RIBO Chapter 1 Questions and Answers Graded A

RIBO Chapter 1 Questions and Answers Graded A What are the 5 functions of insurance? 1) Basis of Credit System 2) Loss Prevention/Loss Reduction 3) Eliminates Worry/Encourages Entrepreneurship 4) Spread of Risk 5) Source of Employment/Investment Capital What are the 5 Major Sections of an Agency/Broker Contract? 1) Broker's Authority 2) Ownership of Expirations 3) Commissions 4) Expenses 5) Termination What is Treaty Reinsurance? The insurer and reinsurer execute an insurance contract covering ALL policies within the scope of that contract; may oblige reinsurer to accept reinsurance of all contracts within the scope What is Facultative Reinsurance? The insurer cedes and the reinsurer assumes all or part of the risk assumed by a specified policy; negotiated separately for each contract that is reinsured What is the definition of insurance? The undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of insurance may be exposed What is the definition of peril? The cause of loss What is the definition of risk? The chance of financial loss (usually the object of insurance) Who is an underwriter? A person who assessed the risk people applying for insurance present to determine the coverage they are eligible for and ensure their premium cost reflects their level of risk (adequate pay for insured losses) What is Reinsurance? A contractual agreement under which one insurer (reinsured) transfers or cedes to another insurer (reinsurer) some or all of the reinsured's obligations under primary policies What 4 reasons are their to reinsure? 1) Increased underwriting capacity- allows insurers to underwrite large exposures and retain only the portion of the risk it can bear 2) Maintain proper reserves- reduces ratio of written premium exceeding policyholder's surplus which allows insurer to maintain premium capacity 3) Catastrophe protection- spreads the risk between many insurers rather than a few 4) Retirement from class of business- allows insurers to stop handling a type of insurance without cancelling existing policies What is a direct writing system? Producers are employees of the insurer and can only sell products provided by the insurer What is an independent brokerage system? Not employees of insurers and can represent more than one company; brokerages own the business they produce and provide client services to policyholders What is an agency system? Represent one insurer but each agent owns their own business What are the 3 types of billing methods? 1) account current 2) insurer statement 3) direct bill How does account current billing work? Brokerage identifies all accounts due in a period which is usually one month; a cheque is then provided for payment of the account; brokerages usually have 30-60 days to pay accounts current so they do not need to be paid in the month written How does insurer statement billing work? The insurer bills the brokerage for the amounts due in a specific period (usually one month) How does direct bill billing work? Client is billed directly by the insurer and commissions are collected by insurer and remitted monthly to brokerage; sometimes brokerage will need to collect first premium until this method can be set up What is non-proportional reinsurance? Only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority" What is proportional reinsurance? - One or more reinsurers taking a stated percent share of each policy that an insurer produces ("writer") - This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses What are the definitions of cession, retrocession, and retrocessionaire? - cession: an insurer reinsuring a portion of their risk; basic reinsurance - retrocession: a reinsurer reinsuring a portion of their risk - retrocessionaire: the insurer/reinsurer taking in another reinsured contract What is the definition of burglary? In insurance policies, generally defined as the unlawful taking of property from within the premises by a person unlawfully entering or leaving the premises as evidenced by marks of forcible entry or exit What is the definition of theft? The taking of property without the owners consent What if the definition of robbery? Felonious taking of property from the possession of another against his will, accomplished by means of force or fear How long does RIBO allow for brokers to supply a policy or certificate of insurance? 21 days