General Insurance Notes - Chapter 1

A collection of vocabulary flashcards covering risk management, insurance terminology, types of insurers, authority, and contract law based on general insurance lecture notes.

Insurance

The transfer of risk of loss between an individual or business entity to an insurance company, which spreads out the costs of unexpected losses among insured individuals.

Risk

The uncertainty or chance of a loss occurring.

Pure Risk

Situations that can only result in a loss; these are the only types of risks that are insurable.

Speculative Risk

Situations that have the opportunity for gain or loss; these risks are not insurable.

Hazards

Conditions or situations that increase the probability of an insured loss occurring.

Physical Hazard

Hazards that arise from the structural or material features of the risk, unrelated to the parties involved.

Moral Hazard

Hazards related to the character of the insured, such as applicants who may have lied in the past or committed fraudulent claims.

Morale Hazard

The increase of a hazard presented by a risk because of the insured party's indifference to the idea of a loss due to the existence of insurance.

Perils

Causes of loss against an insurance company, such as death, illness, or damage to property.

Loss

The reduction or loss in value of property or a person due to a named peril, covered by an insurance policy.

Exposure

The measure used to determine the rates charged for insurance coverage, based on factors like age, occupation, sex, and medical background.

Homogenous

A group that includes a large number of units having the same or similar exposure.

Retention

A method of handling risk where the insured party retains a portion of the risk by making deductible payments or by self-insuring.

Adverse Selection

The insuring of risks more prone to losses than the average risk, usually occurring when high-risk individuals withhold relevant information.

Law of Large Numbers

The principle stating that the larger the number of people exposed to a loss, the more predictable actual losses will be.

Stock Companies

Insurance companies owned by stockholders who provide resources and share in profits or losses through taxable dividends.

Mutual Companies

Insurance companies owned by the policyowners who issue participating policies and receive non-taxable dividends as a return of excess premiums.

Fraternal Benefit Societies

Charitable organizations that provide insurance benefits specifically for members of an affiliated lodge, religious organization, or fraternal organization.

Certificate of Authority

A document issued by the state department of insurance that authorizes an insurer to qualify as admitted to transact business in that state.

Domestic Insurer

An insurance company incorporated in the state where it conducts business.

Foreign Insurer

An insurance company incorporated in another state, distinct from the one where it is conducting business.

Alien Insurer

An insurance company incorporated outside the United States.

Reinsurance

A contract under which one insurance company indemnifies another insurance company for part or all of its liabilities to protect against catastrophic losses.

Express Authority

The authority of an agent that is specifically granted within the written portion of their contract.

Implied Authority

Authority not written or stated in the contract, but assumed to be held by the agent to fulfill the duties of their contract.

Apparent Authority

The appearance or assumption of authority based on the actions/words of the principal or the situation created by the principal.

Fiduciary Responsibility

An agent's ethical responsibility to handle funds on behalf of the insurer and insured and to act in the client's best interest.

Consideration

The binding force of a contract, involving the value each party brings, such as premium payments from the insured and the promise to pay for losses from the insurer.

Contract of Adhesion

A contract prepared by one party (insurer) and accepted or rejected by the other (insured) on a "take it or leave it" basis, where any ambiguities favor the insured.

Aleatory Contract

A contract characterized by an unequal exchange of values between the parties.

Unilateral Contract

A contract in which only one party (the insurer) is legally bound to perform specific obligations.

Indemnity

The principle of reimbursement that seeks to restore the insured to the financial position they were in before the loss.

Utmost Good Faith

The principle assuming no fraud, misrepresentation, or concealment exists between the parties, and both rely on each other for accurate information.

Representations

Statements believed to be true to the best of one's knowledge, but not guaranteed to be absolutely true.

Warranty

An absolutely true statement that determines the validity of an insurance policy; a breach can result in the voiding of the contract.

Concealment

The intentional withholding of material information that could affect an underwriting decision, potentially resulting in a voided contract.

Waiver

The voluntary act of relinquishing a legal right, claim, or privilege.

Estoppel

A legal process that prevents a party from reclaiming a right or privilege after it has been waived.