1. Elements of an Insurance Contract
1.1. .
1.2. legally binding contract between two parties
1.3. .
1.4. Insurance Policy
1.4.1. describes the rights and obligations of both parties.
1.5. .
1.6. Anatomy of a Contract
1.6.1. Agreement
1.6.1.1. offer made by one party has been accepted by the other
1.6.2. .
1.6.3. Legal Purpose
1.6.3.1. no Crack contracts
1.6.4. .
1.6.5. Consideraton
1.6.5.1. Insured: promises to pay the premium
1.6.5.2. .
1.6.5.3. Insurer: promises to pay the covered loss
1.6.6. .
1.6.7. Competency
1.6.7.1. Must have a working brain
1.7. .
1.8. Insurance types of Contracts
1.8.1. .
1.8.2. Aleatory Contract
1.8.2.1. Un equal pay out: relative low premium compared to total cost that maybe paid out by the Insurer.
1.8.3. .
1.8.4. Contract of Adhesion
1.8.4.1. Most insurance policies are contracts of "adhesion," because the terms are drawn up by the insurer and the insured simply "adheres."
1.8.4.1.1. Courts will favor the Adherer when in doubt
1.8.5. .
1.8.6. Conditional Contract
1.8.6.1. conditions which must be met by both parties before the contract is legally enforceable
1.8.6.1.1. conditions for both the insurer and insured are spelled out in the policy form.
1.8.7. .
1.8.8. Personal Contract
1.8.8.1. Insurance policies are usually not transferable unless the insurer agrees to do so.
1.8.9. .
1.8.10. Unilateral Contract
1.8.10.1. only one party to the contract, the insurer, makes any enforceable promise
1.8.11. .
1.8.12. Utmost Good Faith
1.8.12.1. Contract requires that each party is entitled to rely upon the representations of the other without attempts to conceal or deceive
1.8.13. .
2. Other Legal Principles in Insurance Law
2.1. Concealment
2.1.1. failure to disclose a material fact
2.2. .
2.3. Fraud
2.3.1. Deceipt, trickery or misrepresentation
2.4. .
2.5. Waiver
2.5.1. giving up or surrendering a right or privilege that is known to exist.
2.6. .
2.7. Estoppel
2.7.1. example, if an insurer allows an insured to violate one of the conditions of the policy, the insurer cannot at a later date void the policy because the condition was violated.
2.8. .
2.9. Warranty
2.9.1. A statement made on an application for most kinds of insurance that is warranted as true in all respects.
2.10. .
2.11. Representation
2.11.1. correct to the best of his or her knowledge and belief.
2.12. .
2.13. Misrepresentation
2.13.1. oral or written statements that do not truly reflect the facts
2.14. .
3. Types of Insurance
3.1. Personal or Commercial Lines
3.1.1. Casualty Insurance
3.1.1.1. Legal liability for losses caused by injury to persons or damage to the property of others.
3.1.2. .
3.1.3. Property Insurance
3.1.3.1. indemnifies a person with an interest in physical property for its loss or the loss of its income producing abilities
3.1.4. .
3.1.5. Property Policies, Casulty Policies and Package Policies
3.1.5.1. .
3.1.6. .
4. Insurance Policy Structure
4.1. Declarations
4.1.1. The Who, what when, where, how much is the premium and period of the term
4.2. .
4.3. Insuring Agreement
4.3.1. states the perils insured against, the persons and/or property covered, their locations and the period of the contract.
4.4. .
4.5. Definitions
4.5.1. term used in the contract are defined.
4.6. .
4.7. Exclusions
4.7.1. of Perils
4.8. .
4.9. Endorsements
4.9.1. form attached to the policy which alters provisions of the contract to make it better fit
4.10. .
4.11. Conditions
4.11.1. Policy Period and Territory
4.11.1.1. Concealment or Fraud
4.11.1.1.1. Liberalization Clause
4.12. .
5. Property Insurance Principles
5.1. Losses
5.1.1. Peril.
5.1.1.1. Actual cause of a possible loss (fire, theft, rain, etc.)
5.1.2. .
5.1.3. Named Perils
5.1.3.1. Perils specifically covered on property insured.
5.1.4. .
5.1.5. Open Perils
5.1.5.1. damage to property arising from any cause except those that are specifically excluded.
5.1.6. .
5.1.7. Concurrent Causation.
5.1.7.1. two or more perils act together (concurrently) or in a sequence to cause a loss.
5.1.8. .
5.1.9. Direct Loss (or Damage).
5.1.9.1. direct consequence of a particular peril.
5.1.10. .
5.1.11. Consequential Loss (or Damage).
5.1.11.1. not directly caused by a peril insured against
5.1.12. .
5.1.13. Loss Reserve.
5.1.13.1. Funds a company is required by law to set aside to cover claims
5.1.13.1.1. Loss Ratio
5.1.14. .
5.2. .
5.3. Hazards
5.3.1. Physical Hazard.
5.3.1.1. Any hazard arising from the material, structural, or operational features of the risk itself
5.3.1.1.1. smoking is a physical hazard that increases the likelihood of a house fire and illness.
5.3.2. .
5.3.3. Moral Hazard.
5.3.3.1. morals or habits that increases the probability of loss from a peril.
5.3.3.1.1. Purchasing insusrance for gain; Arson
5.3.4. .
5.3.5. Morale Hazard.
5.3.5.1. insured's indifference to loss because of the existence of insurance.
5.3.5.1.1. Attitude of insured to think “Its insured so why should I worry about safety of my house/property/own health.
5.3.6. .
5.3.7. Legal Hazard.
5.3.7.1. likelihood that a loss will occur because of court actions.
5.3.7.1.1. Regulations that force insurance companies to cover risks that they would otherwise not cover, such as including coverage for alcoholism in health insurance.
6. Types of Insurers
6.1. Stock Insurance company
6.1.1. owned by stockholders
6.1.2. .
6.1.3. electing directors and officers
6.1.4. .
6.1.5. receive taxable stock dividends
6.2. .
6.3. Mutual Insurance Company
6.3.1. owned by its policyholders
6.3.2. .
6.3.3. Policyholders choose a Board of Trustees or Directors
6.3.4. .
6.3.5. Profits are returned to policyholders as nontaxable dividends.
6.3.6. .
6.3.7. non-assessable, meaning they cannot charge members a pro rata share of loss and expense at the end of the policy period
6.3.8. .
6.4. .
6.5. Fraternal Benefits Societies
6.5.1. social organizations that engage in charitable and benevolent activities that provide insurance, primarily life insurance to its members.
6.5.2. .
6.6. .
6.7. Reciprocal Insurance Company
6.7.1. insurer is unincorporated, and is an aggregation of individuals, firms, and business corporations, which exchange insurance on one another. Each member is known as a subscriber.
6.7.2. .
6.7.3. exchange of insurance is affected through an Attorney-In-Fact. Each subscriber assumes a part of the risk of all other subscribers. If premiums collected are insufficient to pay losses, an assessment of additional premium can be made.
6.8. .
6.9. Risk Retention Groups
6.9.1. group-owned insurer who assumes and spreads the liability risks of its members. b. They are an insurance company
6.10. .
6.11. Lloyd’s of London.
6.11.1. group of high-net worth individuals who share in the risk of the insured. Each group of individuals, known as syndicates, are responsible for the amount of insurance they write on different classifications of risk.
6.12. .
7. Admitted vs Non-admitted Insurers
7.1. Admitted Insurer – An insurance company - whether domestic, foreign or alien - authorized to transact insurance in California by the California Department of Insurance.
7.2. .
7.3. Non-admitted Insurer – An insurance company not authorized to transact insurance in California
7.3.1. Not subject to financial solvency regulations
7.4. .
7.5. Standard form used; covers average risks
7.5.1. Surplus Lines of Insurance
7.5.1.1. High Risk: for those types of insurance that cannot be obtained from admitted insurers.
7.5.1.2. .
7.5.1.3. Must hold an individual surplus line broker license
7.5.1.4. .
7.6. Domicile of Insurers
7.6.1. .
7.6.2. Domestic Insurer – An insurer organized under the laws of this state
7.6.3. .
7.6.4. Foreign Insurer – An insurer not organized under the laws of this state, but in one of the other states within the United States
7.6.5. .
7.6.6. Alien Insurer – An insurer organized under the laws of any jurisdiction other than a state of the United States
8. Who
8.1. Insured
8.1.1. Rights and Duties
8.1.1.1. Prompt notice of loss or damage
8.1.1.2. .
8.1.1.3. Taking reasonable steps to protect property from further damage
8.1.1.4. .
8.1.1.5. Submitting claims
8.1.1.6. .
8.1.1.7. Notifying the police if the claim is for a theft
8.1.1.8. .
8.1.1.9. Cooperating with the insurer after a loss.
8.1.1.10. .
8.1.2. Important Clauses
8.1.2.1. Abandonment Clause.
8.1.2.1.1. prohibits the insured from abandoning partially damaged property to the insurer in order to claim a total loss.
8.1.2.2. .
8.1.2.3. Morgage Clause
8.1.2.3.1. loss reimbursement shall be paid to the mortgagee as the mortgagee's interest
8.1.2.4. .
8.1.2.5. Loss Payable Clause
8.1.2.6. .
8.1.2.7. Coinsurance Clause
8.1.2.7.1. encourage the insured to purchase and maintain insurance to value
8.1.2.8. .
8.1.3. Vacant
8.1.3.1. neither occupants nor contents
8.1.4. .
8.1.5. Unoccupied
8.1.5.1. vacant with furniture in the home.
8.2. .
8.3. Insurer
8.3.1. Rights and Duties
8.3.1.1. Pay for covered losses • Provide a legal defense against liability claims • Give advance notice of cancellation and return unused premiums
8.3.2. .
8.3.3. Important Clauses
8.3.3.1. Subrogation Clause
8.3.3.1.1. insurer the right to pursue any course of action, in its own name or the name of a policyowner, against a third party who is liable for a loss which has been paid by the insurer.
8.3.3.1.2. .
8.3.3.1.3. clause prevents collecting from both the insurer and a third party.
8.3.3.2. .
8.3.3.3. Liberalization Clause
8.3.3.3.1. if policy or endorsement forms are broadened by legislation or ruling from rating authorities and no additional premium is required
8.3.3.4. .
8.3.3.5. Other Insurance Clause
8.3.3.5.1. what is to be done in case any other contract of insurance covers the same property and/or hazards.
8.3.3.6. .
8.3.3.7. Salvage.
8.3.3.7.1. Property taken over by an insurer to reduce its loss.
9. What
9.1. loss
9.2. .
9.3. Exposure
9.3.1. used for determining the premium
9.4. .
9.5. Proximate Cause
9.5.1. effective cause of loss
9.6. .
9.7. Claim
9.7.1. demand made by the insured
9.8. .
9.9. Indemnify
9.9.1. to make loss whole
9.10. .
9.11. Social devices for reducing or transferring risk
9.12. .
9.13. Insurable Event
9.13.1. event, whether past or future, which may damnify a person having an insurable interest,
9.14. .
9.15. Insuring Agreement (or Clause)
9.15.1. Portion of an insurance contract which states the perils insured against, the persons and/or property covered, their locations and the period of the contract.
10. Risk Management
10.1. Speculative Risk/not insurable
10.1.1. Las Vegas
10.2. .
10.3. Pure Risk
10.3.1. no chance of winning; ex. chances of crashing your car and needing to replace it / maybe Insurable
10.4. .
10.5. Ways to Deal with Risk
10.5.1. Sharing
10.5.1.1. Pooling the risk with other who share the same type of risk
10.5.2. Transfer
10.5.2.1. buying insurance products
10.5.3. Retention
10.5.3.1. Keeping your risk
10.5.4. Avoidance
10.5.5. Reduction
10.6. .
10.7. Law of Large Numbers
10.7.1. the more insured members the more predictably the risk
10.8. .
10.9. Insurable risk
10.9.1. loss must be definable
10.9.2. .
10.9.3. Loss must be accidental
10.9.4. .
10.9.5. Loss causes a hardship
10.9.6. .
10.9.7. homogeneous group of risks large enough to make losses predictable (Law of large numbers)
10.9.8. .
10.9.9. Losses must not be catastrophic to many members of the group at the same time
10.9.10. .
10.9.11. Insurance company must be able to calculate the chance of loss and to be able to calculate the chance of loss
10.10. .
10.11. Adverse Selection
10.11.1. occurs when insureds select only those coverages that are most likely to have losses
10.12. .
10.13. Underwriting
10.13.1. protect the insurer against adverse selection by selecting risks that fall into the normal range of expected losses.
10.14. .
11. Renew of End a Policy
11.1. Resicission
11.1.1. Termination by the insurer when material misrepresentation has been made by Insured.
11.2. .
11.3. Lapse
11.3.1. Due to non payment of premiums
11.3.1.1. Insurer most give 10 days notice
11.4. .
11.5. Flat Cancellation
11.5.1. cancelled upon its effective date. no charge
11.6. .
11.7. Cancellation
11.7.1. 60 or more days, the insurer may cancel the policy for nonpayment of premium by giving 10 days written notice, and 30 days written notice for the
11.7.1.1. Conviction of a crime for an act that increases any hazard insured against
11.7.1.2. .
11.7.1.3. Grossly negligent acts or omissions
11.7.1.4. .
11.7.1.5. Material misrepresentation by the insured.
11.7.1.6. .
11.7.1.7. Substantial change in property, making it uninsurable.
11.8. .
11.9. Insured’s Right To Cancel
11.9.1. client may cancel at any time be letting the insurer know in writing of the date of cancellation is to take effect
11.10. .
11.11. Short Rate Cancellation
11.11.1. In effect, the insured has paid more for each day of coverage than if the policy had remained in force for the full term.
11.12. .
11.13. Pro Rata Cancellation
11.13.1. refund proportional to days not used.
12. Valuing Insurance Coverage
12.1. Replacement Cost
12.1.1. replacing property without a reduction for depreciation
12.2. .
12.3. Actual Cash Value
12.3.1. replacement cost of lost or damaged property at the time of the loss, less depreciation
12.4. .
12.5. Market Value.
12.5.1. based on what they would sell for under current market conditions.
12.5.1.1. such as stocks and bonds
12.6. .
12.7. Stated Amount
12.7.1. agreed amount of insurance which is shown on the policy
12.8. .
12.9. Valued Policy
12.9.1. states that in the event of a total loss, a specific amount will be paid,
12.9.1.1. fine arts, antiques, and furs.
12.10. .
12.11. Open Policy.
12.11.1. not agreed upon, but is left to be ascertained in case of loss.
12.12. .
12.13. Agreed Amount Clause.
12.13.1. insurer agree that the amount of insurance carried will automatically satisfy the coinsurance clause.
12.14. .
12.15. Blanket Insurance.
12.15.1. covers, in a single contract, either multiple types of property at a single location or one or more types of property at multiple locations.
12.16. .
12.17. Specific Insurance
12.17.1. describes specifically the property to be covered. This is in contrast to a policy which covers on a blanket basis
12.18. .
13. Marketing and Distribution Systems
13.1. Independent Agent
13.1.1. A person who enters into agency agreements with more than one insurer
13.2. .
13.3. Exclusive Agent
13.3.1. A person under agreement to represent a single insurer, or a group of insurers, having common ownership.
13.4. .
13.5. Direct Writer
13.5.1. An insurer that deals directly with the insured through a salaried representative or a captive agent, as opposed to an insurer that contracts with an agent.
13.6. .
13.7. Direct Mail
13.7.1. A marketing system that does not use an agent. Policies are usually marketed directly from the insurer’s home office.
13.8. .
13.9. Insurance Brokers
13.9.1. A person who, for compensation and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an insurance company
13.9.1.1. A broker may not charge a policy fee; only an insurer may require a policy fee.
13.10. .
13.11. Insurance Solicitor Salesman
13.11.1. insurance salesperson who contacts potential customers and handles clerical responsibilities but has no authority to make insurance contracts.
13.12. .
13.13. Managing General Agent
13.13.1. Most Managing General Agents today focus in the Excess and Surplus insurance markets.
13.13.1.1. members are entrusted to write both admitted and excess and surplus lines insurance by insurance companies who have delegated underwriting authority to them.
13.13.1.2. .
13.13.1.3. E & S lines
13.13.1.3.1. Any type of coverage that cannot be placed with an insurer admitted to do business. E&S lines markets for policies unable to be placed in conventional markets due to a shortage of capacity.
14. Business Model
14.1. Actuarial
14.1.1. statistician
14.2. .
14.3. Sales & Marketing
14.4. .
14.5. Underwriting
14.5.1. evaluates policy holder's risk
14.5.2. .
14.5.3. Rating Bureaus
14.5.3.1. Insurance Services Office (ISO)
14.5.3.1.1. is the advisory organization that develops forms for the standard market.