properties- unit 1

Risk

the possibility that a loss will occur

Insurance

The transfer of risk from a person or a business to an insurer

speculative

have the possibility of a loss and also gain; not insurable

Pure

The possibility of experiencing only a loss is insured.

Exposure

Risks for which the insurance company would be liable

Peril

The cause of a loss: fire, accident, flood

Direct Loss

physical loss; fire would be a

Indirect Loss/Consequential Loss

occurs as a consequence of the direct loss; fire would be a direct loss; loss of rental dollars due to fire would be the indirect loss

Hazard

increases the chances of a loss

Moral Hazard

Dishonesty

Morale Hazard

carelessness

STARR: Sharing

two or more individuals or businesses agree to pay a portion of any loss incurred by any member of the group

STARR: Transfer

It is insurance. The insurer agrees to pay if an insured has a loss

STARR: Avoidance

eliminating a particular risk by not engaging in a certain activity

STARR: Retention

The individual or business will pay for the loss if it occurs, or a portion of the loss via a deductible

STARR: Reduction

lessening the chance that a loss will occur, or lessening the extent of a loss if it occurs

Contract Policy

an agreement between the insured and the insurer

First Party

insured (customer)

Second Party

insurer( insurance company)

Law of Large Numbers

the larger the number of people with a similar exposure to loss, the more predictable actual losses will be

CANHAM: Calculable

Premiums must be calculable based upon prior loss statistics for that particular risk in order to predict future losses.

CANHAM: Affordable

The premium for transferring the risk should be affordable for the average consumer.

CANHAM: Non-Catastrophic

The risk of loss should not be so large that it could bankrupt the insurance company

CANHAM: Homogeneous

The risk must be similar in nature so the same factors affect the chance of loss.

CANHAM: Accidental

The loss must have been caused by chance. Intentional losses caused by the insured are not covered by insurance.

CANHAM: Measurable

It must be possible to estimate the loss as a dollar amount.

Reinsurance

An insurance Company's insurance company. Helps insurers spread their risk.

Facultative Reinsurance

The reinsurer considers each risk before allowing the transfer from the ceding company

Treaty Reinsurance

the reinsurer accepts all risks of a certain type from the ceding company

Reciprocal Insurer

This is an unincorporated organization in which all members insure one another. An attorney-in-fact manages it.

Lloyd's Association

insurance provided by individual underwriters not companies

Risk Retention Group

A liability insurance company owned by its members, which are exposed to similar liability risks by virtue of being in the same business or industry. (only car dealers can be car policy holders)

Risk Purchasing Group

a group of businesses from the same industry joining together to buy liability insurance from an insurance company. And is not the insurance company

Self-Insurers

establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company

Private vs. Government Insurers

The government can provide insurance that is not ordinarily available from private insurers ▬Federal programs:-War risk insurance-Nuclear energy liability insurance-Flood insurance-federal crop insurance▬State Programs:-Unemployment insurance-Worker's compensation benefits

domestic

the state where a company is

foreign

company is in another state or U.S. territory

Alien

a company outside U.S

Certificate of Authority

state license for an insurance company

Authorized

having official permission or approval

unauthorized

not having official permission or approval

Surplus Lines

- Insurance sold by unauthorized/nonadmitted insurers; if on the state's approved list of surplus insurers

- Can only be sold to certain high risk insureds

- Cannot be sold solely for a cheaper rate than licensed/admitted insurers

Financial Strength Rating

a report card of the company

independent insurance agents

sell the insurance products of several companies and work for themselves or other agents

Captive agents

Work for only one insurer

General agents (GAs) or managing general agents (MGAs)

hire, train, and supervise other agents in their area

Direct Writing Companies

Companies whose products are sold by employees, not independent contractors.

direct response

No Agent/Producer Involved; Direct mail, magazines, television, internet, and radio advertisements

agency

the ability to think, act, and make choices independently

agent

a person who acts or does business for another

principal

the person on whose behalf the agent acts

Express Authority

The authority granted to an agent by means of the agent's written contract.

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

Apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Fiduciary

a person who holds assets in trust for a beneficiary

Commingling

Illegally mixing deposits or monies, collected from a client, with one's personal or business account.

Suitability considerations

An agent has a responsibility to make purchase recommendations that are appropriate, or suitable, in light of a client's particular needs, objectives, and circumstances