Ains 21 Part A

Front 1

loss esposure

Back 1

possibility of loss

Front 2

loss prevention

Back 2

reduce the frequency of loss

ex. safety goggles

Front 3

loss reduction

Back 3

reduce the severity of loss

ex. fire extinguisher

Front 4

property-casualty covers...

Back 4

damages to one's own property or liability to others

Front 5

life-health covers...

Back 5

death, injury, or sickness

Front 6

3 characteristics of a good contract

Back 6

utmost good faith

contract of adhesion

contract of idemnity

Front 7

utmost good faith

Back 7

an obligation to act honestly and disclose all relevant facts

Front 8

contract of adhesion

Back 8

insurer must adhere to its own words

Front 9

contract of idemnity

Back 9

the insured will be restored to previous financial standing. will not profit.

Front 10

self-contained policy

Back 10

single document

Front 11

modular policy

Back 11

contains several documents

usually a package

Front 12

term life insurance

Back 12

provides coverage for a specified period

premiums increase throughout the policy

Front 13

permanent life insurance

Back 13

provides coverage until death

premiums remain constant

Front 14

disability insurance

Back 14

type of health insurance

replaces income if unable to work due to illness or injury

Front 15

long-term care insurance

Back 15

type of health insurance

ex, nursing home, long hospital stay, etc

Front 16

umbrella liability

Back 16

provides additional coverage for large liability losses or for significant assets such as a pool

Front 17

CPP

Back 17

Commercial Package Policy

covers two or more lines of business

Front 18

BOP

Back 18

Business Owner's Policy

combines most property and liability coverages for small-medium sized businesses

Front 19

ocean marine

Back 19

covers ships and their cargo

Front 20

inland marine

Back 20

covers mobile equipment and property used away from the insured premises

typically in transportation

Front 21

commercial crime

Back 21

protects money, securities, and other property against robbery, extortion, theft

Front 22

CGL

Back 22

Commercial General Liability

Front 23

Professional Liability

Back 23

covers professionals such as accountants, attorneys, doctors, etc for harm resulting from them failing to render their services correctly

Front 24

environmental liability

Back 24

covers pollution

Front 25

6 characteristics of ideally insurable loss exposures

Back 25

pure risk

fortuitous

definite and measureable

large number of similar exposure units

independent and not catastrophic

affordable

Front 26

pure risk

Back 26

chance of loss

chance of no loss

Front 27

speculative risk

Back 27

chance of loss

chance of no loss

chance of gain

Front 28

fortuitous loss

Back 28

purely by chance from insured's standpoint

Front 29

definite loss (3 things)

Back 29

must be able to determine:

time

location

cause

Front 30

measurable loss

Back 30

insurers need to measure the frequency or severity of the potential loss to determine an appropriate premium

Front 31

independent loss

Back 31

loss suffered by one is unrelated to loss suffered by others

Front 32

catastrophic loss

Back 32

numerous exposure units suffering the same type of loss simultaneously with significant financial consequences

Front 33

why aren't small losses insurable?

Back 33

expenses of insurance exceed value of loss

Front 34

why aren't high probability losses insurable?

Back 34

premium would be too high

Front 35

8 benefits of insurance

Back 35

paying for losses

managing cash flow uncertainty

meet legal requirements

promote risk control

enable efficient use of resources

provide credit support

source of investment funds

reduce social burdens

Front 36

how does insurance manage cash flow uncertainty?

Back 36

by defining the amount an insured will have to pay in a policy period. otherwise the insured would not know how much a loss might be if it were to happen

Front 37

how does insurance promote risk control?

Back 37

insurers offer incentives such as premium credit incentives and contractual requirements

Front 38

how does insurance enable efficient use of resources?

Back 38

Instead of insureds saving money for the chance of a loss, they can use that money knowing exactly how much they will have to pay

Front 39

how does insurance provide credit support for the insured?

Back 39

facilitates loans if the collateral is insured

Front 40

how does insurance reduce social burdens?

Back 40

by reducing the people who need government welfare due to accidents or injuries

Front 41

4 costs of insurance

Back 41

premiums paid by insureds

operating costs of insurers

opportunity costs

increased losses

Front 42

how does insurance have opportunity cost?

Back 42

people and resources could be in a different sector

Front 43

how does insurance lead to increased losses?

Back 43

insurance fraud (moral hazard)

carelessness (morale hazard)

Front 44

6 types of private insurers

Back 44

stock insurer

mutual insurer

reciprocal insurance exchanges

Lloyd's

captive insurer

reinsurance

Front 45

owners, purpose, and management of a stock insurer

Back 45

owned by stockholders

purpose is to earn profit for stockholders (proprietary)

stockholders elect board of directors who appoint corporate officers to manage the company

Front 46

owners, purpose, and management of a mutual insurer

Back 46

owned by policyholders

purpose is to provide affordable insurance (cooperative)

policyholders elect board of directors who appoint corporate officers to manage the company

Front 47

owners, purpose, and management of a reciprocal insurance exchange

Back 47

owned by policyholders

purpose is to provide affordable insurance (cooperative)

subscription agreement with attorney-in-fact

Front 48

3 reasons for captive insurance popularity

Back 48

cheap: no acquisition costs or advertising

available and convenient

improved cash flow: funds remain in the corporate structure

Front 49

4 functions of marketing

Back 49

determine customers' needs

advertise

train and prepare sales force

set goals and strategies to achieve them

Front 50

premium audit

Back 50

examination at the end of a policy-period of policyholders' operations records and books of account to determine any adjustments in premium for that period.

applies mostly to commercial lines

Front 51

4 reasons for government insurance

Back 51

fill unmet needs

facilitate compulsory insurance purchases

provide efficiency and convenience in the market

achieve collateral social purposes

Front 52

example of government insurance fulfilling unmet needs

Back 52

TRIP: Terrorism Risk Insurance Program

Front 53

how does government facilitate compulsory insurance purchases

Back 53

by providing legally required insurance to individuals who cannot obtain it in the private market

Front 54

how does government provide efficiency and convenience?

Back 54

easier to establish compulsory government insurance plans than analyze and regulate private insurers

Front 55

how does government achieve collateral social purposes?

Back 55

provide incentives for the purchase of insurance to reduce social burden in case of a loss

Front 56

3 levels of government involvement

Back 56

exclusive insurer

partnership with private insurer

direct competition with private insurers

Front 57

3 examples of federal government insurance

Back 57

NFIP: National Flood Insurance Program

TRIP

Federal Crop Insurance

Front 58

4 examples of state government insurance

Back 58

Fair Access to Insurance Requirements Plans

Workers Comp

Beach and Windstorm plans

Residual auto plans for high risk drivers

Front 59

3 reasons for insurance regulation

Back 59

to protect consumers

to maintain insurer solvency

to prevent destructive competition

Front 60

domestic insurer

Back 60

licensed to operate in home state

Front 61

foreign insurer

Back 61

licensed to operate in state other than home state

Front 62

alien insurer

Back 62

licensed to operate in U.S. but incorporated in another country

Front 63

4 things to include to apply for domestic license

Back 63

form of ownership

names and addresses of individual incorporators

name of corporation and what it will offer

financing

Front 64

how to apply for foreign license

Back 64

prove that you meet all requirements for home state

prove that you meet all requirements for new state

Front 65

admitted insurer

Back 65

has been granted license by state

Front 66

how may a nonadmitted insurer practice?

Back 66

with surplus lines license

Front 67

3 criteria for insurance rate regulation

Back 67

adequate--sufficient to maintain solvency

not excessive--insurer is entitled to profit, but not excessive profit

not unfairly discriminatory--insurers may adjust rates based on risk profile, but must be fair and consistent

Front 68

6 types of rating laws

Back 68

mandatory rate law

prior approval

file and use

use and file

flex rating

open competition

Front 69

2 criteria in form regulation

Back 69

clear and readible

fair and reasonable

Front 70

2 exemptions from regulation

Back 70

surplus lines

ocean marine, inland marine, aviation (difficult to place in a state)

Front 71

what does market conduct regulation focus on

Back 71

treatment on insureds, applications for insurance, and others who file claims

Front 72

4 methods of solvency surveillance

Back 72

establish financial requirements

conduct on-site field examinations (usually every 3-5 years)

review annual financial statements

administer IRIS

Front 73

IRIS

Back 73

Insurance Regulatory Information System:

an information and early warning system to monitor the financial soundness of insurers

Front 74

Standard market

Back 74

collectively, the insurers who voluntarily offer insurance coverages at rates designed for customers with better than average loss exposure

Front 75

5 classes of surplus lines business

Back 75

--unusual or unique loss exposures

--nonstandard business (premiums in standard market would not be adequate, but surplus lines can charge higher)

--insureds needing high limits of coverage

--insureds needing unusually broad coverage

--loss exposures that require new forms

Front 76

role of a licensed surplus lines broker

Back 76

document a diligent search for coverage in the standard market

Front 77

demutualization

Back 77

when a mutual insurance company changes to a stock insurance company

Front 78

IBNR

Back 78

Incurred But Not Reported losses

Front 79

4 types of underwriting activity expenses

Back 79

losses

costs of investigating a claim

litigation costs in liability

"other" underwriting costs

Front 80

6 "other" underwriting costs

Back 80

acquisition expenses

general businesses expenses

taxes on premium

licenses

fees

dividends to shareholders

Front 81

Loss ratio

Back 81

incurred losses + LAE

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earned premiums

measure of profitability

Front 82

expense ratio

Back 82

incurred underwriting expenses

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written premiums

measure of efficiency

Front 83

combined ratio

Back 83

Loss ratio + expense ratio

measure of underwriting performance

Front 84

investment income ratio

Back 84

net investment income

---------------------------------

earned premiums

measure of investment success

Front 85

overall operating ratio

Back 85

combined ratio - investment income ratio

measure of overall financial performance