Property & Casualty Insurance Online Course (Combined Chapters 1-19)
*(Insurance Company Organization and Regulation - Chapter 3)* Producer
A general term used to describe someone who sells insurance, such as an agent, broker, or solicitor.
*(Principles of Insurance - Chapter 1)* Physical Hazard
A hazard that arises from the condition, occupancy, or use of the property itself. EX: Skateboard left on the porch
*(Principles of Insurance - Chapter 1)* Insurable Interest
A rule concerning who can be insured states that before you can benefit from insurance, you must have a chance of financial loss or a financial interest in the property.
*(The Insurance Contract - Chapter 2)* Consideration
A thing of value exchanged for the performance promised in the contract. With insurance, the consideration that the insured gives is the premium payment. The consideration that the insurer gives is the promise to pay for certain losses suffered by the insured.
*(Insurance Company Organization and Regulation - Chapter 3)* Types of Casualty Insurance
- Aviation - Auto - Workers Comp - Surety Bonds
*(The Insurance Contract - Chapter 2)* Characteristics of Insurance Contracts (in order to be legally enforceable)
- Competent parties - Legal Purpose - Offer and Acceptance - Consideration
*(The Insurance Contract - Chapter 2)* Parts of an Insurance Policy
- Declarations - Insuring Agreements - Conditions - Exclusions - Definitions
*(Principles of Insurance - Chapter 1)* Other Elements of Insurability
- Definite - Unexpected - Financial Hardship - Calculable - Affordable - Losses Are Predictable - Adequate Spread of Risk
*(Insurance Company Organization and Regulation - Chapter 3)* Types of insurance considered to be property insurance:
- Dwelling - Homeowners - Commercial Property - Inland Marine - Ocean Marine - Crime
*(Insurance Company Organization and Regulation - Chapter 3)* Distribution systems used to market insurance
- Exclusive Agency System - Direct Writer System - Direct Response System - Independent Agency System
*(Insurance Company Organization and Regulation - Chapter 3)* Levels of Agent Authority
- Express Authority - Implied Authority - Apparent Authority
*(Principles of Insurance - Chapter 1)* Types of Hazards
- Physical Hazard - Morale Hazard - Moral Hazard
*(Insurance Company Organization and Regulation - Chapter 3)* Broad categories, or lines, of insurance
- Property - Casualty - Life - Health and Disability
*(Insurance Company Organization and Regulation - Chapter 3)* Types of Insurance Companies
- Stock Insurance Company - Mutual Insurance Company - Assessment Mutual Insurance Company. - Reciprocal Insurance Company - Lloyd's Association - Fraternal Benefit Society - Risk Retention Groups (RRG's) - Self-Insurance - Residual Market Insurance
*(Insurance Company Organization and Regulation - Chapter 3)* The State Government Provides
- Unemployment Insurance - Workers Comp Benefits
*(Insurance Company Organization and Regulation - Chapter 3)* The Federal Government Provides
- War Risk Insurance - Nuclear Energy Liability Insurance - Flood Insurance - Federal Crop Insurance
*(Insurance Company Organization and Regulation - Chapter 3)* Agents responsibility towards the insurance company:
- be loyal to the insurer's interests and avoid engaging in any business activity that competes or interferes with the insurer's business; - obey all legal instructions provided by the insurer; - deposit funds belonging to the insurer in a separate account in the insurer's name; - perform all duties with the degree of care and skill that a reasonably prudent person would exercise in the same circumstances; and - keep the insurer informed of all facts related to the agency relationship.
*(Principles of Insurance - Chapter 1)* Methods for Managing risk
-Avoid Risk -Control Risk -Retain Risk -Transfer Risk
*(Insurance Company Organization and Regulation - Chapter 3)* Combined Ratio
= Loss Ratio + Expense Ratio 100% is considered the break even point. Less than 100% indicates that the company had an underwriting profit; a ratio of greater than 100% indicates a loss.
*(Principles of Insurance - Chapter 1)* Exposure
A condition or situation that presents a possibility of loss. For example, a home that is built on a flood plain is exposed to the possibility of flood damage.
*(The Insurance Contract - Chapter 2)* Competent Parties
A contract is not valid unless it is made between two parties who are considered competent under the law. In most cases, a person who is a minor, insane, or under the influence of alcohol or drugs is considered incompetent.
*(Insurance Company Organization and Regulation - Chapter 3)* Apparent Authority
A doctrine that holds that an agent may have whatever authority a reasonable person would assume the agent has. An agent acting under this authority binds the company as fully as under expressed or implied authority.
*(Insurance Company Organization and Regulation - Chapter 3)* Assessment Mutual Companies
A type of mutual insurance company that provides primarily fire and windstorm insurance for small towns and farmers.
*(Insurance Company Organization and Regulation - Chapter 3)* Independent Agency System
Agencies that are independent contractors contract with several different companies to represent and sell insurance for those companies. An agent who represents more than one company is called an independent or nonexclusive agent.
*(Insurance Company Organization and Regulation - Chapter 3)* Reciprocal Insurance Company
Agrees to share the insurance responsibilities with all other members of the unincorporated group. In a sense, all members insure each other and share the losses with each other. Managed by an attorney-in-fact who is empowered to handle all of the business.
*(Insurance Company Organization and Regulation - Chapter 3)* Suspense or Diary System
Alerts the agent before the policy renewal time
*(The Insurance Contract - Chapter 2)* Declerations
Almost always on the first page of the policy, contain such information as the name of the insured, the address, the amount of coverage provided, a description of the property, and the cost of the policy.
*(Insurance Company Organization and Regulation - Chapter 3)* Multiline
An insurance company that writes more than one line of insurance.
*(Insurance Company Organization and Regulation - Chapter 3)* Monoline
An insurance company that writes only one line of insurance.
*(The Insurance Contract - Chapter 2)* Conditional Contract
An insurance policy is a conditional contract because if a covered loss occurs, the insured must notify the insurer about the loss, and the insurer must use the valuation methods specified in the policy to settle the loss.
*(Principles of Insurance - Chapter 1)* Peril
Cause of loss
*(The Insurance Contract - Chapter 2)* Definitions
Clarifies the meanings of certain terms used in the policy.
*(Insurance Company Organization and Regulation - Chapter 3)* Direct Response System
Companies that sell through direct mail or over the phone with no agents.
*(Insurance Company Organization and Regulation - Chapter 3)* Rater
Computes the premium to be charged after the underwriting and analyses process.
*(Insurance Company Organization and Regulation - Chapter 3)* Underwriting Expenses
Costs required to acquire and maintain a book of business. Including expenses for advertising, commissions, salaries, and other administrative costs and regulatory costs such as taxes and licensing fees.
*(Insurance Company Organization and Regulation - Chapter 3)* Commercial Lines
Coverage's designed for businesses.
*(Insurance Company Organization and Regulation - Chapter 3)* Health and Disability Insurance
Designed to handle the risk of medical bills and loss of income resulting from injury or sicknes
*(Insurance Company Organization and Regulation - Chapter 3)* Life Insurance
Designed to handle the risk of premature death or the risk that an individual may outlive his or her financial resources.
*(Insurance Company Organization and Regulation - Chapter 3)* Actuaries
Determine the rates to be charged for various types of insurance.
*(Insurance Company Organization and Regulation - Chapter 3)* Agency Relationship
Exists when one party (an agent) is authorized to act on behalf of another (a principle).
*(Insurance Company Organization and Regulation - Chapter 3)* Excess Lines
Highly specialized insurance coverage's, such as auto racing liability and tuition refund insurance that are often not available from any company admitted to do business in a state. An agent for this is licensed state to handle the placement of such coverage's with non admitted companies (ones that are not authorized to conduct business in the state under ordinary circumstances).
*(Principles of Insurance - Chapter 1)* Calculable
In addition to requiring adequately large risks, only risks for which the cost of loss is calculable may be insured. Risks that involve loss that cant be assigned a financial value are uninsurable.
*(Insurance Company Organization and Regulation - Chapter 3)* Incurred Losses
Include amounts paid on claims for covered losses and varies expenses related to handling claims
*(Insurance Company Organization and Regulation - Chapter 3)* Casualty Insurance
Includes a wide variety of basically unrelated insurance products. One of the most important risks covered by this line is the liability risk- the risk that we will suffer financial loss as a result of our actions toward others.
*(Insurance Company Organization and Regulation - Chapter 3)* Property insurance
Includes many types of insurance designed to handle property risks—risks that we will suffer financial loss because something we own is damaged or destroyed.
*(Insurance Company Organization and Regulation - Chapter 3)* Fraternal Benefit Society
Incorporated society or order, without capital stock, that is operated on the lodge system and conducted solely for the benefit of its members and their beneficiaries and not for profit. Most write primarily life and health.
*(Insurance Company Organization and Regulation - Chapter 3)* Expense Ratio
Indicates the cost of doing business Underwriting expenses = --------------------------- Written premium
*(Principles of Insurance - Chapter 1)* Pure Risks
Insurance can be used to manage only these type of risks, which involve only the possibility of loss. A person can buy insurance to protect against loss if a fur coat is stolen (_________ risk) but not to protect against loss if the price of stock goes down (__________ risk).
*(Insurance Company Organization and Regulation - Chapter 3)* Exclusive (Captive) Agency System
Insurance company contracts with agencies, which are independent businesses, to represent and sell insurance only for that insurance company.
*(Insurance Company Organization and Regulation - Chapter 3)* Residual Market Insurance
Insurance company that is privately owned or operated by the state or federal government. The Government steps in to provide insurance that is not ordinarily available from private insurers.
*(Insurance Company Organization and Regulation - Chapter 3)* Legal Department
Interprets the various state insurance laws and helps the company keep its policies and practices in compliance. A key role is the department's involvement with court cases arising from claims.
*(The Insurance Contract - Chapter 2)* Contract
Legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration. When an insurance company agrees to pay for an insureds losses in exchange for certain premium, the two parties have entered into a contract. Although a contract of insurance may be oral, it is usually written in the form of an insurance policy
*(Insurance Company Organization and Regulation - Chapter 3)* Policy Analyst (Screener)
Makes sure all information is correct and complete after the underwriting process.
*(The Insurance Contract - Chapter 2)* Aleatory Contract
Means it is contingent on an uncertain event (a loss) that provides for unequal transfer of value between the parties. An insured can pay premiums for many years without having a covered loss. On the other hand, insureds who suffer a loss often get a great deal more from the insurance company than they've paid in premiums.
*(The Insurance Contract - Chapter 2)* Unilateral Contract
Means one sided. An insurance policy is one sided because only the insurance company is legally bound to perform its part of the agreement.
*(Principles of Insurance - Chapter 1)* Moral Hazard
Means that a person might create a loss situation on purpose just to collect from the insurance company. EX: prearranged, faked theft of an older vehicle so the owner could collect the insurance money and buy something new
*(The Insurance Contract - Chapter 2)* Offer and Acceptance
Means that the contract involves two parties: one who makes an offer and one who accepts it. This is also called agreement.
*(Insurance Company Organization and Regulation - Chapter 3)* Countersigning
Means the agent signs each new policy prepared by the company before delivering it to the insured. In most states, this is required to validate the policy.
*(Insurance Company Organization and Regulation - Chapter 3)* Service Needs
Needs of the insured that could include a name change or a change in the method of premium payment, and maintain accurate records of all such changes requested by the insured.
*(The Insurance Contract - Chapter 2)* Adhesion Contract
One party has greater over the other party in drafting the contract. The provisions of the contract are prepared by one party, -the insured. The other party, the insured, does not take part in the preparation of the contract.
*(Insurance Company Organization and Regulation - Chapter 3)* Investment Department
Oversees the funds the company needs to invest to make sure adequate funds will be on hand to pay claims. The investment department attempts to maintain a healthy rate of return while maintaining the safety of the investment.
*(Insurance Company Organization and Regulation - Chapter 3)* Self-Insurance
Part or all of the risk of loss is borne without the benefit of the insurance coverage to fall back on if a loss occurs. Some large companies go this route because they have the resources to withstand losses and their claims experience demonstrates that it is cheaper to be self-insured than to pay for insurance coverage.
*(Insurance Company Organization and Regulation - Chapter 3)* Earned Premium
Premium the company actually earned by providing insurance protection for the designated period.
*(Insurance Company Organization and Regulation - Chapter 3)* Risk Retention Groups (RRGs)
Product manufacturers that establish group self-insurance programs or group captive insurance companies, that protect against product liability exposures and to purchase liability insurance on a group basis through Purchasing Groups (PGs). Initiated by the passing of the Liability Risk Retention Act by congress in 1981. The act accomplished this by limiting the states' authority to regulate product liability insurance. Prohibited from writing workers comp and personal lines.
*(Insurance Company Organization and Regulation - Chapter 3)* Personal Lines
Property and casualty coverage's that protect an individual or family.
*(Insurance Company Organization and Regulation - Chapter 3)* Application
Provided once's the prospect buys the insurance listed in the quote.
*(Insurance Company Organization and Regulation - Chapter 3)* Errors and Omissions (E&O) Insurance
Purchased by agents to protect themselves against legal liability arising from inadvertent errors or omissions.
*(Insurance Company Organization and Regulation - Chapter 3)* Broker
Represent the insured- contacts several insurance companies to find the insurance that is best for the client. May act as an agent of the insurer in certain activities, such as policy delivery. Does not have the authority to bind an insurer to an insurance contract.
*(Insurance Company Organization and Regulation - Chapter 3)* Insurance Agent
Represents the insurance company and is the direct link between the company and its insureds. Responsibilities include selling insurance, issuing and countersigning policies, collecting premiums, and providing a link between the insured and the insurance company.
*(Insurance Company Organization and Regulation - Chapter 3)* Solicitor
Represents the insurance company, sells insurance and may even be authorized to collect premiums. Cannot issue or countersign policies, has more limited authority than the agent.
*(Insurance Company Organization and Regulation - Chapter 3)* Stock Insurance Company
Sells stock to stockholders to raise the money necessary to operate the business. Stockholders are not necessarily insured by the company, and the insureds do not necessarily own stock in the company. The company is in the business to sell to the insured. Profits attributed to the operation of the company are returned as dividends to the stockholders, not the insureds.
*(Insurance Company Organization and Regulation - Chapter 3)* Quotation
Shows the prospect what the premium for the proposed coverage would be.
*(Insurance Company Organization and Regulation - Chapter 3)* Consultant
Someone who, for a fee, offers advice on the benefits, advantages, and disadvantages of various insurance policies. Dont sell insurance just advice.
*(The Insurance Contract - Chapter 2)* Conditions
State the ground rules for the policy. They describe the responsibilities and the obligations of both the insurance company and the insured.
*(The Insurance Contract - Chapter 2)* Doctrine of reasonable expectations
States that a policy includes coverage's that an average person would reasonably expect to include, regardless of what the policy actually provides.
*(The Insurance Contract - Chapter 2)* Principle of Indemnity
States that when a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss, no more or no less.
*(Insurance Company Organization and Regulation - Chapter 3)* Implied Authority
The Authority given by the insurance company to the agent that is not formally expressed or communicated. Allows the agent to perform all of the usual and necessary tasks to sell and service insurance contracts and to fully exercise the agents express authority.
*(The Insurance Contract - Chapter 2)* Contract of utmost good faith
The Insurance company relies on the truthfulness and integrity of the applicant when issuing a policy. In return, the insured relies on the company's promise and ability to provide coverage and pay claims.
*(Principles of Insurance - Chapter 1)* Definite
The Risks of loss must be definite as to time and place and difficult to counterfeit of falsify. Example: Death
*(Insurance Company Organization and Regulation - Chapter 3)* Express Authority
The authority specifically given to an agent, either orally or in writing, by the principle (insurance company).
*(Principles of Insurance - Chapter 1)* Risk
The chance or uncertainty of loss. For instance, the possibility that your house might be burglarized or that you might be hit by a car while crossing the street represents uncertainty of loss. Both are risks.
*(Principles of Insurance - Chapter 1)* Affordable
The cost of the insurance must be affordable by the insured. If the risk is so severe that it requires the insurance company to charge prohibitively high premiums to accumulate enough money to pay losses, it is not an insurable risk. Even if the person purchasing the insurance could not afford to pay it, the cost should be only a fraction of the value of the item itself.
*(The Insurance Contract - Chapter 2)* Exclusions
The exclusions describe the losses for which the insured is not covered. If an excluded loss occurs, the insured will not be indemnified.
*(Insurance Company Organization and Regulation - Chapter 3)* Written Premium
The gross amount of premium income on the company's books. Including both earned and unearned premium. Premiums for new business, renewals, and policy endorsements.
*(The Insurance Contract - Chapter 2)* Insuring agreements
The heart of the policy, state in general what is to be covered or, in other words, the losses for which the insured will be indemnified. This section also describes the type property covered and the perils against which is insured.
*(Insurance Company Organization and Regulation - Chapter 3)* Direct Writer System
The insurance company's agents are actually employees. They may receive a salary, be paid by commission, or both.
*(Insurance Company Organization and Regulation - Chapter 3)* Mutual Insurance Company
The insureds are also owners of the company. As owners, they can vote to elect the management of the company. Profits are returned to the insureds in the form of dividends or reductions in the future premiums. Most are advanced premium companies that charge nonassessable premiums.
*(Principles of Insurance - Chapter 1)* Adequate spread of risk
The loss must not happen to a large number of insureds at the same time. Although insurance companies do want to insure a large number of persons, if a great number of these insureds were to suffer a loss at the same time, it would be catastrophic for the insurance company.
*(Insurance Company Organization and Regulation - Chapter 3)* Underwriting
The process of selecting certain types of risks and rejecting others so the insurance company will have a book of business that will produce the company's desired results
*(Principles of Insurance - Chapter 1)* Financial Hardship
The risk must be large enough to create a financial hardship for the individual involved. A financially insignificant risk, such as the chance to that you might lose a pair of inexpensive sunglasses, is not insurable.
*(Principles of Insurance - Chapter 1)* Unexpected
The risk must be unexpected. If the results are expected, it does not qualify as a risk. The risk of a train wreck could be insured, whereas the risk that your suit case will eventually where out is not really a risk at all and, therefore, is not insurable.
*(The Insurance Contract - Chapter 2)* Legal Purpose
The second requirement for a valid contract is that it be formed for a legal purpose. A contract that is against public policy (offensive to the best interested of the public) or in the violation of the law is not enforceable.
*(Principles of Insurance - Chapter 1)* Losses are predictable
There must be a large number of persons with a similar potential loss available for the insurance so that overall, losses become predictable. The law of large numbers applies here. To accumulate adequate funds to pay losses, the insurance company must be able to predict losses. Accurate predictions are possible only when there are sufficient numbers of potential insureds with a similar chance of loss.
*(Principles of Insurance - Chapter 1)* Morale Hazard
This means that an individual, through carelessness or by irresponsible actions, can increase the possibility for a loss. EX: person who drives a car carelessly because he knows a loss will be insured if an accident happens
*(Insurance Company Organization and Regulation - Chapter 3)* Loss Ratio
Used to compare the company's operations from year to year. It shows the percentage of losses the company incurred for every dollar of earned premium. Incurred losses = -------------------- Earned Premiums
*(Insurance Company Organization and Regulation - Chapter 3)* Field Underwriting
Using preestablished criteria to seek out the type of business that is likely to be acceptable to the company.
*(Insurance Company Organization and Regulation - Chapter 3)* Lloyd's Association
Voluntary association of individuals, or groups of individuals, who agree to share in insurance contracts. Each individual, or 'syndicate', is individually responsible for the amounts of insurance they write. Limited amounts in the US.
*(Insurance Company Organization and Regulation - Chapter 3)* Assembly and Filing Area
Where policy forms are printed and assembled.
*(Principles of Insurance - Chapter 1)* Hazard
anything that increases the chance of loss
*(Principles of Insurance - Chapter 1)* Speculative Risks
risks in which there exists both the possibility of gain and the possibility of loss. Example: A poker game