USAA API STUDY GUIDE

What is proof of loss?

a sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid. This form is typically used in the settlement of first-party losses, and includes the date and description of the occurrence and the amount of indemnity claimed.

What is included in the conditions section of a policy?

general rules or procedures that the insurer and insured agree to follow under the terms of the policy.

What is the term used to describe printed addendums to a contract that are used to change the policy's original terms, conditions, or coverages?

Endorsements

What is the purpose of the 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.

What are the 3 types of hazards? What are they?

Physical hazards are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it. Moral hazards refers to those applicants that may lie on an app for insurance, or in the past, have submitted fraud claims against an insurer. Morale hazard refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance.

If a product is unsafe, what kind of liability applies to the manufacturer?

Strict liability is commonly applied in product liability cases.

Explain the ACV method of valuation.

The ACV method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence. ACV= Replacement cost - Depreciation

Describe what happened in the case of Paul vs. Virginia. Include proximate dates and court decisions.

This was the first case to regulate insurance. Paul challenged the right of the state to regulate insurance by refusing to obtain a license from the state. When he continued to sell insurance w/o a license, he was arrested and fined $50. The case went all the way to Supreme Court and was finally decided in 1869, that insurance wasn't interstate commerce.

What is an exclusive agency system?

1 agent represents 1 company Exclusive Commissions on personal sales Renewals can only be placed with the appointing insurer

What is a dwelling policy used to insure?

1 to 4 unit residential dwellings that are not eligible for coverage under the regular homeowners program because of age, location, value or other factors.

Name three sources of liability losses?

1. A court if it awards legal damages to a person from an organization responsible for negligently injuring that person. 2. The cost of a legal defense. 3. Loss prevention arising from potential legal liability.

What are the elements of insurable risk?

1. Financial (a monetary interest) 2. Blood (a relative) 3. Business (a business partner)

What is the McCarran Ferguson Act? What is another name for it?

A bill that became law on March 9, 1945. Congress insisted that it was the right of the Federal government to regulate the insurance industry but stated in the act that the federal government would not regulate insurance as long as the states did an adequate job of regulating the industry. Public law 15 provided that the Sherman Act would continue to apply to boycott, coercion, or intimidation. A.K.A as Public law 15

What are additional or supplementary payments?

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

What is a binder?

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

What is the difference between an accident an an occurrence?

Accidents are sudden, unplanned and unexpected events, not under the control of the insured, resulting in injury or damage that is neither expected nor intended. Occurrence is a broader definition of loss than accident because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.

Describe the importance of the US vs South Eastern Underwriters association case and how it changed insurance.

After 75 years the federal govt was tested again on regulating insurance. In 1942, the Attorney General of the US filed a brief on the Sherman act against the SEUA, a cooperative rating bureau, alleging that the bureau constituted a combo in restraint of trade. The decision (1944) reversed its decision of Paul vs. Virginia, stating that insurance is interstate commerce and is therefore subject to regulation by the fed govt. This decision stands today.

What does indemnify mean?

Also known 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 isn't 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.

What is proximate cause?

An act or event considered a natural or 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. This means that there must have been an unbroken chain of events beginning w/the negligence and leading to the injury or damage.

According to the law of agency, who does the agent represent?

An agent represents the insurer, not the insured.

When absolute liability is involved, does the injured party need to prove negligence?

An injured party does NOT need to prove negligence if Absolute liability is involved.

What is a 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.

What are five methods of risk management? What are their definitions?

Avoidance - Eliminate exposure to a loss. (effective method) Retention - Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. Retention is used to reduce expenses and improve cash flow. Also to Increase control of claim reserving and claims settlements and to fund for losses that can't be insured. Sharing - dealing w/risk for a group of people or businesses w/the same or similar exposure to loss to share the losses that occur within that group. Reduction - help detect problems early. Transfer - most effective way to handle risk. Loss is borne by another party.

What type of insurance provides coverage for multiple classes of property at one location?

Blanket insurance is a single property insurance policy that provides coverage for multiple classes of property at one location, or for one or more classes of property at multiple locations.

Define the difference among burglary, theft, and robbery.

Burglary - a crime of forced entry into or out of the premises of another by a person or persons w/felonious intent. Robbery - the taking of property from the care and custody of a person by one who has caused or threatened to cause that person bodily harm or committed an obviously unlawful act witnessed by that person. Theft - any act of stealing that encompasses both burglary and robbery.

What is the difference between cancellation and nonrenewal?

Cancellation is the termination of an in-force insurance policy, by either the insured or the insurer, prior to the expiration date shown in the policy. Nonrenewal is the termination of an insurance policy at its expiration date by not offering a continuation of the existing policy or a replacement policy.

What info is included in a policy's declarations?

Contains the basic underwriting info, such as the insured's name, address, amount of coverage and premiums, and a description of insured locations. Also contains any supplemental representations by the insured.

What does express, implied and apparent authority mean?

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

What are the three types of agent authority?

Express, Implied, Apparent

When is an appraisal needed? How is it requested?

If there is a disagreement between the insured and the insurer on the value of any property loss,either party 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.

What does NAIC stand for, and what is its function?

National Association of Insurance Commissioners who drafted the McCarran-Ferguson Act in 1945. The NAIC is an organization composed of insurance commissioners from all 50 states, the district of columbia and the 4 US territories. Resolves insurance regulatory problems. They are active in the formation and recommendation of model legislation and regulations designed to bring uniformity from state to state and simplify the marketing of insurance.

What are the four elements of an insurable contract?

Offer and Acceptance Consideration Competent parties Legal purpose

What are private and govt insurers and what is the difference between private and govt insurers?

Private insurance companies may offer many lines of insurance. They may formed as stock, mutual, reciprocals or fraternal insurers, and they must be authorized to transact insurance by the state insurance dept. Gov provides insurance in those areas where private insurers either can't or won't write insurance. Those insurance programs provided by the gov are commonly called social insurance, such as Medicare, Social Security, Federal Crop insurance and National Flood Insurance. Major difference between Gov insurance and Private is that the gov programs are funded w/taxes and serve national and state social purposes, while private policies are funded by premiums.

What does representation mean and how does it differ from a warranty?

Representations are statements believed to be true to the best of one's knowledge, but they aren't guaranteed to be true. A warranty is an absolutely true statement upon which the validity of the insurance policy depends.

What is a peril?

The cause of a possible loss insured against in an insurance policy.

Describe the concept of consideration on the part of an insured and how it differs from consideration on the part of an insurer.

The consideration on the part of the insured is the payment of premium and the representations made in the app. The consideration on the part of the insurer is the promise to pay in the event of a loss.

What type of policies may include the insurance to value provision?

The insurance to value provision, usually found in homeowners policies, provides a replacement cost settlement to the policyholder who carries adequate insurance, which means that the property is insured to the exact dollar amount or percentage of value. If the amount of insurance is less than the value assumed in the premium rate calculation, the insured would still be indemnified at least to the amount of the ACV of the loss.

Define subrogation.

The insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Subrogation is based on the principle of indemnity by preventing the insured from collecting on the loss twice: once from the insurer and a second time from the party that caused the damage.

Explain the concept of adverse selection.

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. To protect themselves insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage.

How is an insurance company able to protect such a large number of people who could potentially suffer a loss?

The law of Large Numbers

What is insurance?

The transfer of the possibility of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

Define risk. How many types of risks are there and what are they?

The uncertainty or chance of a loss occurring. There are 2 types of risks (pure and speculative)

what must be present for a policy to pay in the case of burglary?

There have to be visible signs of forced entry or exit from the premises.

What is the difference between vacancy and unoccupancy?

Vacancy refers to an insured structure in which no people have been living or working, and no property has been stored for the period of time required as stated in the policy. (usually 60 days) Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored.

What is a contract and what is its purpose?

a document 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.

How are indirect and direct loss related?

indirect losses are considered a result of direct loss. Such losses usually result from the time it takes to repair or replace damaged property.

What does the exclusions section of a policy specify?

the perils that aren't insured against and what persons are not insured. Exclusions restrict some of the broad terms used in the insuring agreement. This section can exclude people (except a spouse), a property and perils