Property and Casualty insurance (General insurance)

Private insurance companies

-ownership -authority to transact business - location - marketing and distribution systems - rating (financial Strength)

Insurance Policy

A contract between a policyowner

Insurance

A contract in which one party (the insurance company) agrees to indemnify (Make Whole) the insured party against loss, damage or liability arising from an unknown event. In life insurance, the policy protects survivors from losses suffered after an insured 's death

Estoppel

A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege has been waived. Estoppel is a legal consequence of a waiver

Agent/Producer

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

Sharing

A method for dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A reciprocal insurance exchange is formal risk-sharing arrangement

Reciprocity/Reciprocal

A mutual interchange for rights and privileges

Applicant or proposed insured

A person applying for insurance

Beneficiary

A person who receives the benefits of an insurance policy

Indemnity (aka reimbursement)

A provision in an insurance policy that states that in the event of loss, an insured or beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insured contract. The purpose of insurance is to restore but not let an insured or beneficiary profit from the loss.

Exposure

A unit of measurement used to determine rates charged for insurance coverage. A large number of units having the same or similar exposure to loss are referred to as homogeneous. The basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss. HAZARDS: Conditions and actions that increase risk or probability of loss---> PERILS: Causes or loss ----> LOSS: Reduction of value, basis for claim ---> INSURANCE: Transfer of loss, Protection

Illegal use of narcotics would be an example of a A. Moral hazard B. Physical hazard C. Pure hazard D. Morale hazard

A. Moral Hazard Tendencies of an applicant to break laws or be untruthful are examples of moral hazards

Reduction

Actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles

What documentation grants express authority to an agent?

Agent's contract with the principal The principal grants authority to an agent through the agent's contract

What are the 4 required elements of an insurance contract?

Agreement, Consideration, Competent parties, and Legal purpose

Broker

An insurance producer not appointed by an insurer and is deemed to represent the client

An insurance Contract must contain all of the following to be considered legally binding EXCEPT..

Beneficiary's consent. The four essential elements of all legal contracts are offered and accepted, consideration, competent parties, and legal purpose

What Type of information would be found in a policy insuring agreement? a. policy limits b. insurer's address c. Renewal dates d. Location of premises

C. Renewal Dates An insuring agreement establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy. The insuring agreement lists the parties to the contract, effective and renewal dates, the description of coverage provided, and perils (among other things). Location of premises, policy limits, supplemental representations, and insurer's name and address can all be found in the declaration

Hazards

Conditions or situations that increase the probability of an insured loss occurring. Hazards are classified as physical hazards, moral hazards, or morale hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving, are hazards and may increase the chance of a loss occurring

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the: a. Declarations b. Endorsements c. Conditions d. Exclusions

D. Exclusions The exclusions section of an insurance policy details what perils are not insured against and what persons are not insured

Pure Risks Characteristics

Due to chance- out of insured's Control Definite and measurable- specific as to the cause, time, place and amount Statistically predictable- estimate the average frequency and severity of future losses and set appropriate premium rates Not catastrophic- Reasonably certain their losses will not exceed specific limits Randomly Selected and large loss exposure- Must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health economic status and geographics

Avoidance

Eliminating exposures to a loss. For Example, if a person wanted to avoid the risk of being killed in an airplane crash, he/she might choose never to fly in an airplane

Which of the following are the authorities that an agent can hold?

Express and Implied The powers and authorities that an agent hold are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words or deeds of the principal or because of circumstances the principal created.

What insurance concept is associated with the names Weiss and Fitch?

Guides describing company financial integrity An insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates of the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more.

Courts will interpret any ambiguity in an insurance contract..

In favor of the insured. insurance policies are contracts of adhesion. The insurer writes the contract and the insured accepts the contract as it is written. When ambiguities exist, courts generally rule in favor of the insured

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of Large Numbers The Law of large numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated.

Risk Retention Group (RRG)

Liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry. The purpose of a risk retention group is to assume and spread all or part of the liability of it's group members.

The reduction, decrease, or disappearance of value of the person or property insured in a policy by peril insured against is known as..

Loss Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called..

Material Misrepresentations. A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company

Risk Purchasing Group

Offers insurance to groups of similar businesses with similar exposure to risk. The policy is based on the insured's loss and expense experience and is not afforded to other policyholders with respect to rates, policy forms, or coverages.

Unilateral

One sided (only one party makes a promise)

Adhesion

Only one party (insurer) prepares a contract, and the other party (Insured) accepts it as is

Fraternal Benefit Society

Organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. Fraternals sell only to their members and are considered charitable institutions, and not insurers. They are not subject to all of the regulations that apply to the insurers that offer coverage to the public at large.

Mutual Companies

Owned by the policyowner and issued participating policies. With participating policies policyowners are entitled to dividend, which in the case of mutual companies, are a return of excess premiums and are, therefore, nontaxable.

Stock Companies

Owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profit or losses.

Physical Hazards

Physical Hazards Individual characteristics that increase the chances of the cause of loss. Physical hazards exist because of a physical condition past medical history or a condition at birth such as blindness

Risk Retention

Planned assumption of risk by an insured through the use of deductibles, co-payments or self-insurance when the insured accepts the responsibility for the loss before the insurance company pays. The purpose of retention is to: 1. Reduce expenses and improve cash flow 2. Increase control of claim reserving and claims settlements 3.To fund for losses that cannot be insured

Who might receive dividends from a mutual insurer?

Policyholders A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable

The risk of loss may be classified as...

Pure Risk and Speculative Risk. Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

Risk

Pure Risk-Refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept Speculative Risk- Involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types or risks are not insurable

Which services are associated with Standard & Poor's and AM Best?

Rating the Financial Strength of insurance companies. Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Reduction Steps taken to prevent losses from occurring are called risk reduction

In a case of loss, the indemnity provision in insurance policies..

Restores an insured person to the same financial state as before the loss.

Moral Hazards

Tendencies towards increased risk. Moral hazards involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Morale Hazards

Tendencies towards increased risk. Moral hazards involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Perils

The causes of loss insured against in an insurance policy

Insurer (Principal)

The company who issues an insurance Policy

Adverse Selections

The insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks

Law of large numbers

The large number of people with a similar exposure to loss, the more predictable actual losses will be.

Premium

The money paid to the insurance company for the insurance policy

Insured

The person covered by the insurance policy. This person may or may not be the policyowner

Policyowner

The person entitled to exercise the rights and privileges in the policy

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer loss

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statement he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicants knowledge.

The property condition the precludes the insured from simply turning over damaged property to the insurer and claiming a total loss is called: a. Abandonment b. Assignment c. Appraisal d. Arbitration

a. Abandonment Until the insurer has determined that the loss is total, the insured must protect the property from further loss

What type of liability would a person who owns wild animals have? a. Absolute b. Vicarious c. Implied d. Direct

a. Absolute Any conduct that is inherently dangerous, such as using explosives or keeping wild animals, imposes absolute threat. The claimant does not have to prove anything

All of the following are found in the declaration section of the policy EXCEPT the: a. Exclusions b. Policy Premiums c. Name of the insured d. Limits of insurance

a. Exclusions Declarations state who is insured, what is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium. The exclusions tell what is not covered.

Compared with other drivers in his age group, has had more accidents and traffic violations. Which of the following rating types would most accurately reflect the driver's true insurance risk? a. Experience b. class c. special d. schedule

a. Experience In experience rating, the insured's own past loss experience enters into the determination of the final premium. Experience rating is superimposed on a class-rating system and adjusts the insured's premium either up or down, depending on the extent to which his experience has deviated from the average experience class

What type of compensatory damages will pay for pain and suffering and disfigurement? a. General b. Special (specific) c. Tort d. Normal

a. General General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars

When real property insured under a fire is totally destroyed by fire, which of the following conditions would prevent the Nebraska valued policy law from being applied to the loss settlement? a. The fire was determined to be an arson by the inured b. The fire was caused by the negligent of an insured c. The policy, at the time of the loss, had been in effect for less than 60 days d. The property has a mortgage clause attached

a. The fire was determined to be an arson by the insured In the event of arson or criminal fault by the insured, the Nebraska valued policy law is set aside

A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely? a. The homeowner will need to get written consent from the insurer before the policy can re reassigned b. The policy will have to be canceled c. The homeowner should let the friend take over the premium payments d. The friend will have to apply for coinsurance from another insurance company

a. The homeowner will need to get written consent from the insurer before the policy can re reassigned In property and casualty insurance, assignments of

Liability imposed on one party as a result of the actions of another person is known as a. vicarious liability b. comparative negligence c. strict liability d. absolute liability

a. Vicarious liability Vicarious liability is liability on one party as a result of the actions of another person, i.e., parent/child or employer/employee

In an insurance company underwriter discovers that an applicant for a policy has been convicted of submitting a fraudulent claim to an insurer in the past, the application may be rejected as a: a. moral hazard b. risk of loss c. physical hazard d. morale hazard

a. moral hazard

A 100,000 house insurance policy with 80% coinsurance requirement has a fire that caused $40,000 of damages; the owner has a policy with $60,000 coverage. how much can the owner collect for his loss? a. $20,000 b.$30,000 c. $40,000 d. $60,000

b. $30,000 For the total amount of partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the house is insured for only $60,000 (75% of the minimum requirement), the policy will pay only 75% of the loss or $30,000

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the: a. insuring clause b. Conditions c. Exclusions d. Declarations

b. Conditions The conditions is the part of an insurance policy that sets forth the obligation and duties of the insurer and the insured.

Which of the following is a mandatory part of an insurance policy that varies with each individual policy? a. insuring agreement b. Declaration c. Conditions d. Exclusions

b. Declaration Because the declaration tell who, when where, this information is different in each contract

Which of the following would modify the original insurance contract by either adding or removing coverage? a. Flexible policy b. Endorsements c. Additional coverage form d. Conditions

b. Endorsements Endorsements change the policy's original terms, conditions or coverage. Endorsements can add or delete coverage, or merely correct items such as the insured's name, address, etc.

All of the following are conditions commonly found in the insurance policy EXCEPT: a. Appraisal b. Insuring agreement c. Cancellation and nonrenewal d. subrogation

b. Insuring agreement The insuring agreement provides information on the policy's coverage. Conditions state the legal obligation and duties of the parties to the contract

A contractor who builds homes has never made a claim on his business insurance policy. His agent discovers that his policy is written on a scheduled rating. if the contractor changes to an experience rating policy, which is most likely? a. Coinsurance would be necessary b. Premiums would go down c. Premiums would go up d. Premiums would be unchanged

b. Premiums would go down In an Experience rating, the insured's past experience helps determine the premium. Because it is unlikely that the rest of the industry would have zero claims, a contractor with no claims is likely tp pay a lower premium than a company that is on a scheduled rating

Which part of an insurance policy covers claim-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses? a. insuring agreement b. additional coverage c. exclusions d. declarations

b. additional coverage The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium

Which of the following coverages in dwelling and homeowners policies is for indirect losses? a. Contents b. Loss of use c. Dwelling d. Structures

b. loss of use Loss of use coverage applies after a direct loss caused by a covered peril has occurred

Rates that are established based on the similarities of the risk with other risks are known as: a. "A" rates b. Merit Rates c. Manual Rates d. Experience Rates

c. Manual Rates Rates that are established by similarity or risk are manual rating or class rates

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be: a. Strict liability b. An intervening cause c. The proximate cause d. The direct cause

c. The proximate cause The proximate cause of chain of events resulting in injury is one that is sufficiently related to an injury that the courts determined it is in fact the cause of injury

The pro rata liability clause is designed to protect the principle of: a. insurable interest b. Waiver and estoppel c. Indemnity d. Subrogation

c. indemnity If more of one policy is in force on the same property at the same time covering the same perils, this concurrent coverage. The intent of insurance is that after a loss, the insured is restored to the condition her or she was in before the loss (indemnified). Each policy pays a percentage of a loss directly related to the amount of insurance it provides compared to the total amount of coverage

To purchase insurance, the policyowner must have financial interest in the property being insured. This is known as: a. Loss valuation b. Indemnity c. Insurable interest d. Pure Loss

c. insurable interest the insured must have an insurable interest in the person or property covered by an insurance policy. In property insurance, this means the insured would incur a financial loss if the insured property was damaged.

An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000 and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay? a. Each policy will pay the total policy limits of $100,000 b. The first policy written will pay $75,000, and the other three policies will contribute proportionately to pay for the remaining $25,000 c. The policy with the earliest effective date will pay the entire loss, and the other policies will pay nothing d. each policy will pay $25,000 of the loss

d. Each policy will pay $25,000 of the loss

Using an air-cooled engine, a proposed insurance has developed a new, experimental aircraft. if the inventor applies for liability insurance. What rating type will the insurer most likely use? a. Class b. Schedule c. Merit d. Judgement

d. Judgement Because there are few similar aircraft, it is not possible to rate the risk based upon history or experiment. For those reasons, a judgement rating is the most likely system

An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some of furniture and clothes in the house. From an insurance standpoint, the insured's house is considered a. condemned b. Under Repair c. Vacant d. Unoccupied

d. Unoccupied Refers to an insured structure in which no people have been living or working within the required period of time, but the structure contains contents

Which of the following terms describes the concept of disrupting the chain of events? a. last clear cause b. Pro Rata Cause c. Proximate cause d. Intervening cause

d. intervening cause an intervening cause breaks the required uninterrupted chain of events necessary to establish negligent liability

What are the 3 types of producer authority?

express, implied, apparent

What type of risk is insurable?

only pure risk that results in a loss or no change

For the Purpose of insurance, risk is defined as:

the uncertainty or chance of loss

Aleatory

unequal values