Chapter 1

What is a Premium?

The total cost for the amount of insurance purchased. $50,000 of coverage = $5 rate X 50 (Per $1,000 of insurance) for a $250 premium.

Which insurance company department accepts the insurance risk?

Underwriting

What is a Hazard?

A specific Condition that increases the probability, likelihood, or severity of a loss from a peril.

Non-Admitted Insurer

An insurer has either applied for authorization to do business in this state and was declined or they have not applied. They are not authorized to transact insurance in this state.

Admitted Insurer

An insurer is authorized by this states commissioner of insurance to do business in this state. It has received a certificate of authority to do business in this state.

What is a Foreign Insurer?

An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the US, weather or not it is admitted to do business in the state or jurisdiction.

What is an Alien Insurer?

An insurer organized under the laws of any jurisdiction outside of the US, whether or not it is admitted to do business in this state.

What is a Domestic Insurer?

An insurer organized under the laws of this state, whether or not it is admitted to do business in this state.

What is a Morale Hazard?

Attitude that increases the probability of a loss. Example: Carelessness of leaving house or vehicle unlocked.

What is a Moral Hazard?

Dishonest tendencies that increase the probability of a loss, certain characteristics and behaviors of people. Example: An insured burns down own house to collect an insurance payout.

A Federal Regulation called the ________ protects consumer privacy.

Fair Credit Reporting Act.

Which of the following is an insurance company that is organized under the laws of another state within the United States?

Foreign

Which of the following types of authority does the public assume an agent has when quoting insurance?

Implied

What is a Risk Sharing Plan

Insurers agree to apportion among themselves, those risks that are unable to obtain insurance through normal channels.

What is Prior Approval?

Insurers cannot use rates until approved by the Dept of Ins, or until a specific time period has expired after the filing.

Who owns a Mutual Insurance Company?

Its Policyholders (members)

Those without legal capacity include?

Minors, the mentally incompetent or incapacitated or persons under the influence of drugs or alcohol.

Dishonest tendencies that increase the probability of loss are what types of hazard?

Moral

A _________ insurance company is owned by its policyholders.

Mutual

Is Lloyds of London an Insurance Company?

No, it is not an insurance company. It consists of groups of underwriters called syndicates each which specialize in insuring a particular risk.

What is the Loss Ratio?

Paid Losses + Loss Reserves by Total Earned Premiums.

What are the 3 types of hazards?

Physical Hazard, Moral Hazard, Morale Hazard.

What is a Fraternal Benefit Society?

Primarily social organization that engage in charitable activities that provide health and life insurance to their members.

Which of the following individuals represents the insurance company when selling an insurance policy?

Producer

What is File and Use?

Rates must be filed with the state insurance regulatory authority (Dept of Ins) and may be used as soon as they are filed.

What is a loss?

Reduction, decrease or disappearance of value. The basis of a claim for damages under the terms of an insurance policy.

Admitted VS Non-admitted?

Refers to whether or not an insurer is approved or authorized to write business in this State.

If an Insurance company wants to transfer all or part of the risk it has accepted, it would buy which of the following types of insurance?

Reinsurance

What coverage source is a last resort for individuals who have been rejected by voluntary market insurers?

Residual Markets

What are ways of Managing Risk?

STARR: Sharing, Transfer, Avoidance, Reduction and Retention.

What is Speculative Risk?

Situations where there is a chance for loss, gain or neither loss not gain to occur.

What is Pure Risk?

Situations where there is no chance for gain, the only outcome is for nothing to occur or for a loss not to occur.

What are the 2 types of risk?

Speculative Risk and Pure Risk

A warranty is defined as?

Statement in the application that Is guaranteed to be true.

7 types of Insurance Companies?

Stock Insurance, Mutual Insurance, Reciprocal Insurance, Lloyds of London, Fraternal Benefit Societies, Risk Retention Groups and Self Insurer.

Who Owns a Stock Insurance Company?

Stockholders or Shareholders.

What is a Combined Ratio?

Sum of the loss ratio and expense ratio.

What are the two types of Reinsurance?

Treaty Agreements and Facultative Agreements.

What is a Peril?

the cause of a loss.

Which principle of insurance restores the insured to the same economic condition that existed before the loss?

Indemnity

What is a Physical Hazard?

A Physical condition that increases the probability of loss; use, condition, or occupancy of property. Example: Flammable material stored near a furnace.

A producer has each of the following responsibilities to the Insurer except?

A duty to recommend only high rate policies

What is a Risk Retention Group?

A group owned insurer that primarily assumes and spreads the liability related risks of its members. It must have sufficient liquid assets to meet loss obligation.

Who owns a Reciprocal Insurance Company?

A group owned insurer whos main activity is risk sharing.

What is an Insurance Contract?

A legal contract purchased to indemnify the insured against a loss, damage or liability arising from an unexpected event

What are the four elements of a legal contract?

Competent Parties, Legal Purpose, Agreement and Consideration. (CLAC)

What is the Expense Ratio?

Determined by Dividing an insurers Total Operating Expenses by written premiums.

What is a Rate?

The dollar amount charged for a particular unit of insurance, which as $5 per $1,000 of insurance.

What is the Principle of Indemnity?

The insured is restored to the same financial or economic condition that existed prior to the loss.