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Fundamentals of Insurance - Chapter 04
The Insurance Process
9
Insurance
Not Applicable
09/15/2012

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Term
State the role of the broker in the insurance process.
Definition
To serve as the intermediary between the client and the insurer.
Term
State the primary duty owed by brokers to:
a) Clients
b) Insurers
Definition
a) To insure the client receives the right insurance advice and coverage(s).
b) To tell the truth about the risks submitted, and not withhold or conceal important information.
Term
Brokers do make mistakes, some of which can result in financial loss to their clients.

a) Identify the most common cause of errors and omissions claim.

b) What are other common causes of E&O claims?
Definition
a) Inadequate coverage is the most common E&O claim.

Other common E&O claims:
-Broker overstepping their binding authority.
-Misrepresentation and errors in description of the risk.
-Cancellation and renewal errors.
-Policy change errors.
-Processing delays.
-Brokerage Agreement violations.
Term
i) Who are underwriters?
ii) What is their primary role?
Definition
i) Underwriters are employees of insurance companies who decide whether to accept a client and the risks they present.

ii) Their primary role is to select those risks likely to be most profitable for the insurer.
Term
Identify three sources of information used by underwriters when making a decision regarding the suitability of a risk.
Definition
- Application
- Broker
- Inspections
Term
Explain the term "Physical hazard" and provide brief examples.
Definition
Physical hazard: Condition relating to the premises which may cause a peril to occur. Ex:
-Type of building construction
-Occupancy
-Housekeeping
Term
Explain the term "Moral hazard" and provide brief examples.
Definition
Moral hazard: Subjective characteristics of the applicant that could cause a peril to occur. Ex:
-Financial condition
-Moral character
-Indifference to loss
Term
Identify the two steps normally taken when a loss occurs.
Definition
1. Insured reports claim to brokerage
2. Brokerage reports claim to insurer.
Term
Explain the difference between "company" adjusters and "independent" adjusters.
Definition
Company adjusters are employed by the insurer and handle the bulk of that company's claims.
Independent adjusters are hired on a contract basis when staff adjuster aren't available, or if the loss requires a particular expertise.
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