Property and Casualty Insurance Flashcards

This set of flashcards covers key vocabulary and concepts from the Property and Casualty Insurance lecture notes.

Fiduciary Duty (Insurance)

Agents must treat all applicants and clients ethically, handling funds with utmost integrity and ensuring prompt submission of premiums to avoid embezzlement.

Fair Credit Reporting Act (FCRA)

Enacted to protect consumers against the dissemination of inaccurate or outdated financial information.

Gramm-Leach-Bliley Act (GLBA)

Governs the sharing of nonpublic personal information with third parties, requiring financial institutions to inform customers about their information-sharing practices and provide an option to opt-out.

Terrorism Risk Insurance Act (TRIA)

A federal program established post-9/11 to share the risk of loss from future terrorist attacks with insurers.

Stock Companies

Owned by stockholders who invest capital and share profits.

Mutual Companies

Owned by policyholders rather than stockholders; profits are typically reinvested for the benefit of policyholders.

Consideration

Each party must provide something of value (e.g., insured pays premiums, insurance company pays claims).

Legal Purpose

The contract cannot be illegal or against public policy.

Agreement (Contract)

Consists of an offer, acceptance (policy issued), and agreement reached; offer (application + premium) + acceptance (issued policy) = agreement.

Competent Parties

All parties must be of legal age (usually 18), mentally competent, and sober.

Indemnity

The insurer will reimburse for the actual loss, not provide an extra amount; bring the insured back to their original state.

Subrogation

The insurer's right to seek damages from a third party after paying the insured for a loss; prevents the insured from collecting from both the insurer and the responsible third party.

Insurable Interest

Must exist at the time of loss; it indicates financial loss or economic hardship risk; cannot file a claim for an incident that occurred before securing insurance.

Adhesion (Contract)

Contracts are take-it-or-leave-it with standard terms and no negotiation.

Unilateral (Contract)

Only one party (the insurer) is legally bound to fulfill the agreement.

Conditional (Contract)

Both parties must meet obligations for a contract to be enforceable.

Aleatory (Contract)

Unequal exchange; premiums are smaller than potential payouts.

Personal (Contract)

Policies are not transferable; exceptions apply upon death (e.g., beneficiaries); only the named insured is protected under the policy.

Representations

Statements made on an application believed to be true.

Misrepresentations

Untrue statements made accidentally.

Material Misrepresentation

An untrue statement that can affect the issuance or validity of the policy; typically intentional.

Warranties

Absolute true statements, crucial for the validity of the policy.

Concealment

Intentional hiding of information.

Fraud (Insurance)

False statements to deceive and gain from the insurer.

Utmost Good Faith

There must be honesty in all representations, ensuring no fraud or misrepresentation.

Waiver

Giving up a right or privilege.

Estoppel

Prevents someone from reclaiming a right after waiving it.

Declarations

Identify Who, what, when, where, how much.

Endorsements

Changes/modifications to the original policy.

Additional Coverage

Out-of-pocket costs for repairs or maintenance on property.

Definitions (Policy)

List of terms for clarity in policy.

Insuring Agreement

Details the parties involved and what is covered.

Conditions (Policy)

Specifies obligations of both the insured and insurer.

Exclusions

What is not covered by the policy, clearly defined.

Notice of Loss

Informing the insurer of an incident.

Proof of Loss

Official documentation verifying damage or loss.

Cancellation

Ending a policy before its expiration date.

Nonrenewal

Not renewing a policy upon its expiration.

Pro-Rata Cancellation

Full refund proportional to the unused coverage period.

Short Rate Cancellation

Refund after deducting expenses incurred.

Flat Rate Cancellation

Cancellation on the effective date without refund.

Limits of Liability

Caps the payout amount for losses.

Policy Period and Territory

Defines the timeframe and jurisdiction for coverage.

Liberalization

Expanding coverage terms or benefits without extra premium costs.

Other Insurance

When multiple insurance policies cover the same risk, they share the loss in proportion to the policy limits.

Appraisal (Insurance)

Disputes over property damage payouts.

Arbitration

Disputes over casualty claims.

Insured

The person or entity covered by the insurance policy, regardless of whether they are explicitly listed.

Insurer

The insurance company that provides coverage to the insured (e.g. USAA, GEICO, Progressive).

Insurance

Transfer of risk from the insured to the insurer.

Exposure

Risk of loss due to existence.

Loss

Reduction or disappearance of value due to damage or harm (e.g., car accident, theft, natural disaster).

Pure Risk

Only chance of loss (e.g., natural disasters, accidents) - insurable.

Speculated Risk

Chance of loss or gain (e.g., gambling) - not insurable.

Peril

A cause of loss (e.g., fire, lightning).

Hazard

Conditions that increase the likelihood of a loss.

Physical Hazard

Wet floors, unguarded machinery.

Moral Hazard

Lying on insurance applications.

Morale Hazard

Carelessness (e.g., leaving flammable items near heat sources).

Risk Sharing

Pooling resources in a group to minimize impact of loss.

Risk Transfer

Insurance moves risk from insured to insurer.

Risk Avoidance

Stepping away from risky activities or assets.

Risk Reduction

Measures taken to decrease severity or likelihood of loss (e.g., installing smoke detectors).

Risk Retention

Bearing full financial responsibility for a loss (e.g., self-insurance).

Large number of similar risks

such as homes in a tornado-prone area.

Definite and measurable loss

(specific time and place).

Non-catastrophic impact

on financial stability.

Law of Large Numbers

Predictability of losses increases with a larger pool of similar risks. More people exposed to a risk leads to a higher likelihood of predictable outcomes.

Adverse Selection

Higher-risk individuals are more likely to seek insurance. Insurers may charge more for coverage of high-risk policies or refuse coverage.

Reinsurance

A method for insurers to spread their risk beyond their capacity.

Domestic Domicile

Insurer incorporated in the same state.

Foreign Domicile

Insurer incorporated in a different state.

Alien Domicile

Insurer incorporated outside of the country.

Certificate of Authority

Requirement for insurers to operate in a state. Insurers with approval are considered admitted; without approval, non-admitted.

Hostile Fire

A fire that burns outside its intended boundaries or becomes uncontrollable.

Friendly Fire

A fire that was intentionally set and stays within its intended boundaries.

Theft

Any act of stealing, including burglary and robbery.

Burglary

Taking property from inside a premises by forcibly entering or exiting the property; signs of force must be visible.

Robbery

Taking property from someone's care/custody by harming/threatening them; force is threatened or used against a person.

Mysterious Disappearance

Cause of loss is unknown; no physical evidence of burglary, robbery, or theft. Often excluded by property policies.

Occupancy

A property contains personal property but has no occupants.

Vacancy

A property contains no personal property and has no occupants.

Bailee

A person/organization that has taken the property of another into their care, custody, or control for servicing, repair, or storage.

Bailor

The person who retains ownership of the property in the bailee's care.

Real Property

Residential dwellings, commercial buildings, detached garage.

Personal Property

Furniture, machinery, merchandise.

Direct Loss

Immediate result of a peril; Example: Hailstorm damages a hotel.

Indirect Loss (Consequential Loss)

A consequence of a direct physical loss; Example: Loss of use and income due to shutdown for repairs.

Proximate Cause

Primary cause of loss; must be a covered peril for coverage to apply.

Concurrent Causation

When two perils simultaneously cause a loss, the insurer must pay even if one peril is excluded.

Inherent Vice

A quality within property that causes it to damage or destroy itself (e.g., spoiled food, rusting,). Is not covered by property policies.

Named Perils Coverage

Provides insurance only for causes of loss listed in the policy. If the peril is not named, there is no coverage unless added by endorsement.

Open Perils Coverage (All Risk Coverage)

Provides insurance for all causes of loss that are not specifically excluded.

Actual Cash Value (ACV)

Pays to repair or replace damaged property at the time of loss, minus depreciation.

Replacement Cost

Pays the full cost to repair or replace damaged property with like kind and quality at current pricing, without deducting depreciation.

Functional Replacement Cost

Used for properties with obsolete materials/techniques (e.g., older dwellings). Pays to replace the property with its functional equivalent.

Agreed Value

The policy limit is paid in the event of a total loss, regardless of the actual cash value; useful for articles difficult to replace or value (e.g., vineyards, paintings, classic cars).

Stated Value

The insurer bases the premium on the insured's statement of the property's value; the insurer pays the lesser of the stated amount and the actual cash value at the time of loss.

Market Value

The price a willing buyer would pay a willing seller under fair market conditions; used for goods/commodities whose value fluctuates (e.g., agricultural products).

Salvage Value

The amount property can be sold for at the end of its useful life (scrap value of damaged property).