General Insurance Terms

What are the 5 methods for handling risk?

1. Avoidance 2. Retention 3. Sharing 4. Reduction 5. Transfer

What is a material misrepresentation?

A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

Sharing

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

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called what?

Avoidance

The authority granted to an agent through the agents contract is referred to as?

Express authority Express powers are written into the contract between the insurer and the agent.

Which statement regarding insurable risk is not correct? a) An insurable risk must involve a loss that is definite as to cause, time, place and amount. b) Insured cannot be randomly selected. c) Insurance cannot be mandatory. d) The insurable risk needs to be statistically predictable.

Insured cannot be randomly selected. Selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks.

What hazard refers to those applicants that may lie on an application for insurance or in the past have submitted fraudulent claims against an insurer?

Moral hazard

Implied Authority

Not written in the agents contract, but is required in order for the agent to conduct business. This exists because not every single detail of an agents authority can be written in a contract.

Reduction

Reduce exposure to risks

Loss

Reduction of value.

Retention

Self insuring | No transfer of risk/loss

Hazard

Something that increases the probability of loss.

What type of insurers are owned by stockholders?

Stock (non-participating) Only stock insurance companies are owned and controlled by stockholders.

Peril

The reason something was lost | cause of loss

Insurance

Transfer of loss

Transfer

Transferring risk from the insured to the insurance company.

A producer who fails to separate premium monies from his own personal funds, is guilty of what?

Commingling

What term is used to describe an insurance company that has been formed under the laws of this state?

Domestic A company is domestic when doing business within the state which it was incorporated (domicile)

When would I misrepresentation on the insurance application be considered fraud?

If it is intentional and material.

Following a career change, an insured is no longer required to perform any physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

Risk reduction Mitigating potential losses by reducing the likelihood and severity of a possible loss.