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56 Cards in this Set

  • Front
  • Back
What is risk?
The chance or uncertainty of loss.
What are the main methods of insurance?
■ Avoid risk ■ Control risk (Reduce hazards)■ Retain risk (pay it yourself)■ Transfer risk (insurance)
What is the basic purpose of insurance?
To transfer risk
What is the law of large numbers in insurance?
Predicting the number of losses that happen to thousands of people allows the insurance company to provide a lot of insurance for relatively little money
What factors make risk insurable?
■ Definite time and place■ Unexpected ■ Large enough to create financial hardship■ Calculable
What are the different types of hazards?
■ Physical (From condition, occupancy, or use)■ Morale (carelessness or negligence)■ Moral (fraud to gain insurance indemnity)
Pure risk
Risk that only incurs loss
Speculative risk
Risk that could incur either loss or gain, such as gambling
Spread of risk
The more people in one area that incur loss, the more likely it will cause catastrophic loss for the insurance company
Peril
The cause of loss, such as fire or collision
Hazard
Anything that increases the chance of loss
What are the elements of a legally valid contract?
■ Competent parties■ Legal purpose■ Offer and acceptance (agreement)■ Consideration
What are the special characteristics of insurance contracts?
■ Indemnity ($ for loss)■ Personal (insures people, not property)■ Aleatory (Contingent on loss)■ Adhesion (One party drafts contract)■ Unilateral (One-sided)■ In good faith■ Conditional
Indemnity
When a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss
Declarations
Basic information of the insured and insurer, such as name, address, amount of coverage, description of property, and policy cost
Insuring agreements
The people and property covered, and the perils against which is insured
Conditions
Ground rules for policy, describing the responsibilities and obligations for both parties
Exclusions
What is not covered
Definitions
Clarifies meanings of terms used in policy
How can insurance policies be organized?
■ All one continuous page■ Declarations, coverage form and exclusions, definitions and conditions, and a separate general condition form, and a cause of loss form listing the perils insured■ Policy jacket/skeleton policy - general conditions and declarations, coverage form is added later
Endorsements
Changes to the policy attached to the policy later
Types of insurance companies
- Stock- Mutual- Reciprocal- Lloyd's Association- Fraternal Benefit Societies- Risk Retention Group & Purchasing Groups- Self-insurance- Government Insurers
Four Categories of Insurance
- Property- Casualty- Life- Health and Disability
Difference between personal and commercial insurance
Personal - property casualty for individual or familyCommercial - designed for business
Duties of an agent
- Sell insurance- Issuing and countersigning policies- Collecting premiums- Connecting insureds to companies
4 Distributions systems to market insurance
- Exclusive agency (like Farmers)- Direct writer (agents are employees)- Direct response (No agents, sell by mail or phone)- Independent (Agent represents multiple companies)
Solicitor
Sells insurance and may collect premiums, but cannot issue or countersign policies
Broker
Finds the best deal for an insured by getting multiple quotes. Sells no policies
Consultant
Offers insurance or financial advice for a fee, but does not sell insurance
Underwriting
Selects types of risks and rejects others to create a company's book of business
Claims
Indemnifies insureds for losses
Loss control
Inspects factories, certifies boilers, and makes recommendations to insureds to reduce risk
How do state insurance departments regulate the insurance industry and agents?
- Licenses agents- Create regulations to preserve industry- Enforces insurance codes- Ratifies policies and endorsements
Express Authority
Authority given to an agent, orally or in writing, by the principal
Implied Authority
Given by the insurance company to the agent that's not formally expressed or communicated
Apparent Authority
An agent may have whatever authority a reasonable person would assume the agent has
Loss ratio
Incurred losses divided by earned premiums
Expense ratio
Underwriting expenses divided by written premiums
Fiduciary
A person who stands in a special relationship of trust to another person
Misrepresentation
Agents must not misrepresent or falsely advertise the terms or benefits of a policy or the financial condition of the company
Twisting
A form of misrepresentation where the agent convinces the client to cancel existing insurance and buy a new policy from the agent, to the detriment of the insured
Rebating
Giving or offering a benefit other than what's specified in the policy, such as cash, gifts, or securities, in order to induce a customer into buying a policy
Unfair discrimination
Cannot give a higher or lower rate or accept bribes to give the same policy at different costs to clients in the same situation
Prior Approval States
The insurance company must obtain official approval before using new forms and rates
File and Use States
An insurance company may begin using forms and rates as soon as they are filed
Use and File States
Insurers must file rates and forms within a certain period after they are first used
Open Competition States
Companies are allowed to compete openly with the forms and rates they select, subject to requirements of adequacy and nondiscrimination
Rates
Basic charges an insurance company sets for various types of insurance
Adequate rates
- Nondiscriminatory- Not excessive (make cost too high)
Service bureaus
Organizations of numerous individual insurance companies to gather, pool, and analyze statistics
Loss costs
How much an insurance company needs to collect to cover expected losses
NCCI
National Council on Compensation Insurance - ratings bureau with jurisdiction over workers comp
Federal Government Jurisdiction
- Imposes penalties for fraud and false statements- Curtails attempts to launder money and use insurance industry for terrorism- National Do Not Call Registry
Federal Violent Crime Control and Law Enforcement Act
-Prohibits anyone convicted of felony from engaging in the insurance industry- No statute of limitations- Prohibits fraud, embezzlement, falsification of records, or coercion in interstate insurance transactions-Enacts penalties of $5k to $10k, & imprisonment from 10-15 years
USA Patriot Act
- Anti money laundering provisions- Broad enforcement discretion- Guidance to US financial institutions- Forfeiture of laundered assets- Regulation across financial services- Required reports of potential laundering- Prevention of abuse by politicians
Patriot Act Financial Institution Requirements
- Develop a compliance program and train personnel in it- Designate an anti-money laundering officer- Share information with other institutions- Adopt procedures to verify identity of anyone opening an account