Chapter one: insurance
reinsurance
contract under one insurance company indemnifies another comapny for all of their liabilities
pure
covered by insurance companies, not a gamble, only result in loss
reciprocal insurance exchange
formal risk-sharing arrangment
fiduciary duty
trust client places in the producer in regard to handling premiums
exposure
unit of measurements used to determine rates charged for an insurance coverage - determining rates include age, medical history, occupation, sex
Managerial System
-Branch manager (supervises agents) -Salaried -Agents can be insurer's employees or independent contractors
purpose of risk retention
-to reduce expenses and improve cash flow -to increase control of claim reserving and claims settlements -to fund for losses that cannot be insured
Insurance Guaranty Association
An organization that protects policyholders and claimants in the case of an insurance company's impairment or insolvency. Insurance guarantee associations are legal entities whose members make guarantees and provide a mechanism to resolve claims.
lloyds association
Provides support facilities for underwriters or groups of individuals that accept insurance risk.
advoidance
a method of handeling risk which elimiates exposure to loss
producer
agent licensed to sell and negotitate insurance contracts on behalf of principal (insurer)
legal elements of a contract
agreement consideration: something of values each party gives to eachother competent parties legal purposes
domestic insurer
an insurance company that is incorproated in state
risk
chance of loss occuring
characteristics that define pure risk
due to change, definate and measureable, predictible, not cataostrophic , large loss exposure
aleatory contract
exchange of unequal amounts or values
powers of the producers
express implied appartent
homogeneous
large number of people who are at similar risk for loss, share the insurace risk cost
agent/ producer
legal representive of an insurance company, producer: agents and brokers agents: agents of insurer
risk rention group
liability insurance company owned by its members: members are exposed to similar risk and they spread it amoung the group
reciprocity/ reciprocal
mutual interchange of rights and privileges
insured
person covered by the insurance policy
contract of adhesion
prepared by one of the parties (insurer) and accepted or rejected by the other party (insured)
Types of Risk
pure, speculative
reduction
reducing the risk of loss (fire alarms ect)
Loss
reduction, decrease, or dissappearance of value of a person or property insured in a policy
principal
represents a company regarding contact agreements with third parties
intentional
what losses are not covered by insurance
applicant submits an application to the insurer
when is an offer normally made
general agency system
-General agent-entrepreneur represents 1 company -Exclusive -Compensation and commissions -Appoints subagents
exclusive agency system
1 agent represents one company exculsive
independent agency
1 agents represents several companies non exclusive
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.
perils
causes of loss in an insurance policy
fraternal benefit society
chartible organization
risk purchasing group
offers insurance to group of similar business with similar exposure to risk
speculative
opporutnity for loss or gain, not covered or insurable
alien
outside US
physical hazards
characteristics that increase chances of the loss, exist because of a condition, past medical history, or a condition at birth
insurer
company who issued insurance polcy
fails to communicate information that will help make sound desicions
concelment
proposed insured made a premium on a new insurance policy, if the insured should die the insurer will pay the death benefit to the beneficiary what type of contract is this?
conditional
hazards
conditions or situations that increase probalaility of a loss
insurance policy
contract between a policy owner and an insurance company , agrees to pay the insured or beneficiary for loss caused by specific events
in a review hazards, perils, loss, insurance
hazards: conditions and actions that increase risk or probility of loss perils: causes of loss loss: reduction of value basis for a claim insurance: transfer of loss, protection
foregin
incorporated in another state
types of marketing
insurance market products in different ways from agents or direct solicitation
broker
insurance producer not appointed by insurer and is deemed to represent the client
surplus lines
insurance that is not available in regular market place
stock companies
owned by stakeholders, provide capital necessary to establish the company, issue nonparticipating policies in which policy owners do not own profits or losses dividends are payed to stock holders and not policy owners
mutual companies
participating policies, nontaxable, divideds are more when the premium and earning exceed the cost
applicant
person appying for insurance
morale
state of mind that involves carelessness
common types of private insurance ownership
stock companies
reciprocal:
subscribers agree to become liable for their share of losses and expenses that occur amoung all subscribes
premium
the money paid to the insurance company for the insurance policy
direct marketing response
no agents, company advertises directy to costumers
guaranty association
formed to protect policy owners insureds beneficiaries and anyone entitled to payment under insurance policy
private vs gov
gov programs are funded with taxes and serve national and state social purposes
consideration
insurers promise to pay fir loses insured paying the premiums
life insurance
insures agianst the financial loss caused by premature death of an indiviual
moral
tendencies towards increased risk invovle evaluating the chacter and reputation of the proposed insured refer to those applications who may lie
law of large numbers
the larger the number of individuals that are randomly drawn from a population, the more representative the resulting group will be of the entire population
policy owner
the person entitled to exercise the right and privilege's in the policy
retention
the planned assumption of risk by an insured through the use of deductibles, copayments, or self-insurance
transfer
transfering risk from an indiviual or group to an insurance company relives the insured of fiancial loss
adverse selection
insuring of risks that are more prone to losses than the average risk
implied
not stated in agent contract but required to conduct biz