Michigan Property & Casualty - Exam Question with 100 % correct answers | Verified | updated

4 Elements of a Legal Contract - Competent Parties Legal Purpose Agreement Consideration Actuarial Department - Gather and interpret stats to determine probability of loss and sets premium rates. Adverse Selection - An imbalance created when risks that are more prone to losses than the average (standard) risk are the only risks seeking insurance within a specific market place. Example: Only those living in earthquake-prone areas seek to buy earthquake insurance. Aleatory Contract - The exchange of value is unequal. Insured's premium payment is less than the potential benefit to be received in the event of a loss. Insurers payment in event of loss may be much greater, or much less than insured premium payment. Apparent Authority - Authority created when the producer exceeds the authority expressed in the agency contract. Applicant - Party submitting application for insurance Application - A document submitted by an applicant to an insurer with information needed to underwrite.Broker - A licensed individual who negotiates insurance contracts with the insurers, on behalf of the applicant. Brokers represent the applicant or the insured's best interest, not the insurer. Career Agency System - Agents are recruited, trained and supervised by a managing employee or general agent who is with the insurance company Claims Department - Assists policyholder in event of a loss Combined Ratio - Sum of the loss ratio and expense ratio Conditional Contract - Both parties must perform certain duties and follow rules of conduct to make the contract enforceable. The insurer must pay claims if the insured has compiled with all the policy's terms and conditions. Contract Law - Pertains to the formation and enforcement of contracts Contract of Adhesion - One party writes the contract, without input from the other party, and presents it on a take it or leave it basis. No negotiation, just as is. Contract of Utmost Good Faith - Both parties bargain in good faith when forming and entering int the contract Direct Mail or Direct Response Company - -Sells insurance policies directly to the public with licensed employees or contractors -A marketing system utilizing direct mail, newspapers, magazines, radio, television, internet, web sites, call centers and vending machines. Direct Writing System - -Agent is an employee of the insurer -Agent may be paid salary, salary plus bonus or commission. Domestic InsurerForeign Insurer Alien Insurer - Domestic-Insurer organized under laws of this state, whether or not admitted to do business in that state. Foreign-Not authorized to do business in this state, but in other states in the U.S Alien-Outside of the U.S Endorsement - A policy form that alters or adds to the provisions of a property and casualty insurance contract. Estoppel - Prevents the denial of a fact, if the fact was admitted to be true previously Exclusive or Captive Agency System - -Deals with the insured through an exclusive or captive agent. -Agent represents solely one company or group of companies having common ownership -Insurer retains ownership rights to the business Executives - Oversee operations of the business Expense Ratio - Determined by dividing an insurer's Total Operating Expenses by Written Premiums Express Authority - Authority that is written into the producer's agency contract Facultative Agreements - Reinsurance agreements that allow ceding and reinsurance companies the opportunity to negotiate coverage for individual risks.