General Insurance

Retention

(self-insurance) - retaining the responsibility for the loss.

Offer (Application)

A person makes the offer by submitting an application.

Personal Contract

Insurance policies cover the insurable interest of the insured. The insured cannot transfer or assign any policy, except life insurance.

Automatic Agreements

The ceding company must transfer the amount of insurance in excess of the retention level immediately and automatically upon receipt of the premium. The transfer is automatic in accordance with the reinsurance agreement. (These agreements are strictly between the insurers; all inquiries and transactions by the consumer regarding the process are through the ceding or originating company.)

Risk

a condition in which a chance of loss exists. The two types of risk are speculative and pure risk.

Misrepresentations

a false statement in the application that can render the contract void if material to acceptance of the risk (does not reflect the truth).

Loss

a reduction in, decrease or disappearance of value.

Authorized (Admitted) Insurers

have been authorized by the Commissioner of Insurance (Director or Superintendent) to transact business in this state.

Estoppel

prevents the denial of a fact if the fact was admitted to be true by a previous action.

Reduction

reducing, but not preventing the risk.

Pure risk

situations where only the chance of loss and no chance for gain exist.

Warranties

statements made in an application for insurance or material stipulations in the policy that are guaranteed as true in all respects. If untrue or if breached, the contract may be voided; may be past, present or future.

(Loss) Exposure

the extent to which one may be affected by a peril.

Express

the power that is expressed (written) in the producer's/agent's contract. Example: Binding authority.

Indemnity

this principle establishes that the insured is restored to the same financial condition as before the loss, with no intent or loss or gain.

Domestic

those insurers that are incorporated in this state.

Transfer

transferring the risk to another (insurance company).

Acceptance (Issued Policy)

The insurer promises to pay by issuing a policy or a binder.

Adverse Selection

The insuring of risks which are more prone to losses than the average (standard) risk. These risks tend to seek or continue insurance at a higher participation rate than does an average (standard) or above average (preferred) risk.

Indemnity Contract

This principle establishes that the insured is restored to the same financial condition as before the loss, with no intent of loss or gain.

Alien

those insurers that are incorporated in another country. Any of these insurers may conduct business in this state if they are admitted.

Reinsurance (Risk Sharing)

A device used by insurers to transfer or share in a risk. This process disperses the probability of a large loss in turn provides coverage for a possibly otherwise uninsurable risk. There are at least two insurers involved, the insurer originating the application (ceding company) and the company or companies who share in the risk (reinsurance insurers). The agreement of reinsurance is strictly between the two insurance companies and will be classified as either an Automatic or Facultative Agreement.

Conditional Contract

Both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable. The insurer must pay claims if the insured has complied with policy conditions.

Contract of Adhesion

One party prepares a contract and submits it to the other party on a "take-it-or leave-it" basis (without negotiation).

Ambiguities in a Contract of Adhesion

any doubt or ambiguity found in the document is constructed against the party who drew up the contract (insurer).

Speculative risk

instances where there is a chance of loss or gain.

Avoidance

not being involved in the activity that gives rise to the chance of loss.

Sharing

pooling the risk of a large number of persons (corporation).

Peril

the cause of a possible loss.

Fraud

the intentional misrepresentation, deceit, or concealment of a material fact known to a person with the intention of causing injury to another party.

Facultative Agreements

Allows the ceding insurer and the reinsurance companies an opportunity to exchange advice about the underwriting of each case. This agreement is more time-consuming and may result in a higher premium. (These agreements are strictly between the insurers; all inquiries and transactions by the consumer regarding the process are through the ceding or originating company.)

Unilateral Contract

Only one party is legally bound to contractual obligations after the premium is paid to the insurer. Only the insurer has made a promise of future performance, and only the insurer can be charged with breach of contract.

Aleatory Contract

Parties to a contract exchange unequal amounts of money. In insurance, the premium paid is less than the potential benefit to be received in the event of loss. Performance depends on an uncertain future event. The exchange of values may be unequal.

Hazard

a specific situation that increases the probability of a loss arising from a peril or that may influence the extent of the loss. There are tree types of hazards: 1) Physical (tangible characteristics). 2) Moral (dishonesty - giving false information on an application). 3) Morale (indifference - driving without seat belts, smoking, driving too fast, etc.).

Utmost Good Faith

both parties bargain in good faith in forming the contract, and rely upon the statements and promises of each other (there should be no attempts to conceal or deceive).

Consideration

generally means what the two parties to a contract give in exchange or value to abide by the conditions of the contract.

Unauthorized (Nonadmitted) Insurers

have not sought approval from the Department or have been unable to obtain such approval (Any insurer doing business in this state must operate under a Certificate of Authority). Insurance that cannot be placed with a licensed admitted company may be placed with an authorized nonadmitted company by a Surplus Lines Broker.

Representations

statements made on the application by the applicant that are believed to be true to the best of his/her knowledge but are not warranted to be exact in every detail (may be withdrawn prior to policy issuance).

Apparent

the authority created when a producer/agent exceeds the authority expressed in his/her contract, and the insurer does nothing to counter the public impression that such authority exists. Example: The producer/agent accepting premiums on lapsed policies.

Implied

the authority that the public assumes the producer/agent has. The active authority when conducting the insurance business, such as filling out applications, providing quotes, and accepting premiums for the insurer.

Reasonable Expectations

the reasonable expectations of policyowners and beneficiaries will be honored even though the strict terms of the policy do not support these expectations; what a reasonable and prudent buyer can expect.

Waiver

the voluntary abandonment of a known or legal right or advantage. An insurer's failure to enforce a provision of a contract.

Concealment

the withholding of known facts that are so important that the disclosure of them would change the decision of an insurer with respect to underwriting, settling a loss, or determining premium (must be material to the loss).

Foreign

those insurers that are incorporated in any other state.