Insurance Chapter 1

exclusive agency system/captive agent

1 agent represent 1 company exclusive commission on personal sales renewal can only be placed with the appointing insurer

guides to insurance companies financial integrity are published regularly by independent rating companies

AM BEST ,FITCH, STANDARD AND POOR'S MOODY'S WEISS

action taken without forethought may cause physical injuries

Morale hazards

they arises from a state of mind causes indifference to loss such as carelessness

Morale hazards

it is a liability insurance company owned by its members

RRG risk retention group

an insurance company that is incorporated outside the united state

alien insurer

pure risk

are insurable

the other insurer is called the

assuming insurer or reinsurer

insurer who meet the state financial requiremnt and are approved to transact business in the state are considered

authorized or admitted into the state as legal insurer

avoiding airplane is

avoidance

eliminating exposure to a loss is

avoidance

domicile

domestic , foreign and alien

an insurance company incorporated in this state

domestic insurer

marketing/distribution system

exclusive agency general agency independent agency managerial system direct response marketing

it is unit of measure used to determine rates charged for insurance coverage

exposure

when reinsurance is purchased on specific policy it is classified as

facultative reinsurance

insurance company incorporated in another state

foreign insurer eg puerto rico , guam or american samoa

it is classified as physical .moral and morale hazard

hazards

it is the most common methord of transferring risk from an individual or group to an insurance company

insurance

which policy does not pay dividend to policyowners however taxable dividends are paid to stockholders

nonparticipating policy

it is uncertainty or chances of a loss occurring

risk

the purpose is to assume and spread all or part of the liability of its group members

risk retention group

when are dividend generated

when the premiums and the earnings combined the actual costs of providing coverage ,creating surplus dividend are not guaranteed

independent agency /american agency system

1 agent represent several companies , nonexclusive , commisssions on personal sales , business renewal with any company

it is not an insurance company

Lloyd's association

authority

admitted / authorized non admitted /unauthorized

it is the insuring of risk that are of poorer clss more prone to losses than the average risk

adverse selection

three ways to handle risk

avoidance , retention ,sharing

managerial system

branch manager (supervises agent ) salaried agent can be insurer employees or independent contractors

the orginating company that procures insurance on itself from another insurer is called

ceding insurer ( becoz it cedes or gives the risk to the reinsurer

before insurer transact business in a specific state they must apply for and granted

certificate of authority from the state department of insurance and meet any financial requirement set by the state

marketing system

company advertise directly to consumers ( throug mail. internet.tv other mass marketing consumer apply directly to company

a company chartered in california will be

foreign within the state of ma

an organization formed to provide insurance benefits for members of an affiliated lodge religious organization or fraternal organization with a representative form of govt

fraternal benefit society

they sell only to there members and are considered charitable institutions and not insurers

fraternal benefit society

since it sell only to its members and are considered charitable institution they are not subjected to all regulations that apply to insurer that offer coverage to the public at large

fraternal benefits societies

general agency system

general agent -entrepreneur represent 1 company salaried compensation and commissioned appoint subagents

difference between govt program and private program

govt program is funded with taxes and serve national and state social purposes

are conditions or situations that increases the probability of an insured loss occurring

hazards

condition and action that increses risk or probability of loss

hazards

conditions such as lifestyles and existing health or activities such as scuba diving are eg of that may increase the chance of a loss occurring

hazards

what are the ways to transfer risk

hold harmless agreements and other contractual agreements but the safest and most common method is to purchase insurance coverage

a large no of units having the same or similar exposure to ;loss are

homogeneous

type of marketing arrangements

independent agency system / american agency system exclusive agency system /captive agent general agency system managerial system direct response marketing system

it is a contract in which one party agrees to indemnify the insured party against loss , damage or liability arising from the unknown event .

insurance

transfer of loss , protection

insurance

speculative

involves the opportunities for either gain or loss

gambling

is not insurable

loss

it is the reduction decrese or disapperance of value of the person or property insured in the policy caused by the name peril

insurance

it transfer the risk of loss from an individual or business entity to an insurance company which in turn spread s the cost of unexpected losses to many individulas .

it is a principal stating that the larger the number of similiar exposure units considered the more closely the losses reported will equal the underlying probabilities of loss

law of large numbers

rate of insurance are calculated on

law of large numbers

policies protect survivors from losses suffered after the insured death

life insurance

it is a group of individual who operate an insurance mechansim using the same principal of individual liability of insurers

llyod 's association

it provides support facilitates for underwriters or groups of individuals that accept insurance risk

llyod 's association

reduction of value , basis for a claim

loss

it involves evaluating the character and reputation of the proposed insured

moral hazards

it is the tendencies towards increased risk

moral hazards

refers to those applicants who may lie on the application for insurance or in the past have submitted fraudulent claims against the insurer

moral hazards

they are similar to moral hazards

morale hazards

which company are owned by policy owners and issue participating policies

mutual companies

direct response

no agent

stock companies issue certain policies in which policyowner do not share in profits or losses

nonparticipating policies

insurance companies

ownership ,domicile , authority marketing /distribution system ,rating/financial statues

with what policies is policyowners are entitled to dividened

participating policies which in case of mutual companies are a return of excess premiums and are therefore nontaxable

They are causes of loss insured against in an insurance policy

peril

casualty insurance insures against the loss and or change of property and resulting income

peril

causes of loss

peril

health insurance insures against the medical expenses and or loss of income caused by the insured sickness or accidental injury

peril

life insurance insures against the financial loss caused by the premature death of the insured

peril

property insurance insures against the loss of physical property or the loss of its income producing abilities

peril

they are individual characteristics that increases the chances of the cause of loss .

physical hazards

financial strenght of an insurance company is based on

prior claims experience investment earnings level of reserve (amt of money kept in seperate account to cover the debts to policyholders )and management

they offer many lines of insurance in form of stocks mutual reciprocals or fraternal insurers and they must be authorized to transact insurance by the same insurance department

private insurance

rpg was orginally created with risk retention group by

product liability risk retention act of 1981

there are two risk management key

pure and speculative

it refers to situation that can only result in a loss or no change

pure risk

there is no opportunity to gain

pure risk

this is the only risk that insurance companies are willing to accept

pure risk

it would include actions such as installing the smoke detectors in our home or having an annual physical to detect health problem early or making a change in our lifestyles

reduction

it is a contract under which one insurance company ( the reinsurer ) indemnifies another insurance company for part or all of ots libalities

reinsurance

it protect insurer against catastrophic losses

reinsurance

when an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it it is classified as

reinsurance treaty

methods through which the underwriters protect the insurer against the adverse selection

restriction of coverage or charge them higher rate ,refuse to accept the risk

it is also known as self insurance

retention

it is the planned assumption of risk by an insured through the use of deductibles , co payments or self insurance

retention

the policy is based on the insured loss and expenses experiences and is not affordable to other policyholder with respect to rates, policy , form or coverage

risk retension and risk purchasing group

insurance program provide by govt are called

social insurance such as medicare ,social security federal crop insurance and national flood insurance s

gambling is eg

speculative risk

ownership

stock and mutual

types of insurer

stock companies , mutual companies fraternal benefit companies , risk retention groups , llyod's association

in stock companies the officers are elected by

stockholders and manage stock insurance companies

if there where no insurance mechansim

the cost of the loss would have to be borne solely by the indiviual who suffered the loss

the two vitally important factors to potential insureds

the financial strength and stability of insurance company

what are the elements of insurable risks

the loss must be due to chance the loss must be definite and measurable the loss must be predictable the loss must be catastrophic the loss exposure to the insured must be large the insurance must not be mendatory

factors considered to determine rates

the,medical history , age of the insured , occupation and sex

stock companies are owned by

tock holders who provide the capital necessary to establish and operate the insurance company and who shares in any profits and losses

the most effective way to handle risk is it is so that the loss is borne by another party

transfer

They are negotiated for a period of a year or longer

treaties

those who have not been approved to do business in the state are considered

unauthorized or nonadmitted