Ohio Health Prep

Due to Chance

A loss that is outside the insured's control.

Reciprocity/Reciprocal

A mutual interchange of rights and privileges

Transfer

Insurance is the __________ of risk of loss

Law of large numbers

The larger the number of people with a similar exposure to loss, the more predictable actual losses will be

Misrepresentations

Untrue statements on the application are considered ______________ and could void the contract.

Waiver

is the voluntary act of relinquishing a legal right, claim or privilege.

Indemnity

(sometimes referred to as 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 of insurance is to restore, but not let an insured or a beneficiary profit from the loss.

Fraternal Benefit Society

- Not for profit organization - Not an insurer - Formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization

Mutual

- Owned by policyowners (policyholders) - Issue participating policies (par) - Pay dividends to policyholders which are a refund of excess premiums

Stock

- Owned by stockholders - Issue nonparticipating policies (nonpar)

Insurance

- Transfers the risk of loss from an individual to an insurer - Based on the principle of indemnity - Based on the spreading of risk (risk pooling) and the law of large numbers

Unilateral

= one-sided (only one party makes a promise)

Domestic

A _____________ insurer is 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 — the company's domicile. For instance, a company chartered in Pennsylvania would be considered a Pennsylvania domestic company.

Foreign

A _______________ insurer is an insurance company that is incorporated in another state, the District of Columbia, or a territorial possession. Currently, the United States has 5 major U.S. territories: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

Material Misrepresentation

A _______________ is a statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentations are intentional, they are considered fraud.

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

Reinsurance

A contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities. The purpose of reinsurance is to protect insurers against catastrophic losses. The originating company that procures insurance on itself from another insurer is called the ceding insurer (because it cedes, or gives, the risk to the reinsurer). The other insurer is called the assuming insurer, or reinsurer.

Homogeneous

A large number of units having the same or similar exposure to loss is known as _______________. The basis of insurance is sharing risk among the members of a large homogeneous group with similar exposure to loss.

Agent/Producer

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

Definite and Measurable

A loss that is specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable.

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. A reciprocal insurance exchange is a formal risk-sharing arrangement

Taxable Dividends are Paid to Stockholders

A nonparticipating (stock) policy does not pay dividends to policyowners; however, __________________ The dividends are not guaranteed as they are based on company profit.

Applicant or Proposed Insured

A person applying for insurance

Beneficiary

A person who receives the benefits of an insurance policy

Exposure

A unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates: The age of the insured; Medical history; Occupation; and Sex.

Hazards

Aare conditions or situations that increase the probability of an insured loss occurring. Are classified as physical hazards, moral hazards, or morale hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving, are hazards and may increase the chance of a loss occurring.

Elements of Insurance Risk

All of the following elements apply to an insurable risk: Due to chance: chance of loss beyond insured's control Definite and measurable: loss must have definite time, place and amount Predictable: number of losses must be statistically predictable Not catastrophic: there must be limits that the loss can't exceed Large exposure: insurer must be able to predict losses based on the law of large numbers Randomly selected exposure: insurer must have a fair proportion of both good and poor risks

fiduciary responsibility

Although the agents act for the insurer, they are legally obligated to treat applicants and insureds in an ethical manner. Because an agent handles the funds of the insured and the insurer, he/she has _____________. A fiduciary is someone in a position of trust. More specifically, it is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

Alien

An ________________ insurer is an insurance company that is incorporated outside the United States.

principal (insurer)

An agent/producer is an individual licensed to sell, solicit or negotiate insurance contracts on behalf of the _______________.

Broker

An insurance producer not appointed by an insurer and is deemed to represent the client

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. Fraternals sell only to their members and are considered charitable institutions, and not insurers. They are not subject to all of the regulations that apply to the insurers that offer coverage to the public at large.

Physical Hazards

Are individual characteristics that increase the chances of the cause of loss. They exist because of a physical condition, past medical history, or a condition at birth, such as blindness.

Mutual Companies

Are owned by the policyowners and issue participating policies. With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are, therefore, nontaxable.Dividends are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. Dividends are not guaranteed.

Stock Companies

Are 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.

Morale Hazards

Are similar to moral hazards, except that they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without a forethought may cause physical injuries.

Moral Hazards

Are tendencies towards increased risk. They involve evaluating the character and reputation of the proposed insured. Refers to those applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

Perils

Are the causes of loss insured against an insurance policy

In favor of the insured

Because only the insurance company has the right to draw up a contract, and the insured has to adhere to the contract as issued, the courts have held that any ambiguity in the contract should be interpreted ______________

Certificate of Authority

Before insurers may transact business in a specific state, they must apply for and be granted a license or ________________ from the state department of insurance and meet any financial (capital and surplus) requirements set by the state.

Hazards

Conditions that increase the probability of loss occurring 3 types of hazards: 1. Physical - a physical condition 2. Moral - a tendency toward increased risk 3. Morale - an indifference to loss

Loss

Defined as 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.

Domicile

Domestic - incorporated in this state Foreign - incorporated in another state of territory Alien - incorporated in another country

Unilateral Contract

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

Reduction

Includes 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.

Location of Incorporation

Insurance companies are classified according to the __________________ (domicile). Regardless of where an insurance company is incorporated, it must obtain a Certificate of Authority before transacting insurance within the state.

Adverse Selection

Insurance companies strive to protect themselves from ______________, the insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks.

Aleatory

Insurance contracts are ___________, which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.

Statistically Predictable

Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates. (In life and health insurance, the use of mortality tables and morbidity tables allows the insurer to project losses based on statistics.)

Not Catastrophic

Insurers need to be reasonably certain their losses will not exceed specific limits. That is why insurance policies usually exclude coverage for loss caused by war or nuclear events: There is no statistical data that allows for the development of rates that would be necessary to cover losses from events of this nature.

Authorized or Admitted

Insurers who meet the state's financial requirements and are approved to transact business in the state are considered ___________________ into the state as a legal insurer. Those insurers who have not been approved to do business in the state are considered unauthorized or nonadmitted. Most states have laws that prohibit unauthorized insurers from conducting business in the state, except through licensed excess and surplus lines brokers.

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;

Speculative Risk

Involves the opportunity for either loss or gain. An example of this is gambling. These types of risks are not insurable.

Risk Retention Group (RRG)

Is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry. The purpose of a risk retention group is to assume and spread all or part of the liability of its group members. A risk retention group may reinsure another risk retention group's liability as long as the members of the second group are engaged in the same or similar business or industry.

Reciprocal Exchange

Is insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscribers. A reciprocal exchange is an unincorporated insurance company managed by an attorney-in-fact common to all subscribers, that operates like a mutual company. Subscribers agree to become liable for their share of losses and expenses incurred among all subscribers, and they authorize the attorney-in-fact to manage and operate the exchange.

Contract of Adhesion

Is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. In other words, insurance contracts are offered on a take-it-or-leave-it basis by an insurer. Any ambiguities in the contract will be settled in favor of the insured.

Risk Retention

Is the planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. It is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays.

Surplus Line

Is type of coverage that is not readily available on admitted market. Such coverages are marketed through nonadmitted insurers who specialize in offering insurance to the high-risk market on an unregulated basis under each state's surplus lines laws. While surplus lines insurers are not admitted, most states require that they be on that state's "approved" list.

Indemnity

Main principle of insurance, meaning that the insured cannot recover more than their loss; the purpose of insurance is to restore the insured to the same position as before the loss

Code of Ethics

Market conduct describes the way companies and producers should conduct their business. It is a _____________ for producers. Producers must adhere to certain established procedures, and failure to comply will result in penalties. Some of the market conduct regulations include, but are not limited to, the following: Conflict of interest; A request of a gift or loan as a condition to complete business; and Supplying confidential information.

Pure Risks

Not all risks are insurable. As noted earlier, insurers will insure only ___________,or those that involve only the chance of loss with no chance of gain

Lloyd's

Not an insurance company. Lloyd's provides support facilities for underwriters or groups of individuals that accept insurance risk

Apparent

Not specifically stated in the contract, but is assumed necessary to conduct insurance business

Avoidance

One of the methods of dealing with risk is __________, which means eliminating exposure to a loss. For example, if a person wanted to avoid the risk of being killed in an airplane crash, he/she might choose never to fly in an airplane. Risk avoidance is effective, but seldom practical.

Express

Powers specifically stated in the contract

Pure Risk

Refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. The only type of risk that insurance companies are willing to accept.

funded by member states

The NAIC is _______________ by charging members an annual assessment in the amount determined by the Executive Committee. Members failing to pay all NAIC assessments on a timely basis will be placed in an inactive status.

Uniformity

The NAIC resolves insurance regulatory problems. They are active in the formation and recommendation of model legislation and regulations designed to bring ____________ from state to state and simplify the marketing of insurance.

law of agency

The _____________ defines the relationship between the principal and the agent/producer: the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer.

National Association of Insurance Commissioners

The _______________ (NAIC) is an organization composed of insurance commissioners from all 50 states, the District of Columbia, and the U.S. territories.

Law of Large Numbers

The basis of insurance is sharing risk among a large pool of people with a similar exposure to loss (a homogeneous group). The _______________ 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.

Insurer (principal)

The company who issues an insurance policy

Premium

The money paid to the insurance company for the insurance policy

Transfer

The most effective way to handle risk is to ___________ it 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. Though the purchasing of insurance will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring.

Insured

The person covered by the insurance policy. This person may or may not be the policyowner

Policyowner

The person entitled to exercise the rights and privileges in the policy

utmost good faith

The principle of _______________ implies that there will be no fraud, misrepresentation or concealment between the parties. As it pertains to insurance policies, both the insurer and insured must be able to rely on the other for relevant information. The insured is expected to provide accurate information on the application for insurance, and the insurer must clearly and truthfully describe policy features and benefits, and must not conceal or mislead the insured.

1. To reduce expenses and improve cash flow; 2. To increase control of claim reserving and claims settlements; and 3. To fund for losses that cannot be insured.

The purpose of retention is

Insurance Transaction

The term ______________ includes any of the following (by mail or any other means): Solicitation; Negotiations; Sale (effectuation of a contract of insurance); and Advising an individual concerning coverage or claims.

Risk

The uncertainty or chance of a loss occurring. The two types of risks are pure and speculative, only one of which is insurable.

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.

Nonparticipating

Traditionally, stock companies issue _______________ policies, in which policyowners do not share in profits or losses.

Risk

Uncertainty regarding financial loss 2 types of risks: - Pure - insurable because it involves a chance of loss only; - Speculative - not insurable because it involves a chance of gain Methods of handling risk: - Avoidance - Retention - Sharing - Reduction - Transfer

Implied

___________ authority is 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. Implied authority is incidental to and derives from express authority since not every single detail of an agent's authority can be spelled out in the written contract.

Apparent

____________ authority (also known as perceived 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. For example, if an agent uses insurer's stationery when soliciting coverage, an applicant may believe that the agent is authorized to transact insurance on behalf of the insurer.

Express

_____________authority is the 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.

Representations

are statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives to the questions on the insurance application.

Estoppel

is a legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived. Estoppel is a legal consequence of a waiver.

Warranty

is 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 a return of premium. Because of such a strict definition, statements made by applicants for life and health insurance policies, for example, are usually not considered warranties, except in cases of fraud.

Fraud

is 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. Fraud is grounds for voiding an insurance contract.

Concealment

is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision. In insurance, concealment is the withholding of information by the applicant that will result in an imprecise underwriting decision. Concealment may void a policy.

Insured's Consideration

is the payment of premium and statements on the application.

Insurer's Consideration

is the promise to pay for losses

Indemnity

means insureds cannot recover more than their loss.

Adhesion

only one party (insurer) prepares a contract, and the other party (insured) accepts it as is

Aleatory

unequal values