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AINS 101
| Term | Definition |
|---|---|
| Benefits of insurance | pays for losses, manages cash flow uncertainty, complies with legal requirements, promote risk control activity |
| Transfer risk | buying insurance transfers the risk to an insurer |
| Pooling | when insured pool their money to pay for each other’s losses |
| Property-casualty insurance | insurance for both property and liability |
| Commercial property insurance | covers damage to buildings or their contents that results from fire, vandalism, or other |
| Commercial crime insurance | protects against losses from theft of business property and money |
| Commercial general liability insurance | protects a business against its legal liability to others for bodily injury and property damage |
| Commercial auto insurance | covers liability for bodily injury and property damage caused by the use of the business’s autos and also damage to the business’s autos when they are in an accident |
| Workers compensation insurance | type of commercial insurance. covers legally required benefits that businesses are required to pay to their employees for job-related injuries and illnesses |
| Commercial umbrella insurance | provides additional limits beyond those provided by other commercial policies, protecting the business in the result of a large liability loss |
| Stock insurers | objective is to earn a profit, attracts stockholders with investment returns |
| Mutual insurers | pay dividends to policyholders |
| Reciprocal insurance exchanges | each member is an insured and insurer |
| Captive insurers | formed to cover the loss exposures of specific organizations |
| If a government requires a type of insurance, then it must what? | ensure that the insurance is available at a reasonable price |
| Pure risk | value can only go down (e.g. fire) or stay the same, this is what insurance insures |
| Speculative risk | value can go down, up, or stay the same |
| Hazard risk | property, liability, or personnel loss exposures |
| Operational risk | people, processes, systems, controls |
| Financial risk | effect of market forces on financial assets or liabilities |
| Strategic risk | trends in economy or society |
| 3 emerging technologies | AI, sensors, computer vision |
| Insurance regulation protects consumers by | verifying that policies benefit the customer, requiring insurers pay claims and represent the benefits of a policy, guaranteeing that insurance is available to anyone who needs it |
| Insurer Solvency | having enough cash on hand to pay for future claims |
| Regulators make sure insurers have enough money because it | guarantees insurers can pay claims, ensures that a CAT loss doesn’t delete their resources and ability to pay, prevents insurer from recklessly investing |
| Regulation stops insurers from pricing too low because | not charging enough premium means less cash on hand to pay claims and charging low rates could be a attempt to put competitors out of business |
| How to calculate insurers income before taxes | net underwriting gain/loss + net investment income |
| Admitted assets | items that insurers can easily turn into cash, such as stocks, bonds, and real estate |
| Liabilities on a balance sheet | insurer’s responsibility to pay policyholder’s claims |
| Loss ratio | measures how much of each premium dollar the insurer uses to pay losses and expenses, formula is losses / earned premium |
| Expense ratio | how much of each premium dollar is used to pay the insurer’s expenses (e.g. employee wages), formula is expenses / written premium |
| Combined ratio | loss ratio + expense ratio, shows you if insurer is making loss or gain, making profit if under 100, losing if over, loss ratio + expense ratio |
| Insurance is commonly marketed and sold through | independent agents and brokers, exclusive agencies, direct writers, and distribution channels |
| Independent Broker | represents the customer in buying insurance, cannot write a policy themselves, own their own expiration list |
| Independent agent | represents one or more insurers but not employees, can write a policy, own their own expiration list (list of policy info) |
| Exclusive agency | sells insurance for one insurer or group of insurers. Agents are not employees but cannot sell other insurers, do not own expiration list |
| Direct writer system | employees of the insurer are selling/writing policies |
| Ways (other than a producer) insurance is sold | digital, call centers, direct response (e.g. web form), group marketing, financial institutions |
| Underwriting | process of evaluating risks, selecting who can be insured, pricing insurance coverage, determining policy terms and conditions, and monitoring those decisions |
| The primary purpose of underwriting is to help an insurer | develop and maintain and growing, profitable book of business |
| What are the 3 primary underwriting activities | minimize adverse selection/risk, ensure adequate policyholders’ surplus, enforce underwriting guidelines |
| Risk control professionals and auditors might give underwriters what 6 things | field inspection report, operation descriptions to help classify, technical info on hazards of new materials/processes, loss control measures, new loss exposures, changes in an insured’s commercial operations |
| What are the two types of underwriters | field underwriters (interact directly with agents/applicants) and corporate underwriters (work in office) |
| What 6 things do Field Underwriters do? | Select insured, ensure accurate classification/pricing, recommend coverage, manage a book of business, support agents and insureds, support marketing objectives |
| What 9 things do Corporate underwriters do? | Research the market, formulate the underwriting policy, revise underwriting guidelines, develop coverage forms, review rates, educate/train, arrange reinsurance, assist with complex accounts, conduct underwriting audits |
| Steps of underwriting process | evaluate the application, develop alternatives and select one, implement underwriting decision, monitor decision |
| Premium is calculated by | multiplying the insurance rate by the number of exposure units, other factors can impact it further |
| Insurance rate | unit price for insurance coverage |
| Exposure unit | fundamental measures of the loss exposures used in insurance rating |
| Premium auditors help underwriters by | ensuring accurate classification of exposures, comparing anticipated loss exposures with actual, identifying new exposures, assessing an account’s desirability (they visit, talk to them), identifying hazards |
| Claims manager | setting goals for closing claims, developing the skills of staff, and establishing procedures |
| Claims Supervisors | review claim files to make sure they’re being handles correctly and help determine strategies |
| Claims representatives | handle the claims |
| Three types of claims representatives | telephone claims rep (use phone interviews), field claim rep (examine scene of loss and in-person meetings), specialized claims rep (larger orgs, specialize in one lob) |
| Risk control department and claims department | needs info to support the loss adjusting process, risk control can also give claims technical advice, etc. |
| Premium auditing and claims | claims verifies the employment classifications, and prem auditors provide inventory values, equipment lists, etc. to claims |
| Underwriting and claims | claims help uw by paying claims fairly, consistent claims handling allows for uw to appropriate price loss exposures |
| Marketing and claims | claims gives data on customer satisfaction, timeliness, etc |
| 6 Claims handling process steps | acknowledging claim, identifying policy, contracting insured, investigating/documenting claim, determining cause of loss and loss amount, concluding the claim |
| 4 questions when processing property claim | Does the insured have an insurable interest in property? Is the property covered? Is the cause of loss covered? Do any additional coverages apply? |
| Replacement cost | initial cost paid for an item |
| Agreed Value | for property difficult to value (fine arts, collections, etc.) |
| Subrogation | process through which an insurer can recover from another party the amount it paid for the loss, possible if another party caused the loss or insured the insured |
| Salvage rights | allows insurer to take possession of insured property if it’s paid for the total loss |
| Liability claims reps must determine | whether the insured is legally responsible for the loss, which is a more involved process |
| Two types of damages in a liability suit | compensatory and punitive |
| Compensatory damages | reimburse victim for harm experienced, including special damages (specific losses) and general losses (do not have a set value, like a leg) |
| Punitive damages | punishes defendants for reckless, malicious acts and to deter others from doing the same |
| A large percentage of liability cases are | negotiated out of court |
| The risk management review may be simple for __________, but not for _______. | individual or family, businesses |
| A loss run includes | an insured’s history of claims that have occurred over a specific period, valued as of a specific date. |
| Who is the first person that insured normally come in contact with to file a claim | producers (Agents) |
| Customer service representatives do what 6 things? | respond to general questions, handle claim reporting, answer billing questions, process policy endorsements, explain quotes, explain coverage |
| 4 steps for risk consultation by a producer | 1) establish goals of acceptable performance 2) compare actual results with the goals 3) correct substandard performance or revise goals 4) evaluate exceeded goals (shouldn’t be too easy) |
| Total cost of risk (TCOR) | total cost of all aspects of the organization that relate to managing risk (e.g. cost of retained losses, insurance premiums, resources) |
| 6 key traits of ideally insurable loss exposure | pure risk, fortuitous (insured has no control over a loss), definite and measurable, loss exposure is one of lots of similar exposure units, independent (only one affected), affordable |
| All insurance policies are _____, but not all ______ are insurance policies | contracts |
| According to the principle of indemnity, the insured should not… | profit from a covered loss |
| Most property and liability insurance policies are contracts of | indemnity, utmost good faith, and adhesion |
| Insurance contracts involve an exchange of… | unequal amounts |
| Once an insurance policy is in effect, an insured cannot freely | transfer the policy to another party |
| Modular policies are | made up of several different documents |
| Insurers develop specific policy forms for particular customers called | manuscript forms |
| If a client needs a type of coverage common to a large number of insureds, the insurer may choose to offer a | self-contained policy |
| Every insurance policy includes what five main provisions | declarations, definitions, insuring agreement, policy conditions, policy exclusions |
| The insurer’s promises to the insured is outlined in the | insuring agreement |
| An insurer doesn’t have to fulfill it’s promise to pay for covered losses if the insured doesn’t do what three things | pay premiums, reporting losses promptly, cooperating with the insurer |
| Who’s responsible for defense costs in a liability trial? | the insurer, as long as it relates to the covered property, damage, injury, etc. |
| Actual cash value | replacement cost - depreciation |
| For a loss exposure to be ideally insurable it must be definite in | Time, cause, and location. |
| Who assumes loss exposures from a primary insurer? | Reinsurance company |
| Federal and state government are involved in insurance to what? | help facilitate compulsory insurance purchases |
| Nonadmitted asset | CanNOT be easily converted into cash (office equipment, other property) |
| Risk control personnel can assist underwriters in what? | modifying a new applicant's loss exposures to meet eligibility requirements |
| Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that the insurer is able to what? | charge a premium that the insured can afford to pay. |
| Balance Sheet | The financial statement that reports the assets, liabilities, and policyholder's surplus of an organization as of a specific date |
| Unearned premium reserve | An insurer liability representing the amount of premiums received from policyholders that are not yet earned. |
| Telematics | The use of technological devices to transmit data via wireless communication and GPS tracking. |
| Policyholders surplus formula | assets - liabilities= net worth (policyholder's surplus) |
| A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued. | Binder |
| A brief description of insurance coverage prepared by an insurer or its agent and commonly used by policyholders to provide evidence of insurance | Certificate of insurance |
| Compensation in the form of a flat fee or a commission that is paid by the reinsurer to the reinsurance intermediary for services provided. | Brokerage |
| Principle of indemnity | The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured. |
| A risk control evaluation can make the difference between what? | the applicant’s being rejected or accepted by the underwriter |
| A policy that combines property, crime, and liability coverages into one policy. | Commercial package policy (CPP) |
| Exclusions are in place to reduce ______ | duplicate coverage |
| What 3 concepts are pertinent to understanding insurance? | risk, transfer, pooling |
| Insurance benefits who? | those whose losses are paid and society |
| Examples of federal government insurance plans | National Flood Insurance Program, Terrorism Risk Insurance Program |
| What does an insurer’s income statement show? | Its revenues, expenses, and net income |
| Mary has been approved for a life insurance policy with a low premium because on her application she falsely stated that she does not indulge in dangerous activities. What is this? | Adverse selection |
| Examples of exposure units | area, gross receipts, payroll, value insured |
| What is the most important function of a producer? | Sales |
| Producers do what 6 things? | sales, risk management review, policy issuance, premium collection, customer service, claims handling |
| Results-based standards focus on the ______ of the program, no matter how much ____ is required to achieve them. | goals, effort |
| Courtney runs a delivery service and chose to install rear-view cameras in all work vehicles. What standard has Courtney focused on? | Activity-based standards |
| Insurance policy has what 7 characteristics | contract of indemnity, utmost good faith, adhesion, conditional contract, nontransferable, involves fortuitous events and exchange of unequal amounts |
| The insurer determines the exact wording of the policy, the insured has little choice but to take it or leave it. This is what? | contract of adhesion |
| What type of insurance form is most widely used? | preprinted forms |
| What three provisions form the core of every insurance policy? | declarations, definitions, insuring agreement |
| What promise do the insuring agreements of most liability policies make? | to pay damages for bodily injury or property damage for which an insured becomes legally liable and to which the coverage applies. |
Created by:
meghan_pfeiffer