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52 Cards in this Set
- Front
- Back
- 3rd side (hint)
Risk |
The possibility that a loss will occur |
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Insurance |
A contract that transfers the risk of financial loss from an individual or business to an insurance company |
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Two types of risk |
Speculative risk, which have a possibility of loss, and also a possibility of game.
Pure risk only involves the possibility of experiencing a loss not a gain. |
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Exposure |
The risks the insurance company will be liable for. Risk for which the insurance company would be liable. |
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Peril |
The cause of a loss |
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Loss |
The unintended, unforeseen damage to property, injury, or amount paid. |
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Two types of loss |
Direct loss is a Physical lost the property with no enter meaning cause Indirect loss is a results from a direct |
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Hazard |
Anything that increases the chance that a loss will occur |
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Three types of hazards |
Physical: physically identifiable, like wet floor Moral: poor character Morale: carelessness |
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Methods of handling risks |
I am a STARR and handling risk. Sharing, Transfer, avoidance, retention, reduction |
STARR |
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Sharing risks |
Two or more individuals or businesses agreed to pay a portion of any loss. Stockholders in a corporation share the risk. |
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Risk, avoidance |
Eliminating a particular risk, but not engaging in a certain activity. |
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Risk retention |
The individual or business will pay for the loss if it occurs. Self insurance. |
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Risk reduction |
To lessen the chance that a loss will occur |
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Law of large numbers |
The larger the group, the more accurately losses can be predicted |
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Elements of insurable risk |
Calculable, affordable, non-catastrophic, homogenous, accidental, and measurable |
CANHAM |
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Adverse selection |
Risks that have a greater than average chance of loss. Not wanted by insurers. Tendency for high-risk people to get and keep insurance. Why ensures go through the underwriting process. High risk equals higher rates to ensure or refusal |
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Reinsurance |
An insurance companies insurance company. Helps insurers spread the risk. Ceding: the company reducing the risk. Reinsurer: the company assuming the risk. |
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Stock insurers |
Owned by stockholders. Dividend is NOT guaranteed. Dividend is paid to stockholders. Dividend is taxable to stockholders. Issue non-participating policies. |
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Mutual insurer |
Owned by policyholders. Dividend is NOT guaranteed. Dividend is paid to policyholders. Dividend is not taxable. Issue participating policies. |
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Fraternal benefit society’s |
Provides insurance and other benefits. Must be a member to get the benefit. Usually involved in charitable and benevolent causes. |
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Reciprocal insurance |
Unincorporated. Members are assessed if a loss occurs to any member of the group. Managed by an attorney-in-fact |
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Lloyds association |
Insurance provided by individual underwriters, not companies. Ensure unusual risks like hole in one, and celebrity hair. |
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Risk retention groups |
Liability, insurance company created for policyholders from the same industry. Example, a car, dealers risk retention group in which only car dealers can be policyholders. |
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Risk purchasing groups |
A group of businesses from the same industry that join together to buy liability insurance from an insurance company. They are not an insurance company. |
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Self insurers |
A business that pays its own claims. Reserves funds to cover losses. Retained risk rather than transfers. |
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Federal government insurers |
Provide insurance for war, nuclear energy, flood, federal crops, unemployment, Workmen’s Comp. |
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Domestic Insurer |
The state in which the insurer was formed, and usually headquartered |
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Foreign insurer |
In another state or US territory. For example, an insurer that was domiciled in Texas would be a foreign company to residents of Oklahoma. |
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Alien insurer |
Companies Inc. in another country |
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Certificate of authority |
State license for an insurance company |
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Licensed or authorized (admitted) insurance company |
Admitted. Certificate of authority. Sell, place, and service most insurance contracts. |
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Unauthorized insurance company |
Nonadmitted. No certificate of authority. Cell surplus lines insurance products. |
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Surplus lines insurer |
Unauthorized. High risk insureds. Casinos, gaming, entertainment. |
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Financial ratings of insurers |
Report card of the company Classified according to financial strength. Like insurers loss experience, reserves, investment performance, management, and operating expenses. |
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Independent insurance agents |
Individuals that sell the insurance product of several companies. They are independent contractors, not employees of insurers. They own the renewals of the policies they sell. |
Method of marketing |
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Captive (exclusive) agents |
Represent only one company. Independent contractors, not employees of the insurer. The insurance company owns the renewals of the policies so on their behalf . |
Method of marketing |
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General, or a managing general agent |
Individuals that hire, train, and supervise other agents within a specific geographic area. |
Method of marketing |
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Direct writing companies |
Companies whose products are sold by employees, not independent contractors. May be compensated by salary, commission, or both. |
Method of marketing |
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Direct response marketing |
There is no producer or agent. Sold by advertisements, Internet, television. |
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Agency |
A relationship where one person is authorized to represent another person or corporation |
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Agent |
The person authorized to act on behalf of the other. |
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Principle |
The person on whose behalf the agent acts. |
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Law of agency |
Contracts made by the agent are considered to be contracts of the principal |
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Express Authority |
Authority is written in agent contract |
Agent/producer authority |
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Implied authority |
Authorities not written in agent contract, but tasks agent must perform; imply that agent has this authority |
Agent/producer authority |
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Implied authority |
Authorities not written in agent contract, but tasks agent must perform; imply that agent has this authority. Example printing business cards with logo |
Agent/producer authority |
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Fiduciary |
A person in a position of financial trust |
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Commingling |
The illegal act of mixing personal funds with the insured’s or insurers funds |
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Calculable |
Premiums must be calculable based upon prior lost statistics for that particular risk in order to predict future losses |
Element of insurable risk |
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Measurable |
A definite time and place and measurable loss means that proof of loss must be established with numbers in dollar amounts, not just casual references |
Elements of insurable risk |
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Facultative |
The reinsurer evaluate each risk before allowing a transfer. |
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