Risk Finance Chapter 3

Front 1

Modular policy

Back 1

In insurance policy that consists of several different documents, non of which by itself forms a complete policy

Front 2

Standard insurance form

Back 2

A reprinted insurance form developed by an insurance advisory org.

Front 3

Non-standard form

Back 3

A reprinted insurance form that includes wording and/or provisions that vary from what is used in a standard form.

Front 4

Manuscript form

Back 4

An insurance form that is drafted according to the terms negotiated between a specific insured an an insurer.

Front 5

Components that may be included in a coverage part of an insurance policy.

Back 5

Declarations page - applies only to that coverage part.

One or more coverage forms - contains insuring agreements, exclusions, and other policy provisions.

Appication endorsements - modify the terms of the coverage forms to fit the coverage needs of the particular insured

Front 6

Indentify the purpose of a policy endorsement

Back 6

To add, clarify, restrict, or remove coverage provided by the original insurnance policy.

Front 7

Identify the advantages of using the modular approach to policy construction

Back 7

minimize the possibility of gaps and overlaps.

Consistent terminology definitions, and policy language make coverage interpretation easier for the insured organization.

Fewer forms that are required to meet a wide range of needs.

Insured often give a package discount when several coverages are included in the same policy.

Front 8

Benefits of working with standard forms

Back 8

Standard forms are widely understood, and many of them have been subject to litigation, which has added further clarity to their meaning. Furthermore, most risk management professionals have more experience working with reprinted standard forms than with most other forms.

Front 9

Benefits of using manuscript forms

Back 9

They can be specially drafted or selected for a specific need.

Front 10

Drawbacks of using manuscript forms

Back 10

They may be difficult for the risk management professional to interpret.

Front 11

Policy provision

Back 11

Any term or clause included in an insurance policy that specifies requirements or clarifies intended meaning.

Front 12

Insurance agreement

Back 12

A statement in an insurance policy that the insurer will, under certian circumstances, make a payment or provide a service.

Front 13

Condition

Back 13

Any provision n an insurance policy that qualifies an otherwise enforceable promise of an insurer.

Front 14

6 characteristics of property casualty insurance policy provisions

Back 14

1. Declarations - contains information declared by the insured on the application and information unique to a specific policy.

2. Definitions.

3. Insuring agreements- statements that the insurer will under certian circumstances make a payment or provide a service.

4. Conditions - condition that qualifies an otherwise enforceable promise of the insurer.

(5) Exclusions - clarifies the coverages granted by the insurer.

(6) Miscellaneous provisions: provisions that deal with the insurer and insured that help establish working procedures for implementing coverage but do not have the force of conditions.

Front 15

Describe how to recognize which words in a policy have a special definition.

Back 15

Bold face or quotation marks

Front 16

Describe how exclusion definitons and other policy provisions are used to modify coverage in the following insurance agreement coverages:

(a) Comprehensive insurance agreements.

(b) Limited or single purpose insurance agreements.

Back 16

(a) Comprehensive all purpose insuring agreements.

(b) Limiting or single puprose insurning agreements

Front 17

Explain the effect that policy conditions may have on the insured's ability to recover on a loss from an insurer.

Back 17

A policy condition qualifies an other wise enforceable promise of the insurer. Insureds that fail to satisfy the conditions of the policy may release the insurer from anhy obligation to perform some or all of its otherwise enforceable promises.

Front 18

6 purposes of exclusions in insurance policies.

Back 18

1. To eliminate coverage for uninsurable loss exposures.

2. To assist in managing moral and morale hazards.

3. To reduce the likelihood of coverage duplication.

4. To eliminate coverages not needed by the typical insured.

5. To eliminate coverages requiring special treatment.

6. To assist in keeping premiums reasonable.

Front 19

Explain how deductibles support the economical operation of insurance.

Back 19

by allowing an insured organization to obtain the risk transfer it needs while retaining those losses it can safely absorb.

Front 20

Briefly describe how the following types of dedcutibles are applied in property insurance policies:

a. Flat, or straight, dedctuble

b. Disappearing, or franchise, deductible.

c. Percentage deductible

d. Aggregate annual deductible

Back 20

a. Flat, or stright, deductible - stated in a dollar amount and usually applies per occurrence, regardless of the number of items of covered property that are damaged.

b. Disappearing, or franchise, deductible - Decrease in amount as the amount of loss increases, and disappears entirely after a specified amount of loss is surpassed.

c. Percentage deductible - stated as a specified percentage, as a percentage of the loss, percentage of the amount of insurance or specified percentage of the value of the affected propertyl.

d. Aggregate annual deductible - Limits the total amount retained during a year. After the aggregate annual deductible has been met, the insurer provides first-dollar coverage on allsubsequent losses.

Front 21

Briefly describe how the following types of liability deductibles are applied in insurance policies.

a. Per claim deductible

b. Per accident/occurrence deductible

c. Waiting period deductible

Back 21

a. Per claim deductible - applies to all damages sustained by any one person or orgainzation as a result of one occurence.

b. Per accident/occurrence deductible - applies only once to the total of all claims paid arising out of one accident or occurrence..

c. Waiting period deuctible - payable after a specified time period.

Front 22

Large deductible plan

Back 22

An insurance policy with a per occurrence or per accident deductible of $100,000 or more.

Front 23

Residual market loading

Back 23

An amount charged to make up for losses in a state-sponsered plan to insure high-risk exposures, such as an assigned risk plan for auto insurance.

Front 24

Explain how th e use of large deductible plans enables an organization to lower its cost of risk.

Back 24

By using large deductibel plans, organizations can lower costs of risk because they are able to pay a reduced insurance premium while retaining losses below the deductible level. In addition organizations are able to defer cash outflows for accidental losses.

Front 25

Difference in operation b/w large deductible plans and self insured retention

Back 25

With SIR the insured organization is responsible for adjusting and paying its own losses up to the SIR amount. This task is frequently outsourced to an independent claim adjusting organization.

With a large deductible plan, the insurer adjusts and pays all claims for loss, even those below the deductible level, and seeks reimbursement from the insured.

Front 26

Identify two reasons why reducing the premium reduces costs of risk under a large dedcutible plan

Back 26

1. States impose various charges, s uch as premium taxes and residual market loadings.

2. An insurance premium includes charges for the insurer's overhead costs and profit.

Front 27

Excess liability insurance

Back 27

Insurance coverage for losses that exceed the limits of underlying insurance overage or a retention amount.

Front 28

Following form excess liability policy

Back 28

Excess liability insurance that covers liability loss that exceeds the underlying policy limits only if the underlying insurance covers the loss.

Front 29

Self Cotained excess liability policy.

Back 29

Excess liability insurance policy that is subject to its own provisions only, so coverage applies only to the extent described in the policy.

Front 30

Combination excess liabiity policy

Back 30

An excess liability insurance policy that combines the following form and self contain approaches by incorporating the provisions of the underlying policy and then modifying those provisions with additional conditions or exclusions in the excess policy.

Front 31

Specific excess liability insurance policy

Back 31

An excess liability policy that requres the insured organization to retain a stipulated amount of liability loss from the first dollar for all losses resulting from a single occurrence or accident.

Front 32

Aggregate or stop loss, excess liability insurance policy

Back 32

An excess liability policy that requires the insured organization to retain a specified amount of liability loss from the first dollar during a specified period, usually one year.

Front 33

Reducing premiums reduce costs for the following reasons:

Back 33

States impose various charges, such as premium taxes and residual market loadings.

An insurance premium includes charges for the insurer's overhead cost and profit.

Front 34

2 basic functions of excess liability provisions.

Back 34

1. Provide additional liability limits above the each occurrence/accident limits of the insured's underlying liability policies.

2. To take the place of the underlying liabiliity insurance when underlying aggregate liability limits have been exhausted.

Front 35

The different types of excess liaiblity forms offer the following 4 coverages:

Back 35

1. Following form excess liability policy - covers a liability loss that exceeds the underlying policy limits only if the underlying insurance covers the loss.

b. Self contained excess liability policy - subject to its own provisions only, so coverage applies only to the extent described in the policy.

c. Combination excess liability policy - incorporates the provisions of the underlying policy and then modifies those provisions with additional conditions or exclusions in the excess policy.

d. Specific and aggregate excess liabilty insurance - requires the insured orgainztion to retain a stipulated amount of liablilty loss from the first dollar for all losses resulting from a single occurrence or accident.

Front 36

3 basc functions of umbrella liability policy.

Back 36

1. To provide additional limits above the per occurrence limits of the insured underlying liability policies.

2. To take the place of underlying liability insurance when underlying aggregate limits are exhausted.

3. To cover some claims that the insured organization's liability policy do not cover.

Front 37

Describe circumstances in which self insured retention does not apply in claims not covered by the insured's underlying policies.

Back 37

When paying the excess amount of la loss that the underlying liability policy covers.

When dropping down to pay a loss because the underlying policy's aggregate liability limits has been exhausted.

Front 38

Identify underlying policy exclusions that provide broader coverage that are frequently omitted from umbrella liability policies.

Back 38

Liquor liability exclusion of a general liablity policy.

Employers' liability insurance exclusions of accident occurring outside the U.S or Canada.

Employers' liablilty insurance exclusion of injury to persons subject to the Federal Employers' Liability Act, the Jones Act, and similar laws permitting employess to sue their employers.

Employers' liability insurance exclusion of injury to persons knowingly employed in violation of law.

Front 39

Describe how the risk management professional determines how an organization's liability coverage is structured.

Back 39

The risk management professional must evaluate the adequacy of each underlying layer and determine how much additional excess or umbrella liability coverage needs to be purchased.