general insurance

surplus lines

insurance

stock companies

owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses. officers are elected by the stockholders and manage stock insurance companies.

foreign insurer

an insurance company that is incorporated in another state or territorial possession.

fiduciary

someone in a position of trust.

moral hazards

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

adverse selection

the insuring of risks that are more prone to losses than average risk. poorer risks tend to seek insurance or file claims to a greater extent than better risks.

fraud

the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party.

premium

the money paid to the insurance company for the policy of insurance.

policyowner

the person who is entitled to exercise the rights and privileges in the policy and who may or may not be the insured.

beneficiary

the person who receives the benefits from the policy of insurance.

transfer

this is the most effective way to handle risk, so that the loss is borne by another party. insurance is the most common method of transferring risk from an individual or group to an insurance company.

fraternal benefit society

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

insurer

any person or company engaged as the principal party in the business of entering into insurance contracts.

physical hazards

are those arising from the material, structural, or operational features of risk, apart from persons owning or managing it.

express authority

authority a principal intends to grant to an agent by means of the agent's contract. it is the authority that is written in the contract.

implied authority

authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

personal contract

between the insurance company and an individual. company has the right to decide with whom and who they won't insure, the insured can't change to someone else without the insurer's approval.

consideration

binding force in any contract. something of value that each party gives to the other. the insured is the payment of premium and insurer pays the loss.

managerial system

branch manager, salaried, agents can be insurer's employees or independent contractors.

perils

causes of loss insured against an insurance policy.

not catastrophic

insureres need to be reasonably certain their losses will not exceed specific limits.

definite and measurable

insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates.

speculative risk

involves the opportunity for either loss or gain. an example would be gambling. these types of risks are not insurable.

morale hazards

refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because the existence of insurance. (ex. i am not going to fix this. if it breaks, insurance will cover it.)

pure risk

refers to situations that can only result in a loss or no change. there is no opportunity for financial gain. this is the only type of insurance companies are willing to accept.

conditional contract

requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

insurance transfers

the risk of loss from an individual or business entity to an insurance company, which in turn spreads the cost of unexpected losses to many individuals. if there were no insurance mechanism, the cost of a loss would have to be borne solely by the individual who suffered the loss.

risk

the uncertainty or chance of a loss occurring.

insurer

(principal) the company who issues a policy of insurance.

apparent authority

is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

concealment

legal term for the intentional withholding of information of a material fact which is crucial in making a decision.

direct response market system

no agents, company advertises directly to consumers, consumers apply directly to the company.

lloyd's associations

not an insurance company, but provides support facilities for underwriters or groups of individuals that accept insurance risk.

unilateral contract

only one of the parties to the contract is legally bound to do anything. insured makes no legally binding promises; however, an insurer is legally bound to pay losses covered by a policy in force.

contract of adhesion

prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). take it or leave it basis.

exposure

a unit of measurement used to determine rates charged for insurance coverage. a large number of units having the same or similar exposure to a loss are referred to as homogenous. the basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss.

reduction

actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles.

warranty

an absolute true statement upon which the validity of the insurance policy depends. breach of these would be considered for voiding the policy or a return of premium.

contract of aleatory

an exchange of unequal amounts or values. premium paid is small by the insured in relation to the amount that will be paid for a loss.

offer and acceptance

definite offer by one party, and this offer must be accepted in its exact terms by the other party. the offer is usually made by the applicant when the applicant is submitted. acceptance takes place when an underwriter approves the application and issues the policy.

avoidance

eliminated exposure to a loss. effective, but seldom practical.

agent/agency contract

a contract that is held between an insurer and an agent/producer containing the expressed authority given to the agent/producer, outlining the duties and responsibilities to the principal. if the agent is in violation of the agency contract (or agreement), he or she may be held personally liable to the insurer for breach of contract.

general agency system

general agent-entrepreneour represents 1 company, exclusive, compensation and commission, appoints subagents.

nonadmitted/nonauthorized

an insurance company that has no applied, or has applied and been denied a certificate of authority and may not transact insurance.

hazards

conditions or situations that increase the probability of an insured loss occurring.

am best, fitch, standards and poors, moody's, weiss

guides to insurance companies' financial integrity are published regularly by these various independent rating services.

retention

planned assumption of risk by an insured through the use of deductibles, copayments, of self-insurance. it is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays. purpose is to reduce expenses and improve cash flow, increase control of claims and reserving claim settlements, and funding for losses that can't be insured.

nonparticipating (stock)

policy does not pay dividends to policyowners; however, taxable dividends are paid to stockholders.

loss

the reduction, decrease, or disappearance of value of the person or property insured in a policy caused by a named peril. insurance provides a means to transfer loss.

randomly selected and large loss exposure

there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health, and economic status, and geographic location.

misrepresentations

untrue statements and could void the contract.

rescission

when the insurance applicant intentionally fails to communicate information that the insurer needs, the insurer has the right to cancel the policy even if the failure to communicate is discovered after the policy has been issued.

indemnity

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. purpose is to restore.

admitted/authorized insurer

an insurance company that has qualified and has received a certificate of authority from the department of insurance to transact insurance in the state.

domestic insurer

an insurance company that is incorporated in this state. in most cases, the company's home office is in the state in which it was formed.

alien insurer

an insurance company that is incorporated outside the united states.

location of incorporation

how insurance companies are classified.

insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

due to chance

a loss that is outside the insured's control.

sharing

a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group.

agent/producer

a person who acts for another person or entity known as the principal with regard to contractual arrangements with third parties; a legal representative of an insurance company.

applicant or proposed insured

a person who requests or seeks insurance from an insurer.

surplus lines

insurance for which there is no readily available admitted market. such coverages are marketed through nonadmitted insurers who specialize in offering insurance to the high risk market on an unregulated bases under each state's surplus lines law.

mutual companies

owned the policyholder and issue participating policies. policy owners are entitled to dividends, which are a return of excess premiums and are therefor non-taxable.

reinsurance

a contract under which one insurance company indemnifies another insurance company for part or all of its liabilities. this is used by insurers to protect against catastrophic losses. ceding insurer=first, assuming insurer=second.

exclusive agency systems

1 agent represents 1 company, exclusive, commissions on personal sales, renewals can only be placed with the appointing insurer.

independent agency system

1 independent agent represents several companies, nonexclusive, commissions on personal sales, business renewal with company.

representations

statements believed to be true to the best of one's knowledge, bu they are not guaranteed to be true.

the law of large numbers

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