Property-Casualty Insurance Test

if the policy and the endorsement contain conflicting terms, the endorsement takes precedence

Explain how coverage is determined in a policy in which an endorsement conflicts with the original policy provisions

because most banks require property insurance on a home before they will provide a mortgage. Also, banks and leasing companies require evidence of automobile physical damage insurance before providing an auto loan or lease agreement for a vehicle

Explain how insurance provides a basis for credit

preprinted policy forms- standardized contracts developed for different types of insurance that do not require negotiating new contractual terms for each policy purchased manuscript policy- customized contracts developed for a specific insured or group of insureds who share unique coverage needs

Explain how preprinted policy forms and manuscript policy forms differ

risks are transferred through the use of an insurance policy

Explain how risks are transferred from an individual to an insurer

the BPP covers the personal property of others only while the property is in the insured's care, custody, or control and in or on the building described in the policy declarations or within 100 feet of the described premises. Coverage applies regardless of whether the insured is legally responsible for the damage

Explain how the coverage applies to personal property of others in the BPP and similar coverage forms

# of exposure units X insurance rate

Explain how to calculate a commercial insurance premium using the rate and exposure unit

provides additional limits beyond those provided under the CGL, commercial auto, and other policies protecting the insured in the event of a large liability loss

Explain the benefit to a business organization of purchasing a commercial umbrella policy

because the maximum loss for most liability exposures can't be easily estimated, and awards to injured persons can, in some cases, reach extremely high totals that may exceed the limits of the insured's liability policy

Explain why a commercial insured needs umbrella or excess liability coverage

Bailee

the party temporarily possessing the personal property in a bailment

Earned Premiums

the portion of written premiums that corresponds to coverage that has already been provided

Ratemaking

the process insurers use to calculate insurance rates, which are a premium component

they are required by law to pay certain benefits to employees who are injured on the job or who contract a job-related disease. It pays the cost of medical care, lost wages, and other benefits as specified by state law

Explain why business organizations purchase workers compensation coverage

-premiums are paid in advance and the period of protection extends into the future. if an insurer becomes insolvent, future claims might not be paid even though the premium has been paid -regulation is needed to protect the public interest. large # of individuals are adversely affected when insurers become insolvent -insurers hold substantial funds for the ultimate benefit of policyholders. Government regulation is necessary to safeguard such funds

Explain why insurance regulators try to maintain and enhance the financial condition of private insurers

because policy holders pay premiums to insurers at the start of the policy period, before any losses happen. Because future loss amounts can't be accurately predicted, insurers must build a fund for the payment of future losses. These funds are the source of the money insurers invest

Explain why insurers have money available for investments

in anticipation of losses that can be expected in the future as a result of inflation or other measurable trends. The resulting prospective loss costs indicate the amount of money an insurer can expect to pay for future claims for each exposure unit

Explain why insurers often adjust data on historical loss costs in the ratemaking process

because when a mechanism for paying the costs of losses is put into place, the risk of uncertainty regarding the financial consequences of loss is reduced

Explain why transferring risk to an insurer reduces uncertainty for individuals and businesses

loss ratio, expense ratio, & combined ratio

Financial tools include:

Section II- Medical Payments to Others

For each one of the following loss scenarios, indicate whether Section I or II of an ISO homeowners policy, and which type of coverage would apply. Assume that the loss is covered under the policy * A houseguest twists her ankle while she is dancing at a house party, and her doctor's bill is $235

Section I- Loss of Use Coverage

For each one of the following loss scenarios, indicate whether Section I or II of an ISO homeowners policy, and which type of coverage would apply. Assume that the loss is covered under the policy * There is $800 in lost rental income while windstorm damage to a tenant's house is repaired

Section I- Dwelling Coverage

For each one of the following loss scenarios, indicate whether Section I or II of an ISO homeowners policy, and which type of coverage would apply. Assume that the loss is covered under the policy * There is a fire that causes $2,000 in damages to the kitchen wall of a home

Section II- Personal Liability

For each one of the following loss scenarios, indicate whether Section I or II of an ISO homeowners policy, and which type of coverage would apply. Assume that the loss is covered under the policy * There is ice on the front step of a house, and a florist slips and falls while delivering a bouquet of flowers. The florist breaks her leg and sues the homeowner

furniture, appliances, clothing, jewelry, silverware, firearms, artwork, and autos

Give an example of Personal Property

land, crops and trees on the land, and buildings

Give an example of Real Property

possession of a dog known to bite and operation of a motor vehicle or boat

Give an example of a liability loss exposure arising from ownership of PERSONAL PROPERTY

uneven pavement or an exposed tree stump that presents the possibility of someone's tripping and falling, an improperly fenced swimming pool, and a secondary home occupied by tenants

Give an example of a liability loss exposure arising from ownership of REAL PROPERTY

-commissions paid to independent agents -salaries and benefits for home and regional office employees, such as underwriters, raters, and processing staff -operation expenses for the home office and the regional offices such as rent, utilities, advertising, and other business-related expenses

Greenly Insurance Company is a large property-casualty insurer that has one home office and 12 regional offices. Describe the types of expenses Greenly Insurance must pay to run its insurance operation

a condition that increases the frequency or severity of a loss

Hazard

by paying them a commission for each policy sold

How are independent agents and brokers compensated by insurers?

inland marine insurance policies provide coverage for property in domestic transit. property situated at the premises of others, and "floating property" such as a contractor's tools and equipment, which could be situated at several different job sites during the policy period.

How can commercial organizations provide coverage for personal property when it is in transport away from the insured premises?

claim file reviews help to ensure consistent & accurate claim handling, evaluate claim reps' performance, develop strategies for solving problems, and determine staff training needs

How do supervisors benefit from claim file reviews?

by monitoring claims activity on policies, monitoring the hazards that develop from changes to the policies, and monitoring the overall profitability of the book of business for which each underwriter is responsible

How do underwriters monitor the results of the initial underwriting decision?

insurers must minimize adverse selection and protect available capacity

How does underwriting achieve its purpose?

the federal government provides flood insurance protection for eligible dwellings in eligible communities

How is flood insurance coverage usually provided for dwellings?

by taking the loss information and creating a claim file

Hows does an insurer acknowledge receipt of a claim?

they also collect premiums, pay covered losses, provide ongoing customer service, process endorsements, provide loss control services, and respond to billing questions

Identify functions, other than issuing policies, performed by insurers

because they are considered uninsurable include non accidental events such as war, earthquake, or flood

Identify loss exposures typically excluded from a policy because they are considered uninsurable

-personal insurance policies -commercial insurance policies

Identify the 2 broad categories of property-casualty insurance policies that are available for families and business organizations

-Tort Law: the most common tort is negligence -Statutes: examples- workers compensation law and no-fault auto laws. Extend, restrict, or clarify the rights of injured parties to recover compensation for their injuries -Contracts: a business can assume the liability of others by contract. This type of contractual assumption of liability is called a hold-harmless agreement or an indemnity agreement

Identify the 3 bases of legal liability and give an example of each

1. Dwelling Coverage-provides insurance for the insured's dwelling. coverage also extends to any structures attached to the house, such as a garage 2. Other Structures Coverage- provides insurance for various detached structures that are located on the residence premises 3. Personal Property Coverage- provides protection for the insured's property other than the dwelling and other structures 4. Loss of Use Coverage- insures financial losses that result when part or all of an insured residence is rendered uninhabitable by a covered loss

Identify the 4 primary coverages under Section I- Property Coverages of an Insurance Services Offices (ISO) homeowners policy and the type of coverage provided by each

-acknowledging a claim & assigning it to a claim rep -identifying the policy -contacting the insured or the insured's rep -investigating & documenting the claim -determining cause of loss and loss amount -concluding the claim

Identify the 6 activities in the claim handling process (AICIDC)

policy issuance, premium collection, and claim processing

Identify the administrative functions an insurer might handle for its exclusive agents

-policy limits -deductibles -valuation provisions -other applicable insurance

Identify the factors that affect how much is payable for a covered property loss

-pay premiums -report losses promptly -provide appropriate documentation for losses -cooperate with the insurer as in legal proceedings -to refrain from jeopardizing an insurer's rights to recover from responsible third parties

Identify the obligations of these parties as stated in the conditions of an insurance policy * Insured

-to pay the covered losses -defend the insured from lawsuits -provide other services to the insured

Identify the obligations of these parties as stated in the conditions of an insurance policy * Insurer

many business organizations purchase a commercial package policy (CPP) or a business owners policy (BOP)

Identify the types of policies purchased by business organizations that combine property, crime, and liability coverage in one policy

-quicker service to policyholders - lower loss adjustment expenses for the insurer

Identify two advantages of having claims handled by producers

pay on behalf of the insured any damages for which the insured is legally liable because of bodily injury, property damage, or other specified types of injury caused by an accident, up to the applicable limit of insurance

In a liability insurance policy, the insurer's promise is to..

pay for direct physical loss to covered property by a covered cause of loss

In a property insurance policy, the insurer's promise is to..

-completed additions to covered buildings -fixtures (including outdoor fixtures) -permanently installed machinery and equipment -personal property owned by the insured and used to maintain or service the building or its premises

In addition to buildings, what other types of property are insured under building coverage in the Building and Personal Property (BPP) coverage form and similar forms?

property loss exposure- when property can be destroyed, damaged, stolen, lost, or otherwise suffer a decrease in value because of a particular cause of loss *EXAMPLE-the possibility of a fire that destroys a family's home, furniture, and personal possessions liability loss exposure- when others may suffer personal injury or property damage and allege that the individual or family is legally responsible *EXAMPLE- the possibility that a gust in a family's home will trip on an uneven stair step, suffer injury, and sue the family for medical costs

In relation to personal loss exposures, distinguish between a property loss exposure and a liability loss exposure, and give an example of each

differ in the types of property and perils covered under Section I

In what ways do ISO homeowners policy forms differ?

help the insurer generate an underwriting profit by managing all claim function expenses, setting appropriate spending policies, and using appropriately priced providers and services

In what ways do the following claim function personal help the insurer generate an underwriting profit? * Claim Managers

help the insurer generate an underwriting profit by working to settle claims fairly, thus reducing the possibility of costly litigation and regulatory oversight or penalties

In what ways do the following claim function personal help the insurer generate an underwriting profit? * Claim Representatives

can help the insurer generate an underwriting profit by avoiding overspending on costs of handling claims, claim operations, and other expenses

In what ways do the following claim function personal help the insurer generate an underwriting profit? * Claim Staff

Extra Expense Coverage

Insurance coverage for extra expenses incurred by the named insured to avoid or minimize the suspension of operations resulting from direct damage caused by a covered cause of loss

to protect consumers. Many insurance policies are complex legal documents that may be difficult for some consumers to analyze & understand. Regulators can set coverage standards, specify policy language for certain insurance coverages, and disapprove unacceptable policies

Insurance policy language is usually regulated for what purpose?

Umbrella Liability Policy

A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention.

admissions/unit size= # of exposure units 50,000 admissions/1,000 admissions=50 exposure units rate per unit X # of exposure units= premium $100 X 50 = $5,000

A movie theater is applying for commercial general liability insurance. The rate is $100 per 1,000 admissions. The insurer estimates that the theater will have 50,000 admissions in the new policy period. Calculate the premium.

one of the 3 major criteria that states consider in evaluating insurance rates is whether they are adequate - under open-competition rating laws, the insurance commissioner has the responsibility to be sure that rates are adequate, not excessive, and not unfairly discriminatory. -the insurance commissioner can investigate the rates charged by the new insurer and take action if deemed necessary

A new insurer in a state that has an open-competition rating law is charging rates for auto insurance policies that are much lower than those all of the other auto insurers in that state. Many of the other insurers express concern to the insurance commissioner that these rates are too low. -Discuss whether the insurance commissioner can take action on the complaint in an open-competition rating system. Explain your answer

the insurance department may investigate the complaints and may hold a formal hearing as part of the investigation process. If the investigation indicates that the allegations are true, the department may assess a fine against Insurance Company

A state insurance department has received several complaints alleging that Insurance Company is slow to resolve claims and then denies them without explanation. * How is the department of insurance likely to follow up on these complaints?

the insurance department activity is an example of regulating market conduct

A state insurance department has received several complaints alleging that Insurance Company is slow to resolve claims and then denies them without explanation. * This insurance department activity is an example of what type of regulatory oversight

ABC is not retaining as many customers. Usually, the longer an insurer retains a policy in its book of business, the more profitable that policy becomes as measured by the expense ratio. Because of its lower retention ratio, ABC's costs to produce business has increased

ABC Insurance Co. has a combined ratio of 95 two years ago, 99 last year, and 103 this year. * ABC's retention ratio has decreased. What might be the significance of this for ABC's increasing expense ratio?

ABC's cost of producing business has increased

ABC Insurance Co. has a combined ratio of 95 two years ago, 99 last year, and 103 this year. * Although ABC's loss ratio is the same as it was the last year, its expense ratio has increased. What information does this provide to ABC?

ABC had an underwriting profit for the past 2 years, but had an underwriting loss in the past year.

ABC Insurance Co. has a combined ratio of 95 two years ago, 99 last year, and 103 this year. * What do the combined ratios indicate about ABC's underwriting profit?

-ABC will first need to show the regulator in the neighboring state that it has satisfied the requirements in its home state. -ABC will also need to satisfy the minimum capital, surplus, and other requirements imposed on domestic insurers within the neighboring state

ABC company is an insurer incorporated and licensed in one state. ABC would like to expand into a neighboring state. What requirements will ABC need to meet in order to be licensed in the neighboring state?

ISO commercial package policy

An example of a modular policy

personal auto policy

An example of a self-contained policy

the underwriting manager can work to improve the insurance company's profitability by minimizing the effects of adverse selection. Minimizing adverse selection can be accomplished by working with the insurance company's underwriters to make certain that they carefully select applicants whose loss exposures they are willing to insure.

An insurance company's underwriting manager is reviewing the company's property insurance book of business to assess its profitability. A significant portion of the property in the book of business is located in coastal areas. The underwriting manager notes that profitability is lower this year than in the prior year * Referencing your answer to the last question, how can the insurer minimize this decrease in profitability ?

profitability could be reduced as a consequence of adverse selection. Adverse Selection is the tendency of individuals & businesses with the greatest profitability of loss to be the ones most likely to purchase insurance. thus, the individuals and businesses located in coastal areas will be more likely to buy property insurance that includes wind, rain, and hail coverage than insureds not located in coastal areas. This tendency could be contributing to frequent and/or severe losses that decrease the insurer's profitability.

An insurance company's underwriting manager is reviewing the company's property insurance book of business to assess its profitability. A significant portion of the property in the book of business is located in coastal areas. The underwriting manager notes that profitability is lower this year than in the prior year * What reason could explain the decrease in profitability for the insurer's book of business?

the amount of its policyholders' surplus increases

An insurer's capacity increases as...

-injuries to customers while on the business premises -injuries to employees that occur in the course of their jobs -physical damage to owned buildings -physical damage to owned personal property -burglary or robbery at the store

Application Question: Joe owns a small business store and is concerned about the financial consequences of losses that might arise from the store's operations. Describe THREE loss exposures related to this store

-periodically monitor the claim file & provide any guidance or problem solving strategies that Brett might need in handling the claim -when the claim is closed, Donna might review the claim file to ensure that the claim was handled properly

At 12:50 AM a neighbor noticed smoke and flames coming from the house next door and reported a raging fire that destroyed the home of Mary & Scott. The couple was not home at the tim @ 1:25 the fire dept arrived & battled the fire. Scott arrived at 1:40. The couple was scared about their cat- who turned out wasn't in the house. Mark called an agent in th office of their producer, Insurance Agency. Joan explained that Insurance Company provided the couple's homeowners policy. Joan had been granted draft authority by Insurance Company. * After Donna has assigned Brett to the claim, what is her role, as supervisor, in the couple's claim?

-investigate the fire scene to determine whether the fire started accidentally or was set deliberately -contact any witnesses -seek the assistance of a private investigator & engineer if needed

At 12:50 AM a neighbor noticed smoke and flames coming from the house next door and reported a raging fire that destroyed the home of Mary & Scott. The couple was not home at the tim @ 1:25 the fire dept arrived & battled the fire. Scott arrived at 1:40. The couple was scared about their cat- who turned out wasn't in the house. Mark called an agent in th office of their producer, Insurance Agency. Joan explained that Insurance Company provided the couple's homeowners policy. Joan had been granted draft authority by Insurance Company. * Brett found that the loss reveals some details that raise suspicions of fraud.Both owners weren't home, cat was somehow not inside, and Scott had increased the amount of coverage on their home the week before the fire. The insurer hires an origin and cause expert to investigate the loss. What role does the expert fulfill in the handling of this claim?

-investigate the scene of the destroyed home -meet with Mary & Scott -investigate & resolve any complex issues in the claim -prepare damage estimates -obtain photos & diagrams of the damaged property -negotiate any settlement with the couple

At 12:50 AM a neighbor noticed smoke and flames coming from the house next door and reported a raging fire that destroyed the home of Mary & Scott. The couple was not home at the tim @ 1:25 the fire dept arrived & battled the fire. Scott arrived at 1:40. The couple was scared about their cat- who turned out wasn't in the house. Mark called an agent in th office of their producer, Insurance Agency. Joan explained that Insurance Company provided the couple's homeowners policy. Joan had been granted draft authority by Insurance Company. * Insurance Co's property claim manager, Donna, assigned the couple's loss to Brett, a field claim rep. What roles should Brett fulfill in the couple's claim?

-record the couple's claim info about the fire damage & submit it to the insurance company -Joan would not use draft authority to pay the couple's loss. -She should explain the claim process to Mary and inform her that the full investigation will be required -She should answer as many of Mary's questions as possible as they occur in the claim process

At 12:50 AM a neighbor noticed smoke and flames coming from the house next door and reported a raging fire that destroyed the home of Mary & Scott. The couple was not home at the tim @ 1:25 the fire dept arrived & battled the fire. Scott arrived at 1:40. The couple was scared about their cat- who turned out wasn't in the house. Mark called an agent in th office of their producer, Insurance Agency. Joan explained that Insurance Company provided the couple's homeowners policy. Joan had been granted draft authority by Insurance Company. * What is Joan's role as the producer in the couple's property loss claim?

Manuscript Policy -because BNY company has unique loss exposure, a manuscript policy would enable the insurer to draft a one-of-a-kind policy to address BNY's insurance needs

BNY company has unique property & liability loss exposures that are not adequately insured under standard property-casualty insurance policies. What type of property-casualty policy would be the best solution for BNY?

Barnley went from an underwriting profit to an underwriting loss

Barnley Insurance Company's combined ratio increased from 98% to 103%. What does this indicate about Barnley's profitability?

Personal Property

Brad & Carol are insured under a homeowners policy that includes theft as a covered cause of loss. A burglar broke into their garage and stole their lawnmower and some power tools. The cost of replacing the stolen items would likely be covered under which one of the following coverages in Brad & Carol's homeowners policy?

Insuring Agreement - because it states that the insurer will cover the describe types of property

Carol, an insurance agent, is analyzing an insurance policy that contains this provision " we cover the dwelling on the residence premises shown in the declarations, including structures attached to the dwelling; and the supplies located on or next to the residence premises used to construct, alter or repair the dwelling or other structures on the residence premises * This provision is best described as which of these?

-claim audits to check for compliance with the company's best practices. -She can use the audit to evaluate qualitative & quantitative factors and use the statistical data to evaluate how well the claim department & claim reps perform the claim function -the audit can also provide info about accuracy of claim reserves

Cindy, a claim vice president for Insurance Company, has been asked by the president to assist in determining why the loss ratio is increasing. What techniques could Cindy use to make this determination?

-setting goals -developing staff members' skills -monitoring workloads -monitoring losses and expenses -establishing claim procedures and ensuring compliance

Claim managers direct and supervise the activities of some portion of an insurer's claim department * Name the 5 responsibilities that most claim managers perform that affect the claim process

to ensure that claims are handled promptly & efficiently, in compliance with the organization's guidelines & with state insurance regulations

Claim managers direct and supervise the activities of some portion of an insurer's claim department * What is the object of procedures established by claim managers

Foreign insurer- a U.S insurer that is licensed to do business in a state but is incorporated in a different state. Alien insurer- a non-U.S. insurer that is licensed to do a business in the U.S. states where it wishes to operate

Compare a foreign insurer to an alien insurer

Claim turnover- the average time it takes for all open claims in a claim function to be closed File turnover- the average time it takes for an individual claim rep to bring an open claim to closure

Compare claim turnover and file turnover

1. basic form coverage- the lowest cost version that provides coverage for approximately one dozen named perils 2. broad form coverage- a higher cost version that adds several perils to those covered by basic coverage 3. special form coverage- the highest cost version that covers all the perils of broad form coverage, as well as other perils

Compare the 3 covered causes of loss forms available in the BPP and similar policies with respect to cost and level of coverage provided

named perils basis- the policy lists specific causes of loss open perils basis- the policy insures against all causes of loss that are not specifically excluded by the policy

Compare the named perils basis for coverage with the open perils basis

Stockholders- supply the capital needed to form a stock insurer or to expand its operations. They expect to receive a return on their investment in the form of stock dividends, increased stock value, or both. Mutual Insurer- owned by its policyholders. Because a traditional mutual insurer issues no common stock, it has no stockholders. *Stockholders & Policyholders have similar voting rights and elect the insurer's board of directors

Compare the organization of a stock insurer & a mutual insurer

PIC- straightforward and can usually be settled promptly LIC- involve a lawsuit or other legal proceedings and can last for many months or years

Contrast property insurance claims with liability insurance claims in terms of the time it takes to settle each type of claim

in the agency bill process- producers deduct their commissions and send net premiums to the insurer in the direct bill process- premium payments are sent directly to the insurer by the insured

Contrast the agency bill process for collecting premiums with the direct bill process

direct writers are employed by the insurer and receives a salary, a bonus, commissions, or a combination of all three. While an exclusive agent does not.

Contrast the direct writer marketing system with the exclusive agency marketing system with respect to the contractual relationship of sales representatives to the insurer

the property-casualty needs of businesses generally are more complex and involve more loss exposures than those of individuals and families

Contrast the property-casualty needs of businesses with those of individuals and families

a rising or an overflowing of water onto what is normally a dry land

Define a flood

1. Premises & Operations Liability: entails the possibility that an organization will be held liable because of bodily injury or property damage caused either by an accident occurring on premises owned, leased, or rented by the organization, or caused by an accident occurring away from such premises. 2. Products & Completed Operations Liability: entails the possibility that an organization will be held liability because of bodily injury or property damage arising out of products sold or distributed by the insured or arising out of operations that the insured has completed or abandoned

Describe 2 general categories of loss covered by Coverage A- Bodily Injury and Property Damage Liability of the Commercial General Liability Coverage Form

-insurers provide premium reductions for those insureds that practice risk control -controlling losses reduces the amount of money insurers must pay out in claims, which allows insurers to reduce insurance costs to all customers

Describe 2 ways that risk control activities can reduce premiums

often referred to as a surplus lines insurer, is not authorized by the state of insurance department to do business within that state. - Under surplus lines laws, a non-admitted insurer may be permitted to transact business only through a specially licenses surplus lines producer

Describe a non-admitted insurer & how they can transact business in a state

consists of a series of private contracts in which subscribers, or members of the group, agree to insure each other

Describe a reciprocal insurance exchange

by different types of rating laws that vary in the type and extent of control the state asserts over insurers' rates

Describe how different states meet the 3 major criteria for insurance rates

by allowing individuals and businesses to exchange a small,certain premium amount for what could be much larger, unknown loss amounts. It therefore eliminates the need to set aside large amounts of money to pay for losses

Describe how insurance provides for a more efficient use of resources

the ISO CLM provides classification tables that contain hundreds of classifications of commercial business operations. When calculating the premium for commercial accounts, underwriters typically determine the insured's business operation and then find the appropriate rating classification in the applicable classification table

Describe how underwriters use the Insurance Services Offices (ISO) Commercial Lines Manual (CLM) to determine premiums

-market prices driven by the economic laws of supply and demand, rather than regulatory decisions, determine insurance rates. -However, state insurance departments typically have the authority to monitor competition and disapprove rates if deemed necessary. -The major criteria that rates must be adequate, not excessive, and not unfairly discriminatory continue to apply

Describe open-competition rating laws

ownership- an owner of an auto can be held legally liable for the negligent operation of the vehicle even when it is operated by a borrower maintenance- negligent maintenance of an auto can be the basis for auto liability when the negligent maintenance contributes to an accident use- an organization can be held liable for a loss resulting from negligent use of an auto in conducting its operations.

Describe the 3 categories of activities that create auto liability loss exposures for a business

1. ADEQUATE; it should be sufficient to pay all claims & expenses related 2. EXCESSIVE & would disapprove an excessive rate; fair return 3. UNFAIRLY DISCRIMINATORY; insurers are permitted to adjust premium rates based on the risk profile of different groups of insureds

Describe the 3 major criteria that a state insurance commissioner would consider when deciding to approve or disapprove an insurer's request for a rate

-covers losses due to bodily injury to another person or damage to property of others arising from an auto accident for which the insured is liability. also covers damage to the vehicle as the result of a collision, or from fire, theft, wind, contact with a bird or another animal, and other causes of loss.

Describe the coverage provided by a personal auto policy (PAP)

protects against theft of contents such as cash registers, computers, inventory, and other business property, and of money that could be stolen in a robbery during business hours or during a burglary that occurs after business hours. It could also include employee dishonesty coverage for crimes committed by employees.

Describe the coverage provided by commercial crime insurance

the definition specifies that coverage for the insured's business personal property applies to such items as furniture, machinery, and equipment that are not part of the building; and to stock, including merchandise, raw materials, and in-process or finished goods. coverage only applies when the property is located in or on the described building or in the open or a vehicle within 100 feet of the premises

Describe the coverage provided by the Business Personal Property (BPP) and similar coverage forms for business personal property

typically contains information about the insured and the loss exposures presented to the insurer

Describe the information typically contained in an insurance application and explain how that information is used by an insurer

records such as copies of jewelry appraisals, copies of bills of sales, or a business's annual report provide useful underwriting information

Describe the kinds of information an underwriter might typically obtain from each of the following sources to assist in making an underwriting decision * Applicant's or Insured's Records

an applicant's loss history is usually provided when the application is submitted to an insurer. Additionally, any claims filed by an insured after a policy has been issued generate information that the underwriter can access and use for decision making

Describe the kinds of information an underwriter might typically obtain from each of the following sources to assist in making an underwriting decision * Claim Files

provides data on the credit rating and financial stability of specific businesses. Underwriters sometimes also use insurance scoring, usually in personal lines, as one of their decision-making tools

Describe the kinds of information an underwriter might typically obtain from each of the following sources to assist in making an underwriting decision * Financial Rating Services

underwriters use government records, such as motor vehicle records (MVRs), court documents, and public records relating to property ownership, in their decision making

Describe the kinds of information an underwriter might typically obtain from each of the following sources to assist in making an underwriting decision * Government Records

inspection reports generated by an insurer's risk control department provide underwriters with information on an applicant's premises and operations

Describe the kinds of information an underwriter might typically obtain from each of the following sources to assist in making an underwriting decision * Inspection Reports

in addition to completing & submitting applications producers might supply information not included on applications, such as a business's annual reports, preliminary risk control reviews, and applicant recommendations

Describe the kinds of information an underwriter might typically obtain from each of the following sources to assist in making an underwriting decision * Producers

this section covers the sums the insured legally must pay as damages because of bodily injury or property damage to which the insurance applies caused by an accident and resulting from the ownership, maintenance, or use of a covered auto. The insurer also agrees to defend the insured against any claim or suit alleging damages that would be covered under the policy.

Describe the liability coverage provided by the Business Auto Coverage Form

protects insureds for damage to the home and its contents by fire, wind, lightning, and other causes of loss. Most homeowners policies also include coverage for theft of the contents of the home.

Describe the property coverage provided by a homeowners policy

is a tool used to evaluate the underwriting function's contribution to a profitable book of business for the insurer

Describe the purpose for measuring product mix

many dwellings do not meet the eligibility requirements for homeowners policies. A dwelling policy can provide coverage for these types of dwellings

Describe the purpose of a dwelling policy

is to state in broad terms the insurer's promises to the insured

Describe the purpose of a policy insuring agreement

its a broad liability policy intended to provide high liability limits in excess of basic liability policy coverage

Describe the purpose of an umbrella policy

coverage for personal property of others is designed to protect the insured against loss or damage to the personal property of others while such property is in the custody of the insured. it is important for businesses that usually have customers' property in their custody such as laundries, dry cleaners, and appliance repair shops

Describe the purpose of coverage for personal property of others in the BPP and similar coverage forms

intended to represent realistic estimates of the amount the insurer will pay for claims

Describe the purpose of loss reserves

is a tool used to measure an insurer's success in maintaining its book of business

Describe the purpose of the retention ratio

claim audits can ensure compliance with best practices and also can be used to gather statistical information to evaluate other criteria, including the accuracy of reserves

Describe the reason for performing claim audits

help develop insurance rating systems by collecting reliable loss data that insurers use in establishing their rates and premiums. The organizations analyze the loss data collected to determine the average loss costs per exposure unit used in class rating

Describe the role of insurance advisory organizations in ratemaking

is the ratio of insurance policies written to those that have been quoted to applicants for insurance. This ratio is used to determine whether the insurer and the underwriting function are meeting the sales goals

Describe the success ratio and how it is used as a tool to measure underwriting results

provides payment for medical expenses to persons other than the insured as a result of an accident at the insured's premises. The insured does not have to be liable for the accident, and the claim must be made within 3 years of the occurrence

Describe the type of coverage provided by Medical Payments to Others coverage

provides insurance for claims for bodily injury or property damage for which the insured is legally liable

Describe the type of coverage provided by Personal Liability Coverage

the fundamental measures of the loss exposures used insurance rating are referred to as exposure units. Insurers use standardized exposure units for rating most types of insurance

Describe the use of exposure units in insurance rating

PLE- relates to the potential legal liability of the manufacturer, distributor, or the retailer to the user or consumer of a product because of injury or damage resulting from the product. COE- relates to the potential legal liability of a contractor, repairer, or other entity for losses arising from the entity's completed work.

Distinguish between the products liability exposure and the completed operations exposure

-work outside the organization's office -handle claims that require investigating the scene of a loss -resolves complex investigative issues -meet with insureds,claimants, lawyers, and others involved in the claim -inspect damaged property and work closely with damage appraisers -prepare damage estimates, obtain photos from the accident, negotiate settlements with claimants or their reps

Distinguish between the roles of the following types of claim reps: Field Claim Representatives

focus on developing expertise only in the laws & regulations relating to the specialty or state, rather than developing a broader range of knowledge -some specialists can suggest ways to reduce damage amounts -example- catastrophe claim specialists are trained to handle disasters that result in multiple losses

Distinguish between the roles of the following types of claim reps: Specialized Claim Representatives

-handle claims from the organization's office -investigate claims -evaluate damages based on telephone interviews & correspondence

Distinguish between the roles of the following types of claim reps: Telephone Claim Representatives

-completed applications -endorsements -the insurer's bylaws -relevant statutory terms or provisions

Documents that can become apart of the policy are:

-common policy conditions -common declarations

Each ISO-type CPP begins with 2 component documents:

the homeowners policy insurer will pay policy limits of $300,000

Ellen has a homeowners policy with a liability limit of $300,000. She also has an umbrella policy with a liability limit of $1 million. Sam, a guest at a party at Ellen's home, leans against a balcony railing that was not properly secured and sustains a serious head injury in the resulting fall. Sam files a lawsuit, and the judgment is $1.1 million * How much will the homeowners policy insurer pay?

the umbrella policy insurer will pay the excess over the underlying policy limit up to the umbrella policy limit, the umbrella policy insurer will pay $800,000

Ellen has a homeowners policy with a liability limit of $300,000. She also has an umbrella policy with a liability limit of $1 million. Sam, a guest at a party at Ellen's home, leans against a balcony railing that was not properly secured and sustains a serious head injury in the resulting fall. Sam files a lawsuit, and the judgment is $1.1 million * How much will the umbrella policy insurer pay?

the playground equipment & the gun collection -injuries to children playing on the playground equipment can lead to lawsuits against Eric and Sheila. Even though Eric is keeping his guns as part of a collection, if one of his children or a guest loads and handles one of the firearms, it could discharge and cause injury/death, resulting in a lawsuit against Eric and Sheila.

Eric & Sheila own a home with a large yard and mature trees, a swimming pool, and playground equipment for the children. Sheila is a collector, and among her prized possessions are an antique dining table and chairs, a baby grand piano, and a ming vase. Eric collects stamps and guns. Which of the following are most likely to constitute personal liability loss exposures

file-and-use law- insurers must file rates with the state insurance department PRIOR to their use, but the rates can be used immediately without specific approval use-and-file law- are a variation of the file-and-use law in which insurers file rates within a specified period of time after the rates are put into use

Compare file-and-use rate laws with use-and-file laws

indemnifying insureds for covered losses

Describe the major benefit of insurance for the insured

computer software programs that supplement the underwriting decision-making process. These systems ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked

Expert Systems or Knowledge-Based Systems

-personal lines -small commercial lines

Expert systems are most frequently used in what two lines?

homeowners policies typically provide liability coverage dwelling policies do not provide liability coverage unless it is added by endorsement for additional premium

Explain a key difference between the type of coverage in homeowners policies and dwelling policies

a reduction in the value of the -property -lost income -extra expenses

List 3 primary adverse financial consequences of property loss

the completion of an interview or a questionaire that assists in identifiying the prospect's loss exposures and that enables the producer to suggest methods for treating them

Explain how a producer would complete a risk management review for an individual or a family

Agent- the legal representative of one or more insurers Broker- represents the insured in locating insurance coverage and insurers that best meet that customer's needs

Explain how an insurance agent differs from an insurance broker

They are similar in that they both sell insurance products to individuals and businesses and provide policy services. They differ because brokers represent the prospective insured, while the agent represents the insurer

Explain how brokers differ from agents

once every 3 to 5 years

State laws require that insurers undergo on-site field examinations at least ...

-the claim documentation of the loss investigation -the insurance policy

What 2 types of documents does the claim representative use to determine whether the policy covers the loss and the amount of the loss?

marketing

What insurance function advertises a new policy program for small business

because insurance reduces the uncertainty regarding payment for losses, more new businesses are established. Also, existing businesses are more likely to expand into new operations and to hire more employees.

Explain how business benefits from the reduction of uncertainty provided by insurance protection

ITC would pay more for workers compensation insurance covering its truck drivers, based on the higher # of loss exposure units for the truck driver's class rating. Long hours spend driving expose drivers to more traffic accidents than customer service representatives. As a class, truck drivers suffer more frequent and more sever injuries & disabilities. The rating class for truck drivers reflects significantly higher than loss exposure. The employer pays a higher rate for the higher loss exposure.

Interstate Trucking Company (ITC) has 60 employees. Among them are 40 truck drivers who spend 95% of their time on the road. The organization also has 7 customer service representatives who handle telephone calls and schedule shipments from the home office. Under ITC's workers compensation insurance, which group of employees would the company pay more to insure?Explain.

coverage for the peril of the flood is excluded by homeowners policies, dwelling policies, and most other insurance policies that cover property at a fixed location

Is flood damage typically a covered peril in homeowners and dwelling policies?

flood damage is covered under most auto policies that include physical damage coverage

Is flood damage typically covered under auto policies?

the definition section helps clarify terms that have specific meaning within Jane's auto policy. The definition of the term "insured" in that section may help verify whether John is covered under the policy

Jane is in an auto accident while driving her insured car. Her son, John, a passenger, is injured. Jane is wondering whether John is an insured under the medical payments coverage of her auto policy. What section of the policy would clarify the term "insured" and help determine whether John is considered an insured under the policy?

claim reps help the insurer fulfill its contractual promise by handling claims in a way that promotes peace of mind for the policyholder & that quickly restores a claimant to his or her pre-loss condition. They can support the insurer's profit goals by avoiding overspending on claim handling operations & other expenses. Also, can help the insurer avoid costly litigation, regulatory oversight, and penalties by treating policyholders and other claimants fairly to ensure satisfaction with the claim service.

Jason, a claim manager for Insurance Company, held a meeting of the claim representatives in his department. Jason asked the claim reps to identify specific ways that they can help the company comply with its contractual promise and support its profit goals. From the viewpoint of claim rep in this meeting, explain the claim reps' roles in fulfilling these 2 goals of the claim function

-They have the loss exposure for financial consequences if there is damage to their store from a covered cause of loss. -They might have to close the store while the repairs are being made. -They might be required to move produce to another location if the refrigeration equipment was damaged *Business income and extra expense coverage would cover these losses.

John & Mary purchased a building and plan to open a neighborhood grocery store that will feature fresh product. They discuss the type of coverage they will need with their insurance producer. In addition to the loss exposures to their building and business personal property, what is another significant loss exposure for John & Mary that can be covered under commercial property insurance? What type of insurance would cover this exposure?

Commercial General Liability

Kate, a customer of Real Estate Broker, was injured when she slipped and fell on a wet hallway floor at REB's office. Kate's losses resulting from the accident consisted of $5,000 in medical expenses and $30,000 in lost wages. Assuming that REB was legally liable for Kate's losses, which one of REB's coverages would be the most likely to cover REB's liability to Kate?

-to pay claims for insured losses -to pay expenses for running the insurance operation -to invest premium dollars that are not immediately needed

List 3 ways insurers allocate the premiums they collect from customers

-referrals from the present clients -refferals from strategic partners -advertising and direct mail -interactive web sites -telephone solicitations and cold calls

List 5 methods a producer may use to locate prospects

-declarations -definitions -insuring agreements -conditions -exclusions -miscellaneous provisions

List 6 common categories of policy provisions found in insurance policies

property in transit is not covered by many insurance policies because it is subject to many variables Examples: it may be transported in a truck, airplane, watercraft, it may be sent to a client's office a few blocks away, or to a buyer on the other side of the world.

List some of the variables that may affect coverage of property in transit under insurance policies covering buildings and contents

-establish financial requirements by which to measure solvency -conduct on-site field examinations to ensure regulatory compliance -review annual financial statements -administer the Insurance Regulatory Information System (IRIS)

List the 4 methods regulators use to verify insurers' solvency

-commercial property -commercial crime -commercial general liability -commercial auto -workers compensation -commercial umbrella

List the common commercial insurance policies (6)

-homeowners -personal auto -personal watercraft -personal umbrella

List the most common types of personal insurance policies (4)

most insurance transactions involve an insured & an insurer. Other insurance transactions may also involve an insurance producer

List the parties to an insurance transaction

-eliminate coverage for uninsurable loss exposures -assist in managing moral hazards -assit in managing morale hazards -reduce the likelihood of coverage duplications -eliminate coverages that the typical insured does not need -eliminate coverages requiring special treatment -assit in keeping premiums reasonable

List the purposes of exclusions in an insurance policy

1. prospect to locate persons or businesses that might want to purchase insurance products and services 2. provide risk management review to assist customers in determining their insurance needs 3. sell insurance products and services to customers 4. issue policies for customers 5. prepare policy invoices and collect premiums 6. provide customer service 7. assist in handling claims

Lou represents four insurers in a New England town. He is the only producer in the office and has several administrative support employees to assist him in processing business. Most of his business is personal insurance, such as homeowners and personal auto policies. Approximately 10% of Lou's business is commercial insurance for local store owners. *Describe the functions Lou could perform for the insurers he represents

producer functions vary widely, depending on the size of the agency, the types of customers, and the complexity of accounts the producer handles. Because his office is small and handles mostly personal insurance customers, he may be required to perform fewer functions than a large agency located in an urban area that provides mostly commercial insurance

Lou represents four insurers in a New England town. He is the only producer in the office and has several administrative support employees to assist him in processing business. Most of his business is personal insurance, such as homeowners and personal auto policies. Approximately 10% of Lou's business is commercial insurance for local store owners. *Explain why the functions Lou performs might differ from those performed by another insurance producer

1. medical payments coverage will pay for the children's medical costs. 2. Liability coverage would apply if Michael is found to be legally responsible for the accident. 3. Physical damage coverage would apply to damage to Michael's car.

Michael, an insured, is driving a neighbor's children to school when his car malfunctions and crashes into a tree. The children are injured. Michael is unhurt, but his car sustains damage.Which personal auto policy coverages may apply to this accident?

Marketing Inc.'s workers compensation policy would most likely cover Michelle's injuries

Michelle, a marketing coordinator at Marketing Inc.'s corporate home office, is injured when she trips on a computer cable near her desk and breaks her arm. Marketing Inc. has commercial liability insurance, commercial auto insurance, workers compensation insurance, employers liability insurance, and umbrella liability insurance. Which policy would most likely cover Michelle's injury?

the product mix, pricing, retention, success of converting prospects to accounts, and customer service

Non-financial tools include:

-DECLARATIONS- the CR would analyze the policy declarations page to verify that David's property was insured on the date of the loss. If no issue preclude coverage, analysis moves to the insuring agreement -INSURING AGREEMENTS- the CR would analyze insuring agreements to verify that the damaged property is covered and to verify that high winds are a covered cause of loss. The CR would also analyze definitions as part of this step. -CONDITIONS- the CR would verify that David had fulfilled the required duties after the loss if so, analysis continues to the policy's exclusions -EXCLUSIONS- the CR would review the entire policy for any exclusions, including the exclusions section, endorsements, miscellaneous provisions, and other related documents *after completing the DICE analysis, the CR would review the entire policy to verify coverage. If the loss to David's coverage is covered, the next step would be to determine the dollar amount the insurer will pay.

On September 29,2007, high winds caused property damage in the amount of $35,000 to David's house. Describe how the claim rep would conduct a post-loss analysis to determine coverage using the DICE method

as a sales representative for a direct writer, Polly would be an employee of the insurer

Polly, a recent college graduate, is considering accepting a position with a direct writer as a sales representative. * What type of contractual relationship will Polly have with the insurer?

sales representatives for direct writers generally are not responsible for administrative duties, which are handled by the insurer

Polly, a recent college graduate, is considering accepting a position with a direct writer as a sales representative. *In her new position, would Polly be expected to provide administrative support, such as issuing policies or collecting premiums?

Polly could expect to receive a salary, bonus, commisions, or a combination of the three

Polly, a recent college graduate, is considering accepting a position with a direct writer as a sales representative. *What is the method of compensation?

sales representatives of direct writers do not own expirations

Polly, a recent college graduate, is considering accepting a position with a direct writer as a sales representative. *Who owns the policy expirations?

a process in which historical data based on behaviors and events are blended with multiple variables and used to construct models of anticipated future outcomes

Predictive Modeling

-Auto (each vehicle) -Commercial Property (each $100 of insured value) -General Liability (each $1,000 of gross sales) -Homeowners (each $1,000 of insured value -Workers Compensation (each $100 of payroll)

Provide 2 examples of exposure units

-pays for covered losses and allows individuals & businesses to maintain their economic position. -provides individuals & businesses with increased peace of mind and reduces uncertainty -insured is able to use resources more effectively by paying a small premium for a possibly much larger uncertain loss amount -insurers promote a variety of risk control activities and provide a premium for those who participate -insurance is often required to satisfy legal requirements -insurance helps consumers obtain credit for major purchases

Ralph, an insurance agent, has been asked to many a presentation at a local community event. One of the topics he plans to speak about is how insurance benefits policyholders and the community. Describe the points Ralph should include in this part of his presentation

-loss exposures arising from the home and their personal property. Could be covered by the property coverage of a homeowners policy -legal liability arising out of the ownership of the home, such as for injuries to a visitor to the home. Could be covered by the personal liability coverage of the homeowners policy -loss exposure arising out of the ownership of 2 vehicles, for which the PAP would provide liability coverage and coverage for damage to an insured vehicle resulting from collision, fire, and other causes of loss -the producer may recommend a personal umbrella policy to provide additional limits over those provided by the homeowners and PAP policies

Rob and his wife Laurie own a two-story single-family home in a suburban subdivision. The home incised an attached garage, where Rob and Laurie park their two-late model vehicles: a pickup truck and minivan. Rob and Laurie are concerned that damage to the home could result in substantial financial loss. They have contacted their local insurance producer to discuss these concerns and to design an insurance program to meet their personal insurance needs. *Describe Rob and Laurie's personal loss exposures, and identify the policies that would cover these exposures

premises liability- an office supply salesperson trips on a misplaced planter in the entryway and is injured operations liability- runoff from a holding pool behind the SCI plant floods a neighbor's property, damaging the lawn and shrubs product liability exposure- several weeks after an SCI safety device has been installed on a customer's manufacturing equipment, the device falls apart as the equipment is turned on One of the parts strikes and injures the equipment operator.

SCI manufactures a unique safety device for a specific machine commonly used by other large manufacturers. Because of the uniqueness of the product, SCI provides technicians who deliver and install the safety device. The technicians transport the device in SCI vans. List the categories of liability loss exposure that apply to SCI's exposures, and give an example of a loss that could occur for each category

Inland Marine Insurance -covers many losses that the BPP and similar forms exclude, such as "floating property" which could be situated at several different job sites during the policy period

SPR Construction Company owns various pieces of mechanized equipment, such as bulldozers and backhoes, that are used at SPR's job sites. What type of insurance would be best suited for insuring this equipment against property loss at any of SPR's job sites or in transit between them?

when received,the insurer will review her application to determine whether Sally's characterics and those of her car match its eligiability and selection guidlines for personal auto policies. If it's acceptable- She will be issued an insurance policy. If not- it will decline to provide coverage for Sally and her car

Sally has just bought her first car and wants to purchase an insurance policy. She completed an insurance application and submitted it to an insurer. Describe the process the insurer will follow once Sally's application has been received

-risk -transfer -pooling

The 3 essential components of the insurance mechanism

the insurer would likely use a manuscript policy because the company's coverage needs are specialized due to the explosive nature of its manufactured items. -typically, the insurer would not have standard forms available to cover this exposure and would have to customize the policy for the Boom's specific coverage needs

The Boom Company manufactures sparklers and fireworks used for community Fourth of July celebrations. It recently expanded operations and purchased an additional warehouse for inventory storage. Explain what type of form would likely be used by the insurer to cover all of Boom's coverage needs

Umbrella Policy

The Morley family has just purchased a large property. They entertain frequently and plan to invite friends to stay in their home. The liability limit in their homeowners policy is $300,000. Which personal insurance policy would you recommend for the Morleys?

-gathering records -photographing or taking visual recordings of the loss scene -drawing diagrams of damaged areas or accident scenes -reviewing the loss notice & financial records to determine the scope of loss -taking statements of the involved parties & witnesses -obtaining medical records

The claim manager of XYZ Insurance assigned Jill as the claim rep to handle an automobile accident claim in which an insured driver ignored a red traffic signal & struck the passenger side of a vehicle in the intersection * Identify 4 activities that Jill might use to document the claim file for this loss

Jill might complete an: -insured/witness investigation -a claimant investigation -an accident scene investigation -medical investigations (if any parities were injured as a result of an accident)

The claim manager of XYZ Insurance assigned Jill as the claim rep to handle an automobile accident claim in which an insured driver ignored a red traffic signal & struck the passenger side of a vehicle in the intersection * What types of investigations might Jill complete to create a claim file for this loss?

-subrogation possibilities would not apply to this loss because the insured was clearly responsible for the loss. -Subrogation possibilities only exist when a third party is legally responsible for the loss

The claim manager of XYZ Insurance assigned Jill as the claim rep to handle an automobile accident claim in which an insured driver ignored a red traffic signal & struck the passenger side of a vehicle in the intersection * Would subrogation possibilities exist for this loss? Explain your answer.

Insurance Services Offices, Inc (ISO)

The largest insurance advisory organization is ________, which provides analytical and decision-support products and services to the P-C industry

Premium

The price of the insurance coverage provided for a specified period

HO-3 Special Form

This form provides coverage for owner-occupants of dwellings. It insures the dwelling and other structures on an open perils basis and personal property on a named perils basis. Section II coverage is also provided covered perils: for dwelling and other structures. falling objects, weight of ice/snow

the insurer's operations. such as poor service to customers or producers, noncompetitive pricing, or unfavorable claims service

Too low a retention ratio might indicate deficiencies in...

UNinsured motorists coverage applies to at-fault drivers who either has no insurance or is unknown (hit-and-run) UNDERinsured motorists coverage applies to at-fault drivers who are insured but whose coverage is not sufficient to pay the damages of an insured with underinsured motorists coverage

UNinsured motorists coverage and UNDERinsured motorists coverage pay if an insured incurs bodily injury caused by an at-fault motorist. Distinguish between the circumstances of the at-fault driver under each type of insurance

Risk

Uncertainty about outcomes that can be either negative or positive

state regulators can suspend or revoke the license of sales agents or brokers who engage in unfair trade practices

Under most state unfair trade practices law, what penalties can be imposed in each of the following circumstances? * An insurance agent engages in unfair trade practices

an insurer that is guilty of unfair underwriting practices could be fined, or its operating license in a state could be suspended or revoked

Under most state unfair trade practices law, what penalties can be imposed in each of the following circumstances? * An insurer is guilty of unfair underwriting practices

personal property that is lost or stolen may not be altered but is still a loss because the insured can't use it

Under what circumstances may an item of personal property owned by an insured sustain no physical damage but still be considered a loss?

a person who occasionally drives one of the insured's vehicles. Should an accident occur that is that person's fault, the liability portion of the insured's policy would respond.

Under what circumstances would a personal auto policy's liability coverage extend to a drive other than the named insured or a family member of the named insured?

the personal auto policy's medical payments coverage applies to an individual who is injured when entering or exiting an insured auto as well as to an insured who, as a pedestrian, is struck by a vehicle

Under what circumstances would a personal auto policy's medical payments coverage apply to a person who is neither a driver nor a passenger in a vehicle?

-even though he doesn't own the store space. he has sustained a reduction in the value of his personal property, including the materials and supplies he needs to do his work. In order to continue, he'll have to replace the lost items -he faces a loss of income because he will be unable to conduct his business at his current location until the roof has been repaired

Warren rents a small shop where he repairs shoes and leather goods. He has been in the business for years and has many regular customers. A fire in an adjoining store causes smoke and water damage in Warren's shop, and a corner of the roof collapses. Leather for patching, threads, glues, and shoe polishes and waxes are destroyed, but his heavy-duty sewing machine and leather tools are undamaged. Some of his customers' shoes and leather goods are also destroyed. describe some of the financial consequences Warren may face.

1. does the policy cover the loss? 2. what dollar amount will the insurer pay?

What 2 questions must be answered by the insurer when analyzing an insurance policy after a loss?

financial & non financial measures

What 2 types of performance measurement tools can insurers use to evaluate claim results?

-gathering the necessary information -making the underwriting decision -implementing the underwriting decision -monitoring the underwriting decision

What activities does the underwriting process consist of? (GMIM)

usually refer to a system of identified individual practices that produce superior performance & that are usually documents and shared

What are best practices?

-the service they provide to producers -the service they provide directly to their insureds

What are the 2 categories of customers for whom insurers measure the service they provide?

1. policies are clear & readable 2. to detect & address any policy provisions that are unfair

What are the 2 major objectives of regulations regarding insurance policy forms

-compliance with the contractual promise -support of the insurer's profit goal

What are the 2 primary goals of the claim function?

-Personal Liability -Medical Payments to Others

What are the 2 types of coverages provided under Section II of a homeowners policy?

-stock insurance companies -mutual insurance companies -reciprocal insurance exchanges

What are the 3 most common forms of insurer ownership?

-a domestic insurer -a foreign insurer -an alien insurer

What are the 3 primary forms of an insurer's licensing status in any given state?

inspect damage to autos & other types of property to determine whether the property is repairable or is a total loss. if it can be repaired- they estimate the repair costs & negotiate the repair price with the insured's selected repair facility, contractor, body shop, or other organization. If it is a total loss- they help the claim rep determine the value of the property & help locate a buyer for any salvage

What are the roles of the following technical specialists: Material Damage Appraisers

-help claim personnel assess the medical requirements in injury claims. they arrange independent medical examinations for injured insureds & claimants and require a second opinion from physicians. -They also review medical reports & audit bills from physicians to determine whether the treatment being provided follows the physician's treatment instructions

What are the roles of the following technical specialists: Medical Consultants

can describe how an automobile accident occurred & can provide legal testimony as to the vehicles' speeds, braking distances, and what the drivers involved could see before the impact

What are the roles of the following technical specialists: Reconstruction Experts

help claim reps assess whether or to what extent rehabilitation is possible for a claimant

What are the roles of the following technical specialists: Rehabilitation Nurses

as set out in the insuring agreement, the insurer must pay, defend, or indemnify the insured in the event of a covered loss. The insurer fulfills this promise by providing fair, prompt, and equitable service to the policyholder, either directly for first-party claims or indirectly for third-party claims

What contractual promise does an insurer fulfill, and how is it fulfilled?

determining products or services customers want and need and delivering them to those customers

What does marketing involve?

the application is referred to a supervisor for approval. the supervisor might simply approve or reject the underwriter's recommendation or might refer the entire application to a more experienced underwriter for review and an underwriting decision.

What happens if an application an underwriter wants to approved exceeds the underwriter's authority?

-some insurers may not collect enough money to pay all of their insureds' claims and may become insolvent. -other insurers might lose so much profit that they withdraw from the market or stop writing new business -an insurance shortage can then develop, and individuals & organizations might be unable to obtain the coverage they need

What happens when insurance rates become inadequate due to destructive competition?

claims

What insurance function determines the cause and amount of a policyholder's loss

underwriting

What insurance function determines the premium for a new customer's personal auto policy

risk control

What insurance function visits a prospective insured's factory to inspect the fire suppression system

premium audit

What insurance function visits an insured's premises after the end of the policy period to examine payroll records for the preceding year

independent agency and brokerage marketing system

What insurance marketing system is being used if in the agency contract, the insurer has granted the agency possession and ownership of expirations

exclusive agency marketing system

What insurance marketing system is being used if the agency contract specifies that the agent is an independent contractor but is to represent only the insurer named in the contract

direct writer marketing system

What insurance marketing system is being used if the insurer uses its own employees to sell insurance

the overall frequency of staff member changes resulting from retirements, other employment opportunities, and disciplinary actions

What is claim staff turnover?

is that insureds with similar characteristics have similar potential loss frequency and severity. Even though wide variation in actual losses may occur from one insured to the next, aggregate losses among all members of the class should be predictably different from the losses of all members of another class who have different characteristics

What is the basic premise of an insurance classification and rating system?

combining the loss ratio and the expense ratio, measures the insurer's underwriting profit. A combined ratio under 100 signifies an underwriting profit

What is the combined ratio, and how does it help insurers measure underwriting results?

commonly expressed as a percentage, indicates what portion of an insurer's written premium is being used to pay the company's underwriting expenses. The expense ratio is a tool to measure an insurer's general cost of producing business as a proportion of the premium it has written.

What is the expense ratio, and how does it help insurers measure underwriting results?

focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage

What is the focus of market conduct regulation?

to charge a premium that is commensurate with the loss exposure. Each insured's premium should be set at a level that is adequate to enable the total premiums paid by a large group of similar insureds to pay losses and expenses of that group and to allow the insurer to achieve a reasonable profit

What is the goal of underwriting when determining the price for insurance?

commonly expressed as a percentage, indicates what portion of the insurer's earned premiums goes to incurred losses, including loss adjustment expense (LAE). This ratio provides an insurer with a tool to assess how closely actually loss experience compares to expected loss experience. An insurer's loss ratio gives a general indication of the quality of business the insurer writes and might also provide insight into the adequacy of the insurer's rates

What is the loss ratio, and how does it help insurers measure underwriting results?

the examinations required for licensing, along with continuing education requirements, attempt to ensure that insurance professionals have a minimum level of insurance knowledge and meet ethical standards

What is the purpose of licensing individual insurance professionals such as producers & claim reps?

to reflect the differences between the applicant and the average risk. Underwriters apply scheduled rating credits to "better-than-average" risks and scheduled debits to "worse-than-average" risks

What is the purpose of schedule rating plans?

is to achieve a fair and equitable settlement based on the circumstances of the loss

What is the purpose of the claim handling process?

to help an insurer develop and maintain a profitable book of business

What is the purpose of underwriting?

they can notify underwriters of larger loss exposures than originally contemplated, unacceptable operations, new products, new operations, or financial problems

What observations about policyholders might premium auditors be able to refer to insurer underwriters because of their direct contact with policyholders

Accept with modification

What option of an underwriting decision requires the greatest amount of underwriting expertise?

customer service

What producer function is Bob performing if after the dry cleaner's policy was issued, the owner called Bob asking for a certificate of insurance. Bob assured the owner he would provide one, and did so

risk management review

What producer function is Bob performing if he interviewed the owner to get information from a dry cleaner's shop about the shop's loss exposures (from a cold call)

prospecting

What producer function is Bob performing if he made several cold calls to dry cleaners, one of his specialties

sales

What producer function is Bob performing if he prepared a proposal and presented it to the dry cleaner, and the proposal was accepted

soon after establishing loss reserves

When does the claim representative typically contact the insured or the insured's representative?

-accept the application without modification -reject the application -accept the application with modification

When evaluating an application, what 3 options are available to an underwriter?

the claim rep verifies whether the policy applies to the loss, the coverages that might apply, and the amount of coverage. Also, the claim rep usually establishes loss reserves based on estimated amounts necessary to pay the claim & the applicable policy limits

When identifying the policy, what actions does the claim representative perform?

the underwriter can require additional rush control measures, such as that the prospective insured install and maintain an appropriate fire alarm system. Additionally, the underwriter can modify the policy provisions. Because the commercial property account has an unfavorable loss history, the underwriter might consider increasing the policy deductible, adding certain policy exclusions, or using an alternative policy form to the one originally requested. All of these measures would reduce the insurer's exposure to loss and therefore make the application more acceptable

While evaluating an application for a new commercial property account, the new business underwriter decides that the only way the account will be acceptable to the insurer is if certain modifications are made. Because of an unfavorable loss history on the account, the underwriter has already quoted nonstandard rates, so the premium modifications are not an option. What other methods are available to the underwriter to make the application acceptable?

-surplus lines insurers are willing to provide coverage for risks that admitted insurers are unable or unwilling to offer. -because these insurers increase the availability of insurance, they have the freedom to use policy provisions and rates that are appropriate for a particular risk

Why are surplus lines insurers generally exempt from insurance regulations pertaining to policy forms and rates?

to reflect the reality of actual exposures to loss, the specific characteristics of those exposures, and competitive market influences

Why might an underwriter vary from the manual rate when determining premium?

Capacity

Without adequate ______, an insurer can't develop and maintain a profitable book of business

insured value/unit size= # of exposure units $500,000/$100= 5,000 units rate per unit X # of exposure units= premium $0.50 X 5,000 = $2,500

XYZ company is applying for building insurance. The rate is $0.50 per $100 of building insurance. XYZ would like to insure the building for $500,000. Calculate the premium that XYZ would pay.

Crash Manual or Estimating Guide

a book that describes procedures for estimating the cost to repair damage to vehicles and that lists auto part prices and typical labor times to repair or replace the part

Building and Personal Property Coverage Form (BPP)

a commercial property coverage form that can be used to cover buildings, "your business personal property," and personal property of others

Insurer

a company that sells insurance policies to protect insureds against financial hardship caused by financial losses

Coverage Part

a component of a CPP or a mono line policy that contains the policy provisions relating to a particular line of business, such as commercial property or commercial general liability; consists of: -the coverage part's declarations page -one or more coverage forms -applicable endorsements -and sometimes a general provisions form

Morale Hazard (attitudinal hazard)

a condition of carelessness or indifference that increases the frequency or severity of loss EXAMPLE: doesn't care if a fire starts because they simply have insurance- doesn't try to prevent it from happening

Moral Hazard

a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss

Property Loss Exposure

a condition that presents the possibility that a person or organization will sustain a loss resulting from damage to property in which that person or organization has a financial interest

Risk Control

a conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable

Insurance Policy

a contract that states the agreement between and the rights and duties of the insurer and insured

Hold-Harmless Agreement (Indemnity Agreement)

a contractual provision that obligates one of the parties to assume the legal liability of another party

Commercial General Liability Coverage Form

a coverage form commonly used for insuring an organization's premises and operations liability loss exposures and products and completed operations liability loss exposures

Business Auto Coverage Form

a coverage form, filed by ISO, that covers liability arising out of the ownership, maintenance, or use of autos and physical damage to autos owned, leased, or hired by the named insured

Slander

a defamatory statement expressed by speech

Libel

a defamatory statement expressed in a writing

Third-Party Claim

a demand against an insured by a person or organization other than the insured or the insurer, seeking to recover damages that may be payable by the insured's liability insurance

Claim

a demand by a person or business seeking to recover from an insurer for a loss that may be covered by an insurance policy

First-Party Claim

a demand by an insured person or organization seeking to recover from its insurer for a loss that its insurance policy may cover

Endorsement

a document that amends an insurance policy

Book of Business

a group of policies with a common characteristic, such as a territory or type of coverage, or all policies written by a particular insurer or agency

Liability

a legal responsibility for the consequences of an act or omission

Umbrella Policy

a liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention

Total Loss

a loss that exists when the cost to repair a damaged vehicle equals or exceeds the value of the vehicle

Products Liability Exposure

a manufacturer's or seller's exposure to liability for harm suffered by a buyer, user, or bystander as a result of a defective product

Law of Large Numbers

a mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes also increases

Businessowners Policy (BOP)

a package policy that combines most of the property and liability coverages needed by small and medium-size businesses

Claim File

a paper or an electronic file that contains information for a loss

Claimant

a party that makes a claim and that can be either a first-party claimant or a third-party claimant

Agency Bill

a payment procedure in which a producer sends premium bills to the insured, collects the premium, and sends the premium to the insurer, less any applicable commission

Direct Bill

a payment procedure in which the insurer assumes all responsibility for sending premium bills to the insured, collecting the premium, and sending any commission payable on the premium collected to the producer

Commision

a percentage of the premium that the insurer pays to the agency or producer for new policies sold or existing policies renewed

Claims Representative

a person responsible for investigating, evaluating, and settling claims

Actuary

a person who uses mathematical methods to analyze loss data and develop insurance rates

Exclusion

a policy provision that eliminates coverage for specified exposures

Deductible

a portion of a covered loss that is not paid by the insurer

Combined Ratio

a profitability ratio that indicates whether an insurer has made an underwriting loss or gain

Contingencies

a provision in an insurance rate for losses that could not be anticipated in the loss data

Class Rating

a rating approach that uses rates reflecting the average probability of loss for businesses within large groups of similar risks; the predominant method used for rating commercial properties

Loss Ratio

a ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses

Rate manual

a resource for classifying accounts and developing premiums for given tips of insurance; includes necessary rules, factors, and guidelines to apply those rates

Insurance

a risk management technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer

Self-contained Policy

a single document that contains all the agreements between the insured and the insurer and that forms a complete insurance policy

Named Peril

a specific cause of loss listed and described in an insurance policy. Also used to describe policies containing named perils

Surplus Lines Law

a state law that permits any producer with a surplus lines license issued by that state to procure insurance from an eligible surplus lines insurer if the applicant can't obtain the desired type of insurance in the admitted market

Unfair Claims Practices Law

a state law that specifies illegal claims practices

Guaranty Fund

a state-established fund that provides a system for the payment of some of the unpaid claims of insolvent insurers licensed in that state, general funded by assessments collected from all insurers licensed in the state

Insuring Agreement

a statement in an insurance policy that the insurer will, under described circumstances, make a loss payment or provide a service

Workers Compensation Statute

a statute that obligates employers, regardless of fault, to pay specified medical, disability, rehabilitation, and death benefits for their employees' job-related injuries and diseases

Binder

a temporary written or oral agreement to provide insurance coverage until a formal written policy is issued

Individual Rate/ Specific Rate

a type of insurance rate that reflects the unique characteristics of an insured or the insured's property

Open Perils

a type of policy or coverage that insures against risks of direct physical loss except for those specifically excluded or limited by the policy

Statue

a written law passed by a legislative body at either the federal or state level

Personal Property

all tangible or intangible property that is not real property

Pooling

an arrangement that facilitates the grouping together of loss exposures and the resources to pay for any losses that may occur

National Association of Insurance Commissioners (NAIC)

an association of insurance commissioners from the 50 U.S states, the District of Columbia, and the 5 U.S territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments

Loss Reserve

an estimate of the amount of money the insurer expects to pay in the future for losses that have already occurred and been reported, but are not yet settled.

Insurance Advisory Organization

an independent corporation that works with and on behalf of insurers that purchase or subscribe to their services, which include developing prospective loss costs and standard policy forms

Insurance Regulatory Information System (IRIS)

an information and early warning system established and operated by the NAIC to monitor the financial soundness of insurers

The National Council on Compensation Insurance (NCCI)

an insurance advisory organization that manages a database of workers compensation insurance information, analyzes industry trends, prepares workers compensation rate recommendations, and assists in developing state-specific workers compensation forms and endorsements

Direct Response Distribution Channel

an insurance distribution channel that markets directly to the customer through such distribution channels as mail, telephone, or the internet

Manuscript Form

an insurance form that is drafted according to terms negotiated between a specific insured and an insurer

Preprinted Form

an insurance form that meets the needs of many policyholders and is therefore printed in bulk for future use

Direct Writer Marketing System

an insurance marketing system that uses sales agents who are direct employees of the insurer Compensation: Salary, bonus, commissions, or a combo Ownership of Expirations: insurer owns expirations

Exclusive Agency Marketing System

an insurance marketing system under which agents (independent contractors) contract to sell insurance exclusively for ONE insurer Compensation: Commissions & Bonus Ownership of Expirations: Insurer owns expirations

Independent Agency and Brokerage Marketing System

an insurance marketing system under which producers, who are independent contractors, sell insurance, usually as representatives of SEVERAL unrelated insurers Compensation: Commissions Ownership of Expirations: Producer owns expirations

Declarations Page

an insurance policy information page or pages providing specific details about the insured and the subject of the insurance

Modular Policy

an insurance policy that consists of several different documents, none of which by itself forms a complete policy

Personal Auto Insurance (PAP)

an insurance policy that covers an individual or a family against loss exposures arising out of the ownership, maintenance, or use of automobiles

Personal Watercraft Policy

an insurance policy that covers an individual's or a family's loss exposures arising out of the ownership, maintenance, or use of watercraft used principally for recreational or personal transportation purposes

File-and-use Law

an insurance rating law in which the insurer must file rates and supporting rules with the state insurance department PRIOR to their use, but the rates can then be used immediately without specific approval

Prior-Approval Law

an insurance rating law in which the rates and supporting rules must be filed with and approved by the state insurance department before they can be used

Use-and-file Law

an insurance rating law in which the rates must be filed with the state insurance department within a specified period AFTER they are put into use

Open Competition (no-file law)

an insurance rating law that allows insurers to develop and use rates without having to file with or get approval from the state insurance department

Flex Rating Law

an insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above the rates previously filed

Non-admitted Insurer

an insurer NOT authorized by the state insurance department to do business within the state

Domestic Insurer

an insurer doing business in the jurisdiction in which it is incorporated

Alien Insurer

an insurer domiciled in a country other than the united states

Underwriter

an insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions

Telephone Claims Representative/Inside Claims Representative

an insurer employee who handles claims that can be settled by phone, mail, or email from inside the insurer's office

Foreign Insurer

an insurer licensed to operate in a state but incorporated in another state

Mutual Insurer

an insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance for them

Stock Insurer

an insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders

Admitted Insurer

an insurer to which a state insurance department has granted a license to do business within that state

Field Claims Representative

an insurer's employee who handles claims that are best handled in person, much of the filed claims rep's first time is spent visiting the scene of a loss; interviewing witnesses; investigating damage; and meeting with insureds, claimants, lawyers, and other persons involved in the claim

Expense Ratio

an insurer's incurred underwriting expenses for a given period divided by its written premiums for the same period

Underwriting Loss

an insurer's loss incurred when losses and expenses for a given period are greater than its premium earned for the same period

Third-Party Administrator (TPA)

an organization that provides administrative services associated with risk financing and insurance

Loss Exposure

any condition or situation that presents possibility of loss, whether or not an actual loss occurs

Liability Loss Exposure

any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party

Producer

any of several kinds of insurance personnel who place insurance business with insurers and who represent either insurers or insureds, or both

Insured

any person or organization who is insured under an insurance policy

Fixture

any personal property affixed to real property in such a way as to become part of the real property

Policy Provision

any phrase or clause in an insurance policy that describes the policy's coverages, exclusions, limits, conditions, or other features

Output

any product or service that results from a work process

Condition

any provision in an insurance policy that qualifies an otherwise enforceable promise of the insurer

Underwriting Expenses

costs incurred by an insurer for operations, taxes, fees, and acquisitions of new policies

Personal Liability Coverage

coverage for damages, plus costs of any defense, related to a claim or suit brought against the insured that resulted from bodily injury or property damage caused by an occurrence covered under a policy

Collision Coverage

coverage for direct and accidental loss or damage to a covered auto caused by collision with another object or by overturn

Other than Collision Coverage (OTC)

coverage for physical damage to a covered auto resulting from any cause of loss EXCEPT collision or a cause of loss specifically excluded

Drop-down Coverage

coverage provided by many umbrella liability policies for: 1. claims not covered at all by the underlying policies 2. claims that are not covered by an underlying policy only because the underlying policy's aggregate limits have been depleted

Personal Injury Protection Coverage (PIP)

coverage that pays benefits, regardless of fault, for medical expenses, income loss, and other benefits, resulting from bodily injury to occupants of a covered auto

Uninsured Motorists Coverage (UM)

coverage that provides a source of recovery for occupants of a covered auto or for qualifying pedestrians who are injured in an accident caused by an at-fault motorist who does not have the state minimum liability insurance or by the hit-and-run driver

Underinsured Motorists Coverage

coverage that provides compensation to insureds who have suffered bodily injury in an accident with an at-fault motorist whose bodily injury liability insurance limits are lower than the injured person's underinsured motorists coverage and are not sufficient to pay all the insured's damage

Extra Expenses

expenses, in addition to ordinary expenses, that an organization's income when operations are interrupted by damage to property caused by a covered peril

Fire

for most insureds, what is the peril that poses the greatest rush of a large or even total property loss?

Adverse Selection

in general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance

Transfer

in the context of risk management, a risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party

Underwriting Profit

income an insurer earns from premiums paid by policyholders minus incurred losses and underwriting expenses

Personal and Advertising Injury

injury that is covered by coverage B of the CGL and includes injury resulting from numerous offenses, such as false detention, malicious prosecution, wrongful eviction, slander, libel, use of another's advertising idea, and copyright infringement

Scheduled Coverage

insurance for property specifically listed on a policy, with a limit of liability for each item

Commercial Crime Insurance

insurance that covers 1. money & securities against numerous perils and 2. property other than money and securities against crime perils, such as employee theft, robbery, theft by outsiders, and extortion

Commercial Auto Insurance

insurance that covers a business or a not-for-profit organization against loss exposures arising out of the ownership, maintenance, or use of automobiles

No-Fault Automobile Insurance

insurance that covers automobile accident victims on a first-party basis, allowing them to collect damages from their own insurers regardless of who was at fault

Commercial Property Insurance

insurance that covers commercial buildings and their contents against various types of property loss

Inland Marine Insurance

insurance that covers many different classes of property that typically involve an element of transportation

Comercial General Liability Insurance (CGL)

insurance that covers many of the common liability loss exposures faced by an organization, including its premises, operations, and products

Business Income Insurance

insurance that covers the reduction in an organization's income when operations are interrupted by damage to property caused by a covered peril

Workers Compensation and Employers Liability Insurance

insurance that covers: 1. the benefits an employer is obligated to pay under workers compensation laws 2. employee injury claims made against the employer that are not covered by workers compensation laws

Workers Compensation Insurance

insurance that provides coverage for benefits an employer is obligated to pay under workers compensation laws

Prospective Loss Costs

loss data that are modified by loss development, trending, and credibility processes, but without considerations for profit and expenses

Premium Audit

methodical examination of a policyholder's operations, records, and books of account to determind the actual exposure units and premium for insurance coverages already provided

Damages

money claimed by, or a monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible

Property-Casualty Insurance

one of the two main sectors of the insurance industry, encompassing numerous types of insurance, most of which cover the financial consequences of damage to one's own property or legal liability to others

Contents

personal property that is usually contained in a building or other structure

Homeowners Policy

policy that covers most of the property and liability loss exposures that arise out of the residential property ownership and occupancy, as well as property and liability loss exposures that individuals and families may have while they are away from their residences

Commercial Package Policy (CPP)

policy that covers two or more lines of business by combining ISO's commercial lines coverage parts

Judgment Rating

rating used by underwriters to rate one-of-a-kind risks

Market Conduct Regulation

regulation of the practices of insurers in regard to 4 areas of operation: -sales practices -underwriting practices -claims practices -bad-faith actions

Unfair Trade Practices Law

state law that specifies certain prohibited business practices

Mandatory Rate Law

state law under which insurance rates are set by a state agency or rating bureau that all licenses insurers are required to use those rates

Real Property (Realty)

tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land

Solvency

the ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future

Cause of Loss (Peril)

the actual means by which property is damaged or destroyed

Capacity

the amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus

Reserve

the amount the insurer estimates and sets aside to pay on an existing claim that has not been settled

Draft Authority

the authority expressly given to an agent by an insurer allowing the agent to settle and pay certain types of claims up to a specified limit

Tort Law

the branch of civil law that deals with civil wrongs other than breaches of contract

Loss Adjustment Expense (LAE)

the expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy

Completed Operations Liability Exposure

the exposure to liability for bodily injury or property damage arising out of the insured's completed work

Premises Liability Loss Exposure

the exposure to liability for bodily injury or property damage due to the ownership, occupancy, or use of the premises

Operations Liability Exposure

the exposure to liability for bodily injury or property damage resulting from the insured's ongoing business activities, as opposed to the insured's completed operations

Negligence

the failure to exercise the degree of care that a reasonable person in similar situation would exercise to avoid harming others

Balance Sheet

the financial statement that reports the assets, liabilities, and owners' equity of an organization as of a specific date

Claims Handling

the insurer function that processes demands for claim payments

Legal Liability

the legally enforceable obligation of a person or an organization to pay a sum of money to another person or organization

Retention Ratio

the percentage of insurance policies renewed

Workers Compensation and Employers Liability Insurance Policy (WC&EL policy)

the policy used in most states to provide workers compensation and employers liability insurance

Loss Costs

the portion of the rate that covers projected claim payments and loss adjusting expenses

Final Rate

the price per exposure unit determined by adjusting the prospective loss costs for expenses, profits, and contingencies

Rate

the price per exposure unit for insurance coverage

NAIC Annual Statement

the primary financial statement prepared by insurers and required by every state insurance department

Subrogation

the process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party who caused the loss or is otherwise legally liable for the loss

Solvency Surveillance

the process conducted by state insurance regulators of verifying the solvency of insurers and determining whether their financial condition enables them to meet their financial obligations & to remain in business

Underwriting

the process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made

Success Ratio

the ratio of insurance policies written to those that have been quoted to applicants for insurance

Agency Expiration List

the record of an insurance agency's present policyholders and the dates their policies expire

False Arrest

the seizure or forcible restraint of a person without legal authority

Incurred Losses

the sum of the paid losses and loss reserves and loss adjustment expense reserves

Written Premiums

the total premium on all policies written then during a particular period

Exposure Unit

the unit of measure used to determine an insurance policy premium. Examples: area, gross receipts, payroll

HO-8 Modified Coverage Form

this form is a more limited form of coverage for owner-occupants of dwellings. Insures the dwelling, other structures, and personal property, on a limited, named perils basis covered perils: fire or lightening, windstorm or hail, explosion

HO-6 Unit-Owners Form

this form is designated for the owners of residential condominium units. it insures personal property on a named perils basis, with limited dwelling coverage. Loss of Use and Section II coverages are also provided covered perils: broad form covered perils

HO-5 Comprehensive Form

this form is designed for owner-occupants of dwellings. it provides the broadest coverage for al the homeowners forms. It insures the dwelling, other structures, and personal property on an open perils basis. Loss of Use and Section II coverage is also provided covered perils: open perils on dwelling, other structures, and personal property

HO-4 Contents Broad Form

this form is designed for tenants and other occupants of dwellings or apartments. It insures a tenant's personal property on a named perils basis (no dwelling coverage is included) Section II coverage is also provided covered perils: broad form covered perils

HO-2 Broad Form

this form provides coverage for owner-occupants of dwellings. it provides Section 1 coverages on a named perils basis and provides Section II coverage covered perils: fire and lightening, windstorm or hail, exposition, theft, etc

Fair Rental Value

under coverage D- loss of use of homeowners policy, the amount of rent that the insured would have received for the residence or any part of the residence rented to another individual for residential purposes if the residence had not been damaged

Policyholders' Surplus

under statutory accounting principles, an insurer's total admitted assets minus its total liabilities