Insurance Chapter 1
exclusive agency system/captive agent
1 agent represent 1 company exclusive commission on personal sales renewal can only be placed with the appointing insurer
guides to insurance companies financial integrity are published regularly by independent rating companies
AM BEST ,FITCH, STANDARD AND POOR'S MOODY'S WEISS
action taken without forethought may cause physical injuries
Morale hazards
they arises from a state of mind causes indifference to loss such as carelessness
Morale hazards
it is a liability insurance company owned by its members
RRG risk retention group
an insurance company that is incorporated outside the united state
alien insurer
pure risk
are insurable
the other insurer is called the
assuming insurer or reinsurer
insurer who meet the state financial requiremnt and are approved to transact business in the state are considered
authorized or admitted into the state as legal insurer
avoiding airplane is
avoidance
eliminating exposure to a loss is
avoidance
domicile
domestic , foreign and alien
an insurance company incorporated in this state
domestic insurer
marketing/distribution system
exclusive agency general agency independent agency managerial system direct response marketing
it is unit of measure used to determine rates charged for insurance coverage
exposure
when reinsurance is purchased on specific policy it is classified as
facultative reinsurance
insurance company incorporated in another state
foreign insurer eg puerto rico , guam or american samoa
it is classified as physical .moral and morale hazard
hazards
it is the most common methord of transferring risk from an individual or group to an insurance company
insurance
which policy does not pay dividend to policyowners however taxable dividends are paid to stockholders
nonparticipating policy
it is uncertainty or chances of a loss occurring
risk
the purpose is to assume and spread all or part of the liability of its group members
risk retention group
when are dividend generated
when the premiums and the earnings combined the actual costs of providing coverage ,creating surplus dividend are not guaranteed
independent agency /american agency system
1 agent represent several companies , nonexclusive , commisssions on personal sales , business renewal with any company
it is not an insurance company
Lloyd's association
authority
admitted / authorized non admitted /unauthorized
it is the insuring of risk that are of poorer clss more prone to losses than the average risk
adverse selection
three ways to handle risk
avoidance , retention ,sharing
managerial system
branch manager (supervises agent ) salaried agent can be insurer employees or independent contractors
the orginating company that procures insurance on itself from another insurer is called
ceding insurer ( becoz it cedes or gives the risk to the reinsurer
before insurer transact business in a specific state they must apply for and granted
certificate of authority from the state department of insurance and meet any financial requirement set by the state
marketing system
company advertise directly to consumers ( throug mail. internet.tv other mass marketing consumer apply directly to company
a company chartered in california will be
foreign within the state of ma
an organization formed to provide insurance benefits for members of an affiliated lodge religious organization or fraternal organization with a representative form of govt
fraternal benefit society
they sell only to there members and are considered charitable institutions and not insurers
fraternal benefit society
since it sell only to its members and are considered charitable institution they are not subjected to all regulations that apply to insurer that offer coverage to the public at large
fraternal benefits societies
general agency system
general agent -entrepreneur represent 1 company salaried compensation and commissioned appoint subagents
difference between govt program and private program
govt program is funded with taxes and serve national and state social purposes
are conditions or situations that increases the probability of an insured loss occurring
hazards
condition and action that increses risk or probability of loss
hazards
conditions such as lifestyles and existing health or activities such as scuba diving are eg of that may increase the chance of a loss occurring
hazards
what are the ways to transfer risk
hold harmless agreements and other contractual agreements but the safest and most common method is to purchase insurance coverage
a large no of units having the same or similar exposure to ;loss are
homogeneous
type of marketing arrangements
independent agency system / american agency system exclusive agency system /captive agent general agency system managerial system direct response marketing system
it is a contract in which one party agrees to indemnify the insured party against loss , damage or liability arising from the unknown event .
insurance
transfer of loss , protection
insurance
speculative
involves the opportunities for either gain or loss
gambling
is not insurable
loss
it is the reduction decrese or disapperance of value of the person or property insured in the policy caused by the name peril
insurance
it transfer the risk of loss from an individual or business entity to an insurance company which in turn spread s the cost of unexpected losses to many individulas .
it is a principal stating that the larger the number of similiar exposure units considered the more closely the losses reported will equal the underlying probabilities of loss
law of large numbers
rate of insurance are calculated on
law of large numbers
policies protect survivors from losses suffered after the insured death
life insurance
it is a group of individual who operate an insurance mechansim using the same principal of individual liability of insurers
llyod 's association
it provides support facilitates for underwriters or groups of individuals that accept insurance risk
llyod 's association
reduction of value , basis for a claim
loss
it involves evaluating the character and reputation of the proposed insured
moral hazards
it is the tendencies towards increased risk
moral hazards
refers to those applicants who may lie on the application for insurance or in the past have submitted fraudulent claims against the insurer
moral hazards
they are similar to moral hazards
morale hazards
which company are owned by policy owners and issue participating policies
mutual companies
direct response
no agent
stock companies issue certain policies in which policyowner do not share in profits or losses
nonparticipating policies
insurance companies
ownership ,domicile , authority marketing /distribution system ,rating/financial statues
with what policies is policyowners are entitled to dividened
participating policies which in case of mutual companies are a return of excess premiums and are therefore nontaxable
They are causes of loss insured against in an insurance policy
peril
casualty insurance insures against the loss and or change of property and resulting income
peril
causes of loss
peril
health insurance insures against the medical expenses and or loss of income caused by the insured sickness or accidental injury
peril
life insurance insures against the financial loss caused by the premature death of the insured
peril
property insurance insures against the loss of physical property or the loss of its income producing abilities
peril
they are individual characteristics that increases the chances of the cause of loss .
physical hazards
financial strenght of an insurance company is based on
prior claims experience investment earnings level of reserve (amt of money kept in seperate account to cover the debts to policyholders )and management
they offer many lines of insurance in form of stocks mutual reciprocals or fraternal insurers and they must be authorized to transact insurance by the same insurance department
private insurance
rpg was orginally created with risk retention group by
product liability risk retention act of 1981
there are two risk management key
pure and speculative
it refers to situation that can only result in a loss or no change
pure risk
there is no opportunity to gain
pure risk
this is the only risk that insurance companies are willing to accept
pure risk
it would include actions such as installing the smoke detectors in our home or having an annual physical to detect health problem early or making a change in our lifestyles
reduction
it is a contract under which one insurance company ( the reinsurer ) indemnifies another insurance company for part or all of ots libalities
reinsurance
it protect insurer against catastrophic losses
reinsurance
when an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it it is classified as
reinsurance treaty
methods through which the underwriters protect the insurer against the adverse selection
restriction of coverage or charge them higher rate ,refuse to accept the risk
it is also known as self insurance
retention
it is the planned assumption of risk by an insured through the use of deductibles , co payments or self insurance
retention
the policy is based on the insured loss and expenses experiences and is not affordable to other policyholder with respect to rates, policy , form or coverage
risk retension and risk purchasing group
insurance program provide by govt are called
social insurance such as medicare ,social security federal crop insurance and national flood insurance s
gambling is eg
speculative risk
ownership
stock and mutual
types of insurer
stock companies , mutual companies fraternal benefit companies , risk retention groups , llyod's association
in stock companies the officers are elected by
stockholders and manage stock insurance companies
if there where no insurance mechansim
the cost of the loss would have to be borne solely by the indiviual who suffered the loss
the two vitally important factors to potential insureds
the financial strength and stability of insurance company
what are the elements of insurable risks
the loss must be due to chance the loss must be definite and measurable the loss must be predictable the loss must be catastrophic the loss exposure to the insured must be large the insurance must not be mendatory
factors considered to determine rates
the,medical history , age of the insured , occupation and sex
stock companies are owned by
tock holders who provide the capital necessary to establish and operate the insurance company and who shares in any profits and losses
the most effective way to handle risk is it is so that the loss is borne by another party
transfer
They are negotiated for a period of a year or longer
treaties
those who have not been approved to do business in the state are considered
unauthorized or nonadmitted
