Insurance part 2

Paul vs. Virginia (1868)

Affirmed states rights to regulate insurance

Coinsurance Clause

in a property insurance contract encourages the insured to insure the property to a stated percentage of its insurable value

Deductible

is a provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable

Negligence

is the failure to exercise the standard of care required by law to protect other from an unreasonable of harm

Dodd-Frank Act

legislation passed in 2010 aimed at reforming the banking industry and offering consumers greater protection. Reformed the financial industry

Assessment Methods

major method used to raise the necessary funds to pay unpaid claims also an assessment on other insurers to help pay claims

aggregate deductible

means that all losses that occur during a specified time period, usually a year, are accumulated to satisfy the deductible amount

Unilateral Contract

only the insurer makes a legally enforceable promise

pure rule

you can collect damages even if you are negligent, but your reward is reduced in proportion to your fault

50 percent rule

you cannot recover if you are 50 percent or more at fault

51 percent rule

you cannot recover if you are 51 percent or more at fault

Coinsurance Formula

(amount of insurance carried/amount of insurance required) x loss = amount of recovery

purpose of deductible

-Eliminate small claims that are expensive to handle and process -Reduce premiums paid by the insured -Reduce moral hazard and attitudinal (morale) hazard

Reasons for Insolvency

-Inadequate rates -Inadequate reserves for claims -Rapid growth and inadequate surplus -Problems with affiliates -Overstatement of assets -Alleged fraud -Failure of reinsurers to pay claims -Mismanagement -Catastrophic losses

Why are exclusions necessary?

-Some perils are not commercially insurable e.g., catastrophic losses due to war -Extraordinary hazards are present e.g., using the automobile for a taxi -Coverage is provided by other contracts e.g., use of auto excluded on homeowners policy -Moral hazard problems e.g., coverage of money limited to $200 in homeowners policy -Attitudinal hazard problems e.g., individuals are forced to bear losses that result from their own carelessness -Coverage not needed by typical insureds e.g., homeowners policy does not cover aircraft

Principle of Utmost Good Faith

A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

all states require what?

All agents and brokers to be licensed

Foreign Insurer

An insurance company that is incorporated in another state.

Alien Insurer

An insurance company that is incorporated outside the United States.

Domestic Insurer

An insurer doing business in the jurisdiction in which it is incorporated.

Insurer's RBC depends on:

Asset risk Underwriting risk Interest rate risk Business risk

U.S. vs. South-Eastern Underwriters Association (1944)

Court ruled that insurance was an interstate commerce when conducted across sate lines and was subject to federal antitrust laws

Basic Parts of Insurance Contract

Declarations Page Definitions Agreement Exclusions Conditions Coinsurance Dead CC

Fair Plan

Fair Access to Insurance Requirements plan is a state-run program that makes insurance obtainable to those in high risk areas who have been unable to acquire insurance through other channels.

GAAP

Generally Accepted Accounting Principles

all states have what type of laws, funds, association to help pay the claims of policy holders of insolvent insurers

Guaranty

Statutory Acounting

How insurance companies keep track of money because insurance companies are more conservative

Requirements of an Insurance Contract

Offer and Acceptance Consideration Competent Parties Legal Purpose

The McCarren-Furguson Act (1945)

States that continued regulation and taxation of the insurance industry by the states in public interest

Contributory Negligence

The injured person collect damages if his or her care falls below the standard of care required for his or her protection

Principle of Insurable Interest

The insured must be in a position to lose financially if a covered loss occurs

Principle of Indemnity

The insurer agrees to pay no more than the actual amount of the loss

Is Flood Insurance nationally regulated?

Yes

Flood Insurance

a certain type of insurance that protects a home against damage or destruction caused by a flood

Aleatory Contract

a contract where the values exchanged may not be equal but depend on an uncertain event

state commissioners have the right to do what

approve or disapprove new policy forms before they are sold to the public

Declarations Page

are statements that provide information about the particular property or activity to be insured

Admitted Assets

assets that an insurer can show on its statutory balance sheet in determining its financial condition

Financial Modernization Act (1999)

changed federal law that earlier prevented banks, insurers, and investment firms from competing outside their core area

three major types of exclusions

excluded perils, excluded losses, excluded property

equity in rating

fundamental purpose of coinsurance

Conditional Contract

policy owner must comply with all policy provisions to collect for a covered loss

how insurance companies make money

premiums investments

what forms does rate regulation take

prior approval, file and use, flex rating law, state-made rates.

example of personal contract

property insurance policy which cannot be assigned to another party without insurers consent

conditions

provisions in the policy that qualify or place limitations on the insurer's promise to perform

principle of reasonable expectations

states that an insured is entitled to coverage under a policy that he or she reasonably expects it to provide, and that to be effective, exclusions or qualifications must be conspicuous, plain, and clear

Principle of Subrogation

substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance

Insuring Agreement

summarizes the major promises of the insurer

comparative negligence law

the financial burden of the injury is shared by both parties according to their respective degrees of fault

insurance twisting

the inducement of s policyholder to drop an existing policy to replace it with a new one with little or no economic value to client

Contract of Adhesion

the insured must accept the entire contract with all of its terms and conditions

straight deductible

the insured must pay a certain number of dollars of loss before the insurer is required to make a payment

Assessment Method

the major method used to raise the necessary funds to pay unpaid claims

insurance rebating

the practice of giving an individual a premium reduction or some other financial advantage not stated in policy

primary and excess insurance

the primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted

Systematic Risk

the risk of collapse of an entire financial system or market

why are insurers subject to financial regulations

to maintain solvency

FSOC (Financial Stability Oversight Council)

treat systematic risk

Imputed Negligence

under certain conditions, the negligence of one person can be attributed to another