General Insurance Principles and Concepts

Domestic Insurer

An insurance company incorporated in THIS state.

Foreign Insurer

An insurance company incorporated in ANOTHER U.S. state.

Alien Insurer

An insurance company incorporated in ANOTHER COUNTRY.

Stock Company

An insurer owned by stockholders, typically nonparticipating, with profits going to shareholders.

Mutual Company

An insurer owned by policyholders, typically participating, which may pay dividends.

Authorized / Admitted Insurer

An insurer approved by the state that holds a Certificate of Authority.

Surplus Lines

Non-admitted insurers used for hard-to-place or unusual risks when the standard market cannot provide coverage.

Risk Retention Group (RRG)

An organization where members with similar businesses retain risk together.

Risk Purchasing Group (RPG)

An organization where members purchase insurance together, with coverage provided by a traditional insurer.

Treaty Reinsurance

An automatic, pre-arranged reinsurance agreement that applies to a class or category of risks.

Facultative Reinsurance

A reinsurance agreement for an individual, specific risk where the reinsurer decides whether to accept it.

Underwriting Department

The insurer department responsible for evaluating, accepting, rejecting, or classifying risk.

Claims Department

The insurer department responsible for investigating, processing, and paying claims.

Captive Agent

An insurance producer or agent who represents only ONE insurer.

Independent Agent / Broker

An insurance producer who works with multiple insurers, with brokers generally representing the buyer.

Managing General Agent (MGA)

An agent with delegated authority who may underwrite, price, bind coverage, and settle claims.

Express Authority

Authority specifically granted to an agent, usually written in the contract.

Implied Authority

Authority that is reasonably necessary for an agent to perform their duties.

Apparent Authority

Authority that a reasonable person believes an agent has based on conduct or appearance.

4 Elements of a Valid Contract

1. Offer and Acceptance, 2. Consideration, 3. Competent Parties, 4. Legal Purpose.

Adhesion Contract

A contract where the insurer writes the terms and the insured simply accepts or rejects them; ambiguities are interpreted against the insurer.

Aleatory Contract

A contract where there is an unequal exchange of value between the parties.

Unilateral Contract

A contract where only one party (the insurer) makes a legally enforceable promise to pay.

Indemnity Principle

The principle that insurance restores the insured to approximately their pre-loss financial position without allowing a profit.

Insurable Interest

A financial interest in the subject of insurance; in P&C, it must generally exist at the time of the loss.

Representation

A statement believed to be true to the best of a person's knowledge.

Warranty

A statement guaranteed to be true that becomes part of the insurance contract.

Concealment

The intentional failure to disclose a known, important fact.

Waiver

The voluntary surrender of a known right.

Estoppel

A legal principle preventing a person from contradicting previous conduct if another person reasonably relied on it.

Named Peril

A property insurance policy structure where only specifically listed perils are covered.

Open Peril

A property insurance policy structure where all causes of loss are covered unless specifically excluded.

Cancellation

The ending of insurance coverage before the policy expiration date.

Nonrenewal

The ending of insurance coverage at the policy expiration date, generally requiring advance written notice.

Pro-Rata Liability

A provision where multiple insurance policies share a loss proportionally based on their policy limits.

Term Life Insurance

Temporary, lowest-cost pure life insurance that provides a death benefit with no cash value.

Whole Life Insurance

Lifetime life insurance that includes cash value accumulation and typically level premiums.

Grace Period

A specified period (commonly 30 days) after a premium due date where coverage remains in force.

Contributory Group Plan

A group insurance plan where employees help pay the premium, typically requiring 75% participation.

Noncontributory Group Plan

A group insurance plan where the employer pays the entire premium, typically requiring 100% participation.