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61 Cards in this Set

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insurable interest
in a word, ownership. policy cannot be transferred to another person just because they bought your property, after you sell your property, you cannot file a claim on it either. Insured must have financial interest, either full or partial in the subject of insurance.
hazard recognition and evaluation, risk selection, pricing and determination of policy terms and conditions. they underwrite apps and accept those apps that can make the insurance company money.
loss ratio
the sum of all premiums divided by the number of losses. it's the percent of premiums used to pay claims.
determined by adding the premium on policies divided by the number of losses.
- regulated
- price of insurance for each unit of exposure...
- based on stats and cost of exposure of each unit.
what are the 2 types of rates?
class and judgement
class rates
- apply to all members of a wide group having similar exposures.
judgement rates
- partially or exclusively based on judgement... when there are no distinguishable classes that are similiar, so no stats.
ex. surplus lines.
Rating Organizations and Rating Bureaus
gather and analyze stat data and compile contracts that smaller ins companies can use who don't want to spend on their own attornies or accuaries.

EX ISO - insurance service offices
independent filings
companies that prefer to make their own rate filings

rates are middle of the road (benchmark rate)
Deviate (rates) -
companies charging higher or lower rates than recommended benchmark rate.
any condition that increases the chance of a loss or increases the frequency or severity of loss.

3 types.
physical hazard
something that increases the probability of loss, or severity of loss, that can be seen, touched or felt
moral hazard
your past equals your future

characteristic of an insured person usually based on past actions that may tend to increase the probability or severity of a loss...

felony history with arson would make it tough to get property protection.
Morale hazard
something happening in the present that may affect the future.
characteristic of an insured based on their present actions that display an indifferent or an "i don't care attitude".

inspection of home turns up bad conditions. would be a morale hazard.
Property vs casualty insurance
Property (people's stuff) VS. Casualty ( people's liability because of the stuff they own)

liability - it is my stuff but it could cause damage to someone else. ->
the property portion of the the ins actually protects the insured for direct losses to the property they own.
the casualty portion of the ins protects the policyholder for damages doen to others in relation to the property being insured.
the failure to exercise the standard of care required by law to protect others from harm.

the process of determining who was negligent.
4 elements used to consider negligence
- legal duty to act
- breach of that duty
- resulting damage & injury
- proximate cause
the first element of considered for negligence is what?
1. the existence of a legal duty to act or a standard of care.

do you meet certain standards of care? did you do something to prevent
the second element of considered for negligence is what?
breach of that duty
the third element of considered for negligence is what?
resulting damage and injury
the fourth element of considered for negligence is what?
proximate cause ( where there is an unbroken connection between the peril and the loss without the intervention of a new and independent cause. vs an intervening cause
assumption of risk
you can't collect for an injury you got from doing something risky or dangerous.
racecar driver
comparative negligence
laws permit the injured person to collect even though he contributed to the accident.
like in the state of texas
contributory negligence
no fault - a person can't collect if they contributed in any way to the accident.
like in the state of colorado
intervening cause
breaks the chain of an accident... an independent cause of injury or damage that intervenes bet the orig wrongful act or omission and produces a result that would not have otherwise followed.
contractor left bucket and you tripped on it while running from a fire. ... 2nd contributor.
statue of limitations
withing 2 years and 1 day of the occurance is statue of limitation for tort law in Tx. any legal action must be brought against insurer within this time frame.
Compensatory damages
paying both special and general damages together.
Special Damages
awarded to compensate the victim for itemized losses like med bills, loss of earnings, and property damage.
another word for special damages
Specified damages
if it can be documented it's special damages
General damages
damages that cannot be itemized such as pain and suffering.
contested alot ... people argue over this all the time.
Punitive damages
awarded for gross negligence. Done to punish the wrongdoer for reckless disregard for the safety of others.
big $ to make headlines and send a message to the public- that we will punish you!
Absolute (strict) Liability
extra hazardous or dangerous situations where insured takes a certain standard of care because there is no defense of negligence
ex of risks here are: dangerous animals, explosives,aircraft, intentionally set fire.
Vicarious Liability
someone takes responsibility for someone elses action.
ex child to parent; emloyer for employee
limits of liability
how much protection you need for your liability. usually expressed in BI - bodily injury and PD - property damage
Split limits
these types used in auto insurance... seperate limits apply to BI and PD
Difference between accident and occurrance
The diff is in the duration of the event. acci is sudden and unexpected. occurrance is a single event that can happen over a period of time.
earthquake and aftershocks would be an occurrance.
Combined limits
one policy limit amount applies to both BI and PD from a single accident
usually on a commercial auto and homeowners policies because this is expensive!
Aggregate limit
max amount that can be paid during the policy term for 1 or more occurances... Possible to run out of money!
only found on commercial lines of insurance. Commercial policies are good for a 1 year basis.
any event that causes a loss. The words peril and loss are interchangeable.
Perils that are always grouped together
fire and lightning.
Friendly fire
a fire that stays within it's bounds and is under control.
ex: fireplace
Hostile fire
a fire that is one that is out of any boundary and out of control
ex: house on fire
another term for group of basic perils
extended coverage perils
Rev. C. H. Shaw
Rev. C. H. Shaw stands for what perils?
riot, explosion, vehicle, civil commotion, hail, smoke, hurricane, aircraft, windstorm
3 basic peril exclusions
* wind driven rain damage only covered if through a hole in the blding roof or window

*explosion - equipment cannot be owned or operated by the insured.

*vehicle cannot be owned or normally operated by insured or insured family member
Another term for named perils
another term for all risk perils
named (specified) perils
insurance company will list the covered perils on the policy. *MUST BE LISTED TO BE COVERED*
All risk (open) perils
all causes of loss covered unless specifically excluded in the policy
perils of flood, war, and nuclear hazard are normally always excluded.
Direct loss
damage to property caused as a direct result of the peril.
ex in a home fire, all items burnt or smoked out inside are direct losses.
another term for indirect loss
consequential loss
indirect or consequential loss
after the direct loss is over, these losses then happen
fire is over that destroyed the home, but insured has to stay at hotel... eat out,
basic types of contruction?
Frame, Masonry, or fire resistive
frame combustible
masonry brick stone concrete
fire resistive steel frame fire walls
specific insurance
most familiar type... one object is insured under the policy.. home ... auto
blanket policy
covers multiple properties
money is dispersed pro rata
normally commercial like several whataburger locations.
pro rata
percentage wise
loss valuation
how much am i gonna get paid after my loss.
Actual Cash Value (ACV)
todays replacement value less depreciation
generally used on home or auto policies
Replacement Cost
coverage on the basis of full value without consideration of depreciation or deduction
don't depreciate my burned home, give me my home back!
Functional replacement cost
property becomes obsolete due to design or technological advances (think 8 track tape). provides replacement based on market value.. or will give you the closest existing equivalent available.
ex cassette player = cd player
market value
amount a willing buyer would pay a willing seller for the property... subject to geographical changes.
ex a pickup truck isn't as valuable in Boston as it would be in Dallas.