| A | B |
|---|
| Insurance | A method of handling pure risk, by spreading it over a large number of similar individuals |
| Law of Large Numbers | Shows us that we can predict, fairly accurately, what will happen to a large group of similar individuals in a given time period |
| Risk pools | Large groups of similar individuals |
| Actuaries | People who make mathematical predictions about probability in a given risk pool |
| Principle of indemnity | Assumes that an insured, who has suffered a loss, should only be restored to the approximate financial condition that existed prior to the loss, no better and no worse |
| Insurable interest | Lawful, substantial, and economic interest in the life, health, property, or object being covered under the insurance contract |
| Risk | The possibility (uncertainty) that a loss might occur and is the reason that people buy insurance |
| Pure Risks | A situation where there is only the possibility of a loss, there is never the possibility of a profit or financial gain |
| Speculative Risks | A situation where either a profit or loss is possible and therefore are non-insurable |
| Static Risk | Historical factors that do not frequently fluctuate and are insurable |
| Dynamic Risk | Risk associated with change and is not insurable |
| Fundamental Risk | Risks that affect entire groups of people or property within society |
| Particular Risk | Risks that affect only the individual person or family and not the entire community or society and are usually insurable |
| Peril | The actual cause of a loss |
| Hazard | Any condition that increases the possibility, or severity of a loss |
| Physical Hazards | The material, structural, environmental, or operational features of an insured risk that may create or increase the opportunity for injury or damage |
| Moral Hazard | A condition that increases the probability that a person will “intentionally” cause, create, or inflate a loss |
| Morale Hazard | A condition of inattention to, or disregard for, one’s own life, health, property, or behavior, that increases the frequency or severity of a loss. Attitudinal and involves an apathetic disregard |
| Risk Avoidance | Avoiding the hazard |
| Transfer of Risk | Most common and most popular method of handling risk. Transfer risk to an insurance company, in exchange for paying a regular premium to the company |
| Sharing a Risk | The insured accepts responsibility for a small portion of the risk, while transferring the larger portion of the risk to the insurer |
| Assumption of Risk | Risk retention or self-insurance |
| Risk Reduction or Risk Control | Employing loss prevention methods |
| Underwriting | The process of selecting certain types of risks that have historically produced a profit and rejecting those risks that have historically produced a loss |
| Adverse selection | The tendency of insureds with a greater-than-average chance of loss to purchase insurance |
| Spreading the risk | Insuring, during the same underwriting period, either a very large number of similar risks, multiple insured locations, or activities with dissimilar risks |
| Reinsurance | Insurance purchased by an insurance company, from another insurance company |
| Four elements of a contract | C - Competent Parties/Capacity to Contract, L - Legal Purpose, O - Offer and Acceptance, C - Consideration |
| Four sections of a contract: | D - Declarations, I - Insuring Agreement, C - Conditions, E - Exclusions |
| Aleatory Contract | Contingent upon an uncertain (random) event, that provides for an unequal transfer of value between the parties. |
| Contract of Adhesion | The contract is drafted by one party with stronger bargaining power (the insurance company) and accepted by another party with weaker bargaining power (the insured). |
| Executory Contract | Outlines the duties of both the insured and the insurance company, and states that those duties must be performed, before the contract will be fully executed |
| Conditional Contract | An insurance company will pay claims under an insurance policy, based on the conditions specified in the contract. |
| Unilateral Contract | A “one-sided contract”. |
| Personal Contract | Bound to the “personal insurable interest” of the named insured in the policy. |
| Contract of Indemnification | Restore the insured to the financial position previously held before the loss. |
| The Doctrine of Utmost Good Faith | To form an insurance contract, each party to the contract must substantially rely on the honesty and integrity of the other party. |
| The Doctrine of Reasonable Expectations | An insurance contract (policy) should cover the policyholder and/or his beneficiaries to the extent that the average person would expect. |
| Warranty | Statements made by an applicant for insurance that are guaranteed to be true, and if later found to be untrue, will void the policy. |
| Representation | Statements made on an application for insurance that are true to the applicant’s best knowledge and belief. |
| Misrepresentation | Untrue statements made by the insured (Lie) |
| Concealment | The failure to reveal known material facts, when applying for insurance. (Hide) |
| Fraud | An intentional act designed to deceive and induce another party to part with something of value |
| Waiver | The intentional relinquishment of a known right, or intentional conduct inconsistent with claiming a known right. |
| Expressed waiver | Purposely gives up a known right under the contract |
| Implied waiver | Any parts of an investigation not performed prior to the completing an investigation. |
| Estoppel | A legal doctrine that prevents or “stops” a party from contradicting its own previous actions, if those actions have been reasonably relied upon by another party. |
| Accident | A sudden and unforeseen event resulting in a financial loss |
| Occurrence | A sudden and unforeseen event resulting in a financial loss which can also include a continuous or repeated exposure to an event that results in a financial loss |
| Ambiguous Language | language that is vague and creates doubt |
| Application for Insurance | The form on which a prospective insured provides answers to the questions requested by the insurer. |
| Apportionment Clause | How much two or more policies covering a loss, will pay on the claim. |
| Arbitration Clause | Requires the parties to an insurance contract to resolve coverage disputes through arbitration as opposed to mediation or litigation. |
| Arbitration | The process of bringing a contract dispute before a disinterested third party for resolution. |
| Binder | Serves as temporary evidence that coverage is in effect until the policy is issued |
| Mid-term Cancellations | Cancellation which occurs before a policy has expire |
| Certificate of Insurance | General summary of the coverage |
| Coinsurance Clause | States that the insurance company and the insured person will share in the expenses incurred by the insured. |
| Deductible | self-insured retention; the insured must bear this loss before an amount is remitted to the claimant |
| Definitions | Explain the important terms used in the policy language |
| Endorsements/Riders | A written amendment or addition to a policy |
| Entire Contract Clause | The entire agreement between the insured and the insurer is limited to the terms of the contract, and not any other stipulations outside of the contract |
| Exposure | The state of being subject to loss because of some type of hazard |
| Fiduciary | Any person or institution that has responsibility for the money, property, or financial affairs of another. |
| Liberalization Clause | If any policies or endorsement forms currently in use, are broadened by legislation or rulings from ratings authorities, then all existing similar policies will provide the broadened coverage to all existing policyholders, without additional premium. |
| Loss | The actual injury or damage sustained by the insured due to one or more accidents or misfortunes that are covered under an insurance policy. |
| Malfeasance | An outright act of sabotage by one party to a contract, who intentionally causes damage |
| Other Insurance Clause | If the insured has other sources of recovery for a covered claim, this clause is activated. |
| Policy Provisions | The clauses in an insurance contract that include such details as the policy period, conditions, endorsements, riders, exclusions, that determine whether coverage applies and in what amount. |
| Policy Territory/coverage territory | Identifies where coverage applies |
| Excess Insurance | Pays only when coverage under other applicable insurance policies has been exhausted |
| Proof of Loss | Completed by the insured claimant, listing the details of a loss |
| Pro-rata Share | Each insurer will pay its percentage of the claim, based on the proportion of the coverage it provided. |
| Subrogation Clause | Recoup the money it has paid on the claim by suing the negligent party |
| Third-Party Administrators | Handle many different administrative responsibilities for insurers, such as claims handling and risk management consulting. |
| Transacting Insurance | The solicitation, inducement and preliminary negotiations affecting a contract of insurance, and the subsequent business pertaining to carrying out the terms of the contract |
| Tort | A civil wrong that violates the rights of others |
| Tortfeasor | A person who has committed a tort |
| Unearned Premium | The portion of the policy premium that has not yet been “earned” because the policy is still in force for a period of time before its expiration |
| Unearned Premium Reserve | The amount of unexpired premiums on policies or contracts as of a certain date that should be maintained in “reserve” |
| Public Law 15/McCarren-Ferguson Act | The authority of insurance regulations is granted to state government |
| Certificate of Authority | A certificate issued to an insurance company by a state Department of Insurance granting them the power to write contracts of insurance in that state. |
| Admitted/Authorized | When an insurance company has received a certificate of authority and can conduct business in the state. |
| Nonadmitted/Unauthorized | When an insurance company does not have a certificate of authority and cannot conduct business in the state. |
| Surplus Lines Companies | Circumstances when a nonadmitted company without a certificate of authority is permitted to conduct business within a state. |
| The National Association of Insurance Commissioners (NAIC) | creates and maintains model laws that establish standards for how insurance is offered and delivered in the United States |
| The Interstate Insurance Product Regulation Commission (IIPRC) | produces standardized forms for Life insurance, Annuities, Disability Income, and Long-Term Care insurance products |
| The National Council on Compensation Insurance (NCCI) | duces standardized Workers Compensation forms |
| The National Uniform Claim Committee (NUCC) | produces and maintains the universal claim form, the CMS-1500, to submit medical expense claims to private health insurers, government insurers, and workers compensation insurers. |
| The Surety & Fidelity Association of America (SFAA) | produces a number of standardized bond forms to provide for surety data standards. |
| The American Association of Insurance Services (AAIS) | provides property and casualty standardized forms, including some forms providing specialty coverages. |
| The Insurance Services Office, Inc. | provides property and casualty standardized forms that are the most widely used throughout the country. |
