General Insurance
Managerial System
Branch manager (supervises agents) - Capital One Bank
Domestic Insurer
is an insurance company that is incorporated and transacting business in the same state.
Consideration
the binding force in any contract is consideration or the payment of premiums.
Legal Purpose
the purpose of the contract must be legal and not against public policy.
Morale Hazard
Refers to an increase in the hazard presented by a risk, arising form the insured's indifference to loss because of the existence of insurance (won't fix it because if it breaks, the insurance company will pay for it)
Law of Large Numbers
States that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be, forms the basis for statistical prediction of loss upon which insurance rates are calculated.
Insurer (Principal)
The company who issues a policy of insurance.
Adverse Selection
The insuring of risks that are more prone to losses than the average risk.
Premiums
The money paid to the insurance company for the policy of insurance.
Risk Transfer Method
The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.
Insured
The person covered by the policy of insurance who may or may not be the applicant or policy owner.
Policyowner
The person who is entitled to exercise the rights and privileges in the policy and who may or may not be the insured.
Beneficiary
The person who receives the benefits from the policy of insurance.
Risk Retention Purpose
To reduce expenses and improve cash flow, increase control of claim reserving and claims settlement, fund for losses that cannot be insured.
Risk Avoidance
Which means eliminating the exposure to a loss (ex. not fly in an airplane), risk avoidance is effective, but not practical.
Risk Reduction
Would include actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or making a change in our life style.
Mutual Companies
are owned by the policy owners and issue participating policies. Dividends are a return of excess premiums and are therefore nontaxable. Dividends are not guaranteed.
Stock Companies
are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses. Traditionally stock companies issue nonparticipating policies, which does not pay dividends to policy owners, but does pay taxable dividends to stockholders.
Representations
are statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true.
Private Insurance Companies
can be classified in a variety of ways. Ownership, Authority to transact business, Location (domicile), Marketing and Distribution systems, or Rating (financial strength).
Law of Agency
defines the relationship between the principal and the agent/producer; the acts of the agent within the scope of authority are deemed to be the acts of the insurer.
Market Conduct
describes the way companies and producers should conduct their business, it is a code of ethics for producers.
Financial Status
guides to insurance companies' financial integrity are published regularly by the following various independent rating service: 1) AM Best, 2) Fitch, 3) Standard and Poor's, 4) Moody's, 5) Weiss
Reasonable Expectations
if an agent implies through advertising, sales literature or statements that these provisions exist, an insured could reasonably expect coverage.
Unilateral Contract
in a unilateral contact, only one of the parties to the contract is legally bound to do anything (insurer must pay losses).
Personal Contract
in general, an insurance contract is a personal contract because it is between the insurance company and an individual. Life insurance is an exception to this rule.
Domicile
insurance companies are classified according to the location of incorporation (domicile).
Aleatory Contract
insurance contracts are aleatory, which means there is an exchange of unequal amounts of values.
Rescission
insurer cancelling the policy, no claims are honored and the insurer refunds all money paid.
Reinsurance
is a contract under which one insurance company (the re-insurer) indemnifies another insurance company for part or all of its liabilities. The purpose of reinsurance is to protect insurers against catastrophic losses.
Estoppel
is a legal process that can be used to prevent a party to a contract after the right or privilege has been waived.
Warranty
is an absolutely true statement upon which the validity of the insurance policy depends.
Contract
is an agreement between two or more parties enforceable by law.
Foreign Insurer
is an insurance company incorporated in one state and transacting business in another state (ex. PA - NY)
Alien Insurer
is an insurance company incorporated outside the United States
Fraternal Benefit Society
is an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization or fraternal organization. Ex. - Knights of Columbus
Implied Authority
is authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.
Contract of Adhesion
is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured), take-it-or-leave-it.
Fiduciary Responsibilities
is someone in a position of trust, more specifically it is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.
Apparent Authority
is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
Express Authority
is the authority a principal intends to grant to an agent by means of the agent's contract, it is the authority written in the contract.
Fraud
is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract.
Concealment
is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision.
Waiver
is the voluntary act of relinquishing a legal right, claim or privilege.
Certificate of Authority
license to transact business from the state department of insurance making them authorized or admitted. Not approved companies are unauthorized or non-admitted.
Conditional Contract
requires that certain conditions must be met by the policy-owner and the company in order for the contract to be executed, and before each party fulfills its obligations.
Indemnity
sometimes referred to as reimbursement is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.
Offer and Acceptance
the applicants usually makes the offer when submitting the application, acceptance takes place when an insurer's underwriter approves the application and issues a policy.
Ambiguities in a Contract
the courts have held that any ambiguity in the contract should be interpreted in favor of the insured.
Private vs Government Insurers
the government provides insurance in those areas where private insurers either cannot, or will not, write insurance. Example - Medicare, Social Security, National Flood.
Competent Parties
the parties to a contract must be capable of entering into a contract in the eyes of the law. (legal age in NY is 14 1/2), mentally competent to understand the contract and not under the influence of drugs or alcohol.
Utmost Good Faith
the principle implies that there will be no fraud, misrepresentation or concealment between the parties.
Misrepresentations
untrue statements are considered misrepresentations and could void the contract, if intentional they are considered fraud.
Exclusive Agency System
1 agent represents 1 company - State Farm
Hazards
Are conditions or situations that increase the probability of an insured loss occurring.
Peril
Are the causes of loss against in an insurance policy.
Physical Hazard
Are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it.
Agency Concept
A contract that is held between an insurer and an agent/producer, containing the expressed authority given to the agent/producer, and the duties and responsibilities to the principal.
Risk
Risk is the uncertainty or chance of a loss occurring.
Pure Risk
Refer to situations that can only result in a loss or no change. There is no opportunity for financial gain, and is the only type insurance companies are willing to accept.
Moral Hazard
Refer to those applicants that may lie on an application for insurance, or in the past have submitted fraudulent claims against an insurer.
Death Benefit
(face amount/face value/coverage) - the amount paid when a claim is issued against a policy of insurance.
Independent Agency System
1 independent agent represents several companies
Elements of a Legal Contract
1) Agreement - offer and acceptance, 2) Consideration, 3) Competent parties and 4) Legal purpose.
Insurance Policy
A contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or beneficiary for loss caused by specific events.
Life Insurance
A coverage upon a person's life, and granting, purchasing or disposing of annuities.
Agent/Producer
A person who acts for another person or entity with regard to contractual arrangements with third parties; a legal representative of an insurance company.
Elements of Insurable Risk
Due to Chance - a loss that is outside the insured's control. Definite & Measurable - a loss that is specific as to the cause, time, place and amount. Statistically Predictable - insurers must be able to estimate the average frequency and severity of future losses. Not Catastrophic - insurers need to be reasonably certain their losses will not exceed specific limits. Randomly Selected & Large loss Exposure - there must be a sufficiently large pool of the insured that represents the random selection of age, gender, occupation, etc
General Agency System
General agent-entrepreneur represents 1 company - Guardian Life Ins Co
Risk Transfer
Insurance transfers the risk of loss from an individual or business entity to an insurance company, which in turns spreads the costs of unexpected losses to many individuals.
Life Insurance Policy
Insures against the financial loss caused by the premature death of the insured.
Casualty Insurance Policy
Insures against the loss and/or damage of property and resulting liabilities.
Property Insurance Policy
Insures against the loss of physical property or the loss of its income-producing abilities.
Health Insurance Policy
Insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury.
Speculative Risk
Involves the opportunity for either loss or gain, example gambling, this risk is not insurable.
Risk Sharing
Is a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within the group.
Applicant or Proposed Insured
Is a person who requests or seeks insurance from an insurer.
Exposure
Is a unit of measure used to determine rates charged for insurance coverage. In life insurance these are, the age of the insured, medical history, occupation and sex.
Loss
Is defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by named peril.
Risk Retention
Is the planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.
Lloyd's Association
Lloyd's is not an insurance company. Lloyd's provides support facilities for underwriter's or groups of individuals that accept insurance risk.
Direct Response Marketing System
No agents - GEICO