4. Property and Casualty Basics

A beauty parlor burns to the ground. What type of loss is this to the owner?

Direct. Damage caused by a peril that is insured against is classified as direct loss.

In property and Casualty insurance, insurable interest is defined as the right of a person or entity to property in that such a loss to that property would cause a direct monetary loss to the person or entity. Which of the following statement is TRUE regarding insurable interest in property and casualty insurance?

If the insured has no insurable interest, the contact is void.

Val-U Insurance Company's main goal is to collect sufficient premiums to pay for the insured losses, to cover the costs of expenses and to make a reasonable profit. Val-U predicts that the incurred expenses while still allowing for a margin of error. The ultimate premium charged will be reduced by which of the following?

Investment income the additional charge added to the premium is reduced by any investment income earned on the funds being held for future claim payments.

Concurrent causation occurs when:

A loss is caused by both a covered and an uncovered peril. It is called concurrent causation. In this case, coverage is deemed to apply.

Describe the term "accident"

A sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected or intended

When a disagreement occurs as to how to settle a loss in a "fender bender" between two cars, what procedure is followed?

Arbitration through the court. This is a low cost alternative to a full-blown lawsuit.

Bob insists that the insurer owes him $10,000 for liability damages, while his insurer asserts that they owe him no more than $7,000. Which of the following would most likely describe the type of claim settlement that they might pursue?

Arbitration. When an insured and insurer cannot agree on how to settle a claim, arbitration is used. The settlement is submitted to an arbitrator(s) whose decision may or may not be binding on both parties dependent on state law.

What term includes damage where the insured peril was the proximate cause of loss?

Direct loss. Direct loss is direct, physical damage to buildings and/or personal property.

An individual purchased her own personal property insurance policy on her newly purchased dream home. this type of insurance coverage that applies to the insured's own property is known as

First party risk protection.

An additional loss that results from a direct loss of property is called a/an

Indirect loss. Direct losses come about because of perils named in the policy. Indirect losses, aka consequential losses, come about as a result of a direct loss.

What organization has the primary responsibility forms for the standard market?

Insurance Services Office (ISO)

Rates that are established based on the similarities of the risk with other risks are known as

Manual rates

Losses caused by the continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected is the definition of what term?

Occurrence.

The termination of an insurance contract with the premium charge being adjusted in the proportion to the exact time and protection has been in force is considered a:

Pro rata cancellation

Using an air-cooled engine, a proposed insured has developed a new, experimental aircraft. If the inventor applies for liability insurance, what rating type will the insurer most likely use?

Judgement. Because there are few similar aircraft, it is not possible to rate the risk based upon history or experience. That is why the insurer would use this type of insurance.

Adam is injured in a car accident caused by John. What kind of insurance would cover John's obligation to pay for Adam's injuries?

Liability insurance. This provides compensation for harm or damage to a third party that the insured is obligated to pay.

Which of the following coverages in dwelling and homeowners policies is for indirect losses?

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

The estimated amount that an insurer would have to pay on a claim is called the

Loss reserve.

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss.

The basis for a claim against an insurance policy is a what?

Loss. Claims result from losses by peril insured against in an insurance policy.

What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy? Named peril policy Open peril policy Specified peril policy Binder policy

Open peril policy. Open peril (special) policies cover everything except what they say they don'y. Named peril policies cover only perils named in them.

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?

Premiums would go down. In an experiencing rating the insured's past experience helps determine the premium.

The cost of a unit of insurance is known as the:

Rate

The premium is determined by multiplying the number of units of insurance purchased, times the

Rate

All of the following would be considered "expense" of an insurance company EXCEPT Marketing & Advertising Commissions Acquisitions Revenues received from investments

Revenues received from investments. Expense is defined as an insurer's costs of operations including overhead, marketing, and commissions.

Which of the following is a cancellation procedure in which the premium returned to the insured is NOT in direct proportion to the number of days remaining in the policy period? Short rate Pro rata Flat rate Proportional

Short rate.

The legal process that gives the insurer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is known as

Subrogation. The insurer's rights are only to the extent of the loss payment.

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called

Subrogation. When insureds accept loss payment from the insurance company, they must transfer their rights to recover to the insurer. This prevents the insured from collecting twice for the same loss and allows the insurer to indemnify the insurance company.

What produces evaluations of insurers' financial status often used by state departments of insurance?

AM Best. They assign ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.

An unincorporated, nonprofit association representing all insurance companies in the States of California licensed to transact workers compensation insurance is known as

California Workers Comp Inspection Rating Bureau. Over 400 member companies.

Which of the following terms describes the ratios that is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses?

Combined. A decrease in the combined ratio means financial profitability is improving; an increase means that the profitability is decreasing. When the ratio is over 100, the insurer has an "underwriting loss."

In many circumstances, the action of more than one cause produces a particular harm or loss to an insured. The predominant legal rule is that if a loss is caused by both an insured peril and an uninsured peril, coverage id deemed to apply. This rule is called:

Concurrent causation.

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this?

Consequential AKA as indirect loss, is a second financial loss caused by a covered direct loss

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

Guides describing company integrity. Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies.

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

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

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

Rating the financial strength of insurance companies.