Unit 3 - Basics of Property and Casualty Insurance

Casualty Insurance

always for the other guy, not me

First Party

insured

Second Party

Insurer

Third Party

The other guy

Policy Structure - DICEEDS

Declarations: name, address, coverage terms, deductibles/etc

Insuring Agreements: insurer promises to pay and states what perils are covered. This is the heart of the insurance policy and states what will be covered

Conditions: rules, policy provisions, rules of conduct, duties, and obligations to keep coverage

Endorsements: add, modify, or take away coverage

Exclusions: describes property, perils, hazards, or losses not covered by the policy

Definitions

Supplementary/Additional Coverage

Unearned Premium

premiums paid in advance are returned to insured upon cancellation

Prorated Basis

when insurer cancels policy, insured gets part of premium back based on when it is cancelled

Short-Rated Basis

when insured cancels policy before expiration and the insurer gets to keep a bigger chunk of unearned premium

Flat Cancellation

policy cancelled on expiration date

Nonrenewal Process

the insurer has to notify the insured before expiration if nonrenewing

Pro Rata (Other Insurance)

each insurer pays proportion of loss; (policy limit/total policies limit * loss = payment)

Contribution by Equal Shares

each insurer pays smallest policy limit until loss is paid in full or each company has paid their policy limit

Provisions/Loss Provisions

rights/duties of named insured and insurer

Duties After Loss

Prompt notice of claim

Protect property from more damage

complete a detailed proof of loss

make property available for inspection

submit to examination under oath if needed

cooperate with insurer

Assignment Condition

can’t transfer a policy without written consent from the insurer, rights can be transferred to legal representative if the named insured dies

Abandonment Condition

the insured can’t abandon fixable property to try to get the full value reimbursed

Salvage Condition

insurer has the right to salvage property to lower claims costs

Liberalization

insurer increases/broadens coverage with no additional premium and no action required by the insured

Insurable Interest

you have to have risk of financial loss present at the time of loss

Underwriting

evaluating the risks and exposures of potential clients

determining the premium and coverage amounts

field underwriting is performed by agents/producers to seek out acceptable risks and deny unacceptable risks

Binder

temporary written/oral statement usually given by the agent. can be cancelled by the company, doesn’t guarantee coverage, and ends once the policy is issued. It’s like a holdover almost promising coverage.

Loss Ratio

incurred losses (amounts paid/reserved on claims and miscellaneous expenses) / earned premiums

Expense Ratio

cost of doing business

underwriting expenses/written premium

Combined Ratio

100% = breakeven point, < 100% = profit > 100% = loss

loss ratio + expense ratio

Judgment Rating

no set rates, just underwriter experience and vibes

Rate

Actuarial rates are expressed as a price per unit of insurance for each exposure unit

Manual/Class Rating

set rates for risk classes

Experience Rating

modified based on loss experience (actual loss experience vs historical data)

Retrospective Rating

based on losses during the policy period

Schedule Rating

applies debits and credits to reflect a specific insured

Loss Costs

pure claims data, excludes operating expenses or profits

Fair Credit Reporting Act (FCRA)

rules for getting consumer credit, personnel, and other information in a fair, equitable way that includes confidentiality, accuracy, relevancy, and proper use

all insurers and producers must comply

applicant has to receive notice within 3 days of the request

consumers can dispute inaccurate information

violate FCRA = 1 year prison, $5,000 fine, or both

Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIA)

coverage trigger: $200 mil

carriers pay 20% of direct earned premium as a deductible before the government money kicks in

federal liability cap = $100 billion

limits the exposure of insurers to catastrophic events

must be certified by the secretary of treasury, homeland security, and US attorney general

Gramm-Leach-Bliley Act

requires financial and insurance companies to ensure confidentiality/security of customer information, protect against expected threats, and protect against unauthorized access

Fraud and Intentional False Statements Penalty

fine, 10 years prison, or both

can be more than 15 years of prison if it jeopardized the insurer