Term
|
Definition
| The likelihood that an outcome or event will occur. |
|
|
Term
|
Definition
Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs.
|
|
|
Term
|
Definition
| A condition that increases the frequency or severity of a loss. |
|
|
Term
|
Definition
| A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss. |
|
|
Term
Morale hazard
(attitudinal hazard) |
|
Definition
| A condition of carelessness or indifference that increases the frequency or severity of loss. |
|
|
Term
|
Definition
| A tangible characteristic of property, persons, or operations that tends to increase the frequency or severity of a loss. |
|
|
Term
|
Definition
| A condition of the legal environment that increases loss frequency or severity. |
|
|
Term
|
Definition
| A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial interest. |
|
|
Term
|
Definition
| Property that has a physical form. |
|
|
Term
|
Definition
| Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land. |
|
|
Term
|
Definition
| All tangible or intangible property that is not real property. |
|
|
Term
|
Definition
| Property that has no physical form. |
|
|
Term
|
Definition
| Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party. |
|
|
Term
|
Definition
| A condition that presents the possibility of loss caused by a person’s death, disability, retirement, or resignation that deprives an organization of the person’s special skill or knowledge that the organization cannot readily replace. |
|
|
Term
|
Definition
| Any condition or situation that presents the possibility of a financial loss to an individual or a family by such causes as death, sickness, injury, or unemployment |
|
|
Term
|
Definition
| A condition that presents the possibility of loss caused by a reduction in net income. |
|
|
Term
|
Definition
| Goals to be accomplished before a loss, involving social responsibility, externally imposed goals, reduction of anxiety, and economy. |
|
|
Term
|
Definition
| Risk management program goals that should be in place in the event of a significant loss. |
|
|
Term
| 6 steps of risk management |
|
Definition
1. identifying loss exposures
2. analyzing loss exposures
3. examining the feasibility of risk managment techniques
4. selecting the appropriate risk management techniques
5. implementing the selected risk management techniques
6. monitoring results and revising the risk management program. |
|
|
Term
2
Methods of information in identifying loss exposures |
|
Definition
Document analysis
Compliance review
Inspection
Expertise within and beyond the organization |
|
|
Term
|
Definition
| Financial statement that reports the assets, liabilities, and owners equity of an organization as aof a specific date |
|
|
Term
|
Definition
| American management Association |
|
|
Term
|
Definition
| Risk and Insurance Management Society |
|
|
Term
|
Definition
| The financial statement that reports on organization’s profit or loss for a specific period by comparing the revenues generated with the expenses incurred to produce those revenues. |
|
|
Term
2.6
Statement of cash flows |
|
Definition
| The financial statement that summarized the cash effects of an organization’s operating, investing, and financing activities during a specific period. |
|
|
Term
2.6
Disadvantage of financial statements |
|
Definition
Not specific enough
Based on past events/finances and require RM to forecast.
|
|
|
Term
|
Definition
Hold-harmless agreement
Insurance Policies |
|
|
Term
2.7
Hold-harmless agreement (or idemnity agreement) |
|
Definition
| A contractual provision that obligates one of the parties to assume the legal liability of another party. |
|
|
Term
|
Definition
| The process of restoring an individual or organization to a pre-loss financial condition. |
|
|
Term
|
Definition
| an agreement entered into by two or more parties that specifies the parties responsibilities to one another. |
|
|
Term
2.8
Types of Organizational policies |
|
Definition
Corporate by-laws
board minutes
employee manuals
procedure manuals
mission statements
risk management policies
|
|
|
Term
2.8
Drawbacks of using organizational policies
|
|
Definition
to many documents to review
|
|
|
Term
|
Definition
diagram that depicts the sequence of activities performed by a particular organization or process.
|
|
|
Term
|
Definition
| Depicts the hierarchy of an organizations personnel and can help to identify key personnel for whom the organization may have a personnel loss exposure. |
|
|
Term
|
Definition
| Review of past loss and other companies losses to prevent future losses. |
|
|
Term
|
Definition
Determines an organizations compliance with local, state and federal statutes and regulations.
Benefit: helps to avoid liability loss exposure. |
|
|
Term
|
Definition
| A method of analysis that identifies conditions that increase the frequency or severity of loss. |
|
|
Term
2.11
Personal inspections |
|
Definition
| Inspections by qualified persons to identify potential loss exposures. |
|
|
Term
2.12
4 requirements of Data analysis |
|
Definition
data should be:
relevant
complete
consistent
organized |
|
|
Term
|
Definition
| Data to analyze personnel loss exposures must relate to personnel with similar experience and expertise as those being considered as future loss exposures. |
|
|
Term
|
Definition
Having complete info helps to isolate the causes of each loss.
|
|
|
Term
|
Definition
1) Loss data must be collected on a conisitent basis for all recorded losses
2) data must be expressed in constant dollars, to adjust for differences in price levels. |
|
|
Term
|
Definition
Data should be organized to allow for easy review. EX: by date
by amount
by type
|
|
|
Term
2.14
Nature of probability
|
|
Definition
| the relative frequency with which the event can be expected to occur in the long run in a stable environment. |
|
|
Term
2.15
Theoretical probability |
|
Definition
| Probability that is based on the theoretical principles rather than on actual experience |
|
|
Term
2.15
Empirical probability
(a posteriori probability) |
|
Definition
| A probability measure that is based on actual experience through historical data or from the observation of facts. |
|
|
Term
2.15
Law of large numbers
Probability Analysis |
|
Definition
A technique for forecasting events, such as accidental and business losses, on the assumption that they are governed by an unchanging probability distribution.
Good for (1) substantial volume of data on past losses
(2) fairly stable operations so that patterns continue in the future |
|
|
Term
2.16
Law of Large numbers |
|
Definition
| a math principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about the future outcomes (losses) also increases. |
|
|
Term
2.16
Avoiding the limitations of law of large numbers |
|
Definition
Meet this criteria:
*Events have occurred in the past
*events can be expected to occur in the future under the same, unchanging conditinos
*events have been and will be independent and numerous |
|
|
Term
2.16
Probability distribution |
|
Definition
| A presentation (table, chart, graph) of probability estimates of a particular set of circumstances and of the probability of each possible outcome |
|
|
Term
2.16
Discrete probability dist. |
|
Definition
| have a finite number of possible outcomes and are typically used as frequency distributions. |
|
|
Term
2.16
Continuous probability distribution |
|
Definition
| infinite number of possible outcomes and are typically used as severity distributions. |
|
|
Term
2.19
Empirical Probability |
|
Definition
| of an event is an "estimate" that the event will happen based on how often the event occurs after collecting data or running an experiment (in a large number of trials). It is based specifically on direct observations or experiences. |
|
|
Term
2.19
Theoretical probability
http://regentsprep.org/Regents/math/ALGEBRA/APR5/theoProp.htm |
|
Definition
| of an event is the number of ways that the event can occur, divided by the total number of outcomes. It is finding the probability of events that come from a sample space of known equally likely outcomes. |
|
|
Term
2.19
Discrete probability dist. |
|
Definition
finite number of possible outcomes
*countable number of outcome |
|
|
Term
2.19
Continuous Probability dist. |
|
Definition
| infinite number of possible outcomes |
|
|
Term
|
Definition
| The single outcome that is the most representative of all possible outcomes included within a probability distribution. |
|
|
Term
|
Definition
| The weighted average of all of the possible outcomes of a probability distribution. |
|
|
Term
|
Definition
| The sum of the values in a data set divided by the number of values. (average) |
|
|
Term
|
Definition
The value at the midpoint of a sequential data set with an odd number of values, or the mean of the two middle values of a sequential data set with an even number of values.
ex: 9 numbers:
(9 + 1) ÷ 2 = 10 ÷ 2 = 5th |
|
|
Term
|
Definition
The number/value that comes up most often.
Range: Highest number - the smallest number |
|
|
Term
|
Definition
The variation amoung value in a distribution.
(how tight is your bell curve?) |
|
|
Term
|
Definition
The average of the differences for the items that are off from the mean or expected value.
1. calculate teh mean
2. subtract expected value from each distribution value to find the differences
3. square each of the resulting differences
4. multiply each square buy the probability associated with each value
5. sum the resulting products
6. find the square root of the sum. |
|
|
Term
2.35
Coeffecient of variation |
|
Definition
| A measure of dispersion calculated by dividing a distributions standard deviation by its mean. |
|
|
Term
|
Definition
| a probability distribution that when graphed generates a bell-shaped curve. |
|
|
Term
|
Definition
| The number of losses that occur during a set time |
|
|
Term
|
Definition
| How serious a loss might be. |
|
|
Term
2.42
Maximum Possible Loss
|
|
Definition
| Maximum amount that could be lost in the worse case scenario. Important to identify for RM. |
|
|
Term
|
Definition
Approach that analyses the Frequency and Severity of potential losses.
Frequency: Severity: Slight, Significant, Severe
Almost nil
Slight
Moderate
Definite |
|
|
Term
|
Definition
Tool to analyze loss exposure:
Combines frequency and severity distributions |
|
|
Term
|
Definition
| Used to determine when losses may occur and relate to when losses may be paid. Losses not paid for a while can earn interest on premium. |
|
|
Term
|
Definition
| The level of confidence that the available data can acccuratley indicate future losses. (severity, frequency, timing, total dollar losses.) |
|
|
Term
3.3
Risk control techniques
(6) |
|
Definition
1. avoidance
2. loss prevention
3. loss reduction
4. separation
5. duplication
6. diversification |
|
|
Term
|
Definition
| a conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable. |
|
|
Term
|
Definition
| A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from tehat activity is eliminated. |
|
|
Term
|
Definition
| a risk control technique that reduces the frequency of a particular loss. |
|
|
Term
|
Definition
| a risk control technique that reduces the severity of a particular loss. |
|
|
Term
3.7
Disaster Recovery Plan |
|
Definition
| a plan for backup procedures, emergency response, and post-disaster recovery to ensure that critical resources are available to facilitate the continuity of operations in an emergency situation. |
|
|
Term
|
Definition
| a risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss. |
|
|
Term
|
Definition
| Risk control technique that uses backups, spares, or copies of critical property, info, or capabilities and keeps them in reserve. |
|
|
Term
|
Definition
risk control technique-
spread loss exposure over numerous projects, products, markets, or regions. |
|
|
Term
|
Definition
| The portion of fire safety that focuses on the minumum building design, construction, operation, and maintenance req. necessary to assure occupants of a safe exit from the burning portion of the building. |
|
|
Term
| COPE - (Applications of risk control techniques |
|
Definition
C=Construction
O=Occupancy
P= Protection
E= External Environment |
|
|
Term
3.20 Typical liability loss exposures
Premises Liability |
|
Definition
| Created by having visitors to an organizations premises |
|
|
Term
|
Definition
| Created by conducting operations either on or away from an organizations premises |
|
|
Term
|
Definition
| Liability created by manufacturing or distributing products |
|
|
Term
| Workers Compensation Liability |
|
Definition
| Created by state statutes to cover employees for work-related injuries and illnesses. |
|
|
Term
| 3.20 Professional liability |
|
Definition
| Created by common law, which imposes a higher duty of care on professionals. |
|
|
Term
| 3.20 Completed operations liability |
|
Definition
| Created because organization is responsible for bodily injury or property damage caused by completed work when the work is completed away from the organizations premises. |
|
|
Term
| 3.20 Automobile liability |
|
Definition
| Created because drivers and owners of autos owe a duty to others to use their autos in a reasonable, prudent manner and to exercise care for the safety of others. |
|
|
Term
| 3.20 Watercraft liability |
|
Definition
| Created because drivers and owners of watercraft owe a duty to others to use their autos in a reasonable, prudent manner and to exercise care for the safety of others. |
|
|
Term
| 3.20 Management liability |
|
Definition
| Created by the various duties that those in postions of trust owe to those they serve. Directors, officers, and managers hold such positions. |
|
|
Term
| 4.4 Common risk financing goals |
|
Definition
-Pay for losses
-manage the cost of risk
-manage cash flow veriability
- maintain an appropriate level of liquidity
- comply with legal requirements |
|
|
Term
|
Definition
| a risk financing technique by which losses are retained by generating funds within the organization to pay for the losses. |
|
|
Term
|
Definition
| In the context of risk management, a risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party |
|
|
Term
| 4.10 Retention funding measures |
|
Definition
-Current expensing of losses
- using an unfunded reserve
-using a funded reserve
-borrowing funds |
|
|
Term
| 4.11 Advantages of retention |
|
Definition
- cost savings
- control of claims process
- timing of cash flows
- incentives for risk control |
|
|
Term
| 4.13 Advantage of Transfer |
|
Definition
-Reduce exposure to large losses
- reduce cash flow variability
- provide ancillary services
- avoid adverse employee and public relations |
|
|
Term
| 4.15 Factors that impact the ability to risk finance measure |
|
Definition
- the mix of retention and transfer
- loss exposure characteristics
- individual or org. specific characteristics |
|
|
Term
| 4.16 Loss exposure characteristics |
|
Definition
| Frequency and severity of losses associated with each loss exposure. |
|
|
Term
|
Definition
| Ind. or organizations willingness to assume risk. |
|
|
Term
|
Definition
| Finanicial status of an ind. or org can impact their ability to retain risk. |
|
|
Term
|
Definition
| Org may be better able to handle core operations better since they are most knowledgeable on the core operations. |
|
|
Term
| 4.18 Ability to Diversify |
|
Definition
| Org may diversify areas of high loss exposure with other areas of low loss exposure. |
|
|
Term
| 4.18 Ability to control losses |
|
Definition
| More time/cost spent on loss control can reduce the severity/frequency of losses. |
|
|
Term
| 4.18 Ability to administer a retention plan |
|
Definition
| Retention requires more administration than risk transfer. |
|
|
Term
| 4.19 Risk financing measures |
|
Definition
-Guaranteed cost insurance
- self - insurance
- large deductible plans
- captive insurers
- finite risk insurance plans
- pools
- retrospective rating plans
- hold-harmless agreements
- capital market solutions |
|
|
Term
| 4.10 Guaranteed cost insurance (Risk Financing measures) |
|
Definition
| insurance policies in which the premium and limits are specified in advance. |
|
|
Term
|
Definition
| The first level of insurance coverage above any deductible |
|
|
Term
|
Definition
| a level of insurance coverage above the primary layers |
|
|
Term
|
Definition
| insurance that covers losses above an attachment point, below which there is usually another insurance policy or a self-insured retention. |
|
|
Term
|
Definition
| a liability policy that provides excess coverage above underlying policy and/or for additional items |
|
|
Term
|
Definition
| A level of excess insurance coverage between a primary layer and an umbrella policy. |
|
|
Term
|
Definition
| a form of retention under which an organization records its losses and maintains a formal system to pay for them. |
|
|
Term
| 4.23 Large deductible plan |
|
Definition
| Work comp w/$100,000+ deductible. Insured self insured most of losses while the insurer provided admin and claims services. the employer reimburses the insurer for losses under the deductible. |
|
|
Term
|
Definition
| Subsidiary formed to insure the loss exposures of its parent company and the parents affiliates. |
|
|
Term
| 4.26 Captive insurer - considerations |
|
Definition
- what types of loss exposures the captive will insured
- where the captive will be domiciled
- whether the captive will accept unaffiliated business |
|
|
Term
| 4.27 Risk retention group |
|
Definition
| a group captive formed under the req. of the Liability Risk Retention act of 1986 to insure the parent organizations |
|
|
Term
|
Definition
| An arrangement under which an organization rents capital from a captive to which it pays premiums and receives reimbursement for its losses. |
|
|
Term
|
Definition
RRG - Risk retention group
Rent a captive
Protected cell company (PCC) |
|
|
Term
| 4.28 Protected cell company (PCC) |
|
Definition
| corp entity separated into cells so that each participating company owns an entire cell but only a portion of the overall company. |
|
|
Term
| 4.29 Finite Risk Insurance Plan |
|
Definition
| a risk financing plan that transfers a limited (finite) amount of risk to an insurer. |
|
|
Term
|
Definition
| a group of organizations that band together to insure each other’s loss exposures (ex: wind pool) |
|
|
Term
| 4.31 Retrospective rating plans |
|
Definition
| rating plan that increases or reduces an insureds premium for a policy period based on the insureds own losses during the same period |
|
|
Term
|
Definition
| the level at which a loss occurrence is limited for the purpose of calculating a retrospectively rated premium. |
|
|
Term
| 4.35 Hold harmless agreement |
|
Definition
| non-insurance risk transfer measure. commonly used to assign liability for losses arising out of a particular relationship or activity. |
|
|
Term
|
Definition
| a financial market in which long term securities are traded. |
|
|
Term
|
Definition
| The process of creating a marketable investment security based on a financial ransactions expected cash flows |
|
|
Term
| 4.37 Insurance securitization |
|
Definition
| the process of creating a marketable insurance-linked security based on the cash flows that arise from the transfer of insurable risks. |
|
|
Term
|
Definition
| a financial transaction in which one asset is held to offset the risk associated with another asset. |
|
|
Term
|
Definition
| a financial contract that derives its value from the value of another asset. |
|
|
Term
| 4.40 contingent capital arrangement |
|
Definition
| agreement entered into before any losses occur that enable the org to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold |
|
|
Term
| 5.3 4 major differences between RM and ERM |
|
Definition
-risk categories
- strategic integration
- performance metrics
- organizational structure |
|
|
Term
|
Definition
| a chance of loss or no loss, but no chance of gain. |
|
|
Term
|
Definition
| a chance of loss, no loss, or gain. |
|
|
Term
|
Definition
| senior risk professional engaged in ERM in an enterprise |
|
|
Term
|
Definition
Strengths
Weakness
Opportunities
Threats |
|
|
Term
|
Definition
| core aspects of an organization, including its vision, mission, strategies, infrastructure, policies, offerings, and processes. |
|
|
Term
| 5.12 ERM integration process |
|
Definition
1- develop ERM goals
2- Identify risk
3- Analyze, evaluate and prioritize critical risk
4- treat critical risk, considering priority (risk treatment)
5- monitor critical risk |
|
|
Term
| 5.14 Factors that impact ERM goals |
|
Definition
| - org risk appetite, why they need the program, intended scope of program, corp culture (department focused vs collaborative culture) |
|
|
Term
| 5.15 Analyze, evaluate, and prioritize critical risk |
|
Definition
| competition, politics, economy, customer demo, etc |
|
|
Term
| 5.16 treating Critical risk |
|
Definition
| Avoid - Accept - Transfer - Mitigate - Optimize/exploit |
|
|
Term
| 5.25 Frameworks - ISO 31000:2009 |
|
Definition
| consist of 3 major parts, principals, framework, processes for managing risk. |
|
|
Term
| 5.26 Frameworks - BS 31100 |
|
Definition
| British Standards Inst. published BS 31100 as a code of practice for risk management. (principals and terminology) |
|
|
Term
| 5.26 Frameworks - COSO II |
|
Definition
| Committee of Sponsoring Org of the the Treadway Commission published COSO ERM (2004) defines ERM as a process that is driven by the BOD. |
|
|
Term
| 5.27 Frameworks - AS/NZS 4360 |
|
Definition
| joint Aust/New Zeal standard for ERM is a generic framework for managing risk for leaders/managers/execs. |
|
|
Term
|
Definition
| Federation of European Risk Mgt Assoc consist of national risk mgt, indiv RM from central european countries, health orgs, eductational sectors, and public sectors. (terms, process, structure, goals) |
|
|
Term
| 5.29 Basel and Solvency II |
|
Definition
| 2004- to provide recommendations on banking laws and regulation. International standard that banking regulators can use to guard against risk. |
|
|
Term
|
Definition
| arrangement that facilitates the grouping of loss exposures and resources to pay for any losses that may occur. |
|
|
Term
| 6.4 pooling - Standard deviation |
|
Definition
Std Dev (pool) = /n x variance (single member)
(n = number of members in pool) |
|
|
Term
|
Definition
Pooling = risk sharing mechanism
Insurance = risk transfer mechanism. |
|
|
Term
| 6.9 Benefits of insurance (chart 6.12) |
|
Definition
- Paying for losses (indemnify0
- manage cash flow uncertainty
- meet legal requirements
- promote risk control
- enable efficient use of resources
- provide support for insureds credit.
- providing a source of investment funds
- reduce social burdens |
|
|
Term
| 6.13 Ideally insurable loss exposure (6 characteristics) |
|
Definition
1- Pure risk
2- fortuitous losses
3 - definite and measurable
4- large number of similar exposures
5- independent and not catastrophic
6 - affordable (premium is economically feasible) |
|
|
Term
| 6.17 Cross sectional risk transfer |
|
Definition
| spreading the risk among a large number of similar exposures within the same period. |
|
|
Term
| 6.18 Intertemporal risk transfer |
|
Definition
| spreading the risk through time. (not through large number of similar units) |
|
|
Term
| 6.27 Premises and operations liability |
|
Definition
Exposure due to injury or damage from:
- accident on premises owned or rented by org.
- accident away from premises if arising out of org’s operations. |
|
|
Term
|
Definition
Exposure due to injury or damage from:
- defective or inherently dangerous products. |
|
|
Term
| 6.28 Personnel loss exposures |
|
Definition
- death
- disability
- retirement
- resignation
(deprive org of skills/knowledge) |
|
|
Term
| 6.30 Net income - loss exposures (due to prop/liab losses) |
|
Definition
| net income = revenue - expenses |
|
|
Term
| 6.30 Net income associate with Property losses |
|
Definition
| loss due to physical damage to propery |
|
|
Term
| 6.31 Net income w/Liability loss |
|
Definition
| loss due to liability. Ex: food poisoning from restaurant, less customers in future. |
|
|
Term
| 6.34 Life, health and retirement |
|
Definition
| exposures maintained through life, health and retirement products |
|
|
Term
|
Definition
| premature death = death of a person with outstanding financial obligations. (person had liabilities) |
|
|
Term
| 6.35 Health loss exposures |
|
Definition
| insurance to cover medical cost or possibly loss of earnings due to medical conditions. |
|
|
Term
| 6.35 Retirement loss exposure |
|
Definition
| possibility of insufficient income during retirement is another important loss exposure faced by individuals. |
|
|
Term
| 6.36 Government Insurance Programs |
|
Definition
| exist to fill unmet needs in the private insurance market. (flood, CEA, work comp, etc) |
|
|
Term
| 6.38 Level of Government Involvement |
|
Definition
- exclusive insurer
- Partner with private insurers
- competitor of private insurers. |
|
|
Term
| 7.3 Principle of indemnity |
|
Definition
| principle that insurance policies should provide a benefit no greater than the loss suffered by an insured. |
|
|
Term
| 7.3 Contract of indemnity |
|
Definition
| contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of loss. |
|
|
Term
| 7.3 Distinguishing characteristics of insurance policies |
|
Definition
- indemnity
- utmost good faith
- fortuitous losses
- contract of adhesion
- exchange of unequal amounts
- conditional
- nontransferable |
|
|
Term
| 7.5 Collateral source rule |
|
Definition
| legal doc that provides that the damages owed to a victim should not be reduced because the victim is entitled to recover money from other sources, such as an insurance policy. |
|
|
Term
|
Definition
| any contract in which one party must either accept the agreement as written by the other party or reject it. |
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Term
| 7.8 Reasonable expectations doc |
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Definition
| legal doc that provides for an ambiguous ins. policy clause to be interpreted in the way that an insured would reasonably expect. |
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Term
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Definition
| Something of value or bargained for and exchanged by the parties to a contract. |
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Term
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Definition
| a contract that one or more parties must perform only under certain conditions. |
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Term
| 7.11 Self contained policy |
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Definition
| single document that contains all the agreements between the insured and the insurer and that forms a complete insurance policy. |
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Term
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Definition
| policy that covers only one line of business. |
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Term
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Definition
| policy that covers two or more lines of business. |
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Term
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Definition
| an insurance policy that consists of several different documents, none of which by itself forms a complete policy |
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Term
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Definition
| insurance form that is drafted according to terms negotiated between a specific insured (or group) and insurer. |
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Term
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Definition
- declarations
- definitions
- insuring agreements
- conditions
- exclusions
- misc provisions |
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Term
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Definition
| insurance policy info page(s) providing specific details about the insured and the subject of the insurance. |
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Term
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Definition
| Promise to make payments based on policy coverages/conditions |
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Term
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Definition
| qualifications on promise to make payment |
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Term
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Definition
| limitations on promise to make payment (items not covered) |
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Term
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Definition
| wide variety of provisions that may alter policy |
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Term
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Definition
| Insureds should conduct pre and post loss policy analysis to prepare for potential coverage questions and adjust the policy provisions. |
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Term
| 7.24 Pre-loss policy analysis |
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Definition
| relies on scenario analysis “what if” to determine the extent of coverage (if any) that the policy provides for losses. |
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Term
| 7.24 Post-loss policy analysis |
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Definition
| Insurers process to determine coverage after a loss occurs (DICE - Declarations, Insuring agreement, Conditions, Exclusions) |
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Term
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Definition
| interest in the subject of the insurance policy. Interested party would suffer financial loss. |
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Term
| 8.4 Legal basis for Insurable interest |
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Definition
-Ownership interest in the property
-Contractual obligations
- exposure to legal liability
- factual expectancy
- representation of another party |
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Term
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Definition
| a situation in which a party experiences an economic advantage if an insured event does not occur, or conversely, economic harm if the event does occur. |
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Term
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Definition
| Party that is authorized by the principal to act on the principals behalf |
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Term
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Definition
| Someone that has legal title to a property but is responsible that it be used, handled, and transferred solely for the benefit of the beneficiary. |
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Term
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Definition
| The party temporarily possessing the personal property in a bailment. |
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Term
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Definition
| owner of the personal property in a bailment. |
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Term
| 8.7 Jointly owned property |
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Definition
- joint tenancy
- tenancy by the entirety
- tenancy in common
- tenancy in partnership |
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Term
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Definition
| each owner “tenant” owns the entire property and has a right of survivorship |
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Term
| 8.8 Tenancy by the entirety |
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Definition
| joint tenancy between a husband and wife. |
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Term
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Definition
| concurrent ownership of property, in equal or unequal shares, by 2 or more owners. (if 1 party passes on, share is transferred to heirs) |
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Term
| 8.9 Tenancy in partnership |
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Definition
| concurrent ownership by a partnership and individual partners of personal property (rights of survivorship) |
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Term
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Definition
| Insurance written for an amount approx. the full value of the asset insured. |
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Term
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Definition
| the number of losses that occur within a specified period. |
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Term
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Definition
| the amount of loss, typically measured in dollars, for a loss that has occurred. |
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Term
| 8.12 Insurance to value Provision |
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Definition
| a provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the property. |
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Term
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Definition
| clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property’s value. |
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Term
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Definition
| amount payable = (limit of insurance/(value of cov property at time of loss x coinsurance percentage)) x total amount of covered loss. |
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Term
| 8.13 coinsurance alt formula |
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Definition
| Amount payable = (Did/Should) X Loss |
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Term
| 8.14 Agreed value optional coverage |
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Definition
| optional coverage that suspends the coinsurance condition if the insured carries the amount of insurance agreed to by the insurer and insured. |
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Term
| 8.14 Inflation guard protection |
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Definition
| a method of protecting against inflations by increasing the applicable limit for covered property by a specified percentage over the policy period |
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Term
| 8.14 Peak season endorsement |
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Definition
| endorsement that covers the fluctuating value of BPP by providing differing amounts of insurance for certain time periods during the policy period. |
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Term
| 8.15 Actual cash value (ACV) |
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Definition
| cost to replace property with new property of like kind and quality less depreciation. |
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Term
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Definition
| cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation. |
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Term
| 8.16 Accounting depreciation |
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Definition
| company can choose to depreciate an item over the useful life rather than expensing it in the year of the purchase. |
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Term
| 8.16 Economic Depreciation |
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Definition
| the difference between the rc of the property an its current market value. |
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Term
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Definition
| the price at which a particular piece of property could be sold on the open market by an unrelated buyer and seller. |
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Term
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Definition
| a method for determining ACV based on court decisions that require all relevant factors to be considered. |
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Term
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Definition
| if property is lost, the insured is entitled to the current cost of repairing damaged property or of buying or building new property of LKQ even if more than the original price. |
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Term
| 8.19/20 Agreed value method |
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Definition
| If total loss occurs, the insurer agrees to pay a predetermined amount. (watercraft, antiques, paintings, etc) |
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Term
| 8.20 Functional valuation method |
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Definition
| Insurer is required to pay no more than the cost to repair or replace the damaged property. |
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Term
| 8.21 Valuation of liability claims |
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Definition
| liability policies usually do not specify how the amount of the covered claim is determined. (lesser of: compensable amount of the claim or the applicable policy limit) |
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Term
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Definition
| money claimed by, or a monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible. |
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Term
| 8.21 Settlement of the claim (liability) |
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Definition
| Typically via negotiations or trial |
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Term
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Definition
| claimant has burden of proof and must establish what losses were proximately caused by the insured. |
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Term
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Definition
| The maximum amount payable under the insurance policy. |
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Term
| 8.23 CGL - Commercial General Liability |
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Definition
| typically contain multiple policy limits |
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Term
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Definition
| risk financing technique that requires the insured to retain a portion of the loss |
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Term
| 8.24 Benefits of deductibles |
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Definition
- encourage risk control by the insured
- eliminate the need for the insurer to process small losses (reduces insures cost/expenses) |
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Term
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Definition
| insurer trading revenue for multiple small loss payment and expenses. (reason for insured to have correct deductible) |
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Term
| 8.27 SIR- Self-insured retention |
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Definition
| Often used instead of a deductible in liability policies to transfer a set amount of the loss to the insured. |
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Term
| 8.27 Reasons for limited use of deductibles in liability coverage |
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Definition
- insured may not report small losses and they will escalate
- deductible would not noticeably reduce premiums. |
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Term
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Definition
- insurer pays/defends at dollar one and bills insured for deductible.
- SIR - insured pays only losses that exceed the SIR amount.(insured pays for adjustement/defense of claims below SIR)
- SIR - full policy limit is available on top of the SIR. Liability deductible may reduce the policy limit. |
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Term
| 8.29 Non-insurance Agreements |
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Definition
| other contractually enforceable source of recovery that does not involve insurance. (lease, credit card protection, auto/home warranty) |
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