Insurance Terms and Related Concepts
Actual Cash Value
= replacement cost less depreciation
What do actuaries do?
Evaluate the likelihood of future events and use results to make rates and determine when they should change
the price a buyer would pay and a seller would accept in a competitive market
Market Value
Transfer same as
Sharing
Uninsurable
Speculative risk
Analysis of these statistics determines if a risk from a given peril is insurable
Statistics of past losses
when the insurance company is liable for the full amount of damages claimed no if ands or butts
Valued Policy
the tendency for people with a greater than average exposure to lord to purchase insurance
What is adverse selection?
taking action reduce the possibility of loss
What is reduction?
a selection, classification and acceptance or rejection of a proposed insured according to the insurer's underwriting standards
What is underwriting?
Avoidance
abstaining from a particular activity that could turn into
Reduction is
control
Risk
defined as the uncertainty of financial loss
Sales/ Marketing
development and sale of products, premium collection, producer licensing and advertising are responsibilities of the sales and marketing the department
Examples of reduction
driver's education , purchasing seat belts or smoke alarms
Property Insurance
grants coverage for real and personal property against loss or damage from perils and consequential loss
Reinsurance
an arrangement by which the primary insurer that initially writes the insurance transfers (shares) to another insurer part or all of the potential losses associated with such insurance
Law of Large Numbers
as the number of exposure increases, the more the actual results will approach the results expected for the event
What is a form of retention?
deductible because the insured is assuming part of the risk insuring only above a certain dollar amount
Insurance
is the transfer of pure risk from one party to another for a price through a legal contract that spells out the terms , the losses covered, the losses that are covered, and other specific provisions
Pooling the Risk
the reinsurer assumes a portion of the risk and receives a pro rata portion of the premium paid
Sharing
the risk among many individuals is calling pooling the risk
What does the accounting department do?
they deal with state regulation and reserves, premium collection and agent/producer commissions
What is the primary concern of all policyholders?
how losses are settled
What is invested by the the insurance company?
premiums
Casualty Insurance
protects a person from financial loss arising from bodily injury or property damage to others arising out of operation of a motor vehicle, Workers' Compensation injuries, ownership of property, malpractice and business activities
Transfer
purchasing insurance to shift the finical burden of a loss from the insured to the insurance company
Replacement Cost
the amount necessary to repair, rebuild, or replace an asset at today's cost
What's a proximate cause?
the cause that was responsible for the loss, either directly or indirectly through the chain of events
Speculative Risk
the chance for loss or gain (placing bets on a poker table or investing in the stock market)
What must happen for a loss to be covered?
the insured peril must be the cause or within the chain of events that links the proximate cause to the loss
Who handles compliance with state laws and handles claims dispute?
the legal department
Loss Variation
the process of determining the value of the loss
What does the claims department do?
they make good on the promises the company has made by investigating and paying claims for damage and injury covered by the insurance contract
Surplus Lines
type of insurance insures risks that may be unavailable in the standard market because of unusual characteristics such as aviation, earthquake, or professional exposures. Risks fall beyond the capacity of standard insurers
Cheaper route of replacement cost
Functional Replacement Cost
Retention
accepting the possibility of a loss yourself and electing not to purchase insurance to protect against the potential loss
Exposure
actual condition or situation that presents a possiblity of loss
Commercial Lines
businesses of any size, including professionals and commercial enterprises (Commercial General Liability and business auto policies)
Define actuarial
by use of mathematical and statistical techniques the actuarial department is responsible for making rates and determines the rates changed by the insurer
Personal Lines
insurance for families and individuals (auto and homeowner's policies
Concept of Insurance
involves sharing a risk. By purchasing insurance, a person shares risks with a group of others, reducing the individual potential for disastrous consequences.
Pure Risk
involves the chance of loss only; insurance protects an insured against pure risk