NC Property and Casualty State Exam
Insurable Risk - ✔️✔️- a risk the insurance company is willing to accept
- characteristics of an insurable risk
1. Low probability of a loss occurring
2. Less than catastrophic results
3. The loss must be measurable
4. The loss must be significant
5. The loss must be accidental and unintended
Mutual Insurance Companies - ✔️✔️- owned by policyholders; each policyholder
"owns" a part of the company proportionate to their share
- elects a board of directors who appoint officers
- surplus returned to policyholders in the form of non-taxable policy dividend
Insurance - ✔️✔️- a plan of spreading the risk of possible loss over a large number of
people (Law of Large Numbers)
- protects against the risk (uncertainty) of when a financial loss might occur
Speculative Risk - ✔️✔️- when there is a chance of gain as well as a chance of loss
(ex: buying a stock, gambling)
- insurance IS NOT intended to protect against this
Pure Risk - ✔️✔️- when there is a chance of loss only
- not all pure risks are insurable
Law of Large Numbers - ✔️✔️- makes it possible to predict future losses based upon
prior experience
- law states that as a large # of events are included, the difference between actual and
expected results become smaller
Spread of Risk - ✔️✔️- involves spreading the company's policies over a broad
geographical area in order to avoid large losses in the event of a catastrophic event
Adverse Selection - ✔️✔️- occurs when insureds with a high risk of loss attempt to
purchase insurance and are successful in doing so
- insurers attempt to PREVENT THIS (bad risk)
- prevented by:
1. refusal to write
2. rating up
3. insurability standards
*** deductibles do not prevent this
,Retention - ✔️✔️- when liability for a loss is maintained by an individual by NOT
PURCHASING INSURANCE
- deductible is an example of retention
Transfer - ✔️✔️To shift the responsibility for a loss to an insurance company through
the purchase of insurance
Control/Reduction - ✔️✔️- an attempt to prevent a loss or to reduce the amount of the
loss
- ex: installation of a sprinkler system to reduce the amount of loss
Perils - ✔️✔️Actual cause of a loss such as fire, theft, wind, hail, etc.
Hazards - ✔️✔️- increase in the probability of a peril occurring
- ex: bald tires on a car, faulty wires, damaged steps
Principle of Indemnity - ✔️✔️- the fundamental idea that the purpose of insurance is to
restore the insured to the original financial position that was enjoyed before a loss, BUT
WITHOUT GAIN
Private/Voluntary Insurance - ✔️✔️- neither required nor made available by the
government, but does not meet recognized needs
- ex: collision insurance in a PAP
Social Insurance - ✔️✔️- programs either require or made available by government
- ex: facility, workers comp, flood insurance
Reinsurance - ✔️✔️- where insurers sell portions of their individual contracts of
insurance to other companies; helps spread risk
- insurance for an insurance company
Indirect Losses - ✔️✔️- consequential loss
- include:
1. Losing Money
2. Incurred Additional Expenses
Capital Stock Companies - ✔️✔️- in business to make a profit for stockholders
- owned by stockholders; elect a board of directors
- profit is fully taxable to stockholder
Reciprocal (Assessment) Companies - ✔️✔️- policyholders are insured by other
policyholders
, - managed by Attorney-In-Fact who can assess the policyholders for additional
premiums
Classifications of Insurance Companies - ✔️✔️1. Domestic: organized in state
2. Foreign: organized in a different state
3. Alien: organized in another country
Independent Agency System - ✔️✔️- agent can represent more than one insurance
company
- owns the business and retains all rights to the accounts
Direct Writers (captive/exclusive) - ✔️✔️- can only represent one insurance company
- insurance company retains ownership rights, not the agent
Agents - ✔️✔️- representatives of the insurance company
- requires a contract and appointment (something stating they can sell insurance)
- given binding authority (binder = temporary evidence insurance is in effect); must be
written or oral (says you ARE covered); cannot cancel binder - only the policyholder or
company can
Broker - ✔️✔️- representatives of the insured
- shop the market for their customers and obtain coverage through an agent
- must have $15,000 bond
- CANNOT bind coverage
When Agents are PERSONALLY Liable - ✔️✔️1. The agent breached their authority
2. The agent represents an incompetent principal or a non-admitted insurance company
Agents Duties to the Insurance Company - ✔️✔️1. Loyalty
2. Obedience
3. Use of Reasonable Care
4. Accurate Accounting
5. Communication of info held by the agent to the company
Errors and Omission (E&O) - ✔️✔️Insurance to protect agents in case of
negligence/civil liabilities
Underwriting - ✔️✔️- prevents bad business; "quality control"
Loss Ratios - ✔️✔️- directly affected by underwriting standards
- determined by dividing the losses of the company by the premiums collected
- determine whether a company has had an underwriting loss or profit
Application - ✔️✔️The most important document when underwriting is determining
eligibility
Insurable Risk - ✔️✔️- a risk the insurance company is willing to accept
- characteristics of an insurable risk
1. Low probability of a loss occurring
2. Less than catastrophic results
3. The loss must be measurable
4. The loss must be significant
5. The loss must be accidental and unintended
Mutual Insurance Companies - ✔️✔️- owned by policyholders; each policyholder
"owns" a part of the company proportionate to their share
- elects a board of directors who appoint officers
- surplus returned to policyholders in the form of non-taxable policy dividend
Insurance - ✔️✔️- a plan of spreading the risk of possible loss over a large number of
people (Law of Large Numbers)
- protects against the risk (uncertainty) of when a financial loss might occur
Speculative Risk - ✔️✔️- when there is a chance of gain as well as a chance of loss
(ex: buying a stock, gambling)
- insurance IS NOT intended to protect against this
Pure Risk - ✔️✔️- when there is a chance of loss only
- not all pure risks are insurable
Law of Large Numbers - ✔️✔️- makes it possible to predict future losses based upon
prior experience
- law states that as a large # of events are included, the difference between actual and
expected results become smaller
Spread of Risk - ✔️✔️- involves spreading the company's policies over a broad
geographical area in order to avoid large losses in the event of a catastrophic event
Adverse Selection - ✔️✔️- occurs when insureds with a high risk of loss attempt to
purchase insurance and are successful in doing so
- insurers attempt to PREVENT THIS (bad risk)
- prevented by:
1. refusal to write
2. rating up
3. insurability standards
*** deductibles do not prevent this
,Retention - ✔️✔️- when liability for a loss is maintained by an individual by NOT
PURCHASING INSURANCE
- deductible is an example of retention
Transfer - ✔️✔️To shift the responsibility for a loss to an insurance company through
the purchase of insurance
Control/Reduction - ✔️✔️- an attempt to prevent a loss or to reduce the amount of the
loss
- ex: installation of a sprinkler system to reduce the amount of loss
Perils - ✔️✔️Actual cause of a loss such as fire, theft, wind, hail, etc.
Hazards - ✔️✔️- increase in the probability of a peril occurring
- ex: bald tires on a car, faulty wires, damaged steps
Principle of Indemnity - ✔️✔️- the fundamental idea that the purpose of insurance is to
restore the insured to the original financial position that was enjoyed before a loss, BUT
WITHOUT GAIN
Private/Voluntary Insurance - ✔️✔️- neither required nor made available by the
government, but does not meet recognized needs
- ex: collision insurance in a PAP
Social Insurance - ✔️✔️- programs either require or made available by government
- ex: facility, workers comp, flood insurance
Reinsurance - ✔️✔️- where insurers sell portions of their individual contracts of
insurance to other companies; helps spread risk
- insurance for an insurance company
Indirect Losses - ✔️✔️- consequential loss
- include:
1. Losing Money
2. Incurred Additional Expenses
Capital Stock Companies - ✔️✔️- in business to make a profit for stockholders
- owned by stockholders; elect a board of directors
- profit is fully taxable to stockholder
Reciprocal (Assessment) Companies - ✔️✔️- policyholders are insured by other
policyholders
, - managed by Attorney-In-Fact who can assess the policyholders for additional
premiums
Classifications of Insurance Companies - ✔️✔️1. Domestic: organized in state
2. Foreign: organized in a different state
3. Alien: organized in another country
Independent Agency System - ✔️✔️- agent can represent more than one insurance
company
- owns the business and retains all rights to the accounts
Direct Writers (captive/exclusive) - ✔️✔️- can only represent one insurance company
- insurance company retains ownership rights, not the agent
Agents - ✔️✔️- representatives of the insurance company
- requires a contract and appointment (something stating they can sell insurance)
- given binding authority (binder = temporary evidence insurance is in effect); must be
written or oral (says you ARE covered); cannot cancel binder - only the policyholder or
company can
Broker - ✔️✔️- representatives of the insured
- shop the market for their customers and obtain coverage through an agent
- must have $15,000 bond
- CANNOT bind coverage
When Agents are PERSONALLY Liable - ✔️✔️1. The agent breached their authority
2. The agent represents an incompetent principal or a non-admitted insurance company
Agents Duties to the Insurance Company - ✔️✔️1. Loyalty
2. Obedience
3. Use of Reasonable Care
4. Accurate Accounting
5. Communication of info held by the agent to the company
Errors and Omission (E&O) - ✔️✔️Insurance to protect agents in case of
negligence/civil liabilities
Underwriting - ✔️✔️- prevents bad business; "quality control"
Loss Ratios - ✔️✔️- directly affected by underwriting standards
- determined by dividing the losses of the company by the premiums collected
- determine whether a company has had an underwriting loss or profit
Application - ✔️✔️The most important document when underwriting is determining
eligibility
