adverse Selection

A

The fact that poorer-than-average risks want insurance coverage to a greater extent than average or better risks. Underwriting guards against too much adverse selection.

13
Q

Reinsurance

A

Insurance between insurers. Original insurer is known as the ceding and the other is the assuming insurer

14
Q

Reinsurance through a Treaty Basis

A

Reinsurer automatically accepts all exposures from the ceding insurer

15
Q

Reinsurance through a Facultative Basis

A

Reinsurance requires and individual reinsurance agreement for each risk insured.

16
Q

Reciprocal Insurer

A

(Inter-insurance exchange) is an unreciprocated group of subscribers who insure each other by exchanging indemnity agreements through an Attorney in Fact

17
Q

Attorney in Fact

A

A person appointed to represent each subscriber through a written power of attorney

18
Q

Lloyd’s Association

A

not an insurance company. A voluntary association of individuals or groups of individuals who agree to insure a particular risk. Individually responsible for an agreed portion of the insurance

19
Q

Risk Retention Groups (Self-Insurers)

A

Organizations that are large enough so the law of large numbers enable accurate estimates of losses which have sufficient assets in reserve to cover their own losses to retain their own risk.

20
Q

Insurer Types

A

Domestic: In the state in which it was formed and chartered under that state’s law.
Foreign: In any state other than the one in which it was formed
Alien: An insurer formed under the laws of any country other than the US

21
Q

Authority/Powers of Producers

A

Express: Stated in the agency agreement
Implied: Not stated, but assumed by the producer to be part of their standard duties
Apparent: Authority the public believes the producer has, based on their actions.

22
Q

Contract (has 4 parts)

A

An agreement by competent parties, for good consideration, to do or not to do a specific lawful thing, and enforceable in a court of law

  1. Competent Parties
  2. Legal Purpose: Cannot require either party to perform an act that is illegal
  3. Offer and Acceptance: agreement, meeting of minds and making mutual consent
  4. Consideration: Something of value which is given by each party to create a contract.
23
Q

Characteristics of an Insurance Contract

A

Adhesion: Price, terms, and conditions are not subject to bargaining. Offered by insure and either accepted or denied by insured.
Aleatory: Subject to chance. Premium is small in relation to the amount of insurance.
Personal: Insures the person, not their life or property.
Unilateral: Only one party makes a promise thats legally binding.
Conditional: As each party must perform only if a specified, but uncertain, event takes place.

24
Q

Indemnify

A

An insured pays the amount lost by the person covered by the insurance

25
Q

Principle of Indemnity

A

States the insured should not make a profit. He should only be placed in the same financial condition he was in before the loss.

26
Q

Warranty

A

A guarantee about conditions which are supposed to exist

27
Q

Representation

A

A statement considered to be substantially true to the best knowledge of the person making it.

28
Q

Misrepresentation

A

A false statement of fact. Fraudulent material, the insurer can refuse payment of a claim or cancel the policy

29
Q

Fraudulent

A

False representation about a material fact. Made with intent to harm or gain with recklessness or indifference to the truth, relied upon by the other party, and/or resulted in harm to others.

30
Q

Concealment

A

Willful withholding of material info in order to deceive another person.

31
Q

Waiver

A

Voluntarily giving up the right by accepting late payments

32
Q

Estoppel

A

A court stopping a person from claiming its rights because of prior voluntary statements or conduct.

33
Q

Fair Credit Reporting Act (FCRA)

A

A federal law designed to protect the privacy and assure the accuracy of consumer report info.

34
Q

Pure Premium

A

The amount to cover claims when expressed in dollars and cents

35
Q

Loss Ratio

A

When expressed as a percentage of the gross premium .

36
Q

Loading

A

The amount to cover the insurer’s expenses of operation

37
Q

Expense Ratio

A

The percentage of the gross premium

38
Q

Combined Ratio

A

The total of the loss and expense ratio. When combined and less than 100%, the insurer profits. If it’s greater, the insure loses money.

39
Q

Types of Rating

A
Class or Manual: most common for personal lines. Allows insurer to apply a single rate to a large number of insureds. Lumps similar people in a similar class together to apply the same rate to many
Individual or Judgement: Rates risk specifically based on the underwriter's judgement of the risk being insured. 
Merit: Creates rates by applying a schedule of charges and/or credits to a manual rate to determine the appropriate rate for an individual exposure.
40
Q

Binders

A

Oral or written agreements to provide immediate temporary coverage until a property or casualty insurance policy can be issued. Includes all usual terms a policy would unless otherwise stated. Good for up to 90 days in OR.

41
Q

Certificate of Insurance

A

A document used to show that a policy has been issued.

42
Q

Liability

A

Legal responsibility for the loss or injury suffered by another.

43
Q

Direct Liability

A

Arises out of injury or damage resulting from one’s own acts or property

44
Q

Contingent (Indirect) Liability

A

Has for acts of another party who had direct liability due to a unique relationship between the parties.

45
Q

Vicarious Liability

A

For acts of a negligent person because of a certain relationship with that person.

46
Q

Contracatual Liability

A

Assumed in contract.

47
Q

Tort

A

A civil wrong, other than a breach of contract.

48
Q

Intentional Tort

A

Intentional interference with a person or property of another.

49
Q

Tortfeasor

A

Someone who commits a civil wrong

50
Q

Strict Liability

A

For manufacturers and sellers of products for injuries caused by defective conditions in their products, even if they were not negligent in manufacturing or selling that product.

51
Q

Absolute Liability

A

(liability without fault) Imposed in situations by law. For injury to another or their property regardless of negligence or willful wrongdoing.

52
Q

Negligence

A

Failure to act as an ordinary, reasonable person would in the same circumstances. Involves carelessness, thoughtlessness, forgetfulness, ignorance, and poor judgment
Elements of Negligence:
- Legal Duty, Breach of duty/failure to act with care, actual damage and/or loss, and breach or failure to act was the proximate cause

53
Q

Intervening Cause

A

States that another cause of injury interrupted the chain of events resulting from a negligent person’s original action

54
Q

Contributory Negligence

A

An injured party, through their own negligence, contributed to the injury and is unable to recover any damages from the person who caused the injury

55
Q

Comparative Negligence

A

Allows injured party who is partly at fault to collect damages but allows his negligence to be used as a defense to reduce the damages they can collect.

56
Q

Doctrine of Last Clear Chance

A

Allows negligent party to recover damages if the defendant had an opportunity immediately prior to the accident to prevent it but failed to do so.

57
Q

Statute of Limitations

A

State law that limits the period of time a person has to take legal action against a claim.

58
Q

Damages

A

The amount paid for a loss

59
Q

Special Damages

A

Compensation to reimburse a person for specific expenses or loss of income.

60
Q

Compensatory Damages

A

Payments to compensate an injured party for the actual loss suffered.

61
Q

General Damages

A

Paid to compensate an injured party for pain and suffering, and mental anguish.

62
Q

Declarations

A

Statements made by the insured about the particular risk. Personalize the policy. Involves: name, address, policy period, premiums, endorsements, deductibles, and any other information necessary to creating a contract.

63
Q

Specific Limits

A

Has a single amount of insurance on a specific item at a specific location.

64
Q

Blanket (unscheduled) Limits

A

Has a single limit of insurance to cover all item sat one or more locations.

65
Q

Scheduled Policy

A

Covers one or more items at one or more locations that specifies the amount of insurance for each.

66
Q

Definitions

A

Provide the special meaning certain terms have when used in the policy.

67
Q

Accident

A

A sudden unexpected and unintended event causing injury.

68
Q

Occurrence

A

An accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results in injury or property damage

69
Q

Vacancy

A

A building that has no people or contents. After 60 days of vacancy, is not covered from vandalism.

70
Q

Unoccupancy

A

A building with no people but does have contents.

71
Q

Insuring Agreement

A

Insurance company promises to pay for a loss resulting from any of the perils covered by the contract.

72
Q

Exclusions

A

Specify what the insurance company will NOT cover in terms of type of property, perils or losses. i.e., Loss is certain, catastrophic, extra-hazardous, covered elsewhere, or the insured can control hazard

73
Q

Conditions

A

Clauses or provisions in a policy that specify the rights and responsibilities/obligations of both insured and insurer to the policy. i.e., cancellation/non-renewal, claim settlements, policy periods, rights and duties of both

74
Q

Additional/Supplemental Coverages

A

Provide coverage beyond the principal coverage.

75
Q

Endorsements

A

Forms used to add to, delete from or change the standard contents of the policy. They can change the content of the dec page, add or delete perils or property, or change policy conditions.

76
Q

Actual Cash Value (ACV)

A

Equal to its replacement cost minus depreciation (loss in value due to age and wear and tear). i.e., a sofa 20% depreciated, costing $1,000 originally to replace new, would have an ACV of $1,000 - 20% = $800.

77
Q

Market Value

A

Based on supply and demand of an item at the time it sold on the open market.

78
Q

Coinsurance Provison

A

Encourages insureds to insure their property for close to full value by offering an insured who maintain insurance at the specified coinsurance level for extensions of coverage, premium discounts, and replacement cost coverage instead of ACV coverage.

79
Q

Deductible

A

Specified dollar amount or percentage of a covered loss the insured must pay or a period of time that must elapse before the insurer is liable for the payment for a loss.

80
Q

Subrogation

A

The insured transfers to the insurer their rights to collect damages from a person responsible for a loss up to the amount they received for the claim or in return for immediate settlement of a claim

81
Q

Abandonment

A

States that the insured cannot leave damaged property in the hands of the insurer and demand payment of the full value of the property as a total loss.

82
Q

Salvage

A

Recover as much of the loss as they can if the insurer pays the insured in full for damaged property.

83
Q

Non-renewal Provisions

A

Written advance notice and gives a reason and lender if applicable. Non-paid premiums have a 10 day notice while anything else gets a 30 day written notice.

84
Q

Loss Payable Clause

A

Provides that the creditor with a financial interest in personal property covered by the policy will be named as joint payee on any check issued to pay a claim for a loss to that property.

85
Q

No Benefit to Bailee Provision

A

States that the insured’s insurance coverage does NOT extend to a bailee

86
Q

Bailee

A

A person in possession of another’s property. i.e., a dry cleaner or storage company. They have the duty to return the property to the owner or deliver or dispose of it as agreed.