AINS flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Pure risk

A condition with only the chance of loss or no change and no possibility of gain; this is generally the only type of risk insurers consider insurable.

Law of large numbers

A statistical principle holding that as the number of similar, independent exposure units grows, actual loss experience tends to converge toward the expected or predicted loss experience.

Physical hazard

A tangible condition of property or an activity that increases the chance or severity of loss, such as faulty wiring, icy stairs, or a highly flammable warehouse.

Moral hazard

A hazard arising from dishonesty or intentional conduct by an insured, such as deliberately setting a fire or exaggerating a claim in order to collect more money.

Morale hazard

A hazard created by indifference or carelessness that exists because insurance is in place, such as leaving a car unlocked or neglecting building maintenance.

Principle of indemnity

The rule that a property or liability claim payment should restore the insured to roughly the pre-loss financial position without creating a profit from the loss.

Insurable interest

A financial interest in the subject matter such that a loss would cause monetary harm; it must exist at the time of loss for property insurance and at inception for life insurance.

Subrogation

The insurer's right, after paying a loss, to pursue the negligent third party who caused it, recovering the payment and preventing the insured from collecting twice.

Underwriting

The process of selecting risks, classifying them by expected loss, and deciding to accept, decline, modify, or refer a submission within defined authority and guidelines.

Treaty reinsurance

An agreement in which the reinsurer automatically accepts, for a defined class of business, a share of every risk the ceding insurer writes during the treaty period.

Facultative reinsurance

Reinsurance negotiated individually for a single policy or risk, allowing the ceding insurer and the reinsurer to accept or decline each submission separately.

Loss ratio

Incurred losses and loss adjustment expenses divided by earned premium; it measures the share of earned premium that has been consumed by claims.

Combined ratio

The sum of the loss ratio and the expense ratio; a result below 100 percent indicates an underwriting profit, while a result above 100 percent indicates an underwriting loss.

Unearned premium reserve

A liability representing the portion of written premium that applies to coverage not yet expired, earned over the policy term typically on a pro rata basis.

Loss reserve

An estimate of the amount an insurer expects to pay for reported and unreported claims, including loss adjustment expenses, arising from policies already written.

Premium audit

A review after policy expiration of the insured's actual exposure base, such as sales or payroll, used to adjust the deposit premium on commercial policies.

HO-3 special form

The most common homeowners form, providing open-perils coverage on the dwelling and broad named-perils coverage on personal property, plus liability and medical payments.

Loss of use coverage

Homeowners Coverage D, which pays additional living expenses when a covered loss makes the residence uninhabitable and pays fair rental value for rented portions.

Uninsured motorists coverage

Personal auto Part C, which pays damages the insured is legally entitled to recover from an at-fault driver who carries no insurance or who leaves the scene.

Personal umbrella policy

Excess liability coverage over underlying auto and homeowners limits that may also drop down, subject to a self-insured retention, for exposures the underlying policies exclude.

Businessowners policy

A package policy for eligible small businesses such as offices, retail stores, and apartment buildings that combines property and general liability coverage at simplified, often lower cost.

Claims-made CGL form

A commercial general liability form covering claims first made or reported during the policy period, usually with a retroactive date and an optional extended reporting period.

Coinsurance clause

A commercial property provision requiring the insured to carry at least a stated percentage of property value, or the claim payment is reduced in proportion to the shortfall.

Exclusive remedy

The workers compensation rule that statutory benefits are the employee's sole recovery against the employer for work-related injury, replacing tort suits except for intentional harm.

McCarran-Ferguson Act

The 1945 federal law that leaves regulation of the business of insurance to the states and exempts state-regulated insurance activities from federal antitrust law.

NAIC

The National Association of Insurance Commissioners, an association of state regulators that drafts model laws, accredits state departments, and coordinates regulatory data and producer licensing.

Market conduct examination

A regulatory review of an insurer's or producer's sales, underwriting, rating, and claims practices to confirm compliance with consumer protection laws and regulations.

Rebating

Offering a prospect any inducement not specified in the policy, such as part of the commission or a gift, to encourage the purchase of insurance; generally illegal.

Twisting

Inducing a policyholder to lapse or replace existing coverage through misleading or incomplete comparisons of policies, which is classified as an unfair trade practice.

Fiduciary duty

The legal obligation of a producer or insurer to act in the client's best interest and to hold premium or client funds in trust without commingling them.

Guaranty association

A state-established entity that pays covered claims of policyholders of insolvent insurers, funded by assessments on insurers and subject to statutory limits.

Risk-based capital

A regulatory measure that sets minimum capital requirements based on an insurer's asset, underwriting, and other risks, allowing early regulatory intervention before insolvency occurs.