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88 Cards in this Set
- Front
- Back
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Six steps to the risk management process
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- identify expos
- analyze expos - investigate the various techniques to address the loss expos that have been identified - select the technique - implement the technique selected - monitor results & make any necessary changes |
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Techniques to address loss expos
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- risk control
- risk financing - loss exposure avoidance |
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Law of large numbers
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mathematical principle that says that relative accuracy of predictions about future outcomes increases as the number of similar, but independent, exposure units increases
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Examples of alternative risk financing techniques
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- self-ins programs
- captives - risk retention program |
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Characteristics used to classify ins co's
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- legal form of ownership
- place of incorporation - licensing status - marketing systems used |
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Classification of insurers defined by their legal form of ownership
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- proprietary insurers
- cooperative insurers - other insurers (eg, pools and gov insurers) |
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Purpose of proprietary insurers
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formed to earn a profit for their owners
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Examples of proprietary insurers
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- stock ins co's
- Lloyds - ins exchanges |
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Purpose of cooperative insurers
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owned by their p/h & usually formed to provide ins protection to their p/h at minimum cost
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Examples of cooperative insurers
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- mutual ins co's
- reciprocal exchanges - fraternal organizations - others 1. captive insurers 2. risk retention groups 3. purchasing groups |
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Types of ins co's based on place of incorporation
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- domestic
- foreign - alien |
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Domestic insurer
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incorporated in state or formed by the laws of the state
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Foreign insurer
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domestic insurer that is licensed to do business in state other than it's domiciled state
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Alien insurer
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insurer formed in another country
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Describe licensed insured
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insurer authorized by the state ins dept to transact business w/i a particular state
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Describe unlicensed insured
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insurer not authorized by the state ins dept to transact business in that state
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Three core ins functions
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- marketing
- underwriting - claims |
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Nine supporting ins functions
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- loss control
- reinsurance - actuarial - investments - info technology - premium audit - human resources - legal services - accounting |
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Traditional marketing systems
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- independent agecies & brokerages
- direct writers - exclusive writers |
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Main characteristics that distinguish traditional marketing systems
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- contractual relationship btw producer & insurer
- ownership of expirations - compensation methods |
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Independent agency and brokerage marketing system
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ins marketing system under which
- agent is contracted to sell for insurer - agent can represent multiple insurers - agent owns expirations - agent is compensated by commissions 1. flat % on all business submitted 2. contingent or profit-sharing by meeting volume and/or profit goals |
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Exclusive agency
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ins marketing sys under which
- agent is contracted to sell for insurer - agent req'd to represent single insurer - expirations are owned by insurer - agent is compensated w/ commission 1. guaranteed min salary 2. one rate for new business & lower rate for renewals |
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Direct writer
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ins marketing sys under which
- agents are employees of a single insurer - agents can be compensated by salary, commissions, or a combination of salary & comm - expirations are owned by insurer |
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Components of marketing plan
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- product proposal & sales goals
- situational analysis: SWOT (strengths, weaknesses, opportunities, threats) - marketing goals: outline of proposed target market - marketing strategies: plans & proposals for how the product will be developed, priced, promoted, and sold |
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Primary types of authority in agent-principle relationship
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actual authority: authority conferred by the principle on an agent under an agency contract
apparent authority: authority that arises from a 3rd party's reasonable belief based on appearances created by a principle that an agent has authority to act on behalf of that principle |
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Describe managing general agents (MGA)
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- independent business orgs that function almost as branch offices for one or more insurers
- appoint and supervise independent agents and brokers for insurers using independent agency and brokerage system |
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Describe XS & surplus lines brokers
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persons or firms that place business w/ insurers not licensed in the state in which the transaction occurs but that are permitted to write ins b/c cov is not avail through standard market insurers
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Functions of producers
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- prospecting
- risk mgt review - sales - pol issuance - prem collection - customer service - claim handling - consulting |
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Types of prem collection
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agency bill: pmt procedure in which a producer sends prem bills to insured, collects the prem, & sends prem to insurer less any applicable comm
direct bill: pmt procedure in which insurer sends prem bills to insured, collects prem and sends any comm payable on prem to producer |
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Methods of prospecting
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- referrals from present clients
- referrals from strategic partners - advertising - interactive web sites - telephone solicitations - cold canvas (ie, solicitation w/o appt) |
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Purpose of u/w
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develop & maintain profitable book for insurer
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Steps of u/w process
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- evaluate loss expos
- determine u/w alternatives - select an u/w alternative - determine appropriate prem - implement u/w decision - monitor loss expos |
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Hazard categories
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- moral: condition that increses the likelihood that a person will intentionally cause or exaggerate a loss. u/w look for prop grossly overinsured
- morale: conditional of carelessness or indifference that increases the freq or sev of loss (eg. careless driving) - physical: tangible condition of prop, persons, or ops that increases the freq or sev of a loss (eg. untrained driver) - legal: condition of the legal environment that increases loss sev or freq |
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Moral hazard
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condition that increases the likelihood that a person will intentionally cause or exaggerate a loss
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Morale hazard
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condition of carelessness or indifference that increases the freq or sev of a loss
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Physical hazard
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tangible condition of prop, persons, or ops that increases the freq or sev of loss
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Legal hazard
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condition of the legal environment that increases loss sev or freq
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Major types of modifications to make a submission more acceptable to an u/w
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- req loss control measures: eg. sprinkler system, guard service
- chg ins rates, rating plans, or pol lims: eg. insured may not qualify for preferred program but may qualify for higher rates in standard program (experience, schedule and retrospective rating) - amend pol terms & conditions: eg. exclude certain causes of loss, increase deds, more limited cov form - use facultative rein: transfer portion of the liab |
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Experience rating
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ratemaking technique that adjusts the insureds prem for the upcoming pol period based on insureds experience for the current period
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Schedule rating
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rating plan that awards credits and debits based on specific categories such as the care and condition of the premises
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Retrospective rating
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ratemaking technique that adjusts the insureds prem for the current pol period based on insureds loss experience during the current period
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Add'l factors to consider when deciding to accept submission
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- u/w authority: may need to refer to higher authority
- supporting business - mix of business - producer relationships - regulatory restrictions |
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Types of underwriters
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- line u/w's
- staff u/w's |
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General differences btw staff and line underwriters
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Line:
- primarily responsible for implementing the steps in u/w process - usually located in branch/regional offices Staff: - assist u/w mgt with making and implementing u/w pol - usually located in home office |
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Functions of line u/w's
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- assist w/ determining appropriate cov
- provide service to producers and p/h (not in notes, but in questions, line u/w responsible for classifying risks) |
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Functions of staff u/w's
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- research the market
- research & develop coverages - evaluate u/w experience - review & revise rating plans - formulate u/w pol - develop u/w guides - conducting u/w audits - assisting w/ education and training |
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Fire ins classes of construction
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- frame
- joisted masonry - noncombustible - masonry noncombustible - modified fire restistive - fire-resistive |
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Sources of common occupancy hazards
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- housekeeping practices
- heating equip - electrical equip - smoking |
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Property causes of loss
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- fire
- lightning - explosion - windstorm - hail - vandalism and malicious mischeif - water damage - flood - EQ - collapse |
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Sources of legal liab
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- torts
- contracts - statutes that impose liab w/o regard to fault |
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Classes of wrongful acts
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- criminal acts: crimes against others, which are also offenses against society
- civil acts: violate the rights of individuals by tort or breach of contract |
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Types of torts
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- negligence
- intentional torts - strict liab - vicarious liab |
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Elements of negligence
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- legal duty owed to plaintiff
- failure to conform to standard of care req'd by situation - causal connection exists btw negligent act & the BI or PD - BI or PD occurred |
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Under negligence, legal duty has 3 levels of care - what are they?
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- invitee (most care): enters for the financial benefit of owner, eg. customer
- licensee: enters with permission, eg. guest - trespasser (least care): no permission, eg. burglar |
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Intentional torts
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- wrongful act or omission intended to cause harm. Examples include:
1. assault & battery 2. libel 3. slander 4. invasion of privacy 5. copyright violation |
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Strict liab
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liab imposed w/o regard to fault. Examples:
- abnormally dangerous activities - sale of dangerously defective products |
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Vicarious liab
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liab arising when one party is held liable for the actions of another party. Examples:
- principle-agent - employer-employee - parent-child |
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Types of liab damages
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- compensatory: compensate injured party for harm caused by the wrongful act
- punitive: punish defendants whose conduct is willful, wanton or grossly negligent |
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Types of premises and operations loss expos
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- premises liab
- ops liab - completed ops |
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Premises liab
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loss expos that arise from ownership or possession of real prop
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Operations liab
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loss expos that arise from a p/h business activities conducted away from its own premises and from uncompleted work
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Completed operations
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loss expos that arise from an org's completed work
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Types of physical hazards
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- common hazards
- special hazards of the class - special hazards of the risk (beyond those anticipated by the standard rates for the class) |
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Parties who commonly have ins other than property ins
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- landlords and tenants
- bailors and bailees - mortgagors and mortgagees |
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Types of prop
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- real: land and everything attached to it
- personal: all other prop |
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Replacement cost
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cost to repair or replace prop using new materials of like kind and quality with no deduction or depreciation
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Actual cash value
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replacement cost minus depreciation
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Insureds duties after a prop loss
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- provide prompt notice
- protect prop - assist w/ loss adjustment process - provide proof of loss - submit to examination under oath - insued may enlist help of Public Adjuster to handle all duties |
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Procedures to follow to settle prop claims
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- determine the cause of loss
- determine the amt of loss - document the cause & amt of loss - avoid waiver & estoppel - determine salvage value & subrogation rates |
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Define waiver
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voluntary and intentional relinquishment of a known right by the insurer that results in estoppel
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Define estoppel
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principle that prevents the insurer from asserting a right that it has already waived
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Four steps in adjusting a liab claim
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- determine coverage
- determine legal liab - determine damages - negotiate & settle claims |
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Describe steps when cov problems exist
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- explain in writing to p/h what the issues are and how the adjuster will proceed
- send reservation of rights letter or nonwaiver agreement - investigate claim |
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Defenses to liab claims
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- absence of negligence: failure to prove claimant's case
- comparative or contributory negligence: claimant's own fault contributes to causing his BI - assumption of risk: claimant knows of a risk and voluntarily assumes it anyway - statute of limitations: time limit on right to file lawsuit |
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Types of damages awarded for BI claims
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- expenses for med treatment
- loss of earnings - pain and suffering - permanency/disfigurement - loss of consortium - future damages - wrongful death |
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Types of compensatory damages
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general: intangible; highly subjective such as pain and suffering
special: tangible; can be quantified such as loss of earnings |
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Settlement techniques in liab claim adjustment
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- structured settlements
- advance pmts - walk-away settlements |
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Structured settlement
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agreement in settlement of a lawsuit involving specific pmts made over a period of time. Useful when claimant is likely to experience regular damages in the future, and may be unable to effectively manage lump sum pmt. Attractive to insurers b/c they can offer more dollars in the tot settlement at a lower PV than with a lump sum pmt
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Advance pmts
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pmt made to a claimant following a loss to cover the immediate expenses resulting from the loss. This discourages claimants from hiring attorneys
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Walk away settlement
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settlement that involves lump sum pmts made by insurers to settle claims and that doesn't req a release from the claimant. Appropriate for small claims and promotes excellent public relations. It discourages claimants from bringing a suit
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Describe the duty to defend
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- insurer must defend an entire claim whenever a plaintiff's allegations for any part of the claim are covered
- can be more important to the insured than the duty to indemnify - especially important in frivolous, fraudulent, or meritless claims: absent insurer's defense, plaintiff could coerce settlement - insurer's duty is also its right: insurer can choose attorney and dictate defense strategy - when 2 defense attorneys involved, insurer's attorney has the right to control the case as long as the insurer's money is at stake |
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Types of alternative dispute resolution in liab claim adjusting
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- negotiation
- mediation: negotiation process in which a neutral outside party helps participants examine the inssues and develop a mutually agreeable settlement - arbitration: process in which the parties in a dispute agree to submit the controversy to a private body that will make a decision that can be final and binding - appraisal: method of resolving disputes btw insurers and insureds over the amt owed on a covered loss, but doesn't determine whether cov exists |
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Types of ADR (part 2)
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- mini-trial or summary jury trial: abbreviated version of a case that allows parties to present evidence and arguments to a panel that acts as a jury and that has no authority to make a binding decision but that can pose questions and offer an opinion on the outcome of the trial
- pretrial settlement conference: mtg of the judge and the parties' lawyers 2-3 weeks before trial to narrow issues, to stipulate issues and evidence, and to settle case |
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Auto residual market mechanisms
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- assigned risk plan
- JUA - reinsurance facility - state funds (Maryland) |
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Assigned risk plans
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- insurer must accept assignments based on its share of vol prem in state
- insured must be rejected in vol market first - insurer takes on losses from assigned risks |
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JUA
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- appoint servicing insurers to handle insurer functions
- profits/losses distributed based on vol market share |
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Rein facilities
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- requires all vol insurers to be servicing insurers
- u/w may assign high risk prem and loss to rein facility which acts as reinsurer - all insurers share in profits/losses |
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state fund
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fund writes the business, everyone shares the losses
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