Risk Management & Insurance Final Exam UIowa

Objective risk

Objective Risks are measurable and can be improved by Loss Prevention & Loss Control

Subjective risk

Subjective Risk - A state of mind/worry. Improvement by discussion and understanding

What are the principles of when you must show insurable interest for property and life insurance?

Property - At the time of Loss

Life - At the time of Purchase

Define pure and speculative risk

Pure - Only Negative Results

Speculative - Positive or Negative Results

What are the reasons for internal policy Sub Limits?

To provide limited coverage, and require scheduling of higher limits or insuring elsewhere

What impact does an increased amount of exposure units have on the Expected Loss Value?

The larger the number of units, the closer the expected value will be to actual results, and a Lower Variance and Standard deviation

Define a Peril, A Hazard, and an Exposure

A Peril is what causes damage - Wind, Fire, collision, hail

A Hazard is a physical condition that increases the chance of an accident/event - Icy roads, poor maintenance, dying tree near your house

Exposure - The item subject to possible damage - House, car, people

What are the key elements to make risk insurable?

Must be identifiable

Must be measurable

Have a calculable chance of loss

Must be a large number of similar exposures

Losses must be Fortuitous - Unexpected and accidental

Not Catastrophic in nature

Have economically feasible premiums

Understand the difference between Maximum Possible and Maximum Probable Loss

Max Possible - Worst case possible - total of all assets destroyed - Not reduced by Loss Cont.

Max Probable - Most likely max loss considering loss control measures

Why are there Deductibles in policies

Provide incentive for insured to manage exposures/claims

Reduce insurance premiums

To eliminate small and expensive losses to adjust/settle

Understand Objective, Subjective, Systemic Risks

Objective Measurable & manageable

Subjective - State of mind - Talk it out

Systemic - Failure of an entire system _ Economic system - Housing Market Crash

Explain the Scope of Enterprise Risk Management

Enterprise Risk management assess all Risks, Objective, Subjective, Systemic, Financial, Strategic etc.

Define Misrepresentations and Concealments & their implications in insurance claims

Misrepresentation is a statement written or oral that is not the truth and you know better - May void policy & coverage

Concealment - Holding back information you know is important/material

What is Real Property?

Buildings

Machinery

Carports

Detached Garages

What are the methods of Identifying Risks?

Risk Analysis Check Lists

Physical Inspections

Flow Charts

Financial Statements

Historical Loss Data

Define Loss Prevention & Loss Control and give examples

Loss Prevention focused on Eliminating accidents/losses

Loss Control - Reduces the amount of losses that occur

What is the purpose of an "Other Insurance Clause' in an insurance policy?

To determine which insurance company will pay how much when two companies provide Coverage on the same exposure - Pro Rata or W\Excess of Loss - PRESERVES PRINCIPLE OF INDEMNITY

What are two types of Other Insurance Clause provisions for sharing claim costs

Pro Rata - % of Coverage a company has to total of all

Excess of Loss - One company pays its limits and the next company pays beyond up to their limits

Define Real Property

Structures attached to land - House, car port, detached garage, barn etc.

Crops

What is "Personal Injury"

Liable - making a False written statement

Slander - making a False statement

Understand the Principle of Res Ipsa Loquitor relevant to negligence

The incident/accident speaks for its-self - No need to prove negligence on the part of the other party

What duties does a property owner owe to?

Invitees - Greatest degree of care - Inspect and eliminate risks

Licensees - Warn others of unsafe conditions

Trespassers - Duty of slight care for visually obvious risks (No intentional intended injury)

Define Contributory & Comparative Negligence and understand how they impact recoveries between negligent parties

Contributory - One party may be exempt from financial consequences/negligence if they contributed to any degree of responsibility even 1%, or some modified 50 05 51% basis

Comparative restricts recovery for your % share of negligence/responsibility

Define Pure No-Fault Auto Ins. vs Modified No-Fault Auto Ins.

A system where fault/negligence is not a part of determining who pays for accidents. Each party insures them self

Do any States Currently have Pure No-Fault Auto Ins

There are No States who have Pure No Fault Auto Ins

Give Examples of a Modified No-Fault Auto Liability provision

No fault unless Serious Injury, Death or a Specified $ amount of damages

List the 5 Different Parts/Coverages of a PAP (Private Auto Ins. Policy)

Declaration Page

Insuring Agreement

Conditions

Definitions

Exclusions

Define two Methods of Risk Transfer

Insurance

Non-Insurance Contractual Risk Transfer

Avoiding Risk - No Transfer

Define the two methods of determining how much Life Ins. a person should buy

Human Life Value - Present Value of Breadwinners Future Earnings

Future Needs Value

Understand the differences between Whole Life Ins., Term Life Ins, Universal Life Ins. Policies

Whole Life _ Pay for your whole Life - Has a savings Cash Value

Term Life - Coverage for loss of life only, no cash value. Purchased for a determined length of time

Who are the Parties of a Life Ins. Policy?

Owner

Insured

Beneficiary

Contingent Beneficiary

Provide an overview over different managed care plans (HMO, PPO, POS, PSO), and what their functions are

Health Ins Co. cost containment systems. Agreements with Providers to provide care at discounted prices. HMO program that requires use of only the systems Doctors and Facilities.

PPN - Preferred Provider Network

PPO - Preferred Provider Organization

POS - Point of Service Programs

What are Punitive Damages - Are they insurable

Awards for cases to punish wrong doers for very serious and intention acts

State Laws addresses whether they are allowed in awards, and who gets the monies

Insurance policies with either Include, Exclude or Be Silent on the coverage of Punitive Damages

What are the measures of Objective Risks?

Expected Value

Variance

Standard Deviation

Coefficient of Variation

Understand the process of a Co-Insurance Clause in a Property Ins. Policy

Agreed amount of ins. to be carried by the insured. Penalty on partial losses if agreed amount was not purchased. % of amount Carried to the amount agreed to be carried is paid. No Penalty on Total Losses

What factors might cause a property insurance policy holder to unintentionally become a coinsurer?

During the policy period , or from year to policy year:

Property Valuer Inflation

Purchase of new locations

Built new buildings

Increased inventory

What is Self-Insurance, and how does it work?

Company assumes losses and pays for them out of their cash reserves

Can be Funded or Unfunded

Can be Planned or Unintentional

Define Risk

Uncertainty concerning the occurrence of a loss

Understand risk Control measures - Separation, Duplication

Separation - Keeping things a distance apart

Duplication - Multiple sources of ingredients, parts, services

What does an Insurance Contract of "Adhesion" mean to an Insurer & Insured?

Contract drafted by one party who has full control and other party must accept or reject. Drafting party (Ins. Co) held legally responsible for any ambiguities

What does an Insurance Policy Contract type Aleatory mean

Values between parties are not equal

Distinguish between Loss Prevention & Loss Control. Give Examples.

Prevention - Safety Guards on machinery and cat walks

Control - Smoke & Fire Alarm - Fire Sprinkler Protection - Hard Hats

What are typical endorsements available in Homeowner's Insurance policies?

Earth Quake Coverage

Building and or Personal Property Replacement Cost Coverage

Personal Injury Coverage

Watercraft coverage

Identity Theft

Home Business Coverage

What types of vehicles are insured under a standard Personal Auto Policy (PAP)?

4 Wheeled autos, pickups, Trucks with gross vehicle weight under 10,000 lbs. Vans, SUVs not used for business purposes- Not Motorcycles

Can Insurance Agents Bind (make effective) insurance coverages

Property & Casualty Agents - Yes

Life & Health Insurance Agents - No

Brokers - No

Which type of Insurance Agent owns and Controls their book of business?

Independent Insurance Agent/Agency - Yes

Broker - No

Exclusive Agent - No

What are the Exclusions in an auto liability policy?

Intentional injury

Property owned or Transported

Property rented, used, or in others use

Used as a public livery conveyance

Vehicles used in auto racing

Vehicles used in any business

Understand Contractual - Hold Harmless, Indemnification, and Waiver of Subrogation Agreements

Holding another party financially free from damages that they may otherwise be responsible for.

Indemnifying, reimbursing another party for losses they paid that should have been paid by the other,

Waiver- Giving up a right to subrogate, recover costs from the wrongful party.

What is "Gap" Insurance & How does it work?

Pays for the difference between car insurance total settlement and the loan outstanding on the car.

What are the Exclusions under a PAP, auto insurance policy, in the Medical Payments coverage section?

Injuries sustained:

While occupying a vehicle with fewer than four wheels

While operating the vehicle as a public or livery conveyance

When the vehicle is used as a residence

When using the vehicle during the course of employment, or for business

When the vehicle is used without a reasonable belief of permission

When injuries are from a nuclear weapon or war

When the vehicle is competing in a race

Define the different Contract Types

Aleatory - Values exchanged are not equal

Unilateral - only the insurer makes a legally enforceable promise

Conditional - policy owner must comply with all policy provisions to collect for a covered loss

Personal - Property insurance policy cannot be validly assigned to another party without the insurer's consent

Contract of Adhesion - The insured must accept the entire contract with all of its terms and conditions

What is Uninsured Motorist coverage in an auto policy and what does it cover?

Covers bodily injury costs that you have from a motorist who hits you and does not have insurance.

Why would the auto insurance premiums be lower if a State had No-Fault statutory provisions?

No Fault finding, No Attorneys, No extra pain & exaggerated claims. Insureds will be more careful.

Who are insured on a PAP auto insurance policy?

You, policy owner, Spouse, Children and others living in your house.

Who are considered insureds for the Uninsured motorist coverage section of an auto insurance policy?

The named insured, spouse resident children - Family members

Another person while occupying a covered auto

Any person legally entitled to recover damages

Explain the insurance structures for Whole Life Insurance vs Term Life insurance.

Whole Lifer time - Cash value, savings component - Level premiums

Designated period of time - Pure Life protection only - Premiums increase over time.

What happens to the premiums of a 1-year term life insurance policies as you renew each year?

Premiums go up as you are closer to the age of mortality.

What types of Beneficiaries are there in a Life Ins. policy, and what are their rights, obligations, and benefits?

Primary

Contingent

Revocable

Un-revocable

Who are the parties to a Life Insurance Policy?

Insurance Company

Owner

Insured

Beneficiaries

Disability Insurance protects an insured's loss of income. Explain Short Term & Long-Term Disability insurance and how they work.

Short term - 30 - 60 - 90 or 26 weeks of coverage time

Long term after short term expires.

Are Disability Insurance claims subject to a deductible?

Yes in the form of a waiting period before benefits are paid (a form of deductible)

Distinguish between collision and loss other than collision

Collision - running in to something

Other - Fire, Hail Vandalism, windshield breakage, Striking an animal

Insurance Policies Warranties are

Promissory

Implied or Expressed

Conditional for Coverage to apply

Apply the coverages of a PAP to a given accident situation (cases!)

See Auto Scenarios

Identify the 4 Major Types of Insurance Companies & Compare their Attributes Refer to Chapter 5 and Chapter 5 Supplement Types of Insurance Lecture Slides

Pay specific attention to the Individual Company Charts

Stock

Objective: earn profit for stockholders by increasing the value of stock and paying dividends

Ownership: stockholders

Stockholders bear all losses

Stockholders elect board of directors

They cannot issue an assessable policy

No. Taxable stockholder dividends paid.

Mutual

Objective: non-profit (not charitable): minimum cost to policyholders

Ownership: policyholders

Policyholders bear all losses

Policy owners elect board of directors

Larger mutuals have the right to assess - can assess policy holders an additional amount if the insurers financial operations are unfavorable

Policyholders may receive dividends or rate reductions, by return of excess premium when declared; not taxable

Reciprocal exchange (risk retention group)

Objective: minimum cost insurance

Ownership: insurance is exchanged among the members (subscribers). It is managed by an attorney-in-fact

Subscribers bear all losses

There is no board of directors

There are rights of additional premium assessments

Dividends are paid and they are not taxable

Lloyds of London

Objective: profit

Ownership: associate (syndicate) of individual underwriters (names/investors)

Each investor is individually liable for losses

No board of directors

There are not rights of additional premium assessments

There are no participating dividends paid

What are the typical Exclusions on a Homeowners Insurance Policy?

Aircraft

Intentional Acts

Professional Services

War

Communicable Diseases