Unit 1 Property Intro to Insurance

Transfer of risk from an individual or business to an insurer

Insurance

Chance of loss or gain; not insurable

Speculative Risk

Chance of loss only; insurable

Pure Risk

Risks for which an insurer may be responsible

Exposure

Cause of loss

Peril

Unintended, unforeseen damage to property

Loss

Immediate physical damage to property

Direct Loss

Consequential loss resulting from a direct loss

Indirect Loss

Anything that increases the chance of loss

Hazard

Visible condition that increases the chance of loss

Physical Hazard

Hazard arising from dishonesty

Moral Hazard

Hazard arising from carelessness

Morale Hazard

Sharing, Transfer, Avoidance, Retention, Reduction

STARR

Method of handling risk by spreading losses among a group

Sharing

Method of handling risk through insurance

Transfer

Method of handling risk by eliminating the activity

Avoidance

Method of handling risk by keeping the risk yourself

Retention

Method of handling risk by reducing the likelihood or severity of loss

Reduction

Customer/insured in the insurance contract

First Party

Insurance company in the insurance contract

Second Party

Agreement between the insured and insurer

Insurance Contract

The larger the group, the more accurately losses can be predicted

Law of Large Numbers

Calculable, Affordable, Non-Catastrophic, Homogeneous, Accidental, Measurable

CANHAM

High-risk individuals being more likely to buy insurance

Adverse Selection

Insurance for insurance companies

Reinsurance

Reinsurance where risks are evaluated individually

Facultative Reinsurance

Reinsurance where an entire class of risks is automatically accepted

Treaty Reinsurance

Insurer owned by shareholders

Stock Insurer

Insurer owned by policyholders

Mutual Insurer

Stock insurers issue this type of policy

Nonparticipating Policy

Mutual insurers issue this type of policy

Participating Policy

Organization that provides insurance to members

Fraternal Benefit Society

Unincorporated group whose members insure one another

Reciprocal Insurer

Manager of a reciprocal insurer

Attorney-in-Fact

Market made up of individual underwriters insuring unusual risks

Lloyd's Association

Liability insurer owned by members of the same industry

Risk Retention Group

Group that purchases liability insurance for members of the same industry

Risk Purchasing Group

Business that retains risk and pays its own losses

Self-Insurance

Insurer incorporated in its home state

Domestic Insurer

Insurer incorporated in another state

Foreign Insurer

Insurer incorporated in another country

Alien Insurer

Insurer with a Certificate of Authority

Authorized (Admitted) Insurer

Insurer without a Certificate of Authority

Unauthorized (Nonadmitted) Insurer

High-risk coverage written through nonadmitted insurers

Surplus Lines

Insurance company report card evaluating financial strength

Financial Rating

Agent who represents multiple insurers

Independent Agent

Agent who represents only one insurer

Captive Agent

Agent who recruits, trains, and supervises other agents

General Agent

Company that uses employee agents

Direct Writer

Marketing system with no producer involved

Direct Response Marketing

Relationship in which one party acts for another

Agency

Insurance company in the agency relationship

Principal

Person acting on behalf of the insurer

Agent

Authority specifically granted in the agency contract

Express Authority

Authority necessary to perform assigned duties

Implied Authority

Authority the public reasonably assumes exists

Apparent Authority

Person occupying a position of financial trust

Fiduciary

Illegal act of mixing personal funds with client funds

Commingling