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