Chapter 1: Intro to Insurance
under fair credit reporting act if someone reports they are victim of fraud, consumer reporting agency must put fraud alert on file for at least
90 days
P is an agent for ABC insurer, which has just issued an insurance policy to M. Who is the principal?
ABC insurer
If insurer ABC is authorized to do business in a particular state it is
Admitted
an agent is best described as
a producer who has a contract with an insurer to represent that insurer in the sales of products
the law of agency determines that
acts of the producer bind the principal
which insurance company department determines probability of loss and determines premium rate
actuarial department
general insurance rates are determined by
actuaries
An insurance company is organized under the laws of the UK and is authorized to do business in NY. What kind of insurer is NY
admitter alien insurer
consumers tend to seek insurance for larger risks with higher probability for loss , which are harder to insure rather than average risks that have lower probability of loss which is more favorable to insurers
adverse selection
when insureds with less desirable risks seek insurance coverage to a greater extent than insured with avg risks
adverse selection
Law of Large Numbers provides that
as the number of insured units increases, predictability of losses improves
what gives insurer authority to operate in this state
certificate of authority
terrorism risk act doesn't apply to
commercial auto insurance
insurance is not designed to
cover intentional losses
underwriters are not responsible for
determining premium rates for insurer's rating manuals
this is not an agents responsibility to insurer
duty to recommend high-rate policies to applicants
when an underwriter selects risks their goal is to
estimate a normal range of losses for the risk, classification and select risks that will meet expectations
authority stated in an agent's agency contract
express power
when an insurance company files rates for approval and implements rates immediately after filing, what rating approval method is being used
file and use
insurer that is organized in one state and authorized to do buis in another state is called
foreign insurer
fiduciary responsibility
handle's insurers funds in a position of trust
as per agency contractor, producer has the authority to solicit insurance applications from applicants for insurer. Though contract doesn't directly say so, the agent is also able to collect premiums and use insurer's logo on business cards. Collecting premiums and using insurer's logo represents producers
implied authority
reinsurance is useful for insurers because it does not
increase premium for average risks
insurer XYZ obtains a consumer report for G, a policyholder, and the insurer increases G's premium rate because of info on report. G sees copy of report and disputes the information that led to the rate increase arguing the info on the report was incorrect. The insurer must
keep original rate until investigation complete
relationship of a person acting on behalf of an insurance company whereby a person's actions can bind the company is defined by
law of agency
F's home is on a farm and there is a storm with lightning. Lightning strikes the barn that has cans of gas in it and burns the barn down. What is the peril in this situation
lightning
the basis for an insurance claim made by a policyholder is called
loss
owner of antique store leaves valuable, breakable items on display while heavy construction is happening and assumes if anything breaks it will be covered by insurance
morale hazard
an insurer that is not approved by the state Department of Insurance to transact insurance is called
non-admitted
L stores gas in a tank in the garage that is used to refill the lawnmower. An electrical fire starts and the garage catches on fire causing a partial loss. This fire is known as a
peril
potential cause of loss such as fire, explosion, flood or theft is a
peril
describe surplus lines broker
places risk with non-admitted insurers when coverage cannot be placed with admitted carriers
state the requires a commissioner of insurance to determine that a company's rates are appropriate before rates are made effective
prior approval
most common means of managing risk
purchasing insurance
insurance is designed to provide protection against
pure risk
what statement about rates and premiums is not correct
rates may only be excessive is insurer is making up for lost reserves
where can you find insurance coverage after being rejected by voluntary market insurers
residual market
self-insurance is an example of what type of risk management
retaining risk
the possibility of a loss
risk
what is the correct risk management term for minimizing chance of loss
risk reduction
the shift of risk of loss to another party
risk transfer
type of risk that involves the possibility of loss/gain
speculative
places insurance with a non-admitted insurer when insurance can't be placed with an admitted insurer
surplus line producer
example of risk reduction
taking action to minimize severity of potential loss
insurable risks do not include
the loss may be catastrophic
what is not a function insurance
to act as an investment vehicle for insured
what is an example of a physical hazard
uneven pavement on sidewalk
Fair Credit Reporting Act does not
use consumer credit reports as only rating factor
customers of insurer must be provided with privacy policies/practices regarding customers' nonpublic personal info at least
when customer relationship established and annually thereafter
which of the following is least likely to be a factor when determining eligibility of a person for property insurance?
whether premium will be paid in full or billed to insured
