Property and Liability Insurance Exam 2 Review

Blanket Insurance

Provides one amount of insurance on more than one type of property or property at more than one location.

Insurance to Value

Required for rate adequacy and equity.

PML (Probable Maximum Loss)

An estimate of the largest physical or financial loss that an insurer, property owner, or portfolio manager can reasonably expect from a single catastrophic event.

Quotient (used in business income insurance)

PML / Coinsurance Basis

Dependency Exposure

Business income loss created by dependency on other businesses.

Continuing Expenses

Not all expenses will continue during a period of interruption, so you must decide which normal expenses will continue or not in the event of a shutdown of a particular length.

Extra Expenses

Additional expenses incurred to mitigate the effects of a business interruption.

Extended Business Income (additional coverage in BIC)

Covers your loss of income after your physical property is repaired and your business officially reopens.

Loss Development Factor

Adjusts past losses for late-reported claims and future increases in reported claims

Trend Factor (used in loss forecasting)

Used to restate past losses in dollar terms for the year being forecast.

Basic Form

Covers 11 perils.

Broad Form

Covers the same 11 perils as the basic form plus 4 additional perils (15 total).

Special Form

No list of perils, so it covers anything as long as it is not explicitly excluded or limited by the policy.

Torts

A civil wrong that causes harm, injury, or loss to another person or their property. Elements of a tort include a legally protected right, a wrongful invasion of that right, and damages as a proximate, or direct, result of that invasion.

Vicarious Liability

A legal doctrine where one party is held financially and legally responsible for the wrongful, negligent, or damaging actions of another party due to a specific relationship.

Statutes

Laws passed by a legislature that create or change legal liability.

Intentional Tort

A civil wrong that happens when a person deliberately acts with the specific intent to cause harm. Examples include assault, battery, false imprisonment, and arrest.

Strict Liability Tort

Torts imposed regardless of negligence or intention. Examples include abnormally dangerous instrumentalities, ultrahazardous activities, and the sale of dangerously defective products.

Defamation

A false statement communicated about a person or business that harms their reputation.

Libel

The publication of a false written or printed statement that harms the reputation of a person or business.

Special Damage

Measurable, out-of-pocket financial losses that can be proven with exact bills, receipts, or estimates.

General Damage

Subjective, intangible harms that naturally follow from an injury or loss but do not have an inherent price tag.

Punitive Damage

To punish the defendant, to teach the defendant a lesson, or deter others from engaging in the same kind of conduct.

Two alternatives to coinsurance in BPP

(1) Agreed Value; (2) Flat Insurance

Agreed Value (BPP)

The insurer agrees to suspend the coinsurance clause on a year-by-year basis with the objective of preventing a coinsurance penalty from an unintended deficiency in the amount of insurance relative to the coinsurance requirement.

Flat Insurance (BPP)

Has no coinsurance requirement at all, and rates are higher than the coinsurance rate.

Three alternatives to coinsurance in BIC

(1) Maximum Period of Indemnity; (2) Monthly Limit of Indemnity; (3) Agreed Value

Maximum Period of Indemnity (BIC)

For an organization that is unlikely to sustain a business interruption of more than four months. They pay whatever business income loss is sustained up to 120 days.

Monthly Limit of Indemnity (BIC)

The amount payable has limits in any 30-day period, the entire period of interruption, and no limit on the number of months.

Agreed Value (BIC)

The coinsurance clause is suspended.

Four elements of negligence

(1) Legal duty owed; (2) Breach of the legal duty; (3) Actual damages to the plaintiff; (4) A proximate or close causal connection

Negligence element: Legal Duty Owed

The defendant must have had a legal obligation to act, or not act, in a way that protects the plaintiff from unreasonable risk of harm.

Negligence element: Breach of the Legal Duty

The defendant failed to meet that standard of care, either by doing something a reasonable person wouldn't do or by failing to do something a reasonable person would.

Negligence element: Actual Damages (Plaintiff)

The plaintiff must have suffered real, measurable harm, such as bodily injury, property damage, or financial loss.

Negligence element: Proximate or Close Causal Connection

The breach must be the direct, uninterrupted cause of the plaintiff's harm, without which the harm would not have happened.

Three main bases for imposing legal liability

(1) Tort; (2) Contract; (3) Statute

Contract

a legally enforceable agreement from which liability can come

Period of Restoration (BIC)

The time frame during which business income and extra expense coverage apply following a physical loss to insured property. It begins 72 hours after the physical loss for business income coverage, or immediately after the loss for extra expense coverage. It ends at the earlier of the date the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality, or the date business is resumed.

Four steps in the loss forecasting model

(1) Collect and organize past data; (2) Limit individual losses; (3) Apply loss development and trend factors; (4) Forecast losses

Loss forecasting step 1: Collect and organize past data

Gather past loss data that is complete, consistent, relevant, and organized.

Loss forecasting step 2: Limit individual losses

Apply constraints to individual loss amounts to manage outliers and extreme values in the dataset.

Loss forecasting step 3: Apply loss development and trend factors

Adjust the historical loss data using loss development factors to account for claims that develop over time, and use trend factors to reflect changes in loss patterns over time.

Loss forecasting step 4: Forecast losses

Use the adjusted and organized data to project future losses based on the patterns and trends identified in the previous step.