Unit 1 Introduction To Insurance

Front 1

Risk

Back 1

The possibility that a loss will occur

Front 2

Insurance

Back 2

A contract that transfers the risk of financial loss from an individual or business to an insurance company

Front 3

Two types of risk

Back 3

Speculative risk, which have a possibility of loss, and also a possibility of game.

Pure risk only involves the possibility of experiencing a loss not a gain.

Front 4

Exposure

Back 4

The risks the insurance company will be liable for. Risk for which the insurance company would be liable.

Front 5

Peril

Back 5

The cause of a loss

Front 6

Loss

Back 6

The unintended, unforeseen damage to property, injury, or amount paid.

Front 7

Two types of loss

Back 7

Direct loss is a Physical lost the property with no enter meaning cause

Indirect loss is a results from a direct

Front 8

Hazard

Back 8

Anything that increases the chance that a loss will occur

Front 9

Three types of hazards

Back 9

Physical: physically identifiable, like wet floor

Moral: poor character

Morale: carelessness

Front 10

Methods of handling risks

Back 10

I am a STARR and handling risk.

Sharing, Transfer, avoidance, retention, reduction

Hint 10

STARR

Front 11

Sharing risks

Back 11

Two or more individuals or businesses agreed to pay a portion of any loss. Stockholders in a corporation share the risk.

Front 12

Risk, avoidance

Back 12

Eliminating a particular risk, but not engaging in a certain activity.

Front 13

Risk retention

Back 13

The individual or business will pay for the loss if it occurs. Self insurance.

Front 14

Risk reduction

Back 14

To lessen the chance that a loss will occur

Front 15

Law of large numbers

Back 15

The larger the group, the more accurately losses can be predicted

Front 16

Elements of insurable risk

Back 16

Calculable, affordable, non-catastrophic, homogenous, accidental, and measurable

Hint 16

CANHAM

Front 17

Adverse selection

Back 17

Risks that have a greater than average chance of loss. Not wanted by insurers. Tendency for high-risk people to get and keep insurance. Why ensures go through the underwriting process. High risk equals higher rates to ensure or refusal

Front 18

Reinsurance

Back 18

An insurance companies insurance company. Helps insurers spread the risk.

Ceding: the company reducing the risk.

Reinsurer: the company assuming the risk.

Front 19

Stock insurers

Back 19

Owned by stockholders. Dividend is NOT guaranteed. Dividend is paid to stockholders. Dividend is taxable to stockholders. Issue non-participating policies.

Front 20

Mutual insurer

Back 20

Owned by policyholders. Dividend is NOT guaranteed. Dividend is paid to policyholders. Dividend is not taxable. Issue participating policies.

Front 21

Fraternal benefit society’s

Back 21

Provides insurance and other benefits. Must be a member to get the benefit. Usually involved in charitable and benevolent causes.

Front 22

Reciprocal insurance

Back 22

Unincorporated. Members are assessed if a loss occurs to any member of the group. Managed by an attorney-in-fact

Front 23

Lloyds association

Back 23

Insurance provided by individual underwriters, not companies. Ensure unusual risks like hole in one, and celebrity hair.

Front 24

Risk retention groups

Back 24

Liability, insurance company created for policyholders from the same industry. Example, a car, dealers risk retention group in which only car dealers can be policyholders.

Front 25

Risk purchasing groups

Back 25

A group of businesses from the same industry that join together to buy liability insurance from an insurance company. They are not an insurance company.

Front 26

Self insurers

Back 26

A business that pays its own claims. Reserves funds to cover losses. Retained risk rather than transfers.

Front 27

Federal government insurers

Back 27

Provide insurance for war, nuclear energy, flood, federal crops, unemployment, Workmen’s Comp.

Front 28

Domestic Insurer

Back 28

The state in which the insurer was formed, and usually headquartered

Front 29

Foreign insurer

Back 29

In another state or US territory. For example, an insurer that was domiciled in Texas would be a foreign company to residents of Oklahoma.

Front 30

Alien insurer

Back 30

Companies Inc. in another country

Front 31

Certificate of authority

Back 31

State license for an insurance company

Front 32

Licensed or authorized (admitted) insurance company

Back 32

Admitted. Certificate of authority. Sell, place, and service most insurance contracts.

Front 33

Unauthorized insurance company

Back 33

Nonadmitted. No certificate of authority. Cell surplus lines insurance products.

Front 34

Surplus lines insurer

Back 34

Unauthorized. High risk insureds. Casinos, gaming, entertainment.

Front 35

Financial ratings of insurers

Back 35

Report card of the company Classified according to financial strength. Like insurers loss experience, reserves, investment performance, management, and operating expenses.

Front 36

Independent insurance agents

Back 36

Individuals that sell the insurance product of several companies. They are independent contractors, not employees of insurers. They own the renewals of the policies they sell.

Hint 36

Method of marketing

Front 37

Captive (exclusive) agents

Back 37

Represent only one company. Independent contractors, not employees of the insurer. The insurance company owns the renewals of the policies so on their behalf .

Hint 37

Method of marketing

Front 38

General, or a managing general agent

Back 38

Individuals that hire, train, and supervise other agents within a specific geographic area.

Hint 38

Method of marketing

Front 39

Direct writing companies

Back 39

Companies whose products are sold by employees, not independent contractors. May be compensated by salary, commission, or both.

Hint 39

Method of marketing

Front 40

Direct response marketing

Back 40

There is no producer or agent. Sold by advertisements, Internet, television.

Front 41

Agency

Back 41

A relationship where one person is authorized to represent another person or corporation

Front 42

Agent

Back 42

The person authorized to act on behalf of the other.

Front 43

Principle

Back 43

The person on whose behalf the agent acts.

Front 44

Law of agency

Back 44

Contracts made by the agent are considered to be contracts of the principal

Front 45

Express Authority

Back 45

Authority is written in agent contract

Hint 45

Agent/producer authority

Front 46

Implied authority

Back 46

Authorities not written in agent contract, but tasks agent must perform; imply that agent has this authority

Hint 46

Agent/producer authority

Front 47

Implied authority

Back 47

Authorities not written in agent contract, but tasks agent must perform; imply that agent has this authority. Example printing business cards with logo

Hint 47

Agent/producer authority

Front 48

Fiduciary

Back 48

A person in a position of financial trust

Front 49

Commingling

Back 49

The illegal act of mixing personal funds with the insured’s or insurers funds

Front 50

Calculable

Back 50

Premiums must be calculable based upon prior lost statistics for that particular risk in order to predict future losses

Hint 50

Element of insurable risk

Front 51

Measurable

Back 51

A definite time and place and measurable loss means that proof of loss must be established with numbers in dollar amounts, not just casual references

Hint 51

Elements of insurable risk

Front 52

Facultative

Back 52

The reinsurer evaluate each risk before allowing a transfer.