NC Property and Casualty State Exam

Endorsements

- Modify (add/take away rights) the basic contract - No independent existence; become part of the insurance contract

Twisting

- misrepresentation of a policy's terms and values to induce the lapse of replacement of an existing contract of insurance - lying about what a policy covers so someone will get insurance with you

DP: Coverage A (Dwelling)

- provides protection for the structure and equipment/fixtures that are PERMANENTLY AFFIXED pertaining to the service of the building, such as central AC on a concrete pad next to the dwelling - includes TV aerials, awning, and outdoor equipment, although loss by wind, hail, or the weight of ice, sleet, or snow will be excluded; building materials also covered unless loss is caused by theft - DP-2 and DP-3 cover freezing, but freezing losses will not be covered unless the insured has used reasonable care to maintain heat or shut off the water supply

Dwelling Policies

- replaced the SFP - written on private residential premises that don't qualify for coverage under the Homeowner's Program - some dwellings may not qualify for HO because of age, location, upkeep, value, or because they're rental property

Privacy Act: When Adverse Underwriting Decision Has Been Made

- responsibilities of agents and companies when an adverse underwriting decision has been made: 1. Company must provide reason for adverse underwriting decision per the applicants written request; REQUEST MUST BE MADE WITHIN 90 DAYS, company has 21 days to respond 2. Applicant has the right to dispute any information felt to be inaccurate that prompted the decision, and company must respond to disputed info WITHIN 30 BUSINESS DAYS 3. Insurer must specify questions designed to obtain information solely for marketing purposes 4. No adverse underwriting decision may be based off of a previous one; can only base off facts given at the time of application

Representations

- statements in the application that are made with UTMOST GOOD FAITH, but not guaranteed to be accurate

Notice of Information Practices

- summarizes the applicant's rights under the act including the right to know what information was gathered and from whom; also, the ability to dispute inaccurate information - shall be provided to the applicant NO LATER than at the time of the delivery of the policy when personal information is being collected

Insuring Agreements

- the "heart" of the insurance contract that states the perils that are insured against - establishes the insurer's responsibility to pay claims in the event a covered peril occurs

Principle of Indemnity

- the fundamental idea that the purpose of insurance is to restore the insured to the original financial position that was enjoyed before a loss, BUT WITHOUT GAIN

Waiver

- the voluntary abandonment of a right or advantage placed in writing

Commonly Violated Statutes

- three things that could lead to the loss of the ability to market insurance in NC 1. Embezzlement 2. Insurance Fraud 3. Placing insurance with non-admitted insurance company

Purpose of ISO and the Rate Bureau

- to develop and standardize insurance coverage forms

Residual Market Mechanisms

- used as a last resort when no one else will insure you - three types: 1. Beach Plan 2. Fair Plan 3. NC Motor Vehicle Reinsurance Facility (the Facility)

Perils

Actual cause of a loss such as fire, theft, wind, hail, etc.

Department of Insurance

Empowered to issue regulations necessary to carry out the regulation of the conduct of the insurance business

Warranties

Statements with guaranteed accuracy

Application

The most important document when underwriting is determining eligibility

Conditions

- Provisions and stipulations of the policy; rules of conduct for both the insured and the insurer - behavior (how the insured and insurer should behave)

Deviation

- company is charging less than normal rates

Private/Voluntary Insurance

- neither required nor made available by the government, but does not meet recognized needs - ex: collision insurance in a PAP

Social Insurance

- programs either require or made available by government - ex: facility, workers comp, flood insurance

Speculative Risk

- when there is a chance of gain as well as a chance of loss (ex: buying a stock, gambling) - insurance IS NOT intended to protect against this

Pure Risk

- when there is a chance of loss only - not all pure risks are insurable

Reinsurance

- where insurers sell portions of their individual contracts of insurance to other companies; helps spread risk - insurance for an insurance company

Open Peril

- will insure against all perils unless they are specifically excluded from the coverage - burden of proof lies with the insurer to demonstrate that the loss was caused by an excluded peril **special coverage = open peril coverage

Pretext Interviews

Conducted when an individual poses as someone else in order to obtain information, or does not reveal their identity

Definitions

Explains the meaning of important terms found in the contract

Errors and Omission (E&O)

Insurance to protect agents in case of negligence/civil liabilities

Declarations Page

Personalized part of the policy that includes: - the parties to the contract - the policy term - the amount of insurance purchased - the amount of premium - the object or person insured

Non-Admitted Companies

Property, casualty, and personal lines insurance agents are not permitted to represent or place insurance coverage with non-admitted companies because the NC Department of Insurance cannot regulate them

Purpose of Statutes and Regulations

To promote and protect the public welfare

Transfer

To shift the responsibility for a loss to an insurance company through the purchase of insurance

SFP: Extended Coverage Endorsement (EC)

- a named peril endorsement to the SFP providing direct loss coverage for the perils of: W - wind H - hail A - aircraft R - riot V - vehicles (not owned by household) E - explosion S - smoke

Basic Form (DP-1)

- a named peril policy - covers WHARVES, fire, lightning, VMM, volcanic eruption (air-born) **not vehicles owned by named insured/household

Insurance

- a plan of spreading the risk of possible loss over a large number of people (Law of Large Numbers) - protects against the risk (uncertainty) of when a financial loss might occur

Independent Agency System

- agent can represent more than one insurance company - owns the business and retains all rights to the accounts

Control/Reduction

- an attempt to prevent a loss or to reduce the amount of the loss - ex: installation of a sprinkler system to reduce the amount of loss

Exclusions

- lists what perils are NOT covered - things considered uninsurable

When Agents are PERSONALLY Liable

1. The agent breached their authority 2. The agent represents an incompetent principal or a non-admitted insurance company

Rebate

- any valuable consideration which is offered as an inducement to purchase insurance

Reciprocal (Assessment) Companies

- policyholders are insured by other policyholders - managed by Attorney-In-Fact who can assess the policyholders for additional premiums

Parts of an Insurance Contract

1. Declarations Page 2. Insuring Agreements 3. Conditions 4. Exclusions 5. Endorsements 6. Definitions

Classifications of Insurance Companies

1. Domestic: organized in state 2. Foreign: organized in a different state 3. Alien: organized in another country

Legal Characteristics of the Insurance Contract

1. Unilateral 2. Adhesion 3. Waiver 4. Estoppel 5. Representations 6. Warranties 7. Misrepresentations 8. Concealment

Concealment

Withholding of a material fact; not an overt lie, but a failure to state the entire truth

Misrepresentation

- a lie regarding material information - two types: material and nonmaterial 1. Material - can declare the contract null and void; would have never written the policy having known this information 2. Nonmaterial - no effect on the contract (lie about age, etc.)

Insurable Risk

- a risk the insurance company is willing to accept - characteristics of an insurable risk 1. Low probability of a loss occurring 2. Less than catastrophic results 3. The loss must be measurable 4. The loss must be significant 5. The loss must be accidental and unintended

Commingling

- accounting records of agents shall be SEPARATE and apart from any other business records, and funds due to insurers/policyholders must be available at all times - must keep separate personal and business accounts

Regulations Regarding Insurance Transactions

- all records must be maintained for at least 5 years - any deductible or cost-sharing amount between the named insured and insurer must be expressed in the contract - unlawful for an insurer to discriminate based in rates based on age/sex - company must supply a proof of loss form within 15 days of receiving notification of the claim - illegal for an agent to charge excess of premium for policy fees or services unless a sign is posted, written consent is given, and a receipt - agents shall be held personally liable for unlawfully executed contracts - all payment receipts issued by an agent should be dated, contain name and address of agent and name of insurance company, and should be signed by the person accepting payment

Insurable Interest (Financial Interest)

- an individual must have insurable interest in the property to benefit from a property insurance policy - to establish insurable interest, the applicant must: have the insurable interest at the time of the loss, but not necessarily at the time of the policy purchase

Current CE Requirements

- apply in the biennium following the biennium in which the license was issued based on month/year of birth - 24 hours required, 3 of which must cover Ethics; the rest can be any approved CE course - 3 hours of CE on flood insurance every 4 years - CE carryover will roll from one compliance period to the next without limitation

Commissioner's General Responsibilities

- assures that insurance laws are adhered to by all parties; may institute civil actions or criminal prosecutions through the Attorney General - monitor financial stability of admitted companies through the review of their annual financial statement - APPROVES rates and policies for insurance (DOES NOT SET) - any examination and/or hearing conducted by the commissioner must be preceded by at least 10 DAYS PRIOR WRITTEN NOTICE to all parties (may suspend a license prior to a hearing, but may only revoke after)

Direct Writers (captive/exclusive)

- can only represent one insurance company - insurance company retains ownership rights, not the agent

Unilateral

- characteristic of an insurance contact that states the contract can only be enforced by one party - the insurer cannot enforce payment of premiums in court, but the insured can enforce the contract if all conditions of the contract have been satisfied - only the insurance company makes a legally enforceable promise

Commissioner of Insurance

- chief regulatory body for the oversight of the insurance industry - VOTERS ELECT THE COMMISIONER of insurance to a four-year term as a member of the council of state

Indirect Losses

- consequential loss - include: 1. Losing Money 2. Incurred Additional Expenses

Adhesion

- contract is purchased as it is worded and the insured is "stuck" with that wording - courts will interpret any ambiguity in favor of the insured (the party who did not write the contract)

Named Peril

- coverage only for those perils identified in the policy - burden of proof is on the named insured to prove their loss was caused by a covered peril

SFP: Sprinkler Leakage

- covered accidental leakage or discharge of a sprinkler system - loss must be due to improper operation or malfunction of the system

SFP: Vandalism & Malicious Mischief (VMM)

- covered the willful and malicious damage to or destruction of property (not damage to glass, theft, burglary, or larceny) - ex: spray paint on house - could only be added if EC was included in coverage - VMM coverage suspended if property was vacant for 30 consecutive days (60 unoccupied) **VACANT/UNOCCUPIED ALWAYS 60 DAYS EXCEPT VACANT VMM = 30 DAYS**

Other Coverage Features of DP

- date of initial property damage obligates the insurer, so payments under D&E are not limited by the policy expiration date - if civil authority prohibits use of insured property because of damage to a neighboring location, payments are limited to a maximum period of two weeks (civil authority = prohibited use coverage)

Loss Ratios

- directly affected by underwriting standards - determined by dividing the losses of the company by the premiums collected - determine whether a company has had an underwriting loss or profit

DP: Coverage B (Other Structures)

- garages or other detached outbuildings that are separated from the dwelling by a clear space, or are connected by non-combustible material such as a fence, utility line, sidewalk, etc. - 10% of A automatically extended for other structures - reduces coverage A limit by the amount paid for the same loss in DP-1 ONLY - on DP-2 AND DP-3, coverage B is considered to be ADDITIONAL INSURANCE and does not reduce coverage A (dwelling)

Disclosure Authorization Form

- grants public permission for the company to collect non-public information - effective for 12 months

SFP: Cancellation

- if NAMED INSURED canceled, unearned premium was refunded on a SHORT-RATE basis - if INSURER canceled with written notice to named insured within 5 days, premium was refunded on a PRO-RATE basis **insurance company can cancel whenever they want WITH WRITTEN NOTICE

Capital Stock Companies

- in business to make a profit for stockholders - owned by stockholders; elect a board of directors - profit is fully taxable to stockholder

Hazards

- increase in the probability of a peril occurring - ex: bald tires on a car, faulty wires, damaged steps

DP: Coverage D (Fair Rental Value)

- indirect loss of coverage for loss of rental income and payment of ongoing expenses (i.e. certain necessary utilities) when a rental dwelling is untenable - 10% of A automatically extended - in DP-1, may not exceed 1/12th of the 10% of Coverage A for each month the structure is untenable (DP-2/3 get full 10% at once) - payable even if dwelling is not rented at the time of loss

Spread of Risk

- involves spreading the company's policies over a broad geographical area in order to avoid large losses in the event of a catastrophic event

Estoppel

- legal consequence of a waiver - one party may be stopped from a right granted to them in the contract because of previous words/actions

SFP: Settlement of Losses

- losses under SFP can be settled by: 1. ACV 2. Repair with like value (Replacement Cost) 3. Insurer could take possession of salvage value - settlement cannot exceed face value of the policy

Law of Large Numbers

- makes it possible to predict future losses based upon prior experience - law states that as a large # of events are included, the difference between actual and expected results become smaller

Powers of the Commissioner

- may investigate alleged violations of the Insurance Information & Privacy Protection Act and hold a hearing after at least 10 DAYS PRIOR WRITTEN NOTICE - may subpoena companies, agents, and insurance support organizations - allows applicant to be heard in the hearing and be represented by legal counsel

Pro-Rata Liability

- more than one policy covering the same property - pro-rate (proportional) share of the loss, regardless of whether the insurance was collectible or concurrent (covering the same property against the same peril)

Licensing Law

- must meet CE requirements each biennium (every 2 years) - applicant must be at least 18, not violated any insurance laws, completed 20 hours of pre-licensing education - agents must have a current appointment date and NOTIFY THE COMISSIONER WITHIN 30 DAYS of the effective date - any change of residence must be communicated to the commissioner WITHIN 10 BUSINESS DAYS, change of name WITHIN 30 BUSINESS DAYS - temporary license good for 180 DAYS - commissioner may suspend, revoke, or deny license due to fraud in attempting to obtain license, willful over-insurance, misappropriation of funds, etc.

DP: Coverage C (Personal Property/Contents)

- named insured purchases an amount of coverage C appropriate to their loss exposure that is separate from coverage on the dwelling structure - covers property of named insured and family members and property of other that is in the care of the named insured - must be on premises - pets, aircrafts, and vehicles are NOT covered; lawnmowers, rowboats, and canoes ARE

Standard Fire Policy Attributes

- named peril policy insuring against Direct Losses - named perils included: 1. Fire 2. Lightning 3. Removal of property (to protect it from further damage); once removed, coverage became open peril and was provided for 5 DAYS - in addition, coverage was extended to direct damage caused by an unnamed peril with the PROXIMATE CAUSE (CONCURRENT CAUSATION) of the damage was a covered peril (ex: water damage caused by putting out a fire)

Adverse Selection

- occurs when insureds with a high risk of loss attempt to purchase insurance and are successful in doing so - insurers attempt to PREVENT THIS (bad risk) - prevented by: 1. refusal to write 2. rating up 3. insurability standards *** deductibles do not prevent this

Special Form (DP-3)

- open peril coverage on the dwelling and other structure (named peril on contents) - covers same perils as DP-2

Standard Fire Policy

- origin of modern property coverage - 165 lines - adopted in 1943 - 165 line New York Standard Fire Policy of 1943

Mutual Insurance Companies

- owned by policyholders; each policyholder "owns" a part of the company proportionate to their share - elects a board of directors who appoint officers - surplus returned to policyholders in the form of non-taxable policy dividend

Underwriting

- prevents bad business; "quality control"

Broad Form (DP-2)

- property and contents - named peril policy covering all DP-1's perils. plus damage done by burglars, fallen objects, weight of ice, sleet, and snow, overflow of water from plumbing/appliances, damage from power surges, freezing, tearing apart of hot water systems

Concealment & Fraud

- protected the insurer from willful misrepresentations by the insured; insurer could declare the contract "null and void" if this was the case

Insurance Info and Privacy Protection Act (Privacy Act)

- protects consumers - outlines procedures used to protect the confidential nature of the information processed in the insurance industry - only deals with non-public/confidential information (credit history, need-to-know), not public information (driving record, etc.)

DP: Coverage E (Additional Living Expenses - ALE)

- provided in DP-2 and DP-3, and can buy more than 10% of A if needed; added by endorsement on DP-1 - payment is in the same manner as coverage D (1/12th of 10% of A for DP-1), but designed for when dwelling is occupied by named insured instead of when it's rental property - allows the family/named insured to maintain a normal standard of living

Agents

- representatives of the insurance company - requires a contract and appointment (something stating they can sell insurance) - given binding authority (binder = temporary evidence insurance is in effect); must be written or oral (says you ARE covered); cannot cancel binder - only the policyholder or company can

Broker

- representatives of the insured - shop the market for their customers and obtain coverage through an agent - must have $15,000 bond - CANNOT bind coverage

Subrogation

- required the named insured to assign to the insurer the right to recover claim payments from negligent third parties - the right of the insurer to collect what is owed

Requirements of the Privacy Act

- requires the execution of/delivery of 2 documents prior to the collection of and use of confidential information (non-public) information 1. Notice of Information Practices 2. Disclosure Authorization Form

Adverse Underwriting Decision

- when an application for insurance has been rejected, an existing policy has been terminated, or coverage has been placed with a residual market mechanism - failure to place coverage with a company requested by the applicant and the charging of a higher rate based on information that differs from that supplied by the insured ***charging higher premium due to an increase in hazard is NOT considered an adverse underwriting decision

Retention

- when liability for a loss is maintained by an individual by NOT PURCHASING INSURANCE - deductible is an example of retention

SFP: Exclusions

1. Accounts, bills, currency, money, etc. 2. Acts of War 3. Losses caused by a failure to use reasonable means to protect property from further damage 4. Civil authority losses 5. Any increase in hazard may have restricted coverage 6. When vacant/unoccupied, coverage was suspended 60 DAYS LATER; coverage restored when condition ceased

Coverage Parts of the Dwelling Policies

1. Coverage A = Dwelling. Available on all forms. 2. Coverage B = Other structures. 10% of A. Available on all. 3. Coverage C = personal property/contents. limit purchased separately. available on all. 4. Coverage D = Fair Rental Value. 10% of A. Available on all. 5. Coverage E = additional living expenses. 10% of A. Available on DP-2 & DP-3. Added by endorsement on DP-1. **D and E are indirect loss coverages

Types of Losses

1. Direct Loss: actual monetary loss caused by the physical damage of tangible property (ALWAYS pay a deductible on a direct loss) 2. Indirect (Consequential) Loss: consequence of a direct loss; loss of revenues/extra expenses that result from a direct loss (NEVER pay a deductible on a direct loss)

SFP Provisions

1. Friendly/Hostile Fire 2. Cancellations of Policies 3. Mortgagee Rights 4. Pro-Rata Liability 5. Concealment & Fraud 6. Legal Action (cannot happen after 3 years) 7. Subrogation 8. Abandonment Clause (cannot abandon property in order to claim total loss) 9. Inception & Expiration (12:01 AM)

Agents Duties to the Insurance Company

1. Loyalty 2. Obedience 3. Use of Reasonable Care 4. Accurate Accounting 5. Communication of info held by the agent to the company

Unfair Trade Practices

1. Misrepresentation of false advertising of Policies, including misrepresentation of Benefits (TWISTING) 2. Defamation 3. Boycotting, Coercion, and Intimidation 4. False Financial Statements 5. Unfair Discrimination 6. Rebating 7. Misuse of Confidential Information ** Commissioner may issue a Cease and Desist order to bring these practices to a halt

Elements of Contracts (General)

1. Offer and Acceptance (Agreement): offer proposed by insured, accepted by insurer 2. Consideration: exchange of something of value by both parties; also includes info provided by an applicant 3. Legal Object: must fulfill a legal purpose 4. Competent Parties: both parties must be legally competent

SFP: Duties of the Insured

1. Submit a signed statement of loss (proof of loss) WITHIN 60 DAYS from the date of the company's request (will otherwise pay out to mortgage company) 2. Protect property from further damage, prompt notice of losses, allow the insurance company to inspect the property, cooperate in investigations