Exam (elaborations)
Massachusetts Property & Casualty Insurance License Exam/513 Questions And Answers
Massachusetts Property & Casualty Insurance License Exam/513 Questions And Answers
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Massachusetts Property & Casualty InsuranceLicense Exam/513 Questions And Answers
Insurance - -Transfer of risk from a person or business to an insurer
- Risk - -Uncertainty / Possibility of a loss
- Exposure - -Risks for which the insurance company would be liable
- Peril - -A cause of loss. House burns down, peril is the fire
- Direct - -Physical loss
- Indirect - -consequence of the direct loss
- Hazard - -increases the chance of loss
- Physical hazard - -The hazard can be seen
- Moral hazard - -Dishonesty
- Morale hazard - -carelessness
- STARR! - -Method of handling risk.
S - Sharing
T - Transfer
A - Avoidance
R - Retention
R - Reduction
- Contract (policy) - -An agreement between the insured and the insurer
- 1st party - -Insured (customer)
- 2nd party - -Insurer (insurance company)
- Law of large numbers - -The larger the group, the more accurately future
losses can be predicted
- CANHAM - -Elements of an insurable risk
C - Calculable
A - Affordable
N - Non-catasrophic
,H - Homogenous
A - Accidental
M - Measurable
- Adverse selection - -Risks that have a greater than average chance of loss
•Not wanted by insurers
•Tendency for high risk individuals to get and keep insurance
•Why insurers go through the underwriting process
•High risk = higher rate or refusal to insure
- Reinsurance - -an insurance company (the ceding company) paying
another insurance company (reinsurer) to take some of the company's risk
•Reinsurers help spread the insurer's risk
- Facultative - -The reinsurer evaluates each risk before allowing the
transfer
- Treaty - -The reinsurer accepts the transfer according to an agreement
called a treaty
- Stock Insurer - -•Owned by stockholders
•Dividend is not guaranteed
•Dividend is paid to stockholder
•Dividend is taxable to stockholders
•Issues non-participating policies
- Mutual Insurer - -•Owned by the policyholders (customers)
•Dividend is not guaranteed
•Dividend is paid to policyholder
•Dividend is not taxable, considered refund of premium
•Issues participating policies
- Fraternal Insurer - -•Provides insurance and other benefits
•Must be a member of the society to get benefits
- Reciprocal Insurer - -•Unincorporated
•Members are required to pay an assessed amount if a loss to any member
of the group occurs
•Managed by an attorney-in-fact
- Lloyd's association - -Insurance provided by individual underwriters, not
companies
•Insures unusual risk
,-Hole in one contest
-Athlete's arm
-Celebrity's hair
- Risk Retention Group - -Liability insurance company created for
policyholders from the same industry
•For example, a car dealer's risk retention group in which only car dealers
can be policyholders
- Risk Purchasing Group - -A group of businesses from the same industry
joining together to buy liability insurance from an insurance company
•The risk purchasing group is not the insurance company
- Self-insurance - -A business that pays its own claims
•Reserves funds to cover losses
•Retains risk rather than transfers
- Federal government provides residual market insurance - -Insurance from
the state or federal government
•War risk insurance
•Nuclear energy insurance
•Flood insurance
•Federal crop insurance
•Unemployment insurance (at state level)
•Workers' compensation (at state level)
- Insurance company location - -•Domestic - the state where a company is
incorporated
•Foreign - company is incorporated in another state or U.S. territory
•Alien - company is incorporated in another country
- Certificate of authority - -State license for an insurance company
- Admitted or authorized - -State requires the insurance company to have a
certificate of authority
- Nonadmitted or unauthorized - -Insurance company not required to have a
certificate of authority from the state
- Surplus Lines - -•Insurance sold by unauthorized/nonadmitted insurers if
on the state's approved list of surplus insurers
, •Can only be sold to certain high risk insureds
•Cannot be sold solely for a cheaper rate than licensed/admitted insurers
- Financial strength rating - -a report card of the company
- Methods of marketing - -•Independent
•Exclusive or captive
•General agents or managing general agents
•Direct-writing companies
- Direct response - -No agent/producer involved
•Direct mail, magazines, telivision, internet, ad radio advertisements
- Agency - -The insurance agent acts on behalf of the principal (insurance
company)
- Express Agent Authority - -What the agent's written contract with the
company says
- Implied Agent Authority - -Not written; activities an agent normally does to
sell insurance
- Apparent Agent Authority - -Activities an agent does that a reasonable
person would assume as authority, based on the agent's actions and
statements
- Fiduciary Trust - -•Promptly sends premiums to insurers
•Has knowledge of products
•Complies with laws and regulations
•Does not commingle funds
- Elements of a Legal Contract - -CLOAC
•Consideration - giving something of value
↳Insured - statements made on the application + premium
↳Insurer - promises to pay claim (based on policy)
•Legal purpose - risk transfer doesn't violate the law
•Offer
•Acceptance
•Competent parties - legal age, sane, and sober
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