Unit 1 Vocab and Core Content

Define Insurance

A contract that transfers the risk of financial loss from an individual or business to an insurer

Define Risk

uncertainty about whether loss will occur. If loss is certain to occur, it is not risk

Define Loss

The reduction of value in an asset

Define Exposure

The risk assumed by the insurer and the amount the insurer is responsible to pay at any given time 

Define Peril

The cause of loss; like lightning and fires

Define Hazard

Anything that may increase the likeliness of loss. Hazards do not cause loss

Define Adverse Selection

the tendency for higher risk people to buy insurance more than individuals that have lower risk. 

Define Reinsurance

Insurance for an insurance company or insurer

Define Facultative Reinsurance

When the reinsurer considers all the factors before assuming a risk with the ceding insurer.  

Define Treaty Reinsurance

The reinsurance accepts all risks of a certain type from the ceding company. 

Define Stock Insurance

Insurance ran by stockholders/shareholders

Define Non-participating Policies

Policies issued by stock insurers to distinguish them from participating policies issued by mutual insurers. 

Define Mutual Insurers

Insurance that is ran by the actual policy holders/policy owners

What are participating/par policies

another name for mutual policies

Define Reciprocal Insurers

Unincorporated groups of people that agree under contract to insure another should loss happen. These members are called subscribers.  

Define Risk Retention Groups (RRGs)

Liability insurance company created for policy holders from the same industry. For example: Car Dealer RRG. Only Car dealers can get a premium here.  

Lloyd Associations

A hub containing information for member underwriters. So when an underwriter needs to research a person that may be high risk, they can be in Lloyd Association and they will give  all the details 

Define Self-insurance/insurer

Retaining risks instead of transferring risks. Businesses that practice self-insurance set aside money in a savings to pay for any future loss. They will often contract with an insurance company to manage day to day operation of business.  

What is a Certificate of Authroity

License to sell for an insurance company. When a company has this, it is said they are admitted or authorized. Insurance companies who are not licensed, they are called nonapproved, non-admitted, non-authorized

Define surplus lines insurance

Insurance sold by unauthorized insurance companies that cover people in situations that are typically considered  exceptionally large or specialized risk. Like a skydiver wanting skydiving insurance. 

What is direct response marketing?

There are no agents. The company just advertises their product, and the public comes and buys.  The insurer sells to them directly 

Define agency

a relationship in which one person is authorized to represent and act for another person or corporation. The person in which the agent represents is the principal. In insurance, the insurance company is the principal, and its agents are the agent. 

Define Personal Contracts

Contracts that cannot be assigned to anyone else. Examples would be home and auto insurance.  

Define indemnity

To restore a person to their previous financial state.  

Define Representation

a statement believed to be true to the best of one's knowledge at the time it was given 

Define Misrepresentation

a representation that is actually false.  

Define Warranty

a statement guaranteed to be true. 

Define Concealment

Intentionally not disclosing facts  

Define Fraud

an intentional act designed to deceive and gain something of value from the other party.  

Define Waiver

the intentional and voluntary giving up of a known right.

Define Estoppel

a legal doctrine that prevents a party from denying an action if it had been accepted previously.  

Define independent insurance agents

Individuals that sell insurance products of several companies and are independent contractors, not employees of the insurers

Define exclusive / captive agents

Represent only one company. These agents are sometimes referred to as career agents. They are independent contractors not employees of the insurer

Define general agents/managing general agents

Higher, train, and supervise other agents within a specific geographical area.

Define direct writing companies

Usually pay salaries to employees whose job function is to sell the company's insurance products from a company office. This type of producer is not usually paid a commission in the insurer owns all of the business produced

Define Express authority

The authority made explicit in a producers written agreement

Define implied authority

Is not written in the agency contract but it is assumed to be granted to an agent in accordance with general business practices

Define apparent authority

Authority that others believe the agent has

What are the elements of a legal contract and what is the acronym

Consideration, offer, legality, acceptance, and competent parties COLAC

When it comes to making a legal contract, if an applicant sends an application in with money attached to it, is this considered an offer?

Yes.

If an insurance company declines an application, according to legal contracts, is this considered acceptance? Why or why not

Yes. Because the offer was acknowledged and an answer was given.

Insurance policies are aleatory. What does that mean?

It means the value received from each party may not be equal

Insurance is a contract of utmost good faith. What does that mean?

It means each party has reasonable expectation that the other party will hold up their end of the deal and will disclose important information

Insurance policies are conditional. What does that mean?

Meaning they require certain conditions to be met before they can be in effect

Insurance contracts are unilateral. What does that mean?

Means only one party has to perform by law. Insurance policies must always uphold their end of the bargain

Insurance contracts are that of indemnity. What does that mean?

It means they restore an individual back to its previous financial state

In order for a contract be void, it has to have what type of misrepresentation. Give an example

Material misrepresentation. An example would be Mike saying he is not being treated for his heart, when Mike is actually being treated for his heart

For property and casualty insurance what can cause avoidance of contract? Give an example

A breach and warranty. An example would be someone warrantying the insurer that they will hire a security guard for their property but not doing so.

Fraud can cause a void of contract if it is what? Give an example

Intentional. An example would be lying on your application to get insurance. However omitting something on your application that you may be embarrassed about is different and does not call for voidance

Embezzling or misappropriating funds can get an agent how many years in prison?

10 years

Falsifying statements which in turn jeopardizes the safety of an insurer and is the main reason they got in conservation, rehabilitation, or liquidation in court can earn a agent how many years in prison

10 years

A person who gives out insurance that makes false material statements about financial reports or documents presented to insurance regulators can get a fine and imprisonment of how many years?

10 years

What are the two types of risk and give an example for each

Speculative risk (loss and gain can happen) and pure risk (there is only loss that can happen)

An ex of speculative risk is gambling and an example of pure risk is a car accident.

Insurance only cover what type of risk?

Pure Risk

What are the three types of hazards?

Physical, moral, morale

What is the acronym for handling risk?

STARR

For handling risk, using the STARR acronym, what does each letter stand for?

Sharing, transfer, avoidance, reduction, retention

What are the elements to a risk that must be present in order for it to be insurable. What is the acronym?

CANHAM: calculable, affordable, non-catastrophic, homogeneous, accidental, measurable

Prophets from a stock insurer company may be distributed to the stockholders as what?

Dividends

In reciprocal insurance who handles the administration, underwriting, sales promotions, and claims for the insurers? for the insurers?

An attorney in fact

What types of benefits does government insurance give out on a federal level?

Social security, Military life, federal employee compensation, and some retirement plans

What types of benefits does the government give out on a state level?

Unemployment, workers compensation, disability, and medical insurance for the needy

Explain the difference between domestic, foreign, and alien insurance.

Domestic insurance is when the insurance company sells in the state it was incorporated. Foreign insurance is when the insurance company sells in a state other than the state it was incorporated in. Alien insurance is when the insurance company sells outside of the USA

When it comes to selling insurance, who do brokers legally represent?

The insured

When it comes to selling insurance who does the agent represent?

The insurer