General Insurance Applications (GIA) cheat sheet

Risk = uncertainty about loss; pure risk (only loss or no loss) is insurable, speculative risk (gain or loss possible) is not.

Insurable risk tests: large number of similar exposure units, accidental and definite loss, measurable loss, non-catastrophic to the pool, and premium must be affordable.

Law of large numbers: as the number of independent similar exposure units increases, actual loss experience converges toward expected loss, improving predictability.

Indemnity principle: recovery restores the insured to pre-loss financial position, no better; valued policies and replacement-cost endorsements are exceptions.

Utmost good faith requires disclosure of material facts; misrepresentation, concealment, and warranty breach can void coverage.

Insurable interest must exist at inception for property and at the time of loss for life; absence makes the contract unenforceable.

Subrogation transfers the insured's right of recovery against a negligent third party to the insurer after payment, preventing double recovery.

Risk management steps: identify exposures, measure frequency and severity, select techniques (avoid, retain, reduce, transfer), implement, then monitor.

Elements of a valid contract: offer, acceptance, consideration, legal purpose, and competent parties; insurance adds adhesion, aleatory, and conditional features.

HO-3 covers the dwelling on open-peril terms and personal property on named-peril terms; HO-5 extends open peril to personal property.

HO coverage parts: A dwelling, B other structures, C personal property, D loss of use, E personal liability, F medical payments to others.

HO-3 special limits apply to categories such as money, jewelry theft, silverware theft, and business property on premises; higher limits need scheduled endorsements.

Replacement cost on dwelling requires insurance to at least 80% of replacement cost; below that, loss settlement is reduced proportionally.

Personal auto liability splits into bodily injury per person, bodily injury per accident, and property damage per accident; each is a separate cap.

PAP Part D covers damage to the insured auto: other than collision (comprehensive), collision, and towing/rental; deductible applies per covered loss.

Personal umbrella responds over underlying auto, homeowners, and watercraft liability after required underlying limits are exhausted; it excludes business and intentional acts.

Personal articles floater covers scheduled valuables on open-peril, worldwide, agreed-value basis with no deductible; unscheduled items fall back to HO limits.

Flood is excluded by homeowners policies and must be purchased separately; earthquake also requires a separate policy or endorsement.

CGL Coverage A (bodily injury/property damage) and Coverage B (personal and advertising injury) apply to sums the insured is legally obligated to pay; Coverage C is medical payments.

CGL occurrence-form trigger is injury or damage during the policy period; claims-made forms respond to claims first made during the policy period, subject to retroactive date.

Commercial property forms distinguish building, business personal property, and personal property of others; coinsurance requires limits near values.

Business income coverage pays net income loss plus continuing normal operating expenses during the period of restoration, starting after the waiting period.

Commercial auto symbols designate covered autos: any auto, owned autos, hired autos, non-owned autos; the symbol selected determines scope.

Workers compensation is statutory in most states, providing wage replacement and medical benefits for work-related injury regardless of fault.

Commercial umbrella and excess liability sit above scheduled underlying policies and may drop down when underlying coverage is exhausted or unavailable.

BOP packages property and general liability for eligible small businesses with simplified rating; ineligible classes include auto dealers and restaurants in many programs.

Equipment breakdown and inland marine coverages fill gaps left by property forms that exclude mechanical failure and property in transit.

Underwriting cycle: hard markets show tight capacity and rising premiums; soft markets show abundant capacity and price competition.

Loss ratio = incurred losses ÷ earned premiums; expense ratio = incurred expenses ÷ written premiums; combined ratio = loss ratio + expense ratio.

Combined ratio below 100% indicates underwriting profit; above 100% indicates underwriting loss offset by investment income.

Reinsurance: treaty covers a class of business automatically; facultative is negotiated per risk; proportional shares losses, excess of loss covers above a retention.

Claims handling steps: notice and reporting, investigation, evaluation, negotiation and settlement, then payment and subrogation pursuit.

Producer licensing and appointment rules govern who may solicit, negotiate, or sell; commissions are paid by the insurer, not the policyholder.

Premium audit adjusts exposure-based premiums (payroll, sales, units) after the policy term based on actual exposure reported.

Reserves include unearned premium reserve, loss reserves, and loss adjustment expense reserves; statutory accounting emphasizes solvency over matching.

State regulation is based on the McCarran-Ferguson Act, which leaves insurance regulation to the states subject to federal antitrust limits.

State insurance departments license insurers and producers, approve forms and rates, conduct market conduct exams, and operate guaranty associations.

Rate standards require rates to be adequate, not excessive, and not unfairly discriminatory; actuarial support is required for rate filings.

Producer duties include acting with utmost good faith, not misrepresenting policy terms, and remitting premiums to the insurer as a fiduciary.

Twisting is inducing a policyholder to lapse or surrender coverage through misrepresentation; rebating is offering inducements not in the contract; both are prohibited.

Unfair claim settlement practices include unreasonable delay, failure to investigate promptly, and offering far less than the claim is worth.

Fiduciary duty requires segregated premium funds; commingling fiduciary funds with personal or agency operating funds is prohibited.

Continuing education and timely license renewal are conditions of maintaining an active producer license; lapsed licenses cannot transact insurance.