Unit 3 Cram Sheet: Property, Casualty Insurance, Underwriting, and Regulations

Flashcards cover property and casualty policy basics, policy structure, duties after loss, underwriting, rating, and regulatory acts.

What does property insurance cover and what type of losses does it pay for?

Covers buildings and personal belongings; pays first-party losses caused by a covered peril.

What does casualty insurance cover and how is it described in practice?

Covers liability; ‘pay the other guy, never me’; pays third-party losses.

What does DICEE stand for in policy sections?

Declarations, Insuring agreements, Conditions, Endorsements, Exclusions.

What is the purpose of the Declarations in a policy?

Identifies who, what, when, where, and how much—the insured, the property, the time period, and limits.

What is an Endorsement in an insurance policy?

A change to the original policy (modifications, additions, or deletions).

What is an Exclusion in an insurance policy?

A provision listing what is not covered.

What is Additional/Supplementary Coverage?

Extra payments for expenses not normally covered; may have a separate limit.

Who is a Named Insured?

The insured named in the declarations.

What is the First-named insured and when is that designation used?

The first insured listed in the declarations; used in commercial policies with multiple partners.

Who is considered an Additional insured?

Someone added by endorsement to receive coverage under the policy.

What does Policy Period refer to?

When the policy begins and ends.

What does Policy Territory refer to?

The geographic area where a loss must occur for coverage to apply.

What is Cancellation in insurance terms?

Termination of the policy before its expiration date; refunds depend on unearned premium or short-rate rules.

What are the refund rules for company cancellation versus named insured cancellation?

Company cancellation requires advance notice with full refund of unearned premium (pro rata); named insured cancellation has no advance notice and provides partial refund of unearned premium on a short-rate basis.

What is Nonrenewal?

Occurs at the policy expiration date; company must give advance notice; insured does not require advance notice.

What is a Deductible?

Amount of the loss paid by the insured; higher deductible means a lower premium.

What are the Primary/Excess, Equal Shares, and Pro Rata provisions in Other Insurance?

Primary/Excess pays first then excess; Equal Shares splits payments up to the smallest policy’s limit; Pro Rata pays each policy’s share proportional to its limit.

What does PPC-MSC stand for and what are its components?

Prompt notice, Protect property from further damage, Complete proof of loss, Make property available for inspection, Submit to examination under oath if required, Cooperate with insurer.

Can an insurance policy be assigned without consent?

No; assignment requires written consent from the insurer.

What is Abandonment in the context of a loss?

Insured cannot abandon property that can be repaired and expect payment as if it were total.

What is Salvage in property insurance?

Insurer has the right of salvage; salvaged property can lower the claim cost.

What does Liberalization mean in insurance terms?

Extends coverage to the insured without additional premium or action by the insured.

What is Subrogation?

Insurer’s right to sue the at-fault party for damages paid to the insured (common when the at-fault party is uninsured).

What is Insurable Interest?

Financial risk of loss must be present at the time of loss.

What is Underwriting?

Process of evaluating a risk; field underwriting is done by the agent; applications are primary information; underwriters decide on issue.

What is a Binder?

Temporary insurance; usually issued by the agent; can be canceled by the insurer; does not guarantee a policy will be issued; ends if a policy is issued.

What is Loss Ratio in financial ratios?

Losses compared to earned premium; measures claims costs.

What is the Expense Ratio?

Cost of doing business compared to premiums received.

What is the Combined Ratio and what does breakeven mean?

Sum of loss ratio and expense ratio; 100% is breakeven; >100% indicates underwriting loss; <100% indicates underwriting gain.

What are the methods for Rating a Risk?

Judgment (experience/intuition), Manual (class), Experience rating (merit) based on claim history.

What are Loss Costs in rate components?

Pure claims data; excludes operating expenses and profits.

What are Rate Components?

Loss costs plus claims handling costs.

What is a Binder’s effect on policy issuance?

Temporary insurance; does not guarantee a policy will be issued; ends when a policy is issued.

What does the Fair Credit Reporting Act (FCRA) require?

Notice to the applicant within three days after the report was requested; penalties up to $5,000 and/or 1 year in prison.

What is TRIPRA and its purpose?

Terrorism Risk Insurance Program Reauthorization Act of 2019; limits insurers' exposure after catastrophic events; triggered by a $200 million event; originated after 9/11 (2002).

What does Gramm-Leach-Bliley Act say about consumer vs customer?

A consumer is someone about whom information is collected; a customer has an ongoing relationship with a financial institution; opt-out must be offered at account setup and annually.

What are the penalties for Fraud and False Statements?

Illegal; up to $5,000 fine and/or up to 10 years in prison; up to 15 years if false statements jeopardize the insurer.