Insurance Terms and Related Concepts

Actual Cash Value

= replacement cost less depreciation

What do actuaries do?

Evaluate the likelihood of future events and use results to make rates and determine when they should change

the price a buyer would pay and a seller would accept in a competitive market

Market Value

Transfer same as

Sharing

Uninsurable

Speculative risk

Analysis of these statistics determines if a risk from a given peril is insurable

Statistics of past losses

when the insurance company is liable for the full amount of damages claimed no if ands or butts

Valued Policy

the tendency for people with a greater than average exposure to lord to purchase insurance

What is adverse selection?

taking action reduce the possibility of loss

What is reduction?

a selection, classification and acceptance or rejection of a proposed insured according to the insurer's underwriting standards

What is underwriting?

Avoidance

abstaining from a particular activity that could turn into

Reduction is

control

Risk

defined as the uncertainty of financial loss

Sales/ Marketing

development and sale of products, premium collection, producer licensing and advertising are responsibilities of the sales and marketing the department

Examples of reduction

driver's education , purchasing seat belts or smoke alarms

Property Insurance

grants coverage for real and personal property against loss or damage from perils and consequential loss

Reinsurance

an arrangement by which the primary insurer that initially writes the insurance transfers (shares) to another insurer part or all of the potential losses associated with such insurance

Law of Large Numbers

as the number of exposure increases, the more the actual results will approach the results expected for the event

What is a form of retention?

deductible because the insured is assuming part of the risk insuring only above a certain dollar amount

Insurance

is the transfer of pure risk from one party to another for a price through a legal contract that spells out the terms , the losses covered, the losses that are covered, and other specific provisions

Pooling the Risk

the reinsurer assumes a portion of the risk and receives a pro rata portion of the premium paid

Sharing

the risk among many individuals is calling pooling the risk

What does the accounting department do?

they deal with state regulation and reserves, premium collection and agent/producer commissions

What is the primary concern of all policyholders?

how losses are settled

What is invested by the the insurance company?

premiums

Casualty Insurance

protects a person from financial loss arising from bodily injury or property damage to others arising out of operation of a motor vehicle, Workers' Compensation injuries, ownership of property, malpractice and business activities

Transfer

purchasing insurance to shift the finical burden of a loss from the insured to the insurance company

Replacement Cost

the amount necessary to repair, rebuild, or replace an asset at today's cost

What's a proximate cause?

the cause that was responsible for the loss, either directly or indirectly through the chain of events

Speculative Risk

the chance for loss or gain (placing bets on a poker table or investing in the stock market)

What must happen for a loss to be covered?

the insured peril must be the cause or within the chain of events that links the proximate cause to the loss

Who handles compliance with state laws and handles claims dispute?

the legal department

Loss Variation

the process of determining the value of the loss

What does the claims department do?

they make good on the promises the company has made by investigating and paying claims for damage and injury covered by the insurance contract

Surplus Lines

type of insurance insures risks that may be unavailable in the standard market because of unusual characteristics such as aviation, earthquake, or professional exposures. Risks fall beyond the capacity of standard insurers

Cheaper route of replacement cost

Functional Replacement Cost

Retention

accepting the possibility of a loss yourself and electing not to purchase insurance to protect against the potential loss

Exposure

actual condition or situation that presents a possiblity of loss

Commercial Lines

businesses of any size, including professionals and commercial enterprises (Commercial General Liability and business auto policies)

Define actuarial

by use of mathematical and statistical techniques the actuarial department is responsible for making rates and determines the rates changed by the insurer

Personal Lines

insurance for families and individuals (auto and homeowner's policies

Concept of Insurance

involves sharing a risk. By purchasing insurance, a person shares risks with a group of others, reducing the individual potential for disastrous consequences.

Pure Risk

involves the chance of loss only; insurance protects an insured against pure risk