Unit 3 Cram Sheet

3 Things property insurance covers

Buildings (real property) and personal property

Loss caused by a covered peril

First party losses (the insured)

What does casualty insurance cover

Third party losses. Injury or property damage to others caused by the insured’s negligence

What is the acronym for the sections of an insurance policy

DICEE

What are the 5 sections of an insurance policy

Declarations

Insuring Agreements

Conditions

Endorsement

Exclusions

Declarations

Who, what, when, where, and how much (coverage levels)

Insuring Agreements

Promise to pay and perils covered

Conditions

Rules for the policy that both sides must follow

Endorsements

Changes made to the additional policy (additions or subtractions)

Exclusions

What the policy does not cover

Additional / Supplementary Coverage

Payment for additional expenses not normally covered

*Might have a separate limit than the main policy limit

Named Insured

The person, business, or entity named in the declarations page when there are no other parties

First-named insured

The insured listed first on the declarations page that has higher duties or rights (when there are multiple named insureds)

Insured by definition

Additional people, businesses, entities, etc that are insured but not specifically named in the declarations

Additional Insured

Individual or business that is added by endorsement

Policy Period

When the policy begins (inception or effective date) and ends (expiration)

Policy Territory

Where a loss must occur to be covered

*Mexico is not usually covered

Cancellation by Insured

Does not require advance notice and can be done at any time

Will receive partial refund of unearned premium on a short rate basis

Cancellation by the insurer

Requires advance notice and good reason to cancel such as unpaid premiums or fraud

Insured receives full refund of unearned premium on a pro rata basis

Nonrenewal

Occurs at the expiration date

Company must be advance notice, but insured does not have to give advance notice if they choose not to renew

Deductible

The amount of the loss paid by the insured; higher deductible will lower the premium

3 types of a”Other insurance provision” - when insured has multiple policies covering the same loss

Primary/Excess - 1st policy pays up to its limit and 2nd pays excess

Equal Shares - Each policy pays an equal amount of loss

Pro Rata - Each policy pays its share of loss according to the shares of your total insurance they have

6 named insured duties after a loss acronym

PPC-MSC

Insured duties after loss

Prompt notice to insurer

Protect property from further damage

Complete proof of loss

Make property available for inspection

Submit to examination under oath if required

Cooperate with insurer

Assignment Clause

A policy cannot be transferred to another person without written consent from the insurer

Abandonment Clause

Insured cannot abandon property that can be repaired and expect to be paid as if the loss was a total loss

Salvage

Right of the insurer only. The insurer will take possession of damaged property, give insured total loss payment, and sell parts rather than pay to repair the item

Liberalization

Insurance company adds additional coverage that is added too all policies of the same type so does not require additional premium or action by the insured

Subrogation

Insurer has the right to sue an at-fault party for damages the insurer had to pay the insured; gives them the power to collect from the negligent party

Insurable Interest

Someone who has a financial risk of loss in the insured property. Must be present at time of loss to collect loss payment

Underwriting

The process of analyzing information to evaluating a risk and decide if a policy will or will not be issued

Application

The primary source of underwriting information. Others include credit scores, previous insurers, and government bureaus

Binder

Temporary proof of coverage verbal or in writing. Can be cancelled so does not guarantee policy issuance. Automatically ends if actual policy is issued by the underwriter

3 financial ratios

Loss ratios, expense ratio, and combined ratio

Loss Ratio

Losses / Premiums → used to compare company’s operation over the years

Expenses Ratio

Underwriting expenses / written premiums → shows the cost of doing business

Combined ratio

Loss plus expense ratio

Break even point of 100%; under is underwriting gain and over is a loss

3 ways to rate a risk

Judgement, manual, and experience rating

Judgement Rating

No set rates, based on underwriter’s experience

Manual Rating

Set rates for specific risk classes

Experience rating

Rate is based on insured’s claim history

How to find the premium

Rate * insurable units

Loss Costs

Pure claims data. Does not include operating expenses or profits

Rate Components

Loss costs

Claims handling costs

Operating expenses

Profit

Fair Credit Reporting Act (FCRA)

Requires reporting agencies to adopt reasonable procedures for exchanging info

Notice must be given to applicant within 3 days of report being requested

Max penalty of $5000, 1 year In prison, or both

Terrorism Risk Insurance Program Reauthorization Act of 2019

Enacted in 2002 after 9/11. Government shares in losses to commercial property due to terrorism. Triggers at $200 Million and limited out at $1 Billion per year

Gramm-Leach-Bliley Act

Protects the confidentiality of personal information. Requires the opportunity to opt out being offered annually

Consumer under the Gramm Act

Anyone about whom information is collected

Customer under the Gramm Act

Someone who has an ongoing relationship with a financial institution

Fraud → False statements

Illegal - if guilty receive fine and/or up to 10 years in prison

*If fraud jeopardizes insurer, its up to 15 years in prison