Unit 3 Part B Flashcards
(29 cards)
salvage
insurer can take possession of damaged property after payment of a total loss (more $ to fix than its actual value)
abandonment condition
NI may not abandon property that can be repaired and expect to be paid as if the loss was total
liberalization
if insurer broadens coverage without additional premium, all existing similar policies will be amended similarly – no action required by NI
subrogation/transfer of right of recovery against others
insurer has the right to “go after” an at-fault party for damages insurer had to pay insured; common when at-fault party does not have insurance
insurable interest
legitimate risk of financial loss in the thing being insured (ex. a bank or mortgage company also may have insurable interest in property) – may be present at time of application and MUST be present at time of loss
underwriting
process of evaluating risk and exposures of potential clients; company underwriters decide if a policy is to be issued
field underwriting
required to be completed by agent/producer based on pre-established criteria
application
primary source of underwriting information
binders (4)
- temporary oral/written statement made by agent giving insured immediate coverage for a specific time
- can be canceled by company
- does not guarantee a policy will be issued
- automatically ends if a policy is issued by underwriter
loss ratio
expense ratio
combined ratio
loss ratio combines company’s operations year over year
expense ratio is the cost of doing business
combined ratio is the sum of the loss and expense ratio, the breakeven point
loss ratio =
incurred losses/earned premiums
incurred losses = amounts paid and reserved on claims, expenses for handling claims
earned premiums = premium company earned by providing insurance
expense ratio =
underwriting expenses/written premium
underwriting expenses = costs to acquire and keep policies, like advertising, commissions, salaries, etc.
written premium = gross amount of premium income received from NI, earned and unearned
combined ratio =
loss ratio + expense ratio
100% = BE
> 100% = loss
< 100% = profit
judgment rating
premium is determined by underwriter considering individual risk
manual/class rating
uses company rates for a specific area; rates are arranged by category/class
underwriter classifies risk to get an appropriate rate
manual/class rating formula
premium = rate per unit*number of units
(rate per unit is the rate looked up by the underwriter; # of units is number of policies being purchased)
An insured purchases $60k of insurance at a rate of $2 per $1,000 of coverage, what is the manual rating?
Units = 60,000/1,000= 60
$2 rate/unit*60 units= $120 premium
experience rating
associated with worker’s comp; exp. rating is a modification factor based actual loss experience that is compared to historical loss data for a rating class
usually a 3-yr period
retrospective and schedule rating
other types of merit rating.
retrospective bases premium on losses incurred during policy period;
schedule applies a system of debits/credits to reflect a particular insured
loss costs
pure claims data that does not include any costs for company expense or profit, provided by companies such as Insurance Services Office
rate components
(definition and 5 proponents)
factors that determine premium rates; often include loss costs, claim handling costs. operating/expenses/profit
fair credit reporting act
regulates collection and use of consumer credit info
with FCRA, a “note to applicant” must be issued to the applicant within 3 days of a report being requested – penalties: $5k fine/1 yr in prison
terrorism risk insurance act, TRIA
result of 9/11; designed to limit exposure of insurers and to make insurance affordable by sharing risk of loss with federal govt –
“triggering event” set at $400 million
gramm-leach-bliley act, GLBA
requires financial institutions to explain their info-sharing practices to customers and est. appropriate standards for confidentiality and data security
