Property And Casualty Insurance

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insurance binder

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oral or written statement made by the agent that the insured has immediate protection that is valid for a specified time-- lets you know you have coerage before the actual policy has been issued. Does not guarantee that a policy will be issued-- only guarantees temporary coverage. If a policy is issued then the binder ceases as of the effective date of the policy

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federal Fair Credit Reporting Act

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protects comsumers by requiring that the consumer e notified in certain situations and establishing provisions for the removal of outdated and incorrect information from their consumer credit reports

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investigative consumer report

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gathers data through personal interviews with friends, neighbors, and associates of the consumer

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who can get a copy of your consumer credit report

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someone who intends to use the information for insurance underwriting purposes or in conncection with employment, credit transactions, or other types of personal business transactions

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what is prevent from being in a consumer credit report

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1. bankruptcies over 10 years old
2. suits and judgements over seven years old or in which the statute of limitations has expired-- whichever period is longer
3. paid tax liens or accounts placed for collection or charged to profit that are over seven years old
4. arrests, indictments, or conviction of crime reports
5. any other adverse information that took place seven years before the report
*these restrictions are not applicable when the credit report is used in connection with a credit transaction of $150,000 or more, or when concerns or employment of an individual earning $75,000 or more

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When must a consumer be notified about the release of their credit report?

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If an investigative report is ordered or if an insurance is rejected ,reduced, or written at a higher premium. The consumer myst be notified an provided with the name and address of the reporting agency
- the comusmer then has the right to obtain the substance of the information in the report and be informed of who received the report in the last 6 months

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adverse selection

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the tendency for people with greater than average exposure to loss to purchase insurance. The underwriter should protect the insurer from this

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Construction classification for property insurance underwriting- Class 1- frame

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Class 1: Frame- outside support walls, roof and floors constructed of wood or other combustible materials

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Construction classification for property insurance underwriting- Class 2- joisted masonry

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Class 2: Joisted Masonry-outside support walls made of non combustible masonry materials (such as concrete, brick, stone or tile) and a roof and floor made of combustible materials like wood

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Construction classification for property insurance underwriting- Class 3 - non-combustible

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class 3- exterior walls, floors, and roof are constructed of and supported by non combustible material such as metal, asbestos, or gypsum

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Construction classification for property insurance underwriting- Class 4 - Masonry non combustible

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class 4- exterior walls constructed of masonry material and a roof and floor made of metal or other non-combustible materials

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Construction classification for property insurance underwriting- Class 5- modified fire resistive

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class 5- exterior walls, floors and roof constructed of masonry or fire resistive material with a fire resistance rating of 2 hours or less

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Construction classification for property insurance underwriting- Class 6- fire resistive

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class 6- constructed of masonry or fire resistive material with fire resistance rating of 2 hours or more

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3 ways of computing a premium

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1. Judgment rating
2. Manual Rating
3. Merit Rating

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Judgement Rating for computing a premium

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premium is determined by considering the individual risk. No books or tables are used, just thorough judgement

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Manual or Class Rating for computing a premium

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the most common method of determining an insurance premium- rates for a particular state are obtained by consulting a manual. Rates are arranged by various categories or classes. (underwriter classifies the risk using defined criteria and then looks up the rate) Rate is then multiplied by the number of units of insurance purchased ( Rate per unit x number of units = premium) Ex: insured purchases $60,000 of insurance at a rate of $2 per $1000 of coverage-- 2 x 60= $120 premium

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Merit Rating for computing a premium

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starts with manual/class rating and then is modified to relfect unique characteristics of the risk that are not reflected by the manual rate... experience rating is form of this which takes into account the insured's loss experience (dollar paid out for claims vs premium paid over a period of usually 3 years)

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retrospective rating

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form of merit rating which bases the insured's premoum on losses that occurred during the policy period

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schedule rating

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form of merit rating which applies a system of debits and credits to reflect the characteristics of the particular insured

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certificate of insurance (COI)

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proof that a policy has been written-- contains general summary of the policy's coverage and is frequently required in loan transactions and other legal matters

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Under what conditions may an insurance company cancel insurance during a policy period?

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1. Misrepresentation
2. Concealment
3. Fraud

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Misrepresentation

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written or verbal misstatement of a material fact (fact that would cause an insurer to deline a risk, charge a differnt premium or change the provisions of the policy that was issued) involved in the contract on which the insurer relies.
- may be intentional or unintentional

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concealment

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withholding material facts

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fraud

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deliberate misrepresentation that CAUSES HARM-- always intentional

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What 4 elements are needed in an act of fraud

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1. someone deliberately lies
2. the intent of the lie is for someone else to rely on that lie
3. another person relies on that lie
4. another person suffers harm as a result of relying on that lie

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Representations in an insurance application

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statements that the applicant believes to be true. A policy may not be voided on the basis or representation.

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Warranties

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specific agreements made between the insured and the insurer that certain conditions will be met (ex: while a business is closed, a security guard will be on duty).

If these agreements are breached-- the policy can be voided whether or not the breach was intentional

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Waiver

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intentional relinquishment of a known right- knowingly overlooking a condition or exclusion that would normally have been grounds for denying coverage, increasing the premium, or reducing the benefits provided. The requirement of an insurable interest and facts cannot be waived

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Estoppel

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If an insurance company representative intentionally or unintentionally creates the impression that certain facts exist when they do no and an innocent party relies on that impression and is damaged as a result, the insurance company will be estopped (prevented) from denying this fact (ex: if an agent states or indicates by his actions that a particular loss is covered, the insurance company will be estopped/prevented from denying that coverage)

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What happens when an insured wants to cancel insurance during a policy period?

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the insured needs to write a letter to the insurance company or surrender the policy itself to them- then the insurance company must give back any unearned premium (premium not yet used up at that point in the policy period)

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short rate basis

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if an insured cancels before the expiration date the insurance company no only keep the premium for the insurance already provided but also keeps an allowance for expenses, such as issuing the policy

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What happens when an insurance company wants to cancel insurance before the expiration date of the policy?

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this is governed by state regulations-- usually can only be cancelled for non-payment. Usually the insurer is required to notify the insured in writing a certain number of days before the impending cancellation.

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pro rata basis

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when the insurance company cancels a policy, unearned premium is returned to the insured on a pro rata basis- company retains only the earned premium and is not allowed to keep an extra amount for expenses (as in the short rate basis)

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flat cancellation

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cancellation of insurance by either insured or insurer on the effective date of the policy

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non-renewal

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not providing coverage for the next term once a policy expires. Insureds can non-renew for any reason, but insurers are limited in the reasons for non-renewal and have to notify the insured of the decision to non-renew