LOMA 280 flashcards
LOMA 280 · Build recall with a focused review session.
33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Pure risk
- A risk situation with only two possible outcomes: loss or no loss. There is no possibility of gain, which is why pure risk is generally insurable.
- Speculative risk
- A risk situation with three possible outcomes: loss, no change, or gain. Business and investment risks are speculative and generally not insurable.
- Law of large numbers
- A statistical principle stating that as the number of independent, similar exposure units increases, actual results tend to approach expected results, improving loss predictability.
- Adverse selection
- The tendency of applicants with higher-than-average risk to seek or retain insurance more often than lower-risk applicants, which can raise insurer losses without underwriting controls.
- Moral hazard
- Increased likelihood or severity of loss caused by insured behavior, such as carelessness or dishonesty, because insurance reduces the financial consequence of loss.
- Morale hazard
- A condition of carelessness or indifference toward loss because insurance exists. It differs from moral hazard, which involves intent or dishonesty.
- Indemnity principle
- The rule that insurance should restore the insured to approximately the same financial position as before the loss, without profit or betterment.
- Insurable interest
- A financial or legally recognized relationship with the person or property insured such that loss or damage causes genuine economic detriment to the insured.
- Utmost good faith
- A principle requiring both insurer and applicant to deal honestly and disclose material facts, because insurance depends on information held mainly by the applicant.
- Material fact
- A fact that would influence an insurer's decision to accept a risk, set a rate, or determine coverage. Failure to disclose it can permit rescission.
- Representation
- A statement made by the applicant during underwriting that is believed to be true to the best of the applicant's knowledge.
- Warranty
- A statement or condition in an insurance contract that is guaranteed true. A material breach can allow the insurer to deny a claim.
- Concealment
- The intentional failure to disclose a material fact to the insurer. It differs from an innocent omission and can affect the validity of the contract.
- Contract of adhesion
- A contract drafted by one party, the insurer, and offered to the other on a take-it-or-leave-it basis. Ambiguities are generally construed against the drafter.
- Aleatory contract
- An insurance contract in which the amounts exchanged by the parties are unequal and depend on the occurrence of an uncertain event.
- Unilateral contract
- An insurance contract in which only the insurer makes an enforceable promise. The applicant's premium payment is consideration for that promise.
- Subrogation
- The insurer's right, after paying a loss, to pursue recovery from the party responsible. It prevents the insured from collecting twice for the same loss.
- Contribution
- The principle that when two or more policies cover the same loss, each insurer pays its share so the insured does not recover more than the actual loss.
- Waiver
- The voluntary relinquishment of a known legal right by an insurer or insured, such as an insurer's right to require proof of loss within a stated period.
- Estoppel
- A legal doctrine preventing a party from asserting a right after conduct that induced another party to rely on that conduct to their detriment.
- Express authority
- Authority explicitly granted to a producer by the insurer through the agency agreement or appointment, including the power to solicit and bind specified coverage.
- Implied authority
- Authority reasonably inferred from the producer's role and customary duties, even if not expressly stated in the agency agreement.
- Apparent authority
- Authority a third party reasonably believes a producer possesses based on the insurer's words or conduct, which can bind the insurer even without actual authority.
- Stock insurer
- An insurer owned by shareholders. Profits may be distributed as dividends to shareholders, and policyholders do not own the company.
- Mutual insurer
- An insurer owned by its policyholders rather than shareholders. Eligible policyholders may receive dividends, often called policy dividends.
- Reinsurance
- An arrangement in which one insurer, the reinsurer, indemnifies another insurer, the ceding company, for all or part of the risks it has assumed.
- Cession and retention
- Cession is the portion of risk transferred to a reinsurer. Retention is the portion the ceding insurer keeps for its own account.
- Treaty reinsurance
- A reinsurance agreement under which the reinsurer automatically accepts all risks within a defined class that meet the treaty terms.
- Facultative reinsurance
- Reinsurance arranged case by case. The ceding insurer and the reinsurer each may accept or decline an individual risk.
- Rate components
- An insurance rate is built from expected loss costs, expense loading, and a risk or profit margin. Gross premium equals the rate times exposure units.
- Unfair trade practices
- Prohibited conduct such as misrepresentation, twisting, rebating, false advertising, and unfair claim settlement. States enforce these through insurance laws and penalties.
- Twisting
- Inducing a policyholder to lapse, surrender, or replace a policy through misrepresentation or incomplete comparison, which is an unfair trade practice.
- Rebating
- Offering an applicant an inducement, such as part of the commission or a valuable item, that is not stated in the policy, to encourage purchase.