Property and Casualty Insurance
Basics questions with Right answers
INSURABLE INTEREST - answersan economic interest in a property that must exist at
the time of loss (you can insure the equity interest in your own home)
UNDERWRITING - answersclassifies the applicant based upon the underwriting
requirements of the insurer; matches the risk presented with the premium charged by
the insurer
LOSS RATIO - answerspercentage of claims paid in comparison to total premiums
collected during a particular period of time
RATES - answersset by the insurer at a level sufficient to pay claims and company
expenses; in most states must be filed with Dept of Insurance
JUDGMENT RATING - answersunderwriter uses intuition and experience instead of a
manual to determine rates
MANUAL RATING - answersunderwriter refers to rates determined by the insurer's
actuaries based on the "law of large numbers"
MERIT RATING - answers"manual" rates are modified by underwriter based on past
loss experience or other factors unique to the risk involved (lower premiums are given to
those clients who have few prior losses)
RETROSPECTIVE RATING - answersthe final premium is not determined until the end
of the policy period and is based on the insured's own prior loss experience (subject to
minimum and maximun premiums); often these are used with Workers comp and
Commercial General Liability plans written for large clients, where the final premium is
determined by an audit of the insured's books at expiration of policy; initial premiums
are considered to be deposits only
EXPERIENCE RATING - answersoften used to calculate premiums on large group life
or health insurance plans; a form of merit rating that modifies the manual premium
based on the insured's own loss experience
LOSS COST RATING - answersused by insurers who utilize rating plans developed by
the Insurance Services Office (ISO), leaving insurers free to add in their own factors
relating to expense and profit
, INSURANCE SERVICES OFFICE (ISO) - answersa "rating bureau"; develops and files
rates and policy forms with the various states on behalf of their insurance co.
membersd; members may choose to adopt ISO filings or not
ISO HOMEOWNERS POLICY 2000 EDITION - answerscurrent industry standard
RATE - answerscost per unit;
PREMIUM - answersnumber of units multiplied by the rate; e.g. if rate is .25 per unit,
and one unit of fire insurance is $100 of coverage, then the premium for $100,000
coverage is $250 per year
COMPONENTS OF RATE FILING - answerscost of claims + cost of admin. expenses -
interest the insurer makes by investing pre-paid premiums
RISK - answerschance of loss
HAZARDS (3) - answersPhysical; Moral; Morale
PHYSICAL HAZARD - answerse.g. dead tree that could fall on your house and cause
roof damage
MORAL HAZARD - answersone presented by a dishonest person who might try to over-
insure in order to profit
MORALE HAZARD - answersone a careless person presents who does not take care of
their property
FRONT-LINE UNDERWRITERS - answersare agents; called this because they are
usually the first to recognize a hazard
NEGLIGENCE - answersfailure to act as a reasonable person would in the same
circumstances
NEGLIGENCE - answersis a civil injury; considered a "tort" and the burden of proof in a
negligence lawsuit (tort) rests with the party bringing the lawsuit
PLAINTIFF - answersinjured party
STANDARD OF CARE - answerswhat a reasonable person would do to maintain their
legal duty to protect others
NEGLIGENCE LAWSUIT - answersplaintiff (injured party) must prove the defendant
violated a legal duty or generally accepted standard of care and that the injury was the
direct result of the defendant's negligent act; if no direct chain of evidence exists,
negligence is not established
Basics questions with Right answers
INSURABLE INTEREST - answersan economic interest in a property that must exist at
the time of loss (you can insure the equity interest in your own home)
UNDERWRITING - answersclassifies the applicant based upon the underwriting
requirements of the insurer; matches the risk presented with the premium charged by
the insurer
LOSS RATIO - answerspercentage of claims paid in comparison to total premiums
collected during a particular period of time
RATES - answersset by the insurer at a level sufficient to pay claims and company
expenses; in most states must be filed with Dept of Insurance
JUDGMENT RATING - answersunderwriter uses intuition and experience instead of a
manual to determine rates
MANUAL RATING - answersunderwriter refers to rates determined by the insurer's
actuaries based on the "law of large numbers"
MERIT RATING - answers"manual" rates are modified by underwriter based on past
loss experience or other factors unique to the risk involved (lower premiums are given to
those clients who have few prior losses)
RETROSPECTIVE RATING - answersthe final premium is not determined until the end
of the policy period and is based on the insured's own prior loss experience (subject to
minimum and maximun premiums); often these are used with Workers comp and
Commercial General Liability plans written for large clients, where the final premium is
determined by an audit of the insured's books at expiration of policy; initial premiums
are considered to be deposits only
EXPERIENCE RATING - answersoften used to calculate premiums on large group life
or health insurance plans; a form of merit rating that modifies the manual premium
based on the insured's own loss experience
LOSS COST RATING - answersused by insurers who utilize rating plans developed by
the Insurance Services Office (ISO), leaving insurers free to add in their own factors
relating to expense and profit
, INSURANCE SERVICES OFFICE (ISO) - answersa "rating bureau"; develops and files
rates and policy forms with the various states on behalf of their insurance co.
membersd; members may choose to adopt ISO filings or not
ISO HOMEOWNERS POLICY 2000 EDITION - answerscurrent industry standard
RATE - answerscost per unit;
PREMIUM - answersnumber of units multiplied by the rate; e.g. if rate is .25 per unit,
and one unit of fire insurance is $100 of coverage, then the premium for $100,000
coverage is $250 per year
COMPONENTS OF RATE FILING - answerscost of claims + cost of admin. expenses -
interest the insurer makes by investing pre-paid premiums
RISK - answerschance of loss
HAZARDS (3) - answersPhysical; Moral; Morale
PHYSICAL HAZARD - answerse.g. dead tree that could fall on your house and cause
roof damage
MORAL HAZARD - answersone presented by a dishonest person who might try to over-
insure in order to profit
MORALE HAZARD - answersone a careless person presents who does not take care of
their property
FRONT-LINE UNDERWRITERS - answersare agents; called this because they are
usually the first to recognize a hazard
NEGLIGENCE - answersfailure to act as a reasonable person would in the same
circumstances
NEGLIGENCE - answersis a civil injury; considered a "tort" and the burden of proof in a
negligence lawsuit (tort) rests with the party bringing the lawsuit
PLAINTIFF - answersinjured party
STANDARD OF CARE - answerswhat a reasonable person would do to maintain their
legal duty to protect others
NEGLIGENCE LAWSUIT - answersplaintiff (injured party) must prove the defendant
violated a legal duty or generally accepted standard of care and that the injury was the
direct result of the defendant's negligent act; if no direct chain of evidence exists,
negligence is not established
