Term
| Objective Risk (Degree of Risk) |
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Definition
| The relative variation of actual loss from expected loss |
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Term
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Definition
| uncertainty based on a person's mental condition or state of mind |
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Term
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Definition
| refers to the long-runrelative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions |
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Term
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Definition
| is the individual's personal estimate of the chance of loss |
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Term
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Definition
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Term
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Definition
| is a condition that creates or increases the frequency or severity of loss |
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Term
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Definition
| is a physical condition that increases the frequency or severity of loss. Ex: icy roads, defective wiring, defective lock |
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Term
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Definition
| is dishonesty or character defects in an individual that increase the frequency or severity of loss. Ex: faking an accident, submitting a fraudulent claim. |
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Term
| Attitudinal Hazard (Morale Hazard) |
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Definition
| is carelessness or indifference to a loss, which increases the frequency or severity of a loss. EX: leaving car keys in unlocked car, changing lanes on a congested road |
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Term
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Definition
| Refers to characteristics of the legal system or regulatory environment that increase the frequency or severity of losses. EX: large damage awards in liability lawsuits. |
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Term
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Definition
| uncertainty concerning the occurrence of loss |
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Term
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Definition
| A situation in which there are only the possibilities of loss or no loss |
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Term
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Definition
| A situation in which either profit or loss is possible |
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Term
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Definition
| A risk that affects only individuals or small groups and not the entire economy |
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Term
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Definition
| A risk that affects the entire economy or large numbers of persons or groups within the economy |
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Term
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Definition
| A term that encompasses all major risks faced by a business firm. Such rusks include pure risk, speculative risk, strategic risk, operational risk, and financial risk. |
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Term
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Definition
| Refers to the uncertainty of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money. |
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Term
| Enterprise Risk Management |
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Definition
| Combines into a single unified treatment program all major risks faced by the firm. |
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Term
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Definition
| Risks that directly affect an individual |
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Term
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Definition
| The death of a family head with unfulfilled financial obligations |
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Term
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Definition
| The present value of the family's share of the deceased breadwinner's future earnings |
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Term
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Definition
| The risk of having property damaged or lost from numerous causes |
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Term
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Definition
| A financial loss that results from the physical damage, destruction, or theft of the property |
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Term
| Indirect (Consequential Loss) |
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Definition
| A financial loss that results indirectly from the occurence of a direct physical damage or theft loss |
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Term
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Definition
| You can be held legally liable if you do something hat results in bodily injury or property damage to someone else |
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Term
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Definition
| Personal risks (premature death, poor health, unemployment, and inadequate retirement income), property risks (direct and indirect), and liability risks |
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Term
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Definition
| Property risks (direct and indirect-e.g. "business income"), liability risks, personnel risks, crime, and speculative financial risks |
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Term
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Definition
| A technique for managing risk |
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Term
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Definition
| Consists of certain activities that reduce the frequency or severity of losses. |
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Term
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Definition
| Aims at reducing the probability of loss so tat the frequency of losses is reduced. |
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Term
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Definition
| To reduce the severity of a loss after it occurs |
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Term
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Definition
| An individual or a business firm retains part of all of the financial consequences of a given risk |
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Term
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Definition
| An individual is consciously aware of the risk and deliberately plans to retain all or part of it |
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Term
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Definition
| Certain risks may be unknowingly retained because of ignorance, indifference, or laziness. Passive retention is very dangerous if the risk retained has potential for destroying you financially. |
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Term
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Definition
| A special form of planned retention by which part or all of a given loss exposure is retained by the firm |
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Term
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Definition
| An arrangement by which the primary insurer that initially writes the insurance transfers to another insure (called the reinsurer) part or all of the potential losses associated with such insurance |
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Term
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Definition
| Various methods other than insurance by which a pure risk and its potential financial consequences can be transferred to another party, for example, contracts, leases, and hold-harmless agreements |
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Term
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Definition
| A technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling futures contracts on an organized exchange, such as the Chicago Board of Trade or NYSE. |
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Term
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Definition
| Pooling of fortuitous losses by transfer of risks to insurers who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk |
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Term
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Definition
| Spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss |
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Term
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Definition
| States that the greater the number of exposures, the more closely will the actual results approach the probable results that are expected from an infinite number of exposures |
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Term
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Definition
| One that is unforeseen and unexpected by the insured and occurs as a result of chance |
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Term
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Definition
| Means that a pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position to pay the loss than the insured |
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Term
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Definition
| The insured is restored to his or her approximate financial position prior to the occurrence of the loss |
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Term
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Definition
| The tendency of persons with a higher-than-average chance of loss to seek insurance at standard (average) rates, which if not controlled by underwriting, results in higher-than-expected loss levels |
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Term
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Definition
| The process of selecting and classifying applicants for insurance |
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Term
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Definition
| Pays death benefits to designated beneficiaries when the insured dies |
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Term
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Definition
| indemnifies property owners against the loss or damage of real or personal property caused by various perils, such as fire, lightning, windstorm, or tornado |
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Term
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Definition
| Covers the insured's legal liability arising out of property damage or bodily injury to others; legal defense costs are also paid |
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Term
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Definition
| A broad field of insurance that covers whatever is not covered by fire, marine, and life insurance; casualty lines include auto, liability burglary and theft, workers compensation, and health insurance |
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Term
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Definition
| Coverages that insure the real estate and personal property of individuals and families or provide them with protection against legal liability |
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Term
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Definition
| Property and casualty coverages for business firms, nonprofit organizations, and government agencies |
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Term
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Definition
| Government insurance programs with certain characteristics that distinguish them from other government insurance plans. Programs are generally compulsory; specific earmarked taxes fund the programs benefits are heavily weighted in favor of low-income groups; and programs are designed to achieve certain social goals |
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Term
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Definition
| The amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and an allowance for contingencies and profit |
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Term
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Definition
| A process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures |
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Term
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Definition
| Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs |
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Term
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Definition
| refers to the probable number of losses that may occur during some given time period |
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Term
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Definition
| Refers to the probable size of the losses that may occur |
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Term
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Definition
| The worst loss that could happen to the firm during its lifetime |
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Term
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Definition
| The worst loss that is likely to happen |
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Term
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Definition
| A certain loss exposure is never acquires, or an existing loss exposure is abandoned |
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Term
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Definition
| The dollar amount of losses that the firm will retain |
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Term
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Definition
| An insurer owned by a parent firm for the purpose of insuring the parent firm;s loss exposures |
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Term
| Single Parent Captive (Pure Captive) |
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Definition
| An insurer owned by only one parent, such as a corporation |
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Term
| Association or Group Captive |
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Definition
| An insurer owned by several parents |
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Term
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Definition
| A provision by which a specified amount is subtracted from the loss payment otherwise payable to the insured |
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Term
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Definition
| A plan in which the insurer does not participate in the loss until the actual loss exceeds the amount a firm has decided to retain |
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Term
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Definition
| Written for the firm, the language and meaning of the contractual provisions must be clear to both parties |
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Term
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Definition
| The identification of pure risks faced by an individual or family, and to the selection of the most appropriate technique for treating such risks |
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Term
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Definition
| A corporation owned by stockholders |
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Term
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Definition
| A corporation owned by the policy-owners |
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Term
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Definition
| Owned by the policy-owners; there are no stockholders, and the insurer does not issue assessable policies |
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Term
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Definition
| The right to assess policy-owners an additional amount if the insurer's financial operations are unfavorable |
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Term
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Definition
| A mutual insurer that provides life and health insurance to members of a social or religious organization |
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Term
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Definition
| A mutual insurer is converted into a stock insurer |
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Term
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Definition
| The world's leading insurance market that provides services and physical facilities for its members to write specialized lines of insurance |
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Term
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Definition
| A company that directly or indirectly controls an authorized insurer |
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Term
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Definition
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Term
| Savings Bank Life Insurance (SBLI) |
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Definition
| Life insurance that was sold originally by mutual savings banks in three states: Massachusetts, New York, and Connecticut |
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Term
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Definition
| Someone who legally represents the principal and has the authority to act on the principal's behalf |
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Term
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Definition
| Someone who legally represents the insured |
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Term
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Definition
| An insurer not licensed to do business in the state |
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Term
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Definition
| A special type of broker who is licensed to place business with a nonadmited insurer |
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Term
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Definition
| A system by which an insurer builds its own agency force by recruiting, financing, training, and supervising new agents |
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Term
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Definition
| The general agent is an independent contractor who represents only one insurer |
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Term
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Definition
| Another type of agency building system |
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Term
| Nonbuilding Agency System |
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Definition
| A marketing system by which an insurer sells its products through established agents who are already engaged in selling life insurance |
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Term
| Personal-producing General Agent |
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Definition
| A successful agent who is hired primarily to sell insurance under a contract that provides both direct and overriding commissions |
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Term
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Definition
| A marketing system by which life and health insurance is sold directly to customers without the services of an agent |
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Term
| Independent Agency System |
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Definition
| Type of property and liability insurance marketing system, sometimes called the American agency system, in which the agent is an independent businessperson representing several insurers. The agency owns the expirations or renewal rights to the business, and the agent is compensated by commissions that vary by line of insurance |
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Term
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Definition
| The agent represents only on insurer or group of insurers under common ownership |
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Term
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Definition
| An insurer in which the salesperson is an employee of the insurer, not an independent contractor |
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Term
| Multiple Distribution Systems |
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Definition
| Insurance marketing method that refers to the use of several distribution systems by an insurer, for example, a property and liability insurer may use the independent agency method and direct response system to sell insurance |
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Term
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Definition
| A plan for selling individually underwritten property and liability coverages to group members; auto and homeowners insurance are popular lines that are frequently used in such plans |
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Term
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Definition
| Pricing of insurance and the calculation of insurance premiums |
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Term
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Definition
| The process of selecting, classifying, and pricing applicants for insurance |
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Term
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Definition
| Persons who make daily decisions concerning the acceptance or rejection of business-are expected to follow official company policy |
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Term
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Definition
| Has authority to settle small first-party claims up to some maximum limit |
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Term
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Definition
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Term
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Definition
| An organization or individual that adjusts claims for a fee |
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Term
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Definition
| Represents the insured rather than the insurance company and is paid a fee based on the amount of the claim settlement |
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Term
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Definition
| A liability item on the insurer's balance sheet that represents the unearned portion of gross premiums on all outstanding policies at the time of valuation |
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Term
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Definition
| An optimal, case-by-vase method that is used when the ceding company received an application for insurance that exceeds its retention limit |
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Term
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Definition
| The primary insurer has agreed to cede insurance to the reinsurer, and the reinsurer has agreed to accept the business |
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Term
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Definition
| The primary insurer to help compensate for the expenses incurred in writing the business |
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Term
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Definition
| The reinsurer agrees to accept insurance in excess of the ceding insurer's retention limit, up to some maximum amount |
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Term
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Definition
| Reinsurance is designed largely for protection against a catastrophic loss |
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Term
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Definition
| an organization of insurers that underwrites insurance on a joint basis |
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Term
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Definition
| An insurable risk is transferred to the capital markets through the creation of a financial instrument, such as a catastrophe bond, futures contract options contract or other financial instrument |
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Term
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Definition
| Corporate bonds that permit the issuer of the bond to skip or reduce scheduled interest payments if a catastrophic loss occurs |
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Term
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Definition
Replacement cost less depreciation.
Replacement cost - Depreciation= ACV |
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Term
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Definition
| The values exchanged may not be equal but depend on an uncertain event |
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Term
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Definition
| The values exchanged by both parties are theoretically equal |
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Term
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Definition
| The insurer's obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions |
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Term
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Definition
| The insured must accept the entire contract, with all of its terms and conditions |
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Term
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Definition
| Prevents someone who reasonably relies upon a representation from taking back the statement |
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Term
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Definition
| An insurance contract that encourages or promotes something illegal or immoral is contrary to the public interest and cannot be enforced |
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Term
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Definition
| Parties must have legal capacity to enter into a binding contract |
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Term
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Definition
| The applicant for insurance makes the offer, and the company accepts or rejects the offer |
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Term
| Exchange of Consideration |
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Definition
The value that each party gives to the other.
Applicant: consideration is payment of the premium plus agreement to abide by the conditions in the policy
Insurer: consideration is the promise to do certain things as specified in the contract |
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Term
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Definition
| The contract between the insured and the insurer |
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Term
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Definition
| After a loss you should be restored to your pre-loss position. In other words, you should not profit from insurance |
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Term
| Principle of Insurable Interest |
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Definition
| Insured must be in a position to lose financially if a covered loss occurs |
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Term
| Principle of Utmost Faith |
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Definition
| A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts |
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Term
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Definition
Substitution of the insurer in place of the insured to recoup a loss payment from a guilty third party after the insurer pays its insured.
Stay out of the way of insurance company |
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Term
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Definition
| Only one party makes a legally enforceable promise |
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Term
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Definition
| A policy that pays the face amount of insurance if a total loss occurs |
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Term
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Definition
| Temporary evidence of insurance (document or oral) |
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Term
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Definition
Statements about the life. Actively or property that is insured.
ex: made in 1970, on the corner of Grand and wall |
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Term
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Definition
Glossary of key terms and how the terms are defined
Under the document contracts- the insurer will win |
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Term
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Definition
| Provisions limiting/qualifying the insurers promise to perform |
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Term
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Definition
Summary of the insurer's promises. Can be "all risks" ("open perils") or "named perils" (list of perils).
Ex: Are "Falling cow" covered? |
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Term
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Definition
| List of property, losses, and perils that are not covered by the policy |
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Term
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Definition
| Catch-all category…cancellation rights valuation dispute resolution, how subrogation is handled, etc. |
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Term
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Definition
Declarations
Insuring Agreement
Conditions
Exclusions
Definitions
Misc. |
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Term
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Definition
| A provision by which a specifies amount is subtracted from the total loss payment that otherwise would be payable |
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Term
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Definition
In property and casualty insurance, an endorsement is a written provision that adds to, deletes from, or modifies the provisions in the original contract.
In life and health insurance, a rider is a provision that amends or changes the original policy |
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Term
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Definition
| The loss is pro-rated based on applicable insurance limits |
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Term
| Primary and Excess Insurance |
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Definition
| One policy responds first. The second policy pays only if the coverage limit under the first policy does not cover the loss |
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Term
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Definition
| Helps to provide equitable settlements when less than full coverage is purchased. If the insured does not insure for a specified percentage of value, the insured must bear a portion of the loss |
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Term
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Definition
| Insurance purchased/ Insurance Required x loss= insurer's liability |
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Term
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Definition
| Written provision that adds to, deletes, or modifies the provisions in the original contract |
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Term
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Definition
| Systematic process for the identification and evaluation of loss exposures faced by an organization or individual, and for the selection and implementation of the most appropriate techniques for treating such exposures |
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Term
| Captive Insurance Company |
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Definition
| Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens |
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Term
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Definition
| A risk management toll that measures certain costs in a risk management program, including premiums paid, retained losses, outside risk management services, financial guarantees, internal administrative costs, taxes and fees, and certain other expenses |
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Term
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Definition
1) Method of rating group life and health insurance plans that uses the loss experience of the group to determine the premiums to be charged
2) As applied to property and liability insurance, the class or manual rate is adjusted upward or downward based on past loss experience.
3) As applied to state employment insurance programs, firms with favorable employment records pay lower tax rates |
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Term
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Definition
| Optional, case-by-case method of reinsurance used when the ceding company receives an application for insurance that exceeds its retention limit |
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Term
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Definition
| Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor |
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Term
| Requirements of a Privately Insurable Risk |
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Definition
1) Large number of similar exposure units
2) Fortuitous losses
3) Determinable and measurable losses
4) Losses are not catastrophic
5) Calculable chance of loss
6) Affordable premiums |
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Term
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Definition
1) Indemnification of losses
2) Reduction of fear and worry
3)Source investment funds (financial intermediation function)
4) Incentive for loss control (experience rating)
5) Facilitation of credit |
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Term
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Definition
1) Expenses of insurance companies
2) Fraudulent claims--relation to economy
3) Inflated claims |
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Term
| Pre-Loss Objectives of Risk Management |
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Definition
-Treat risks in the most economical way
-Reduce anxiety ("a quiet night's sleep")
-Meet legal obligations |
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Term
| Post-Loss Objectives in Risk Management |
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Definition
-Survival of the firm
-Earnings stability
-Social responsibility
-Continue operations
-Earnings growth |
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Term
| Steps in the Risk Management Process |
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Definition
1) Identify loss exposures
2) Measure and analyze loss exposure
3) Select the appropriate combination of risk treatment methods--risk control or risk financing
4) Implement and monitor the RM program |
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Term
| Similarity in Agents and Brokers |
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Definition
Both involved in sales and engaged in marketing.
Both are compensated with commissions |
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Term
| Difference in Agents and Brokers |
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Definition
Broker represents an insurance buyer.
Agents represents companies |
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Term
| Process for a Claim Settlement |
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Definition
-Verify a loss has occurred
-Determine if the loss is covered
-Determine the value of the gain
-Pay the claim
-Assist the insured |
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Term
| Parts of an Insurance Contract |
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Definition
-Declarations
-Insurance Agreement
-Conditions
-Exclusions
-Definitions
-Miscellaneous Provisions |
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Term
| Techniques for Managing Risk |
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Definition
-Risk Avoidance
-Loss Control
-Retention
-Transfer |
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Term
| Two Sub Categories of Private Insurance |
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Definition
1) Life and Health Insurance
2) Property and Liability Insurance |
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Term
| Two Sub Categories of Government Insurance |
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Definition
1) Social Insurance
2) Other Government Insurance |
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