Utah Property and Casualty Insurance Exam Questions & Answers

Insurance - Answer Transfer of risk form a person or business to an insurer Loss - Answer uncertainty/possibility of a loss Speculative vs pure risk - Answer Speculative - chance of loss or gain Pure - only chance of loss Exposure - Answer risks for which the insurance company would be liable Peril - Answer cause of loss Direct vs Indirect loss - Answer Direct - physical loss Indirect - consequence of the direct loss (having to pay for a hotel if house burns down) Hazard (3 types) - Answer Increases the chance of a loss: Physical - hazard can be seen (wet floor) Moral - dishonesty/poor morals (liar) Morale - careless behavior (unlocked doors) STARR (handling risk) - Answer Sharing - two or more individuals agree to pay a portion of any loss incurred by any member Transfer - insurance Avoidance - don't do it (ie not flying) Reduction - wearing a seatbelt or installing burglar alarm Retention - retaining a risk (not having car insurance) CANHAM (elements of insurable risk) - Answer Calculable (uses loss statistics to predict future risks) Affordable Non-Catastrophic (national or area disasters are limited/not covered by basic insurance) Homogeneous (risks similar in nature) Accidental Measurable (definite time and place) Stock Insurer - Answer Owned by stockholders, taxable dividend (if one), NON-PARticipating policies Mutual Insurer - Answer Owned by policyholders, dividend is not taxable (if one), participating policies Fraternal Benefit Society - Answer provides insurance and benefits to members only (GEICO, USAA) LLoyd's Association - Answer Insurance provided by individual underwriters (not companies) for UNUSUAL risks (ie athlete's arm or celeb's hair) Federal Government insurance covers: - Answer War risk, nuclear energy, flood, federal crop, unemployment (state), work comp (state) Domestic vs. Foreign vs. Alien - Answer Same state vs. different state vs. different country Authorized Insurer - Answer admitted, CERTIFICATE OF AUTHORITY Unauthorized Insurer - Answer non-admitted, NO certificate, sells SURPLUS LINES (ie reinsurer) Surplus Lines - Answer Insurance sold by unauthorized, only sold to certain HIGH RISK INSUREDS, can't be cheaper than admitted insurers Independent agent - Answer individuals that sell insurance products of SEVERAL companies and are independent contractors (not employees of insurer) Captive/Exclusive agents - Answer individuals that only represent ONE company and are independent contractors General agents (GAs) or managing general agents (MGAs) - Answer Individuals that hire, train, and supervise other agents, independents work for them Direct-writing companies - Answer products sold by employees, not independent contractors Direct Response - Answer No agent/producer involved, direct mail Law of Agency - Answer relationship in which one person (the Agent) is authorized to represent and act for another person/corporation (the Principal) Express Authority - Answer authority made explicit in producer's WRITTEN agency agreement Implied Authority - Answer NOT written, but ASSUMED to be granted to an agent (print business cards or use logos) Commingling - Answer ILLEGAL act of mixing personal funds with insured or insurer's funds Apparent Authority - Answer authority OTHERS BELIEVE the agent has (if agent is taking policies for a company, the public assumes they have that authority) Elements of a Legal Contract (CLOAC) - Answer Consideration ($) Legal Purpose (not illegal) Offer (insured offers insurer) Agreement (acceptance) Competent Parties (18+, mentally sane, sober) Elements of Insurance Contracts (AAUUPCI) - Answer Adhesion (written by only one party and everyone required to stick to like glue) Aleatory (unequal value, small premium for big claim) Utmost Good Faith (right to expect honesty) Unilateral (one-sided, only one party required to perform, insurance co makes promise to pay) Personal (cannot be changed to someone else) Conditional (premium must be paid to file claim) Indemnity (pay for loss with no gain, NO OVERindemnity) Representation vs. Misrepresentation vs. Material Misrepresentation - Answer Rep = believed to be true Misrep = not true but wouldn't affect insurance decision Material Misrep = not true AND affects insurance decision Concealment vs. Fraud - Answer Failure to disclose KNOWN facts vs. Intentional act to deceive and induce another party with something of value (includes concealment and intentional misrep) ie. saying prior damage was from recent accident Waiver and Estoppel - Answer Waiver - voluntarily giving up a right Estoppel - once a waiver has been created, it can't be changed First Party Losses - Answer Covered losses to the property Property vs. Casualty - Answer Property - covers my stuff Casualty - covers "the other guy" 1st party = me, 2nd party = insured, 3rd party = other guy Property and Casualty structure (DICEE) - Answer Declarations (who, what, when, where, how much) Insurance agreements (covered perils or risks, major promises of insurer and what is covered) Conditions (policy provisions, rules of conduct, ie must notify police or right to inspect property) Endorsements (add, modify, or take away coverage, changes to original policy) Exclusions (take coverage away, items not covered) Additional/Supplementary Coverage - Answer Payment for additional expenses not normally covered (ie. calling a contractor or buying a tarp to cover the hole in your roof and preventing further damage from rain) Named Insured vs. First-Named Insured vs. Insureds vs. Additional Insured - Answer Named - person/business in the Declarations to which policy is issued First-named - person listed first in Decs page if more than one entity Insureds - other people/businesses/entities covered by the policy that may not be listed by name Additional Insured - an individual/business added by endorsement Policy Period - Answer duration of the policy (start = inception, end = expiration) Policy Territory - Answer provisions state that a loss will not be covered unless it occurs within the policy territory (usually the US, Canada, and US territories) Unearned premium - Answer If future premium paid in advance and policy cancelled, it must be returned to the insured Pro-Rated Basis - Answer If the insureR cancels the policy before expiration, insured will receive portion of the premium back Short-Rated Basis - Answer If the insureD cancels the policy before expiration, insureD pays penalty for cancelling Flat Cancellation - Answer When policy is cancelled by either party on effective date Duties After Loss - Answer PROMPT notice of claim PROTECT from further loss COMPLETE proof of loss (inventory of damage) MAKE property available for inspection SUBMIT to examination under oath COOPERATE with insurer Assignment - Answer specifies that a policy may not be transferred to anyone else without written consent of the insureR Abandonment - Answer InsureD may not abandon property to the insurance company and ask to be reimbursed for its full value (partial loss not paid as total loss) Salvage - Answer InsureR has the right to salvage (take possession of damaged property after payment of loss) Liberalization - Answer if the insureR broadens coverage under a policy form or endorsement without requiring an additional premium, all similar policies or endorsements will be construed to contain the broadening coverage Subrogation - Answer insureR has the right to sue an at-fault party for damages the insureR had to pay to the insureD (ie if guilty party doesn't have insurance, your insurance will cover and they will sue the guilty party to get reimbursed) Insurable Interest - Answer Risk of FINANCIAL loss (has to exist at inception of policy AND time of loss) Underwriting - Answer process of evaluating a risk Field underwriting is performed by agent by using pre-established criteria Application - Answer primary source of underwriting information, helps determine whether to accept the risk and how much premium Binders - Answer TEMPORARY oral or written statement of coverage for a specified time (doesn't guaranty a policy will be issued) Assigning rates: Judgement vs. Manual(class) vs. Experience - Answer Judgement - premium determined with no books/tables, just careful judgement and experience of underwriter Manual(class) - company rates for particular state or area (rate per unit x # of units = premium) MOST COMMON Experience - actual loss experience is compared to historical loss data for a rating class Fair Credit Reporting act (FCRA) - Answer requires reasonable procedures for exchanging information on credit, personnel, insurance, and other subjects in a manner that respects confidentiality, accuracy, relevancy, and proper use Notice must be issued to the applicant within THREE days after report was requested Violators max penalty is $5,000, 1yr prison, or both Terrorism Risk Insurance Program Re-authorization Act of 2015 (TRIPRA) - Answer Act of terrorism must be certified by: Secretary of TREASURY, Secretary of HOMELAND SECURITY, and US ATTORNEY GENERAL Result of 9/11, established 2002 limits exposure of insurers in case of another catastrophic event $1 million triggering limit (increasing to $200mln by 2020 in $20mln increments) Fraud and False Statement laws - Answer intentionally makes false material statements in connection w financial reports or docs Fine, up to 10 years in jail Up to 15 years if JEOPARDIZE INSURER Real vs Personal property - Answer Real - buildings, anything attached to structure Personal - movable contents Covered Property (specific vs. blanket) - Answer Specific (scheduled) - detailed list of covered items Blanket - no detailed list Named vs. Open (special) perils - Answer Named peril - covers only perils listed Open (special) - all risks of direct physical loss unless specifically excluded Basic Covered Perils (WCSHAVVER + V&MM) - Answer Fire, Lightning, Internal Explosion Extended Coverage (EC) perils: (WCSHAVVER + V&MM) Wind Civil commotion Smoke Hail Aircraft Vehicles Volcanic eruption Explosion Riot Vandalism and malicious mischief