General Insurance Concepts
The vocabulary of risk
Risk is uncertainty of loss; insurance transfers pure risk (loss or no loss) and never speculative risk (chance of gain). A peril is the cause of loss (fire, death, illness); a hazard increases the chance or severity of loss. Hazards come in three flavors: physical (icy steps), moral (dishonesty - arson, faked disability), and morale (carelessness - not locking the door). Questions love to swap moral and morale: ask "is there intent to defraud?"
Insurable risks are ideally accidental, measurable, predictable in the aggregate, and spread over a large number of similar exposure units; the law of large numbers makes future losses predictable. Adverse selection - the tendency of poorer risks to buy or keep coverage - is why underwriting, exclusions, and waiting periods exist.
Contract law
Insurance contracts are contracts of adhesion (written by the insurer, so ambiguities are construed against the drafter), aleatory (unequal exchange of value), unilateral (only the insurer makes an enforceable promise once premium is paid), and conditional (benefits depend on the insured's compliance). Both parties owe utmost good faith; breach appears as misrepresentation, concealment, or fraud. A warranty is a statement guaranteed literally true; a representation need only be substantially true. Waiver is voluntary surrender of a known right; estoppel prevents taking an inconsistent position afterward.
Risk management and insurers
Methods of handling risk: avoidance, retention, transfer (insurance), sharing, and loss reduction/prevention. Insurer types: stock (shareholders), mutual (policyholders), fraternal (members, lodge system), and reciprocal (subscribers of an attorney-in-fact). Marketing systems: career/captive agents represent one insurer; independent agents and brokers represent buyers and multiple insurers.
Rule of thumb: peril answers "what caused it?", hazard answers "what made it worse?"