RM 377 EXAM 2

respondent superior

a Latin phrase referring to the doctrine that the master is responsible for the actions taken by his or her servant during duty

captive insurance company

a company that provides insurance coverage to its parent company and other affiliated organizations

disappearing deductible

a deductible whose amount decreases as the amount of loss increases

risk retention group

a group that provides risk management and retention to a few players in the same industry who are too small to act on their own

mass

a major requirement for insurability is mass; that is, there must be large numbers of exposure units involved. For automobile insurance, there must be a large number of automobiles to insure.

fortuitous

a matter of chance

consequential or indirect losses

a nonphysical loss such as loss of business

licensee

a person who enters premises with permission but (1) not for the commercial benefit of the person in possession, or (2) without a reasonable expectation that the premises have been made safe (an invited party goer, a meter reader)

trespasser

a person who enters the premises of another without either express or implied permission from a person with the right to give permission

invitee

a person who enters the premises with permission and for the benefit of the person in possession (customer or anyone entering store)

insurance

a social device in which a group of individuals transfer risk to another party in such a way that the third party combines or pools all the risk exposures together

conditional binder

agreement that implies that coverage exists only if the underwriter ultimately accepts (or would have accepted) the application for insurance

application

an offer to buy insurance

producer

another name for both agents and brokers

attractive nuisance

anything that is (1) artificial, (2) attractive to small children and (3) potentially harmful

law of large numbers

as a sample of observations in increased in size, the relative variation about the mean declines

binding authority

authority that secures (binds) coverage for an insured without any additional input from the insurer

discriminate

classify exposures according to similar characteristics and expected losses

other insurance provisions

clauses in insurance contracts is to prevent insureds from making a profit by collecting from more than one insurance policy for the same loss

excess and surplus lines insurance

companies that provide coverage that are not available from licensed insurers

physical property

consists of real or personal property

legal form

contracts must follow a specific legal form, or appropriate language. legal form may vary from state to state

incomplete contracts

contracts that contain terms that are implicit rather than explicit

valued policies

contracts to pay a stated sum upon the occurrence of the event insured against, rather than to indemnify for loss sustained

relational contracts

contracts whose provisions are dynamic with respect to the environment in which they are executed

insurance contract (or policy)

document received when one transfer risks to the insurance company; is the only physical product received at the time of the transaction

insurable interest

financial interest in life or property that is subject to loss

viatical-settlement companies

firms that buy life insurance policies from persons with short life expectancies

life-settlement companies

firms that buy life insurance policies from senior citizens for a percent of the value of the death benefits

hazardous waste

increasingly important area of potential liability comes from the possibility that land may be polluted, requiring cleanup and/or compensation to the parties injured by the pollution

replacement cost

indemnification for a property loss with no deduction for depreciation

compliance officer

individual charged with overseeing all sales materials and ensuring compliance with regulations and ethics

insured

individual or entity who transfers risk to a third party

principal

individual who creates an agency relationship with a second party by authorizing him or her to make contracts with third parties (policyholders) on the principal's behalf

agent

individual who is authorized to make contracts with a third party

competent parties

individuals of undiminished mental capacity

janitor's insurance

inexpensive life insurance coverage

group insurance

insurance provided by the employer for the benefit of employees or other groups that are created for reasons other than insurance

life/health insurance

insurance that covers exposures to the perils of death, medical expenses, disability and old age

property/casualty

insurance that covers property exposures such as direct and indirect losses of property caused by perils such as fire, windstorm, and theft

personal insurance

insurance that is purchased by individuals and families for their risk needs, such insurance includes life, health, disability, auto, homeowner, and long-term care

stock insurers

insurers created for the purpose of making profit and maximizing the value of the organization for the benefit of the owners

mutual insurers

insurers owned and controlled, in theory if not in practice, by their policyowners

personal

insuring against loss to a person, not to the person's property

concealment

intentionally withholding a material fact. the insurer has the right to void that contract

law of agency

law that deals basically with the legal consequences of people acting on behalf of other people or organizations

catastrophic loss

loss that could imperil the insurer's solvency

business interruption

losses that occur when an organization is unable to sell its goods or services and/or unable to produce goods for sale because of direct or indirect loss

legal purpose

not be fore the performance of an activity prohibited by law

premium

payment the insurer receives in exchange for accepting or transferring a risk from the insured

real property

permanent structures (realty) that if removed would alter the functioning of the property

personal property

physical property that is mobile (not permanently attached to something else)

corporate-owned life insurance (COLI)

policies in which employers own life insurance policies on employees

vanishing premiums policy

policies that policyholders were led to believe would be paid in full after a certain period, and they would no longer have to make premium payments

open-perils policy

policy that covers losses caused by all perils except those excluded

named-perils policy

policy that covers only losses caused by the perils listed in the policy

conditional receipt

policy that does not bind the coverage of life insurance at the time it is issued, but does put the coverage into effect retroactive to the time of application if one meets all the requirements for insurability as of the date of the application

binding receipt

policy that will be paid if death occurs while one's application for life insurance is being processed, even if the deceased is found not to be insurable

governmental risk pools

pools formed for governmental entities to provide group self-insurance coverage

policyowners' dividends

profits shared by insurance policyholders or stockholders

commercial insurance

property/casualty insurance for businesses and other organizations

straight deductible

requires payment for all losses less than a specified dollar amount

global risk

risks that cross borders and have the potential to affect everyone, include all political, economic, cultural, technological, and environmental risks

risk pooling

sharing of losses by a large number of exposure units, or gathering similar risk exposure into one group

franchise deductible

similar to a straight deductible, except that once the amount of loss equals the deductible, the entire loss is paid in full

adverse selection

situation in which a buyer knows information that a seller does not. in insurance adverse selection occurs when insurance is purchased more often by people and/or organizations with higher-than-average expected losses and the premiums charged do not reflect that these are higher risk people in the pool

contracts of adhesion

situation in which insureds have no input in the design of a policy's terms. take it or leave it contracts

subrogation

situation that gives the insurer whatever claim against third parties the insured may have as a result of the loss for which the insurer paid

estoppel

situation that occurs when the insurer or its agent has led the insured into believing that coverage exists, and consequently, it means that the insurer cannot later claim that no coverage existed

representations

statements concerning an insured's risk exposures

binder

temporary contract to provide coverage until the policy is issued

binder

the agreement that exists before a contract is issued

fair market value

the amount a willing buyer would pay a willing seller

perils

the causes of loss

material facts

the company taking over the risk in the reinsurance arrangement

expectations principle

the event of a dispute, courts will read insurance policies as they would expect the insured to do

similarity

the exposure to be insured and those observed for calculating the probability distributions must have similarities. the exposures assumed by insurers are not identical, no matter how carefully they may be selected. nevertheless, the units in a group must be reasonably similar in characteristics if predictions about losses are to be accurate

apparent authority

the implied authority of the agent to fulfill the principal's responsibilities

indemnity

the insurer agrees to pay no more (and no less) than the actual loss suffered by the insured

insurer assumes risk

the insurer promises to pay whatever loss may occur as long as it fits the description given in the policy and is not larger than the amount of insurance sold

waiver

the intentional relinquishment of a know right

insurer

the party that accepts the risk transferred by insureds

consideration

the price each party demands for agreeing to carry out his or her part of the contract

offer and acceptance

the process of two parties entering into a contract

actual cash value

the replacement cost of the time of the loss, less physical depreciation including obsolescence

global economic risks

the risk that economic events in one country or region could disrupt the economy in another country or even worldwide, ex. fiscal crisis, banking failures, asset bubbles, etc.

geopolitical risks

the risk that events or actions in one country (or region) could influence political or social policy or events in another country or region, include political and economic risks as well as war, terrorist attacks, and weapons of mass destruction

direct loss

the value of property that is physically destroyed or damaged, not including the loss caused by inability to use the property

uberrimae fidei

utmost good faith- potential insureds are held to the highest standards of truthfulness and honesty in providing information to the underwriter or potential insureds are held to the highest standards of truthfulness and honesty in providing information to the underwriter

dependent loss

when loss to one exposure unit affects the probability of loss to another

economically feasible

when the size of the possible loss must be significant to the insured and the cost of insurance must be small compared with the potential loss