Colorado Property and Casualty Insurance

Liberalization Clause

Ensures that if the insurer introduces an improved free coverage, the insured will get the benefit of the new coverage immediately and will not have to wait for policy renewal

Fair Credit Reporting Act

Established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential. accurate, relevant, and properly used. Protects consumers against the circulation of inaccurate, obsolete personal, or financial info

Legal Purpose

Every insurance contract must have legal purpose. This means the contract must be for a lawful reason and not against public policy

Policy Structure

Every property/casualty policy is comprised of the following components: 1. Declarations 2. Definitions 3. Insuring agreement 4. Additional coverage 5. Conditions 6. Endorsements 7. Exclusions and policy limits

Per Occurrence (Accident)

Per Occurrence is a sublimit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence

Indemnity

Sometimes referred to reimbursement. Is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract. The purpose is to restore, but not allow the insured/beneficiary to profit

Split

Split limits are separately stated limits of liability for different coverages. The limits may be stated on a per person, per occurrence, or per policy period basis or can be split between bodily injury and property damage. Many auto liability policies are written with split limits

Representations

Statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

General Form Structure

The 3 coverage forms applicable to the dwelling property policy define the coverages, perils, or causes of loss insured against, other coverages, exclusions, and conditions. Every ISO form has a certain flow to the info.

Law of Large Numbers

This states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss upon which insurance rates are calculated

National Association of Registered Agents and Brokers (NARAB) Reform

This title of the program amends the Grammy-Leach-Bililey Act to repeal

Speculative Risk

This involves the opportunity for either loss or gain. an example would be gambling. This type of risk is not insurable

Loss Valuation

This is a factor in determining the premium charged and the amount of insurance required

Obligations of the Insurance Company

An insurance company, in return for a premium, must be fair in underwriting and must pay covered losses

Definition and Duties of the Insured

An insured is anyone who is covered under the policy, whether named or not

Replacement Cost

Is defined as the cost to replace damaged property with like kind and quality at today's price, without any deduction for depreciation

Basic Form

-Fire or Lightening/Internal Explosion -The insured can extend coverage perils for an additional premium -Windstorm/Hail -Explosion -Riot or civil commotion -Aircraft -Vehicles -Smoke -Volcanic Eruption

Four Essential Insurance Contract Elements

1. Agreement 2. Consideration 3. Competent parties 4. Legal purpose

The DP form structure is as follows:

1. Agreement- insuring agreement 2. Definitions- limited in nature 3. Deductible- applies to all covered losses unless noted otherwise in the policy form 4. Coverages, including Other Coverages- define direct and indirect property coverages, and additional coverages included in the premium charge 5. Perils Insured Against- vary by form and is a key differentiator in form selection 6. General Exclusions- perils not covered in all forms 7. Conditions- specify when coverage will apply

Sources of Underwriting Info

1. Application form 2. Motor vehicle records 3. Interviews with neighbors, friends, employers 4. Inspection of property 5. Inspection of insurance history

NARAB is required to provide a mechanism for the adoption and multi-state application of requirements and conditions pertaining to:

1. Licensing, continuing education, and other qualifications of non-NARAB insurance producers 2. Resident/Non-resident insurance producer appointments 3. Supervision/disciplining of such producers 4. Setting of licensing fees for insurance producers

Types of Property Policies

1. Personal Lines 2. Commercial Lines 3. Inland Marine and Other Coverages

In the event of of a loss covered by the policy the named insured is required to:

1. Protect the damaged property from further damage 2. Prepare an inventory of damaged property 3. Cooperate with the insurer in settling the loss 4. Notify the police in case of theft loss 5. Submit to the insurer a signed sworn proof of loss within allotted amount of time after being requested to do so

The act requires 2 disclosures to a customer:

1. When a customer relationship is established 2. Before disclosing protected information

Example of Split Limit

25/50/25 would indicate that the policy would pay 25K for the injury of a single person, up to 50K for bodily injury for two or more people (but not more than 25K to any one person) and up to 25K for the damage to property of others

Mortgagee Rights

A mortgagee clause is attached to a policy to protect the interest of the mortgagee in the mortgaged property.

Additional/Supplementary Coverage

A provision in an insurance policy that provides an additional amount of coverage for specific loss expense, at no additional premium

Combined Single

A single dollar limit of liability applying to the total of damages for bodily injury and property combined, resulting from one accident or occurrence. The limit may be used in any combination of amounts, not to exceed the single limit

Stated Value

A stated amount is the amount of insurance in a property policy that is not subject to any coinsurance requirements in the event of a covered loss. This scheduled amount is the maximum amount the insurer will pay in the event of a loss

Binders

A temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued. They expire when a policy is issued.

Warranty

An absolutely true statement upon which the validity of the insurance policy depends. Breach of warranties can be considered grounds for voiding the policy or return of premium

Accident VS. Occurrence

An accident is a sudden, unplanned event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended An occurrence is a broader definition of loss than accident because it includes those losses caused by continuous/repeated exposure to conditions resulting in injury to persons/damage to property that is neither intended or expected

Additional Insureds

Are the individuals or businesses that are not named as insureds on the declaration page, but are protected by the policy

Physical Hazards

Are those arising from material, structural, or operational features of the risk. Apart from the persons owning/managing it

Coverage Forms -Perils Insured Against

Basic Form, Broad Form, Special Form

Blanket VS. Specific Coverage

Blanket insurance is a single property insurance policy that provides coverage for multiple classes of property at one or more locations. All insured properties are written for one total amount of insurance and no single item is assigned a specific amount of insurance. Specific insurance is a property insurance policy that covers a specific kind or unit of property for a specific amount of insurance

Example of Indemnity

Brenda has a homeowners insurance policy for 200k. Her home is destroyed and the expense to rebuild only comes to 150K. Brenda would only be given 150K (the amount of the loss) and the full 200K that her policy states that she may use

Dwelling Property Policy

Can be purchased to insure properties solely used for residential purposes for the following situations: 1. Up to 5 roomers or boarders 2. Up to 4 residential units 3. Properties in the course of construction 4. Owner occupied, tenant occupied, or both 5. Mobile homes on the basic form only, if they contain no more than one apartment, and are located at a permanent location listed in the policy 6. Seasonal dwellings unoccupied for 3 months or more during a 12 month period 7. Not designed as farm property

Policy Changes

Changes to the policy must be made by the insurer and be in writing

Declarations

Clarifies terms used in the policy

Strict Liability

Commonly applied in product liability cases. A person or business that manufactures or sells a product makes an implied warranty that the product is safe. They are liable for defective products, regardless of fault or negligence

3 Elements of Insurable Interest

Financial (monetary), Blood (a relative), Business (a business partner)

Appraisal

If there is a disagreement between the insured and the insurer on the value of any property loss, either property can make a written demand for an appraisal. Each party will select a competent appraiser who will then select an umpire if they are unable to agree on a fair value

Insurance Contracts

In order for insurance to be legally binding, they must have four essential elements

Extra Note

Insurable interest must exist at the time of loss (person or property)

Life Insurance

Insures against the financial loss caused by the premature death of the insured

Casualty Insurance

Insures against the loss and/or damage of property and resulting liabilities

Property Insurance

Insures against the loss of physical property or the loss of its' income producing abilities

Health Insurance

Insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury

Notice of Claim

Is a form/statement from an insured to insurer, informing the insurer that events leading to a possible claim have occurred. The notice will include information as to how, when, and where the loss took place

Policy Application

Is a printed form that includes questions about a prospective insured and the desired insurance coverage and limits. Provides the underwriter with info for accepting or rejecting the prospective insured and rating the desired policy

Agreed Value

Is a property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written

Pro rata

Is a provision found in some property insurance policies that provides for the sharing of loss with other insurance that may be written on the same risk in the same proportions as their limits of insurance bear to the total of coverage of all policies covering the risk, whether collectible or not

Other Insurance

Is a provision found in some property insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk

Material Misrepresentations

Is a statement that ,if discovered, would alter the underwriting decision of the insurance company. If they are considered intentional they are considered fraud

Proof of Loss

Is a sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid.

Named Peril

Is a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils. No coverage is provided for unlisted perils

Open Peril

Is a term used in property insurance to describe the breadth of coverage provided under the insurance policy form that insures against any risk of loss that is specifically excluded

Proximate Cause

Is an act or event considered a natural and reasonably foreseeable cause of the damage or event that occurs and damages property or injures a plaintiff. The negligence must have been the proximate cause of the damage if the injured party is to collect for the damage.

Inspections

May be made as needed by the insurer. The insurance company reserves the right to inspect or examine the insured's location or books to determine the exact exposure for underwriting and rating purposes

Example of Insurable Interest

Mortgagees and leaseholders may have insurable interest in their respective properties

Endorsements

Printed addendums to a contract that are used to change the policy's original terms, conditions, or coverages. They may be included at the time of the policy is issued or added later during the policy term. They must be in writing, attached to the policy, and signed by an executive officer of the insurer to have any effect. May be used to add/delete coverages. May be used to correct the insured name, address, etc

Two types of Risk

Pure and Speculative risk

Moral Hazards

Refer to those applicants that may lie on an application for insurance, or have done so in the past, or have submitted fraudulent claims against an insurer

Morale Hazards

Refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of existing insurance (If it breaks my insurance will pay to replace it)

Pure Risk

Refers to situations that can only result in loss or no change. No opportunity for financial gain. This is the only risk that insurance companies are willing to accept

Exclusions

Section of an insurance policy that details the perils that are not insured against and what persons are not insured

Privacy Protection (Gramm-Leach-Bliley)

The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a non-affiliated third party except for the following reasons: 1. The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party 2. The consumer is given the opportunity, before the time that the information is initially disclosed, to direct that information not to be disclosed to the third party 3. The consumer is given an explanation of how the consumer can exercise a nondisclosure option

Aggregate-General VS. Products-Completed Operations

The aggregate limit is the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims made or the number of accidents that occur. Losses paid under coverages subject to aggregate limits reduce the amount available for future losses. Aggregate limits are restored at the anniversary of the policy

Consideration

The binding force in any contract. Consideration is something of value that each party gives to the other. The consideration on the part of insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss

Peril

The causes of loss insured against in an insurance policy

Hazards

The conditions or situations that increase the probability of an insured loss occurring. (Slippery floors, congested traffic)

Deductible

The dollar amount an insured must pay on a claim before the insurance policy provides coverage. A higher deductible amount usually lowers the amount of the premium

Negligence

The failure to use the care that a reasonable, prudent person would have taken under the same or similar circumstances

First Named Insured

The individual whose name appears first on the policy's declaration

Named Insured

The individual whose name appears on the policy's declaration

Insurance to Value

The insurance to value provision, usually found in homeowners policies, provides replacement cost settlement to the policyholder who carries adequate insurance

Subrogation

The insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Based on the principle of Indemnity by preventing the insured from collecting on the loss twice.

Limits of Liability

The insurer's liability for payment as stated in an insurance policy

Policy Limits

The maximum amount an insured may collect

Per Person

The maximum amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit in the stated policy for bodily injury claims

Vicarious Liability

The purpose of this doctrine is to transfer liability from one person to another person who would probably have a greater ability to pay. (Ex: Parents pay for the negligent acts of their children)

Terrorism Risk Insurance (TRIA)

The purpose of this insurance was to create a temporary federal program that would share the risk of loss from future terrorist attacks with the insurance industry. This act requires that all commercial insurers offer insurance coverage for the acts of terrorism

Insuring Agreement

The section of an insurance policy containing the insurer's promise to pay

Conditions

The section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy

Cancellation

The termination of an in-force insurance policy, either by the insured or insurer

Non-renewal

The termination of an insurance policy at its expiration date

Direct and Indirect Loss

The two types of property losses. Property insurance only covers direct losses. However, insurance policies can be updated to protect indirect losses. Direct losses mean direct, physical damage to buildings and/or personal property. Indirect losses are also known as consequential losses and are considered a result of the direct loss (i.e. water damage as a result of firefighters putting out a fire in a building)

Risk

The uncertainty or chance of loss occurring

Liability

There are different types of liability; absolute liability, strict liability, and vicarious liability

Offer and Acceptance

There must be a definite offer by one party and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when the insurer's underwriter approves the application and issues a policy

Salvage Value

This allows the insurance company to take possession of the property after payment of a loss. By selling salvaged goods, the insurance company can reduce the cost of the claim

Coinsurance

This clause states that, in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. In case of partial loss, the insurer will pay the partial loss in full if the insured has maintained the required percentage of insurance with relation to the value of the property (Insurance Carried / Insurance Required) X Loss Amount = Loss Payment

Misrepresentations

Untrue statements on the application of insurance. Could void the contract

Vacancy and Unoccupancy

Vacancy refers to an insured structure in which no people have been living/working and no property has been stored for the period of time required as stated in the policy Unoccupancy refers to an insured structure no people have been living/working within the required period of time, but some property is stored

Acronyms that can be used to help remember the extended coverage perils

WHARVES -Windstorm -Hail -Aircraft/vehicles -Riot/civil commotion -Volcanic Eruption -Explosion -Smoke W.C.SHAVER Windstorm Civil commotion Smoke Hail Aircraft Vehicle and volcano Explosion Riots

Example of Law of Large Numbers

When an insurance company issues a policy on a 35-year old male, the company has no way of knowing or accurately predicting when he will die. But LOLN looks at a large group of similar risks-and makes some conclusions based on statistics of past losses

Actual Cash Value (ACV)

a method of valuation that reinforces the principle of indemnity because it recognizes the reduction of the value of property as it ages and becomes subject to wear and tear and obsolescence, usually actual cash value is calculated as follows: Current Replacement Cost - Depreciation = Actual Cash Value

Insurable Interest

a person or property with insurable interest, meaning the person or property would incur financial loss if the insured's property or self were to be damaged

Market Value

is seldom-used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss