AINS 101 Exam Prep| Answered 100% Correctly| Latest 2024-2025, Exams of Insurance law

Download AINS 101 Exam Prep| Answered 100% Correctly| Latest 2024-2025 and more Exams Insurance law in PDF only on Docsity! AINS 101 Exam Prep| Answered 100% Correctly| Latest 2024-2025 Loss exposure any condition or situation that presents a possibility of loss, whether or not an actual loss occurs Premium the price of the insurance coverage provided for a specified period Indemnify to restore a party who has sustained a loss to the same financial position that party held before the loss occurred Insured any person or organization who is insured under an insurance policy Property-casualty insurance one of the two main sectors of the insurance industry encompassing numerous types of insurance, most of which cover the financial consequences of damage to one's own property or legal liability to others Life-health insurance one of the two main sectors of the insurance industry encompassing numerous types of insurance that cover the financial Stock insurer an insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders Mutual insurer an insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them Surplus-lines insurer a non-admitted insurer that is eligible to insure risks that have been exported by a surplus lines licensee in accordance with a surplus lines law Reinsurance the transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies Pure risk a chance of loss or no loss, but no chance of gain Speculative risk a chance of loss, no loss, or gain Solvency the ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future Income statement the financial statement that reports an organization's profit or loss for a specific period by comparing the revenues generated with the expenses incurred to produce those revenues Earned premiums the portion of the written premiums that apply to the part of the policy period that has already occurred Underwriting income income an insurer earns from premiums paid by policyholders minus incurred losses and underwriting expenses Balance sheet the financial statement that reports the assets, liabilities, and owner's equity of an organization as of a specific date Policyholder's surplus an insurer's assets minus its liabilities, which represents its net worth Loss adjustment expenses the expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy Assets types of property, both tangible and intangible, owned by an entity Liabilities financial obligations, or debts, owned by a company to another entity usually the policyholder in the case of an insurer Investment income interest, dividends, and net capital gains received by an insurer from the insurer's financial assets, minus its investment expenses Loss reserve an estimate of the amount of money the insurer expects to pay in the future for losses that have occurred Unearned premium reserve an insurer liability representing the amount of premiums received from policyholders that are not yet earned Loss ratio a ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses Expense ratio an insurer's incurred underwriting expenses for a given period divided by its written premiums for the same period Combined ratio a profitability ratio that indicates whether an insurer has made an underwriting loss or gain Independent agency a business, operated for the benefit of its owner that sells insurance, usually as a representative of several unrelated insurers Exclusive agency marketing system an insurance marketing system under which agents contract to sell insurance exclusively for one insurer Direct writer marketing system an insurance marketing system that uses sales agents who are direct employees of the insurer Distribution channel the necessary people and physical facilities to support the sale of insurance products and services Agent compensation in the form of a flat fee or a commission that is paid by the reinsurer to the reinsurance intermediary for services provided Risk management the process of making and implementing decisions that will minimize the adverse effects of accidental losses on an organization Fortuitous loss a loss that is accidental and unexpected Independent exposures group of many persons purchasing insurance independently and not affected by the losses of others Contract of indemnity a contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss Principle of indemnity the principle that insurance policies should provide a benefit no greater than the loss suffered by an insured Utmost good faith an obligation to act in complete honesty and to disclose all relevant facts Contract of adhesion any contract in which one party must either accept the agreement as written by the other party or reject it Conditional contract a contract that one or more parties must perform only under certain conditions Declarations page an insurance policy information page or pages providing specific details about the insured and the subject of the insurance Insuring agreement a statement in an insurance policy that the insurer will, under described circumstances, make a loss payment or provide a service Condition any provision in an insurance policy that qualifies an otherwise enforceable promise of the insurer Exclusion a policy provision that eliminates coverage for specified exposures Risk uncertainty about outcomes, can be negative or positive Transferring the act of transferring the financial consequences of unanticipated events to an insurer Pooling all insureds share the costs of each other's losses The Benefits of Insurance 1) Paying for losses 2) Managing cash flow uncertainty 3) Meeting legal requirements 4) Promoting risk control 5) Enabling efficient use of resources 6) Providing support for insured's credit 7) Providing source of investment funds 8) Reducing social burdens Liability insurance provides payments for injury to others or damage to other's property for which the insured is legally responsible. It also covers the cost to defend the insured against related lawsuits Property insurance protects an insured's assets by covering the cost of repairing or replacing property that is damaged, lost or destroyed. It can also cover related lost income or extra expenses Homeowners provides protection when people's homes and/or belongings are damaged or stolen and liability coverage for situations such as the family dog biting a guest Personal auto provides coverage for bodily injury to another person or damage to another person's auto. Also provides coverage for damage to the insured auto. Typically legally required. Personal umbrella provides additional protection for people with a high potential for large liability losses Commercial property covers damage to building or their contents that results from fire, vandalism and other causes of loss Commercial crime protects against losses from theft of business property and money, including employee theft Commercial general liability protects a business against its legal liability to others for bodily injury and property damage Commercial auto covers liability for bodily injury and property damage caused by the use of the business's autos and also damage to the business's own autos when they are in an accident Workers compensation covers legally required benefits that businesses are required to pay to their employees for job- related injuries and illnesses Commercial umbrella provides additional liability limits beyond those provided by other commercial policies, protecting a business in the event of a large liability loss Reciprocal insurance exchange each member is both an insured and an insurer Captive insurer formed to cover the loss exposures of specific organizations Risk Quadrants Hazard, Operational, Financial, Strategic Hazard risk arises from property, liability, or personnel loss exposures. Operational risk arises from people, processes, systems, or controls Financial risk arises from the effect of market forces on financial assets or liabilities Strategic risk arises from trends in the economy and society Artificial intelligence enables computers to perform tasks that require critical thinking, such as making decisions Sensors detect and measure objects or conditions continuously to warn of problems and malfunctions. Smart sensors may trigger a response to an issue, which helps reduce losses Computer vision helps a machine recognize an object and respond to it as a human would Insurance regulations protects consumers by: 1. Verifying that insurance policies, which can be hard to understand, truly benefit the customer 2. Requiring insurers to pay legitimate claims and honestly represent the benefits of a policy 3. Guaranteeing that insurance is available and accessible to everyone who needs it The government regulates insurance for 3 reasons: 1. To protect consumers 2. To maintain insurer solvency 3. To prevent destructive competition Insurance regulation protects consumers by 1. Verifying that insurance policies, which can be hard to understand, truly benefit the customer 2. Requiring insurers to pay legitimate claims and honestly represent the benefits of a policy 3. Guaranteeing that insurance is available and accessible to everyone who needs it Regulators enact and enforce rules that encourage insurers to maintain and enhance their financial position to: 1. Guarantee that insurers have enough cash on hand to pay for future claims made on all the policies they issue, even the ones for which they long ago collected the premium 2. Ensure that a catastrophe that affects lot of policyholders at once doesn't deplete insurer's resources and make them unable to pay claims 3. Prevent an insurer from recklessly investing it profits or engaging in fraudulent activities that could jeopardize its reserves Regulation seeks to keep insurers from pricing too low for two main reasons: 1. Not charging enough premium could leave the insurer without enough cash on hand to pay covered losses 2. Charging low rates could be an attempt to drive competitors out of business An income statement shows: 1. Total revenue 2. Total expenses 3. Net income for a time period Balance sheet includes Insurers assets such as: 1. Cash 2. Liabilities 3. Surplus Admitted assets items that insurers can easily turn into cash, such as stocks, bonds, and real estate Non-admitted assets types of property that insurers cannot easily convert into cash Insurance is commonly sold through: