Term
| Major function of insurance |
|
Definition
| To achieve a spread of risk. |
|
|
Term
| Definition of "spread of risk" |
|
Definition
| To share the losses of the few among the many. |
|
|
Term
| What are the five important points contained in the definition of insurance? |
|
Definition
1. Means of shifting one's financial responsibility for a loss to another party.
2. Payment made only when a certain risk or peril occurs.
3. Payment restricted to amount required to indemnify the insured.
4. Insurance covers losses to which the object of insurance may be exposed.
5. The indemnity can be money or other thing of value. |
|
|
Term
|
Definition
The chance of financial loss to which the object of insurance may be exposed.
**It has also come to mean "the object of insurance" I.e., a building** |
|
|
Term
|
Definition
The cause or causes of loss.
I.e., fire, wind, hail |
|
|
Term
| Identify three types of insurance included in the broad area of "property and casualty insurance" - otherwise known as General Insurance |
|
Definition
1. Auto Insurance
2. Property Insurance
3. Liability Insurance |
|
|
Term
| There are two major types of insurers. Identify them & provide examples. |
|
Definition
1. Private Insurers
a) Stock Companies: Ownership rests in the
hands of company shareholders whose main purpose is to derive profit from their investments.
b) Mutual Companies: Corporation owned by its mutual policy holders. The main goal is to provide policy holders with insurance at as low a cost as possible. Money made by the company gets refunded to policy holders through dividends.
2. Government Insurers: Federal & Provincial gov'ts are involved in providing various insurance plans. I.e., Compulsory Auto Insurance (ICBC), medical insurance, EI, Workers' Compensation |
|
|
Term
| Identify two methods used by insurers to sell their products. |
|
Definition
1. Direct Writing System
2. Independent Brokerage System |
|
|
Term
| Explain how a Direct Writing System works. |
|
Definition
Insurers are employees of the insurer & limited to selling products of that insurer.
Remuneration is either on a salary or commission basis, or a combination of the two.
Insurer owns all of the business written & performs all administrative functions. |
|
|
Term
| Explain how an Independent Brokerage System works. |
|
Definition
Brokerage owners are NOT employees of insurers & can choose to represent more than one insurance company as well as the Facility Association.
Brokerage is paid commission by the insurer on all business it writes. ]
Brokerage owns all business it writes & is responsible for providing policy holders with a number of client services. |
|
|
Term
| Of Direct Writer & Independent Brokerage, which is most common? |
|
Definition
|
|
Term
|
Definition
| A means to shift financial responsibility for a loss to another. |
|
|
Term
| Property & Casualty Insurance also means: |
|
Definition
|
|
Term
| What are the four other functions of insurance? |
|
Definition
1. Basis of Credit System
2. Loss Prevention and Loss Reduction
3. Eliminates Worry - Encourages Entrepreneurship
4. Source of Employment and Investment Capital |
|
|
Term
| Identify three categories of risk. |
|
Definition
1. Personal Risk
2. Property Risk
3. Liability Risk |
|
|
Term
| Identify four option of dealing with risk& & which of these is least practical |
|
Definition
1. Avoidance of Risk - Least practical
2. Controlling of Risk
3. Retention of Risk
4. Transfer of Risk |
|
|
Term
| There are two types of risk. Identify them & provide a brief description of each. Which of these is insurable? |
|
Definition
1. Speculative Risk: Has potential of financial gain or loss.
2. Pure Risk: Only a chance of financial loss with no chance of financial gain. Only pure risk is insurable. |
|
|
Term
|
Definition
| An agreement between two or more parties which is enforceable by law. |
|
|
Term
| Identify the five elements required to be present in all contracts. |
|
Definition
1. Agreement
2. Consideration
3. Legality of Object
4. Legal Capacity of Parties
5. Genuine Intention |
|
|
Term
| Identify the three additional elements which are unique to insurance contracts and which must be present if an insurance contract is to be enforceable by law. |
|
Definition
1. Insurable Interest: people have insurable interest when they are able to show they would suffer financially by a loss.
2. Utmost Good Faith: Complete honesty on the parts of both the insurer and the insured
3. Indemnity: Law restricts payment uner insurance contracts to only those amounts as are required to indemnify insureds for their losses. |
|
|
Term
| In the insurance business, it is common for brokers to "bind" an insurer on a risk. Explain. |
|
Definition
| This means that the broker/agent has committed the insurer to provide a contract of insurance on the subject matter under discussion. |
|
|
Term
| Identify two documents or sources which brokers can refer to to determine the extent of "binding authority" given to them. |
|
Definition
|
|
Term
| Identify three types of insurance forms used by insurers to make changes to an existing policy. |
|
Definition
1. Endorsements or Riders: acknowledges a change in the terms of the contract
2. Floaters: provides coverage for property having a high degree of mobility.
3. Separate Policies: Sometimes a separate policy is needed to provide additional coverages needed by insureds.
**In these instances, there is no actual change to the original contract.** |
|
|
Term
|
Definition
| Is said to exist where an unconditional acceptance of an offer has been made. |
|
|
Term
|
Definition
| Is an exchange of something of value. |
|
|
Term
|
Definition
| This contractual requirement is breached when an applicant for insurance deliberately withholds information about previous claims, cancellations or mistak. |
|
|
Term
|
Definition
| Is present when it can be shown the contract was not affected by fraud, duress, concealment or mistake. |
|
|
Term
|
Definition
| People who are able to show that they would suffer financially by a loss are said to have this. |
|
|
Term
|
Definition
The insured: The insurer must be able to rely on the truthfulness of the insured's statements regarding info about the risk & details of previous claims, cancellations, and refusals of insurance
The insurer: The contract written by the insurer is expected to be written in clear & unambiguous language. Claims are expected to be handled promptly & fairly with unnecessary delays in their settlement may demonstrate a lack of good faith on the part of the insurer. |
|
|
Term
|
Definition
| A part of all insurance contracts which attempts to provide insureds with the actual amount of their loss. No more, no less. |
|
|
Term
| Disadvantages of relying on avoidance, controlling & retention of risk. |
|
Definition
1. Avoidance of Risk: means that all chance of financial loss has been eliminated - this is very difficult to do and unpractical.
2. Controlling of Risk: means taking measures to reduce frequency & severity of losses. Loss control measures reduce or mitigate risk & therefore are not a total solution in eliminating financial loss, because:
i.e., burglar and fire alarms do not always work.
3. Retention of Risk = self insurance: People or businesses can seldom afford to totally finance their own losses. A deductible on a policy is one way an insured can retain part of the risk. The deductible is the amount of the loss the insured is willing to pay before involving the insurer. |
|
|
Term
| Status of contract where essential element(s) not present. |
|
Definition
1. VOID: "A void contract is one which is unable in law to support the purpose for which it was intended."
2. VOIDABLE: "A voidable contract is one which is void as to (the) wrongdoer but not void as to (the) wronged party, unless the wronged party elects to so treat it." |
|
|
Term
| Source of broker's authority to bind insurer on a risk. |
|
Definition
| Generally, an insurer's Agency Agreement will provide the brokerage with the authority to bind the insurer for certain classes of risks & limits. |
|
|
