Property Insurance

Insurance

Transfer of risk from a person or business to an insureer

Risk

Possibility of a loss

Speculative Risk

Chance of loss or gain (not insurable)

Pure Risk

Chance of loss only (insurable)

Exposure

Risks where the insurance company is liable

Peril

Cause of loss

Direct loss

Immediate damage caused by the peril

Indirect loss

Consequence of a direct loss

Hazard

Increases the chance of loss

Physical hazard

The hazard can be seen

Moral hazard

Dishonesty

Morale Hazard

Carelessness

STARR Method

Method of handling risk

STARR

Sharing

STARR

Transfer

STARR

Avoidance

STARR

Retention

STARR

Reduction

Contract/policy

Agreement between the insured and the insurer

1st party

Insured

2nd party

Insurerer

Law of Large Numbers

The larger the group the more accurately losses can be predicted

CANHAM

Elements of an insurable risk

CANHAM

Calculable

CANHAM

Affordable

CANHAM

Non-catastrophic

CANHAM

Homogeneous

CANHAM

Accidental

CANHAM

Measurable

Adverse Selection

Risks that have a greater than average chance of loss

Reinsurance

An insurance company paying another insurance company to take some of the risk

Stock Insurer

Insurance corporation whose capital is divided into shares and owned by its stockholders

Mutual Insurer

Insurance company owned entirely by its policyholders

Fraternal Insurer

Insurance offered to members of the group. May be written on assessment or legal basis

Reciprocal Insurer

Unincorporated group, who mutually insure one another, each separately assuming share of the risk.

Lloyd’s Association

Insurance provided by individual underwriters, not companies

Risk Retention Group

Liability insurance company created for policyholders from the same industry

Risk purchasing group

A group of businesses from the same industry joining together to buy liability insurance

Self Insurance

A business that pays its own claims

Federal government provided

Residual market insurance from state or federal government

Domestic location

The state where a company is incorporated

Foreign Location

Company is incorporated in another state or U.S. territory

Alien location

Company is incorporated in another country

Certificate of authority

State license for an insurance company

Admitted/authorized

State requires the insurance company to have a certificate of authority

Non-admitted/unauthorized

Insurance company not required to have a certificate of authority from the state

Surplus lines

High risk insureds who can’t find an agent. Placed with nonadmitted insurers

Financial strength training

Report card of the company

Agency

The insurance agent acts on behalf of the principal

Direct response marketing

Direct marketing with no agent involved

Independent Agent

Sell insurance products of several companies and are independent contractors, not employees of the insurers. They own their renewals of policies they sell

Captive/exclusive Agent

Represent only one company. Independent contractors. The insurance company owns the renewals

General Agents

Hire, train, and supervise other agents within a specific area. They earn commissions on agents they manage

Direct-writing companies

Companies whose products are sold by employees. Company owns the renewals.

Ceding insurer

The company reducing the risk

Facultative Reinsurer

Considers each risk before allowing the transfer from the ceding company

Treaty reinsurance

Accepts all risk of a certain type from the ceding company

Express agent authority

What the agent’s written contract with the company says

Implied agent authority

Not written but what an agent normally does to sell insurance

Apparent agent authority

Actions by an agent that a reasonable person would assume has authority, based on their actions and statements

Fiduciary trust

A person holding the funds or property of another in a position of trust. Obligated to act ethically

CLOAC

Elements of a legal contract

CLOAC

Consideration

CLOAC

Legal Purpose

CLOAC

Offer

CLOAC

Acceptance

CLOAC

Competent parties

Consideration

Premium and statements made on application

Legal Purpose

Risk transfer doesn’t violate the law

Offer

Insured submits application and first months premium

Counteroffer

Insurer agrees to issue a policy but with a higher premium or exclusions

Competent Parties

Legal age, mentally sane, sober

Adhesion

Policy written by the insurer with no input from the insured. If ambiguous courts will side with the insured

Aleatory

Unequal value. Pay small premium for a large amount of coverage

Utmost good faith

The insured and insurance company have a right to expect honesty from each other

Unilateral

Only one legally enforceable promise made

Personal

Contract between the insurance company and the insured, can’t be changed to someone else

Conditional

Insured must pay the premium for coverage and file a claim if loss occurs

Indemnity

Pays for the loss with no gain

Representation

Believed to be true

Misrepresentation

False info given by the insured that doesn’t affect the companies decision

Material Misrepresentation

False info given by the insured that affects the companies decision

Warranty

Promise

Concealment

Failure to disclose; hiding info

Fraud

intentional act to cheat another

Waiver

Voluntarily giving up a right

Estoppel

Once a waiver is created, it can’t be overturned

Property Insurance

Covers buildings and personal items if loss is caused by covered peril

First Party losses

Insurer pays insured

Casualty Insurance

Liability, always pay the other guy not the insured

Third Party

Other guy

DICEE

Policy structure

DICEE

Declarations- Who, what, when, where, how much

DICEE

Insuring Agreements- promise to pay and perils covered

DICEE

Conditions- rules for the policy

DICEE

Endorsement- Changes to original policy

DICEE

Exclusions- Not covered

Additional/supplementary Coverage

Payment for additional expenses not normally covered

Named Insured

Listed in the declarations