Insurance Commission Insurance Broker Licensure Exam (Philippines) flashcards

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

Insurance Commission (IC)

The Philippine government agency that regulates and supervises the insurance industry, issues licenses to insurers, brokers, agents, and adjusters, and enforces the Insurance Code and its circulars.

Insurance Code PD 612

The primary Philippine statute governing insurance contracts, insurers, brokers, agents, and adjusters; it has been amended, most notably by RA 10607, and is administered by the Insurance Commission.

Broker versus agent

An insurance broker represents the insured and is licensed by the IC; an insurance agent represents the insurer. The broker owes loyalty to the client, while the agent acts for the principal insurer.

Prohibited rebating

Under the Insurance Code, giving or sharing premiums or commissions with unlicensed persons as inducement is prohibited. Violations may lead to suspension, revocation, or fines against the licensee.

Pure risk

A risk that involves only the possibility of loss or no loss, with no possibility of gain. Pure risks are generally insurable, unlike speculative risks that involve both gain and loss.

Law of large numbers

A statistical principle stating that as the number of similar exposure units increases, actual loss experience approaches expected loss, improving predictability and enabling insurers to pool risk efficiently.

Adverse selection

The tendency of individuals with higher-than-average risk to seek insurance more than lower-risk individuals. Underwriting and policy design are used to mitigate its effect on insurer losses.

Moral hazard

The increased likelihood of loss caused by insured behavior, such as carelessness or intentional acts, because the presence of insurance reduces the incentive to prevent loss.

Principle of indemnity

The principle that insurance restores the insured to the pre-loss financial position, no better and no worse. It applies to property insurance but not fully to life insurance.

Insurable interest

A financial or legal relationship such that the insured benefits from the continued existence of the subject and suffers loss from its destruction. Required at inception in property insurance.

Term life insurance

Life insurance providing death protection for a specified period with no cash value. It is renewable or convertible per policy terms and is the purest form of death protection.

Whole life insurance

Permanent life insurance with lifetime coverage, guaranteed cash value, and level premiums. It may be participating, paying dividends, or non-participating, depending on the policy.

Universal life insurance

A flexible life policy separating mortality charges from the cash value component. Policyholders may adjust premiums and death benefits within policy limits, subject to surrender charges.

Variable life insurance

Life insurance whose cash value is linked to separate-account investments. The policyholder bears investment risk, and the product requires securities registration and disclosure.

Incontestability clause

A policy provision barring the insurer from contesting the policy after two years from issue or reinstatement, absent nonpayment of premium or certain fraud exceptions.

Suicide clause

A policy provision limiting payment to return of premiums if death by suicide occurs within a stated period, commonly two years from issue, after which full proceeds are payable.

Fire insurance coverage

Covers direct damage from fire, lightning, and explosion. Extended coverage may add allied perils such as windstorm, flood, and earthquake, subject to deductibles and policy terms.

Marine cargo insurance

Covers loss or damage to cargo during transit by sea or other conveyances. Policies may be valued or unvalued, and general average contributions are typically covered.

Compulsory third-party liability

Motor insurance required by law covering bodily injury or death to third parties. Own damage and theft require separate comprehensive coverage beyond the compulsory minimum.

Business interruption insurance

Covers loss of profits and continuing expenses during restoration after a covered property loss. It typically requires a specified indemnity period and proof of loss.

Suretyship and bonds

A three-party arrangement involving the principal, obligee, and surety. The surety guarantees the principal's performance or obligation, and the obligee may claim on the bond.

Utmost good faith

A principle requiring the insured to disclose all material facts known. Concealment or misrepresentation may void the policy, reflecting the special nature of insurance contracts.

Proximate cause

The efficient, dominant cause of a loss, as opposed to a remote cause. Coverage depends on whether the proximate cause is a covered peril under the policy.

Subrogation

The insurer's right, after paying a claim, to step into the insured's shoes and pursue the third party responsible for the loss, up to the amount paid.

Contribution

The principle that when multiple policies cover the same loss, insurers share the loss proportionally or per policy terms, preventing double recovery by the insured.

Broker fiduciary duty

A broker must act in the client's best interest, safeguard premiums, remit them promptly, disclose commissions, and avoid conflicts of interest in placing coverage.

Commission disclosure

Brokers must disclose commissions and remuneration to clients and agree in writing. Sharing commissions with unlicensed persons is prohibited under the Insurance Code.

Broker confidentiality

A broker must protect client information and disclose it only as authorized. Unauthorized disclosure may violate the Insurance Code and Philippine data privacy laws.

Combined ratio

The sum of the loss ratio and expense ratio. A combined ratio below 100% indicates underwriting profit; above 100% indicates an underwriting loss offset by investment income.

Claims handling steps

Notice of loss, verification of coverage, investigation, proof of loss, adjustment, settlement or denial, and subrogation recovery. Prompt and fair handling is required.

Loss reserves

Liabilities set aside for reported and incurred-but-not-reported claims. Adequacy affects solvency and financial reporting, and reserves are reviewed periodically by actuaries.

Treaty versus facultative

Treaty reinsurance automatically covers a class of business under agreed terms; facultative reinsurance is negotiated case-by-case for individual risks.

Proportional reinsurance

Reinsurance in which the reinsurer shares premiums and losses proportionally with the ceding insurer, as in quota share and surplus share arrangements.

Solvency margin

The required excess of an insurer's assets over liabilities, ensuring it can meet obligations. The IC monitors solvency through periodic reporting and capital requirements.