P & C Insurance 1 (Kaplan 1-4)

Front 1

What is risk?

Back 1

The chance or uncertainty of loss.

Front 2

What are the main methods of insurance?

Back 2

■ Avoid risk ■ Control risk (Reduce hazards)■ Retain risk (pay it yourself)■ Transfer risk (insurance)

Front 3

What is the basic purpose of insurance?

Back 3

To transfer risk

Front 4

What is the law of large numbers in insurance?

Back 4

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

Front 5

What factors make risk insurable?

Back 5

■ Definite time and place■ Unexpected ■ Large enough to create financial hardship■ Calculable

Front 6

What are the different types of hazards?

Back 6

■ Physical (From condition, occupancy, or use)■ Morale (carelessness or negligence)■ Moral (fraud to gain insurance indemnity)

Front 7

Pure risk

Back 7

Risk that only incurs loss

Front 8

Speculative risk

Back 8

Risk that could incur either loss or gain, such as gambling

Front 9

Spread of risk

Back 9

The more people in one area that incur loss, the more likely it will cause catastrophic loss for the insurance company

Front 10

Peril

Back 10

The cause of loss, such as fire or collision

Front 11

Hazard

Back 11

Anything that increases the chance of loss

Front 12

What are the elements of a legally valid contract?

Back 12

■ Competent parties■ Legal purpose■ Offer and acceptance (agreement)■ Consideration

Front 13

What are the special characteristics of insurance contracts?

Back 13

■ Indemnity ($ for loss)■ Personal (insures people, not property)■ Aleatory (Contingent on loss)■ Adhesion (One party drafts contract)■ Unilateral (One-sided)■ In good faith■ Conditional

Front 14

Indemnity

Back 14

When a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss

Front 15

Declarations

Back 15

Basic information of the insured and insurer, such as name, address, amount of coverage, description of property, and policy cost

Front 16

Insuring agreements

Back 16

The people and property covered, and the perils against which is insured

Front 17

Conditions

Back 17

Ground rules for policy, describing the responsibilities and obligations for both parties

Front 18

Exclusions

Back 18

What is not covered

Front 19

Definitions

Back 19

Clarifies meanings of terms used in policy

Front 20

How can insurance policies be organized?

Back 20

■ 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

Front 21

Endorsements

Back 21

Changes to the policy attached to the policy later

Front 22

Types of insurance companies

Back 22

- Stock- Mutual- Reciprocal- Lloyd's Association- Fraternal Benefit Societies- Risk Retention Group & Purchasing Groups- Self-insurance- Government Insurers

Front 23

Four Categories of Insurance

Back 23

- Property- Casualty- Life- Health and Disability

Front 24

Difference between personal and commercial insurance

Back 24

Personal - property casualty for individual or familyCommercial - designed for business

Front 25

Duties of an agent

Back 25

- Sell insurance- Issuing and countersigning policies- Collecting premiums- Connecting insureds to companies

Front 26

4 Distributions systems to market insurance

Back 26

- Exclusive agency (like Farmers)- Direct writer (agents are employees)- Direct response (No agents, sell by mail or phone)- Independent (Agent represents multiple companies)

Front 27

Solicitor

Back 27

Sells insurance and may collect premiums, but cannot issue or countersign policies

Front 28

Broker

Back 28

Finds the best deal for an insured by getting multiple quotes. Sells no policies

Front 29

Consultant

Back 29

Offers insurance or financial advice for a fee, but does not sell insurance

Front 30

Underwriting

Back 30

Selects types of risks and rejects others to create a company's book of business

Front 31

Claims

Back 31

Indemnifies insureds for losses

Front 32

Loss control

Back 32

Inspects factories, certifies boilers, and makes recommendations to insureds to reduce risk

Front 33

How do state insurance departments regulate the insurance industry and agents?

Back 33

- Licenses agents- Create regulations to preserve industry- Enforces insurance codes- Ratifies policies and endorsements

Front 34

Express Authority

Back 34

Authority given to an agent, orally or in writing, by the principal

Front 35

Implied Authority

Back 35

Given by the insurance company to the agent that's not formally expressed or communicated

Front 36

Apparent Authority

Back 36

An agent may have whatever authority a reasonable person would assume the agent has

Front 37

Loss ratio

Back 37

Incurred losses divided by earned premiums

Front 38

Expense ratio

Back 38

Underwriting expenses divided by written premiums

Front 39

Fiduciary

Back 39

A person who stands in a special relationship of trust to another person

Front 40

Misrepresentation

Back 40

Agents must not misrepresent or falsely advertise the terms or benefits of a policy or the financial condition of the company

Front 41

Twisting

Back 41

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

Front 42

Rebating

Back 42

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

Front 43

Unfair discrimination

Back 43

Cannot give a higher or lower rate or accept bribes to give the same policy at different costs to clients in the same situation

Front 44

Prior Approval States

Back 44

The insurance company must obtain official approval before using new forms and rates

Front 45

File and Use States

Back 45

An insurance company may begin using forms and rates as soon as they are filed

Front 46

Use and File States

Back 46

Insurers must file rates and forms within a certain period after they are first used

Front 47

Open Competition States

Back 47

Companies are allowed to compete openly with the forms and rates they select, subject to requirements of adequacy and nondiscrimination

Front 48

Rates

Back 48

Basic charges an insurance company sets for various types of insurance

Front 49

Adequate rates

Back 49

- Nondiscriminatory- Not excessive (make cost too high)

Front 50

Service bureaus

Back 50

Organizations of numerous individual insurance companies to gather, pool, and analyze statistics

Front 51

Loss costs

Back 51

How much an insurance company needs to collect to cover expected losses

Front 52

NCCI

Back 52

National Council on Compensation Insurance - ratings bureau with jurisdiction over workers comp

Front 53

Federal Government Jurisdiction

Back 53

- Imposes penalties for fraud and false statements- Curtails attempts to launder money and use insurance industry for terrorism- National Do Not Call Registry

Front 54

Federal Violent Crime Control and Law Enforcement Act

Back 54

-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

Front 55

USA Patriot Act

Back 55

- 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

Front 56

Patriot Act Financial Institution Requirements

Back 56

- 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