ALL CH 1 TEXTBOOK QS

4 ways to deal with risk

Risk Avoidance

Risk Reduction/Control

Risk Retention

Risk Transfer

most practical way for dealing with risk

Risk transfer, achieved through insurance

5 elements required in all contracts

Agreement

Consideration

Legal Capacity

Legality of Object & Purpose

Genuine Intention

Which is not permitted to enter a contract

Trade Names

3 additional elements of insurance contracts

Utmost Good Faith

Indemnity

Insurable Interest

3 duties owed by brokers to INSUREDS

Careful and prompt attention to instructions

Expert advice

Competitive pricing on products

2 duties owed by brokers to INSURERS

Collection of premiums

Passing on of relevant information obtained

Point in time used by insurers to measure the amount of indemnity to be paid by the policy

Measured by the value of the insured property as it existed immediately prior to the less

Where the broker obtains the authority to bind an insurer on a risk

Agency Agreement

What should a broker do who has provided an oral binder on a risk

Should be immediately confirmed in writing

What might happen when brokers exceed their binding authority and a loss occurs

Errors & Omissions claim

3 ways brokers might exceed their binding authority (given by an insurer)

May bind property risk for higher amounts than set out in the agency contract

May bind risk which is on the decline list in the agency contract

May bind a liability risk for higher limits than set out in the agency contract

3 criteria used to determine amount of indemnity to be paid (property insurance policy)

Interest of the insured in the property

Actual Cash Value of item at time of loss

Limit of insurance provided by the policy

Which amount is deemed to represent the actual amount of the insured’s loss

The least of ACV, insurable interest, limit of insurance

Formula for ACV

ACV = RC - Depreciation

3 factors considered by adjustor when determining amount of depreciation to be charged

Condition of object

Normal Life expectancy

Resale value

3 reasons why governments are involved in the regulation of industry

To ensure insurance companies will be financially competent to discharge their obligations

To ensure forms of contracts are drafted fairly

To ensure business is being conducted to the general benefit of the public

explain the role of the Property Casualty Insurance Compensation Corporation

To protect the consumer against insurer insolvency.

3 coverages required under all policies of fire insurance

Fire

Lightning

Explosion of Natural, Coal, or Manufactured Gas

Would fire insurance policy cover: Fire damage to dwelling which arose when iron used to press insured’s pants overheated? Damage to pants being ironed at the time?

Dwelling: yes (resultant damage)

Pants: may not be covered

Would fire insurance policy cover: lightning damage to wiring in motor of deep freeze? Resultant fire damage to deep freeze?

lightning damage to wiring: not covered

resultant damage: covered

Would fire insurance policy cover: damage to electrical wiring in fridge moto caused by power surge? resultant fire damage to fridge?

Electrical damage: not covered

Resultant damage: covered

Would fire insurance policy cover: fire damage to insured’s dwelling caused during invasion of foreign enemy?

Not covered

15 Statutory Conditions: Misrepresentation

Can arise out of misstatement and/or fraudulent omission of a material fact

15 Statutory Conditions: Property of Others

not insured unless interest of insured is stated in the contract

15 Statutory Conditions: Change of interest

policy continues to protect “new” insureds when change of title due to succession, operation of law or by death

15 Statutory Conditions: Material change

any change which serves to increase the chance of loss, arising after the policy is issued

15 Statutory Conditions: termination of insurance

insurer must provide 15 days notice by registered mail or 5 days notice hand-delivered

15 Statutory Conditions: requirement after loss

notice required to be provided forthwith and in writing to the insurer

15 Statutory Conditions: fraud

deliberate attempt to deceive with a view to securing some profit

15 Statutory Conditions: who may give notice and proof

any party of interest or agent of insured entitled to make representation on behalf of insureds

15 Statutory Conditions: salvage

insured required to take all reasonable steps to protect insured property from further damage

15 Statutory Conditions: entry, control, abandonment,

insurer not entitled to rights of ownership or control nor can insured abandon insured property to it

15 Statutory Conditions: appraisal

option available to either of insurer or insured when disagreement as to value of property insured, saved, or amount of loss

15 Statutory Conditions: when loss payable

within 60 days after completion of proof of loss unless the contract provides for a shorter period

15 Statutory Conditions: replacement

notice of intention to rebuild, repair or replace required to be given by the insurer within 30 days after receipt of proof of loss

15 Statutory Conditions: action

must be commenced within one year after the loss occurs (2 years in Manitoba, Saskatchewan, Yukon)

15 Statutory Conditions: notice

insurer may contact insureds by letter personally delivered to them or by registered mail addressed to them at their latest post office address

legislated requirement for all policies: policy period

the policy take effect at 12:01am standard time at the address of named insured as stated herein

legislated requirement for all policies: loss payable or payee

all parties to whom insurance monies are payable in the event of a loss. The failure of an insurer to include a named payee in an instance settlement could result in the insurer being liable to the payee (i.e. having to pay a portion of the same claim twice)

Provisions relating to legislated policy requirement: Removal Coverage (3)

1 Requires insurers respond only when insured property is necessarily removed from the location specified to prevent loss, destruction or damage or further loss, damage or destruction

Provisions relating to legislated policy requirement: Limitation of liability clauses

established maximum amount the insurer is obligated to pay under specific circumstances, limiting their liability:

Deductibles

Coinsurance clause

2 reasons to discourage clients from selecting extremely low deductibles

Insurance policy is not intended as a maintenance contract for smaller losses which could easily be paid by insureds without financial hardship

Expensive to administer small claims. the insurer would be forced to increase premiums to pay for increased admin costs

Provisions relating to legislated policy requirement: subrogation clause

allows the insurer to assume the rights of the insured to recover damages from 3rd parties responsible for the loss, preventing double recovery by the insured

Provisions relating to legislated policy requirement: waiver of term or condition

no terms or condition of a contract of insurance shall be considered to be waived by the insurer unless such a waiver is provided in writing and signed by a person authorized for that purpose by the insurer

Provisions relating to legislated policy requirement: effect of delivery of policy

the IA stipulates that when the insurance policy has been delivered, but not paid for, it shall be as binding on the insurer as the premium had been paid

5 Characteristics of: Independent Agency/Brokerage System

Owners are not employees of insurers

Owners responsible for payment of all expenses associated with the business

Own the business they produce

Many owners are given increased responsibilities for client services

May be authorized to quote and issue policies for certain classes of business/handle small property claims to reduce insurers expenses

4 Characteristics of: Direct Writing System

Producers are employees of the insurer

Remuneration of producers may be on either a salary or commission basis OR combination of salary and bonus

Insurer owns all business written

Administration function assumed by the insurer

2 major types of insurers operating in Canada

Private insurers

Government insurers

2 most common distribution systems used by insurers to sell their products

independent agency/brokerage system

direct writing system

IBC

Insurance Bureau of Canada

• Collects insurance statistics

• provides actuarial analysis to member companies

• drafts policy forms

• manages inter-company agreements on claims settlements

• monitors legislation and works with governments in the development of insurance legislation

IAO

Insurer’s Advisory Organization

• Provides insurers with risk inspection and advisory rating services

• Also one of Canada's leading loss control firms

ICPB

Insurance Crime Prevention Bureau

Not-for-profit organization which provides assistance to police authorities in the detection, investigation and prosecution of insurance crimes