AFE 2- questions
SEUA Cases
1. After 75 yrs the authority for the federal government was tested in 1942 (mid 1900's) 2. Brief by the US general attorney filed against SEUA a cooperative rating bureau alleging it constituted a combination in restraint of trade 3. Supreme Court reverses is decision in Paul v Virginia. Insurance is in fact interstate commerce and as such subject to regulation by the federal government.
Process of Underwriting
1. Application containing the insured's statements 2. Information from the agent or broker 3. Information from external agencies 4. Physical examinations or inspections
Flood insurance is not generally available in the private insurance market for what reason?
1. Catastrophe nature of losses 2. Repetition of claims 3. Tendency of those people in flood prone areas to buy flood insurance
Favor Federal Regulation
1. First group argues the states have done an inadequate job of regulating the industry. 2. Second group sees it as way to eliminate state rate regulation. 3. Third Group view the industry's limited antitrust protection under McCarren as unnecessary or inherently anticompetitive.
Common requirements on rates by regulators
1. Rates must be adequate not excessive 2. Adequacy is the primary requirement. They must be sufficient to pay all losses as they occur and all expenses 3. Not excessive 4. Discriminate unfairly
The IBR reserves have 3 parts
1. Reserves for unreported losses 2. Reserves for losses that have been reported but for which the established case reserve are inadequate 3. Reserves for losses that have been settled and then reopened
Arguments against Control Approach of Govt
1. State regulations is more responsive to local needs due to conditions varying across the states. 2. Uniformity of state laws can be attained thru the NAIC which are reasonably uniform currently thru out the states. 3. Opportunities for innovation with state regulation example one state try's something new and it fails only affects that state in contrast to federal were everything fails 4. State regulations is already known therefore the strength and weaknesses are known already. Moreover local regulation is inevitable so there would be increase in dual regulation 5. State regulations is at a desirable decentralization of political power. Federal would increase their power and lower the power of the state.
Fundamentals characteristics (2) of Insurance
1. Transferring or shifting risk from one individual to a group 2. Sharing losses on some equitable basis by all members of the group
Reasons for using facultative reinsurance in addition to treaty reinsurance is
1. Treaties may have some exclusions 2. To protect treaty from adverse loss exposure 3. To provide large line capacity
In favor of Control Approach of Govt
1. Uniformity across the states 2. More efficient and could be less expensive than state 3. Serve to attract higher quality personnel due to higher salaries and the prestige who would do a superior job of regulating
Self-Insurance-Operationally Dependable (They must meet the follow characteristics)
1. big enough to permit the combination of a sufficiently large number of exposure units so as to make losses predictable. 2. be financially dependable 3. must be distributed geographically in such a manner as to prevent a catastrophe
Which of the following are type of mutual insurance
1. pure assessment mutual 2. advanced premium nonassessable mutual 3. fraternal
Automobile liability insurance and law
2013 every state except New Hampshire requires drivers to have liability. Free bite laws are when you need to show proof of financial responsibility after an accident.
Working Cover
A per risk or per policy excess of loss treaty with such low retentions that the reinsurer expects moderate to heavy loss activity. Working covers help primary insurers to stabilize their loss experience. A small or inexperienced insurer might choose a working cover to minimize its liability until it gains confidence in the types of business written.
Which of the following is NOT one of the ways by which product liability can be established
Absolute liability
In the collection of statistics for ratemaking purposes, the method that has the disadvantage of incurred losses being distorted by changes in loss reserves is the
Accident-year data
In insurance ratemaking, credibility factors
Are confident factors - level of confidence an actuary has in the projected losses
Fraternal Insurers
Are considered charitable institutions, they do not pay federal income tax or state premium tax.
Bailee Liability
Bailor the owner of the property that is delivered to another the Bailee. Property could be in care of the Bailee to be worked on like an auto being repaired, storage, or another purpose. If the property is damaged or destroyed the Bailee may be liable to the owner.
what ratemaking uses accounting records
Calendar year method which is a ratemaking data collection method. Which estimates both earned premiums and incurred losses by formulas from accounting records.
SAP cause a limitation on expansion of business because they:
Cause new business written to create a drain on surplus because acquisition expense are charge of immediately
Credibility Factor
Changes in rate levels indicated by raw data is usually tempered by the credibility factor which reflects the degree of confident the rate makers believe they should attached to past losses as predictors of future losses. Credibility assigned to a particular body of loss experience is determine primarily by the number of occurrences, following the statistical principle that the greater the sample size the more closely will observed results approximate the underlying probability.
Which of the following with respect to occurrence-based and claim-made liability insurance forms?
Claim-made forms pay if the claim is filed during the policy period
Ratemaking Data Development
Collect date, adjust data, determined territorial and class relativities, and prepare and submit rate filing for regulation. Three methods
Earned Premiums
Collects the payment in advance for a product to be delivered in the future. Although premiums are paid in advance, the insurers' obligations under the contracts issued are all in the future.
Under the flex rating systems of insurance rate regulation
Company are allowed to change their rates within a range without prior approval
Class rates
Computing a private per unit of insurance that applies to all applicants possessing a given set of characteristics.
Underwriting guides do all the following except
Delay losses
Coverage A
Dwelling
Price competition in the insurance industry
Exists primarily at the company, Not at agency level
Which of the following is NOT one of the forms of insurance agent authority
Express Authority
An example of involuntary insurance pool that provides prop insurance for those who are unable to obtain coverage in standard market is
Fair access to insurance requirements plans
U.S. Longshoremen's and Harbor Workers' Compensation Act
Federal worker's comp statute; covers persons other than sailors who are engaged in maritime employment on navigable waters; generally covered only if he/she meets a "situs" and "status" test -- injury must occur on navigable waters or on an adjoining wharf, pier, dock, or similar facility used in loading/unloading, building, or repairing vessels & individual must have been engaged in maritime employment when injured; added to worker's comp policy by endorsement.
Second function of reinsurance
Financial function.
Independent Contractor / Policyholder
First traditional marketing system is the independent agency and brokerage marketing system which uses producers (agents and brokers) who are independent contractors. They are not employees of the insurers and usually free to represent as many or as few insurer as they want. They have contracts with insurers to produce new business and to renew. Independent producers own the policy expirations and can place business with any of the insurers they represent or any producers who have access to another insurer they do not represent subject to policyholder approval.
Damage to property of others
Five exclusion to damage of property of others 1. Losses covered under Section I- excludes any loss to the extent of any amount recoverable under Section I of the policy which is owned property and any property used by the insured includes borrowed property if damaged by one of the perils insured against however subject to limit payment can be made under section II for part of the loss including deductible not covered under section I. 2. Intentional damage no age limit specified not covered under 13 only up 1000 3. Owned and Rented Property 4. Business Pursuit, Uninsured Location, and Vehicles
Static risks involve losses
From causes other than change in the economy
With respect of insurance and gambling
Gambling creates a risk but insurance transfer an existing risk
Under personal liability, Coverage E Section II in the HO forms coverage is available by endorsement for some type of business activities coverage for business property, loss of business income and general liability coverage for home business is known as
HOBIZ professional liability endorsement
Property and liability insurance agent
Has authority to bind coverage unless the agency contract forbids it
Arguments favoring federal regulation of the insurance industry include
Inadequacy of state regulations
IBNR Reserve
Incurred but not yet reported are required by law and good accounting practice. Reserves must have three components: 1. Reserves for unreported losses 2. Reserves for losses that have been reported but for which the established case reserve are inadequate 3. Reserves for losses that have been settled and then reopened
Commission of Loss Ratio & Volume
Independent agency system - independent contractors, usually free to represent as many insurers as they want; OWN THE EXPIRATIONS and can switch business as they wish per policyholder's consent; also includes MGA's; receive commissions, can be flat % of sales or contingent or profit-sharing commission earned through volume or profit goals
Which of the following is true with respect to the ownership of expiration
Independent agent own the expiration even if it's not stated in the contract
Worksite Marketing (Franchise Marketing)
Insurance offered thru the employer as a benefit to their employees.
Cash-Flow Underwriting
Insurers price their products below the amount needed to cover losses and expenses to compete for premium dollars that can be invested
The National Flood Insurance Program
Is available only in communities that pledge to adopt and enforce land control measures
A reporting form in the Building & Personal Property Coverage forms
Is issued for property with fluctuating values
Coverage Commercial General Liability
It is designed to insure those general liability exposures common to most organization: premises and operations, products and completed operation, liability arising out of independent contractors, and contractual assumptions of liability. There are two approaches to providing coverage: An occurrence Form and a claims made form.
With respect to Liquor Liability coverage, which of the following is not correct
It may be needed even by a nonprofit organization
Analysis of underwriter results is complicated by the "loss development delay". Which of the following is true with respect to the loss development delay?
It refers to the inaccuracy that exists in stimulating ultimate loss costs due to the time between loss occurrence and claim settlement
Which of the following is NOT true with respect of Public Law 15
It said federal government would never interference with stat ref of insurance.
Section II conditions of the Homeowners
Limit of liability shown on coverage E is the max payable, Severability of insurances suits by the name insured and residents of the household excluded, duties after loss must cooperate, duties of insured coverage F medical payments to others must provide written proof of loss, medical records, and physical, payment for claim coverage f is not an admission of liability, suits against us no legal action unless policy terms have not been met, bankruptcy of policyholder does not relieve them of obligations under the policy, other insurance coverage e the liability coverage is excess over any other valid and collectible insurance.
Coverage D
Loss of use
Unfair practices act regulate the insurance trade practices as required under
McCarran-Ferguson Act- Public Law 15
The unfair claim settlement practices act was developed by:
NAIC
Which of the following can be classified as types of stock insurance company?
None
Mass Marketing or Mass Merchandising
Offers insurer's policies to large numbers of targeted individuals or groups. Coverage is frequently offered at a discounted premium and the insurer retains the right to underwrite each applicant with guaranteed policy issuance available as an option
judgment ratemaking
Oldest out there which relies heavily on experience and knowledge of an actuary or underwriter who makes little to no use of loss experience data. This method is still uses for ocean marine, some inland marine classes, aviation, such as with terrorism coverage.
Adjuster Origins & Cause
Origin and cause experts attempt to determine where and how a fire began. These experts are often consulted for fires that have a suspicious origin or when the possibility of subrogation exists.
Coverage B
Other structures
Regarding Section 1, coverage A & B under ISO HO policy forms, which of the following is incorrect
Other structures "coverage including garage"
An _____ is a commission paid to an agent who appoints and supervises subagents
Override commission
Coverage C
Personal property
To be operationally dependable, self insurance program require all but which of the following
Policies
With respect to the debate over open competition vs prior app insurance rate regulation methods, which of the following in most accurate
Price regulation restricts market
With respect to the power of insurance agency which of the following is true
Property/ liability agents can bind their company, but life agents cannot
Government insurance programs were established to
Provide coverage where adverse selection is not a factor for private insurers
Special form
Provided coverage on an open peril basis for direct physical loss; it provide additional coverage for collapse and additional coverage extensions for property in transit ($1000 limit for personal property for certain named perils) and water damage (costs to repair damage to buildings to fix system). The special form exclude pollutants and contaminants and voluntary parting of property due to false pretenses. A theft exclusion endorsement is available.
The Insurance Service Office (ISO)
Provides a wide range advisory, rating and actuarial services relating to property and casualty insurance, including the development of policy forms, loss information, and related services for multiple-line coverage.
By relating underwriting expenses to written premium rather than earned premium the trade basis combined ratio (underwriter) has the advantage of
Recognizing the equity in the unearned premium reserve - providing a more meaning to
Under an excess of loss reinsurance agreements
Reinsurance payment are triggered only when the loss exceeds the stipulated amount
With the passage of the Graham-Leach-Bliey Act, all of the following privacy protection were adopted EXEPT: Also known as the Financial Services Modernization Act
Restriction of sharing information among affiliates
Retrospective Rating /Experience Modification Period
Retrospective rating is an individual's experience modification program that uses the current year as the experience period to develop the experience modification factor. Under this rating plan, a provisional premium is charged at the beginning of the policy period and the end the actual loss experience for that same period is determined and a final premium is calculated. The premium is then adjusted after the end of the policy period to reflect the insurer's expense and losses during the policy period. The premium is subjected to a specified minimum and maximum. This rating plan has several variations that protect the policyholder from fluctuations in the final premium.
An owner controlled insurance company formed to allow members who engage in similar or related business or activities to write insurance for the exposures of group members in a(n)
Risk retention group
Facultative Reinsurance Treaty
Risks are considered individually by both parties. Each risk is submitted by the direct writer to the reinsurer for acceptance or rejection and the direct writer is not even bound to submit the risk in the first place.
With respect to bailee liability, which of the following is true?
Some bailey policies will pay even if the Bailee is not legally liable
First function of reinsurance
Spreading the risk. T
ACORD applications forms are
Standard form used by independent agents
Accident Year Data Collection
Statistics that uses incurred losses for an accident year which consist of all losses related to claims arising from accidents that occur during the year and that estimates earned premiums by formulas from accounting records. Only difference from calendar to accident is how losses are calculated. Advantage: The accident methods achieves much of the accuracy of the policy year method while preserving most of the economy and speed of calendar year method. Disadvantages: Neither earned premiums nor incurred losses are tied directly to a specific group of policyholder and data slightly more expense to compile than calendar year.
Which of the following is Not true with respect to liability insurance for common carriers
The ICC requires a minimum amount of insurance for truckers under its jurisdiction.
With respect of corporate combinations in the insurance industry
The associated factory mutual insurance company shared the insurance purchased from one of the member company
Under the doctrine of waiver, if an agent knew of a violation of policy condition
The company will not be able to deny the claim
With respect to the legal requirement for an enforceable insurance contract, which of the following is primary concern?
The contract must be legal in its purpose
Type of insurance distribution system in which the agents are independent contractors and are limited to certain company by contract is known as:
The exclusive agency system
The insured keeps the right to recovery against a third party
The insured must assign to the insurer any right of recovery against a third party to the extent of payments from the insurer
According to the law of large numbers
The observe frequency more nearly approaches the underlying probability as the sample size increases
With of the following is true with respect to the physical coverage under Personal Auto Policy?
The other than collision is on an open peril business
judgment rating
The process of underwriting and ratemaking merge and the underwriter decided whether the exposure is to be accepted and at what rate. Used when there is credible statistics are lacking or when the exposure units are so varied that constructing a class is impossible. Mostly used in ocean marine field.
Which of the followings in not true with respect of various Causes of Loss from under B&PP coverage form
The special form is on a named peril basis
Which of the following is true with respect to the operation of the coinsurance clause in the Building and Personal Property Coverage Form, at the end of the policy period
There is a penalty at the time of the loss if insufficient insurance is carried
Stock insurance
These companies are owned by their stockholders, most prevalent in the US, elect a board to oversee operations. It is a form of proprietary insurers the first type of legal form of ownership classification.
Public adjusters
They differ from other types because they represent the insured (person) policyholder. They get hired because the insured did not feel able to handle their own claim. There commission is on a contingency fee basis where they get a % of the settlement like 10%. They preform actions required like estimates, the amount of the claim, and negotiation. Two designation available CPPA & SPPA.
Which of the following is NOT one of the common requirements imposed in insurance rates by regulators:
They must be affordable
Underwriters Research Markets
This are usually shared with actuarial and marketing dept. Research includes adding/deleting entire types of business, expanding onto other states, optimal product mix, premium volume goals
Prior-Approval System
This system requires the insurance company to obtain approval of its intended rates from the commissioner before they may be used and commissioner retains the rights to disapprove the rates after they become effective.
An insurance policy is said to be a contract by adhesion
Thus any ambiguities are construed in favor of insured
Guest Hazard Statues
Under standard guest law the injured guest can collect from the negligent driver only if the drive was operating the auto in a grossly negligent manner in some place the driver was intoxicated. Gross negligence a complete and total disregard for the safety of oneself or others. Although it may denied if he or she assumes the risk involved in it like not protesting about the negligence.
Risk Evaluation Underwrite / Good Risk
Underwriting guides that the staff underwriters prepare identify the major element that line underwriters should evaluate for each type of insurance. They help to unsure the underwriting policy and therefore selection decision are made uniformly and constantly throughout all geographic regions. They help both the experiences and less experienced underwriters and distinguish from routine and non-routine decisions. Guides uses categories like below average, average, or good.
Constraining Factors of Underwriting
Underwriting policy is subject to constant review and periodic change and must consider the following four constraints: Financial Capacity, Regulation, Personnel and Physical Resources, & Reinsurance
Producers may have no underwriting authority and be required to submit the accounts to an underwriter for
Unusually hazard class of risk
In an insurance policy, representations made by insured are called
Warranties
Exclusions under Medical Payments to others, Coverage F, Section II includes which of the following
Workers Compensation
The primary reason agents are given a "contingency Commission" is to encourage them to
Write preferred risks
With respect of damages in liability cases, which of the following is true
Wrong tool death are available to certain survivals of a deceased person
Corporate Combinations also called Fleets
a number of insurance companies under common ownership and often under common management. In monoline era insurance groups developed and design the writing of property and casualty coverage under common management but a fire company could not write casualty coverages and casualty companies forbidden to issue fire coverage the logical step was to create to companies and run them in tandem.
ISO form HO-2 and other forms provide coverage for loss to personal property by 16 names perils among those are
a. Aircraft b. Explosion c. Vehicles
A reason for conducting loss reserve analysis and verification is
a. As part to comply with regulatory requirements. b. Of management control. c. To determine if fin states gives fair indication of fin conditions
In addition to amounts for which the insured is held liable, which of the following will the company also pay under Personal Auto Policy?
a. Cost of defense b. Cost of bail bonds in conjunction with an accident c. Some loss of earnings while the insured is attending trial
Which of the following with respect to Business interruption insurance
a. It pays for expiration that continue and profits that would have been earned during a period of shutdown caused by insurance peril b. The amount of the loss is determined by the insured's expiration before the loss and probable earnings has no loss occurred
Under the building and personal property coverage forms which of the following is included in the building coverage
a. Permanently installed machines and fixtures b. Personal property used to service the premises c. Material for use in building constructions
Underwriter must continually research such fundamental issues as which markets the insurer should attempt to reach by evaluating
a. Potential premium volume goals b. Product mix c. Expanding into additional states
A function of facultative reinsurance include:
a. Providing large line capacity b. Covering those exposures specifically executed from treaties c. Protecting treaties from unusual or hazard exposures
The control approach of government control of insurance through regulations includes
a. Restricting entry into the market b. Controlling prices
One function of reinsurance is large line capacity this is
a. Same as premium capacity b. Needed because insurers generally can't have insurance on one risk which is greater than 10% of their surplus c. Frequency the motivation for property insurance
Section II of the Homeowners policy is subject to its own set of conditions, which of the following conditions are specific to Section II?
a. Severity of insurance b. Payments of claims - Coverage F c. Bankruptcy of insured
Which of the followings are goals of insurance regulation
a. Solvency b. Equity c. Availability
In which situations might vicarious liability be imposed with respect to the use of an automobile
a. The driver is acting as an agent to someone else b. The owner negligence furnished the auto to an incompetent person c. The family purpose doctrine is acceptable
Which of the following is true with respect to average loses in ocean marine coverage
a. The term average refers to a mathematical average b. Particular average are those that are caused by an insured peril c. General average losses may result from jettisoning
Unintentional risk retention occurs
a. When the risk is not recognized b. When risk is recognized but when measures designated to deal with it are improperly
Which of the following is not an exclusion under physical damage section of the Personal Auto Policy
all are exclusions
Difference between agent and broker
although servicing as the agent of the insured, the broker normally receives compensation in form of a commission from the company
Agent
an individual authorized to create, terminate, and modify contracts of insurance.
Reciprocal
an unincorporated group of individuals, called subscribers, who exchange insurance risk.
Method Ex: Losses, Premiums, exposure / Ratemaking Policy Year Date Collection Method
analyzes all policies issues in 12 months period and that links all losses, premiums, and exposure units to the policy to which they are related. This is the only method that matches losses, premiums, and exposure units to a specific group of insureds. Two major disadvantages: takes longer to gather data and involves some additional expense to gather data used only for ratemaking. Advantage: apples to apples exact matching.
Policy Year Date Collection Method
analyzes all policies issues in 12 months period and that links all losses, premiums, and exposure units to the policy to which they are related. This is the only method that matches losses, premiums, and exposure units to a specific group of insureds. Two major disadvantages: takes longer to gather data and involves some additional expense to gather data used only for ratemaking. Advantage: apples to apples exact matching.
Underwriting Syndicates
another form of cooperation for the purpose of handling risks that would be beyond the capacity of an individual company which make use of the basic principle of spreading risk and sharing the losses. Primarily found in property and liability.
controlled inland marine forms
are filed w/ state insurance department by insurers or by bureaus on behalf of insurers; subject to rules contained in inland marine section of Commercial Lines Manual; cannot be changed except as permitted by states; part of ISO portfolio program.
uncontrolled inland marine forms
are not filed w/ states; can be modified to meet specific requirements of the insured; written on manuscript basis; rates & provisions determined by underwriter's judgment.
Advisory organizations (formally called rating bureaus)
are supported by insurance companies that furnish these organizations with their loss statistics as the raw material for producing rates.
Staff Underwriters
assist underwriting management in deciding underwriting policies and implementing those policies. Typically located in an insurer's home office
apparent authority
authority bases on the 3rd parties reasonable belief that an agent has authority to act on behalf of the principal
Types of Auto Liabilities
automobile liability insurance, medical payments coverage, physical damage coverage and uninsured motorist coverage.
Which of the following statements is correct with respect to the exclusions in the Personal Auto Policy:
b. An auto repair garage is covered under a car owner's policy while test driving the owners car
peril
cause of loss (fire, windstorm, hail, theft)
Under coverage E, personal liability of Sec II in homeowners forms, personal insured include
coverage in the event a suit is brought against the insured because of bodily injury and/or property damage resulting from the acts or non-acts of the insured. Also covers the insured's spouse, relatives of either, and others under age 21 under the insured's care. Just about any personal act is insured.
Basic form
covers fire, lighting, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Windstorm or hail, vandalism, and sprinkle leakage can be excluded. The coverage of these peril is similar to that of the homeowner's forms. Basic form excludes ordinance or law, earth movement, governmental action, nuclear hazard, utility services, war and military action, water (like flood and other type of water losses), electrical current, rupture of water pipes, leakage, or discharge of water or steam from appliances other than sprinkler systems, steam boiler explosion, mechanical breakdown, and neglect of the insured to protect the property from further loss. The form includes an additional coverage for fungus, wet rot, dry rot, and bacteria like mold. Annual aggregate limit of $15,000 which is also the lifetime limit for damage caused by a single event.
Primary function of insurance
creating of the counterpart of risk which is security. Insurance does not increase or decrease the uncertainty can happen but reduce the probably of loss. Insurance device is a method of loss distribution.
Calendar year
data that estimates both earned premiums and incurred losses by formulas from transactional accounting records. Uses written premiums, unearned premium reserves and losses. Advantages statistics available immediately and little expense in gathering the data. Disadvantages: accounting records do not contain exposure unit and the least accurate. Not suitable for liability and workers comp although fire, inland marine, auto physical damage is,
The Insurance Regulatory Information System (IRIS) is designed to
detect financially troubled insurers
loss ratio ratemaking
determining rates bases on a comparison of actual and expected loss ratios. This method adjusts the existing rate up or down to reflect changing conditions. However you can not use this method for a new type of insurance since there is no date to uses.
The National Council on Compensation Insurance (NCCI)
develops and administers rating plans and systems for workers compensation insurance.
Which of the following describe rebating, as the term in anti-rebating laws
directly or indirectly giving or offering any portion of the premium or other consideration to the insured as an inducement to purchase the insurance
Which of the following are not reserves requited to be held by property and casualty insurers?
earned premium reserve
Pure Premium in Rate Making
expressed in dollars
Expected Loss Ratio
expressed in percentages
Hedging
guards against the risk of price change from one asset by buying or selling another assets in an off-setting direction.
Broad form
included all the basic Form perils plus falling objects, weight of snow, ice, or sleet, and water damage. Collapse is included as an additional coverage, with coverage if the collapse is cease by specified names perils. No exclusion for leakage or discharge of water or steam from an appliance or rupture or bursting of water pipes. (Additional 5 perils)
Automobile physical damage coverage
insures against loss of the policyholder's own automobile and in this sense resembles section I of the homeowners program.
Affinity Marketing
involves various customer groups bases on profession, interest, hobbies, or attitudes. EX: Market to a university alumni group, chamber of commerce, bar associations, or users of a credit card. Coverage could even be offered at discounted premium.
retrospective rating
is a self-rated program under which actual losses during the policy period determine the final premium for the coverage subject to a max and min amount. Deposit premium charged at the inception of the policy and adjusted after the expiration to reflect the actual losses incurred. It is like a cost-plus contract major difference being that it is subject to a maximum and minimum. Used mostly in the fields of workers comp, general liability, auto, and group health insurance however only large insured elect these plans.
Uninsured motorist coverage
is an imaginative form of auto insurance under which the insurer agrees to pay the insured, up to specific limits, the amount the insured could have collected from a negligent drive who caused injury, when that driver is uninsured or is guilty of a hit and run.
Commercial General Liability Insurance Policy
is designated to insure those general liability exposures common to most organizations: premises and operations, products and completed operations, liability arising out of independent contractors, and contractual assumptions of liability.
Section II- Damage to the property of others
is not a liability coverage although some insurance for property of others is provided caused by the insurer but for which he or she would be legally liable. Coverage for what they feel is moral obligation even though nothing legal exists up to $1000 and cannot be increased per occurrence. Ex. If they borrow golf clubs and loses one loss would not be covered.
implied authority
is the authority that arises from actions of the agent that are in accord with the accepted custom and considered to be within the scope of authority granted by the principal even if the authority is not expressly granted orally or in agency contract.
Ratemaking
is the process of predicting future losses and future expenses and allocating these costs among the various classes of insureds
Which of the following is true regarding Paul Vs Virginia decision
it is still the law of the land
On the Annual Statement required by states regulators, property or liability coverage are divided into 38 different types these are generally refers to as
line of business
Which of the following is the primary burden of risk?
losses
The "Collateral Source rule"
medical expense must be paid by defendant even if it is covered under some other insurance (such as health insurance); rationale is that it is not fair for defendant to benefit from the prudence of an injured party in insuring themselves; also extends to disability for lost earnings some states have modified or abolished CSR and allowed deduction from plaintiff's recovery for expenses covered by other insurance.
Actual Cash Value
no matter how much insurance individuals purchase, the amount one may recover is limited to the amount of their actual loss.
To adjust immature reported loss data to correct for systematic errors in est of reserves, insurance company use
none of the above
With respect to joint underwriter associations
none of the above
Extra contractual damages
occurs when the company behaves improperly towards the insured.
Hold-harmless agreements
one individual assumes another's possibility of loss.
Vicarious (imputed) Liability
one party becomes liable for the negligence of another. Ex: Don't have to be the driver to be held liable. If owner of vehicle is operated by someone else who is known to be incompetent driver or lending a car known to be unsafe, he/she would be liable. In the Family purpose doctrine the owner of an auto is held liable for negligence acts of their immediate family or household in their operation of the car. Member of the family is agent of the parent owner. These laws do not relive the driver but makes them both jointly liable.
The Merritt Committee Investigation
opposed the anticompact laws and urged that rating bureaus be recognized and, further, that a company be permitted to belong to a rating bureau, or to file its rates independently if it chose.
Recommendation from Merritt Committee for NY Law
opposing the anti-compact laws and urged that rating bureaus be cognized and further that a company be permitted to belong to a rating bureau or to file its rates independently it chose.
Policy Representation
oral or written statement made by the applicant prior to, or contemporaneously with, the formation of the contract. It constitutes an inducement for the insurer to enter into the contract
Catastrophe Modeling and Ratemaking
originally used for underwriting but increasingly employed for rating purposes. It uses computer simulations bases on experience and the insurers' known distribution of insured property. It was adopted cat modeling to measure their exposures in areas where earthquakes and hurricanes are likely. It may be an appropriate tool for ratemaking.
Mutual Insurance Company
owned by its policyholders. The distinguish characteristics of a mutual insurer are its lack of capital stock and the distribution of earnings. Has no paid-in-capital as a guarantee of solvency in the event of adverse experience.
Usually the largest component of damage in a bodily injury claim are
pain and suffering
The American Association of Insurance Services (AAIS)
performs approximately the same functions for its subscribers as does the ISO.
risk transfer accomplished
primary approach is the purchase of insurance contracts
In ratemaking the credibility of past loss date is important
projecting future losses. Credibility assumptions vary by type of insurance. In auto statewide loss data are assumed to be fully credible which may be inappropriate for small insures who bases their rates solely on their own loss data. For territories and classes with loss data not fully credible, rates are calculated as a weighted average of the indicated rate for the territory or class and the statewide average rate for all classes and territories combined. The credibility factor is uses as the weight in the weighted average. For fire insurance due to low average claim frequency even the statewide loss data might not be fully credible which in this case you'd uses a three part weighted average combining the state loss for the rating class, regional loss data, and the state loss data for a major group encompassing several rating classes. When data are less that credible a rate change indicated by such data should be moderated by a credibility factor a number between 0 and 1.
Rate consists of three components
prospective loss costs, expense provision, and profit & contingencies factors
Automobile liability insurance
protects the insured against loss arising from legal liability when his or her automobile injures someone or damages another's property.
Producer Book of Business
purpose of underwriting is to develop and maintain a profitable book of business. can also refers to business produced in a specific geographic area or by a particular branch office or agency.
schedule rating
rates by applying a schedule of charges and credit to some base rate to determine the appropriate rate for an individual exposure unit.
Which of the following is true with respect to the limitations on the amount payable under the medical payments coverage of the Personal Auto Policy?
reimburses the insured and members of the insured's family for medical expenses that result from automobile accidents. The protection also applies to other occupants of the insured's automobile. Like the medical payments of the homeowners policy, automobile medical payments coverage is distinct from the liability coverage; it applies as a special form of accident insurance. Unlike the homeowners insurance, the coverage applies specifically to the insured and members of his or her family. It is written with a maximum limit per person per accident, which usually ranges from $1000 to $5000.
Automobile medical payments coverage
reimburses the insured and the insured's family members for medical expenses that result from automobile accidents. Protection applies to other occupants of the insured's automobile.
Broker
representative of the insured. Though brokers are not agent of the insurer, they do not have the power to bind the company. The broker merely solicits business from clients and places the business with an insurer.
Line Underwriters
responsible for evaluating individual applicants and policies subject to renewal; found in branch or regional offices where day-to-day underwriting tasks are performed
A ratemaking method in which charges and credits are applied to some base rate to determine the appropriate rate for an individual exposure unit is referred to as:
schedule rating
Group Marketing
sell insurance products and services to individual purchasers or business that are all members in the same organization.
The market code in which insurers cut prices and loosen underwriting standards is known as
soft market
Claims adjuster Reconstruction
some specialize in reconstructing the events of an automobile accident. They explain how it happened and testify about the rate of speed, point of impact, and some instance what the drive was able to see before it happened.
Individual Rates
sometime they vary so widely there is a more precise way. Four basic individual rating approaches: judgment, schedule, experience, and retrospective rating.
Difference in Conditions Coverage (DIC)
special form of open-peril coverage written in conjunction with basic fire coverage to protect against losses not reimbursed under the standard fire forms
express authority
specifically granted to the agent to sell insurance or authority to bind coverage up to a limit. Binding authority is granted to the agent and thus a form of express authority
Underwriting policy
specifies the lines of insurance that will be written as well as prohibited exposures, the amount of coverage to be permitted on various types of exposure, the areas of the country in which each line will be written, and similar restrictions.
Public Law 15 (McCarran-Ferguson Act 1945)
states that the federal government could not regulate insurance unless the states were adequately regulating it.
In the field of reinsurance, the company which wrote the insurance on the property itself would be known as
the ceding company
Differences between mutual insurer and reciprocal
the distinguishing characteristic of a reciprocal is the administrator, who is called the attorney-in-fact.
experience rating
the insured past loss experience enters into the determination of the final premium. It is superimposed on a class rating system and adjust the insureds' premium upward or downward depending on the experience and the deviation of the average experience of the class. Like in worker cop, general liability, group life and health. Used mostly when there is a premium large enough to be considered statistically credible. Formula= (actual loss ratio -expected loss ration)/expected loss ratio x credibility factor. Mandatory for those insured whose premium exceed a specified amount.
Contract of Indemnity
the insureds are entitled to payment from the insurance company only if they have suffered a loss and only to the extent of the financial loss sustained.
Time between loss & settlement inaccuracy of ultimate loss
the need for loss development factor varies by type of insurance. Applying loss development factors is essential for most types of liability insurance because of the long delay in loss settlement and the resulting large accumulation of loss reserves. An error in estimating the loss reserves could result in substantial rate error, because the incurred losses used in ratemaking might include a substantial proportion of reserves for open claims.
Old-Age, Survivors, and Disability Insurance
the program provides life insurance, disability insurance, and retirement plans.
Risk Transfer
the purchase of assurance contracts for the exchange of a premium from one party while the other party indemnifies up to a limit for the loss that may or may not occur
Automatic Treaty
the reinsurer agrees to advance to accept a portion of the gross line of the direct writing company or a portion of certain risk that meet the reinsurance underwriting rules of the reinsurer. The direct writer is obligated to cede a portion of the risk to which the automatic treaty applies.
Subrogation
the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties
Which of the following is not one of the choices for physical damage coverage under Business Auto Policy
thief only coverage
Which of the following is the primary reason line underwriters classify insureds
to provide a basis for rating
when the agent/broker induces a policy holder through misrepresentation to replace one contract (usually life) with another to the detriment of the insured.
twisting
Nonstandard or specialty insurers may use loss control, more restrictive coverage forms, or price to make marginal risks
unacceptable
No File law also called Open Competition
under this rates are not required to be filed with or approved by the state insurance department however they must maintain records of experience and other information used to develop the rates
Where the market price of an asset exceeds the purchase price but the insurer continues to hold the asset the insurer had
unrealized capital gain
ratemaking
uses past loss statistics to develop future rates and can only tell what has happened in the past and not the future. Ratemaking from the insurer is to develop a rate structure that enables the insurer to compete effectively while earning a reasonable profit on its operations. Rates and pricing guidelines must result in premiums that adequately cover all losses and expenses and that leave a reasonable amount for profits and contingencies.
pure premium ratemaking
using estimates of future losses and expenses including profit and contingences factor. Its sues is to develop rates from past experience and requires data of the losses incurred, earned exposure units, expense, and the profit & contingence factor.
Risk sharing
when there is some arrangement to share losses.
