RMIN Test 2 Flashcards

Question

Other Underwriting Considerations

Answer 1

Are rates currently adequate? Is reinsurance available? Should existing business be canceled or non-renewed?

Answer 2

1. Verification that a covered loss has occurred 2. Fair and prompt payment of claims 3. Providing personal assistance to the insured

Answer 3

1. Agent 2. Staff claims representative 3. Independent adjustor 4. Public adjustor

Answer 4

May have authority to settle small claims

Answer 5

Salaried employee who investigates a claim, determines the amount of loss, and issues payment

Answer 6

Individual or organization that adjusts the claim for a contracted fee (Very common after catastrophes.)

Answer 7

Represent the insured and are paid a fee based on the amount of the claim settlement

Answer 8

1. Notice of loss to the company 2. Investigation of the claim 3. Filing a proof of loss 4. Decision concerning payment

Answer 9

primary insurer transfers to the reinsurer part or all of the potential losses

Answer 10

insurer that initially writes the business

Answer 11

the amount of insurance kept by the ceding company

Answer 12

reinsurer obtains reinsurance

Answer 13

1. Increase underwriting capacity 2. To stabilize profits 3. To reduce drain on surplus because of the unearned premium reserve 4. To protect against a catastrophic loss 5. To enable insurer to retire from a territory or a class of business 6. To obtain underwriting advice form the reinsurer

Answer 14

1. Facultative reinsurance 2. Treaty reinsurance

Answer 15

Reinsurance that is transacted on an individual risk (ex:large factory) where the primary insurer cedes the individual risk to the reinsurer

Answer 16

Primary insurer cedes all risks within one or more specific lines of business to the reinsurer Primary insurer must cede and resinsurer must accept all risks included within the terms of the reinsurance agreement

Answer 17

1. Primary objective is safety of principal 2. Yield is also important because it lowers the cost of life insurance 3. Investments have considerable economic and social impact on the economy.

Answer 18

Liquidity is more important than in life insurance (shorter period of time) Investment income is important because it can offset any unfavorable underwriting results

Answer 19

A. Information Systems B. Accounting C. Legal Function D. Loss Control Services

Answer 20

1. The judgment method: a claim reserve is established for each individual claim 2. The average value method: an average value is assigned to each claim 3. The tabular method: loss reserves are determined on data derived from mortality, morbidity, and remarriage tables IBNR (incurred but not reported)

Answer 21

1. bureaucratic red tape 2. processing lag 3. general consideration of the case 4. legal issues 5. collection of further information

Answer 22

Principle of Indemnity Principle of Insurable Interest Principle of Subrogation Principle of Utmost Good Faith

Answer 23

Insurer agrees to pay no more than the actual amount of loss; the insured should not profit if a loss occurs

Answer 24

Replacement cost - depreciation In property insurance; indemnification is based on actual cash value of the property at the time of loss

Answer 25

1. Valued policy --> Policy that pays the face amount (fixed value) of insurance if a total loss occurs (life insurance) 2. Valued policy laws --> Insurers pays the full insured amount of property in event of a total loss 3. Replacement cost insurance 4. Life insurance

Answer 26

1. To prevent gambling 2. To reduce moral hazard 3. To measure the amount of the insured’s loss in property insurance

Answer 27

Ownership of property(house,car) Potential legal liability (business owner) Secured creditors (mortgage company, auto lender) Contractual right (goods in transit)

Answer 28

Life Insurance: At the time policy is purchases Property: Must EXIST at both times of policy purchase and time of loss

Answer 29

1. To avoid collecting twice 2. To hold the negligent person responsible 3. To hold down rates

Answer 30

Statement made by the applicant for insurance What if the statement is false? Contracts is voidable, if misrepresentation is: Material, false and relied on by the insurer Is the contract voidable? Smoker lies on their life insurance application and later dies in an auto accident Can be voidable since misrepresented on application Insured’s bday on application is listed as Aug 1 when its Aug 11 No

Answer 31

Intentional failure of the applicant for insurance to reveal a material fact to the insurer Contract can be voided if: Concealed fact was known by the insured to be material Insured intended to defraud the insurer

Answer 32

Statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects Condition agree to by an insured in order to receive coverage Violation of warranty may result in a claim being denied

Answer 33

A. Offer and Acceptance --> The applicant usually makes the offer - The insurer accepts or rejects the offer - Agent’s authority to bind the insurer varies by type of insurance B. Exchange of Consideration --> Insured’s consideration generally is payment of the first premium - Insurer’s consideration is the promise to perform the contract. C. Competent Parties D. Legal Purpose

Answer 34

A. Insurance is an Aleatory Contract. B. Insurance is a Unilateral Contract C. Insurance is a Conditional Contract D. Insurance is a Personal Contract E. Insurance Contracts are Contracts of Adhesion

Answer 35

Values exchanged may not be equal but depend on an uncertain event. Examples: Mia Wallace pays $1,000 for homeowners insurance. Her house burns down and the insurance company pays her $200,000. Jules Winnfield has paid $1,000 a year every year for 20 years for homeowners insurance. He’s never filed a claim so his insurer has never paid him any money.

Answer 36

Only one party (insurer) makes a legally enforceable promise Insurer makes legally enforceable promise to pay claims. Insured cannot be legally required to pay premiums

Answer 37

The insured must comply with all policy conditions to collect for a covered loss. Conditions - Provisions within the policy that qualify or place limitations on the insurer’s promise to perform. Example – Your Duties After Loss - Give immediate notice to us or our agent. - Protect the property from further damage.

Answer 38

Contract is between the insured and insurer Policy cannot be validly assigned to another party without the insurer’s consent

Answer 39

Insured must accept the entire contract, with all of its terms and conditions. Because this is imbalanced, courts have ruled that any ambiguities or uncertainties in the contract are construed against the insurer. Principle of Reasonable Expectations An insured is entitled to coverage under a policy that he or she reasonably e

Answer 40

voluntary relinquishment of a known legal right

Answer 41

representation of fact made by one person to another person that is reasonably relied on by that person to such an extent that it would be inequitable to allow the first person to deny the truth of the representation

Answer 42

A.Maintain Insurer Solvency B. Compensate for Inadequate Consumer Knowledge C.Ensure Reasonable Rates D. Make Insurance Available

Answer 43

Established that insurance should be regulated and taxed by the states Federal antitrust laws do not apply to insurance (some exceptions)

Answer 44

Eliminated barriers between insurers and banks Insurers can have banking operations and banks can have insurance operations Led to several mergers and acquisitions Created some confusion as to who would regulate each division Frequently sited as a contributor to the financial crisis (2008)

Answer 45

Established general federal oversight of the insurance industry Created financial stability oversight council (FSOC) Authority to treat systemic risk (collapse of entire financial system due to the failure of a single entity or group of entities) Can classify non-bank financial companies (includes insurance companies) as “systemically important financial institutions” ((SIFIs) SIFIs receive tougher financial oversight and regulated by the federal reserve

Answer 46

Domiciled in the state (within state)

Answer 47

Chartered (domiciled) in another state, but licensed to operate in the state

Answer 48

chartered in a foreign country, but licensed to operate in the state

Answer 49

1. Admitted assets 2. Reserves 3. Surplus 4. Risk-based capital 5. Investments 6. Dividend policy 7. Reports and examinations 8. Liquidation of insurers

Answer 50

Prior-approval → rates must be filed and approved by the state before being used File-and-use→ rates must be filed with the state, but can be used immediately Other Methods → modified prioval approval, use-and-file, flex-rating, state-made rates, and no filing required

Answer 51

Must be filed with state department of insurance Purpose: protect consumers from misleading, deceptive, or unfair provisions

Answer 52

All states require: Licensing of brokers and agents Continuing education for brokers and agents

Answer 53

Inducement of policyholders to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client

Answer 54

Practice of giving an individual a premium reduction or some other financial advantage not stated in the policy as an inducement to purchase the policy

Answer 55

Insurers pay a state tax on gross premiums received from policyholders

Answer 56

rates must be filed and approved by the state before being used

Answer 57

rates must be filed with the state, but can be used immediately

Answer 58

modified prioval approval, use-and-file, flex-rating, state-made rates, and no filing required

Answer 59

Decrease compliance cost * Increase competition. * Increase innovation. * More effective negotiations of international insurance agreements. * More effective treatment of systemic risk

Answer 60

Needs of each state are different. * Federal regulation in historically inefficient. * Transition to federal would be costly and require dual regulation for a short time. * The National Association of Insurance Commissioners (NAIC) already advocates for uniformity * Insurers can innovate by experimenting in different states * Unknown consequences of federal regulation

Answer 61

A. Declarations Page B. Definitions C.Insuring Agreement D.Exclusions E. Conditions F. Endorsements/Riders

Answer 62

Statements that provide information about the particular property or activity to be insured - Name of Insurer and Insured - Property Location - Policy Period (Dates) - Amount(s) of Insurance (limits) - Premium - Deductible(s) - Other Relevant info

Answer 63

Key words or phrases are defined so that coverage under the policy can be determined more easily “We”, “us”, and “out” refer to the insurer “You”, and “your” refer to the insured Any words NOT defined by the policy → standard dictionary definition applies

Answer 64

Summaries of the major promises of the insure (what the policy covers) Names Perils → only perils specifically names in the policy are covered Open Perils → (all perils, special coverage) all perils are covered except for those specifically excluded Which is better? Open Perils

Answer 65

Insurance contracts contain 3 types of exclusions: Excluded perils → flood, intentional act, war Excluded losses → professional liability loss is excluded in the homeowners policy Excluded property →pets aren’t covered as personal property in homeowners policy, money (cash) limited to 200 Why are exclusions necessary? Certain perils considered uninsurable → Flood, war Presence of extraordinary hazards → Using personal vehicle as a taxi or for Uber, Lyft Coverage provided by other contracts → Use of auto is excluded by homeowners policy Moral hazard → Money (cash) limited to $200 within homeowners policy Attitudinal hazard → Losses due to freezing of pipes are only covered if there was reasonable care to maintain heat in the building. Coverage not needed by typical insureds → Homeowners policy does not cover aircraft or professional liability

Answer 66

Provisions in the policy that qualify or place limitations on the insurer's promise to perform Ex: Prompt notification of loss Protect property from further loss valuation/loss settlement - ACV vs RC No concealment or fraud Subrogation If policy conditions aren’t met → insurer can refuse to pay the claim

Answer 67

Provisions that add to, delete from, or modify the original/main policy Ex: Replacement cost coverage for personal property wind/hail exclusion Language to comply with state law (uninsured motorist) Earthquake endorsement to a homeowners policy

Answer 68

Person(s) or party named on the declaration page of the policy

Answer 69

Certain additional rights and responsibilities that don’t apply to other named insureds

Answer 70

Person or parties who are insured under the policy even though they are not specifically named

Answer 71

person or party added to the policy by an endorsement

Answer 72

1. Eliminate small claims 2. Reduce premiums 3. Reduce moral and attitudinal hazard

Answer 73

Provision by which a specified amount is subtracted from the total loss payment that would otherwise by payable

Answer 74

amount the insured is responsible for per loss before the insurer pays anything Ex: 1,000 deductible Accident 1 on 4/20 10,000 damages Insured pays 1,000, insurer pays 9,000 Accident 2 on 6/15 900 damages Insured pays 900, insurer pays 0

Answer 75

amount the insured is responsible for in total (over all losses during the policy period) before the insurer pays anything Ex: $1,000 annual aggregate deductible Dr. appt. 1 on 1/31 Costs 600 Insured pays 600, insurer pays 0 Dr. appt 2 on 2/17 Costs 900 Insured pays 400, insurer pays 500

Answer 76

Started period of time at the beginning of a loss during which no insurance benefits are paid Common in disability insurance - typically cannot collect until you’ve been out of work doe 30,60, or 90 days

Answer 77

Cost-sharing arrangement between the insured and the insurer (both parties share the financial responsibility for a covered loss after the deductible has been met)

Answer 78

to achieve equity in rating

Answer 79

Provision that requires the insured to pay a specified percentage of covered medical expenses after the deductible is met. Reduces premiums and prevents overutilization of policy benefits. If you have to pay for a portion of it, are you going to get a medical test you don’t think you need? Example: 1,000 deductible 80/20 coinsurance (insurer pays 80%) 5000 medical procedure How much does the health insurer pay? 5000-1000= 4000 x .8= 3200

Answer 80

Each insurer’s share of a loss is based on the proportion that its insurance bears to the total amount of insurance on the property

Answer 81

Each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the loss is paid

Answer 82

Primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted EX: Umbrella insurance (excess)

Answer 83

Provides life and health insurance to members of a social or religious organization