NC Property and Casualty State Exam (Graded A+ actual test)
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Course
NC Property and Casualty State
Institution
NC Property And Casualty State
Insurable Risk - ️️- a risk the insurance company is willing to accept
- characteristics of an insurable risk
1. Low probability of a loss occurring
2. Less than catastrophic results
3. The loss must be measurable
4. The loss must be significant
5. The loss must be accidental and unintend...
NC Property and Casualty State Exam
Insurable Risk - ✔️✔️- a risk the insurance company is willing to accept
- characteristics of an insurable risk
1. Low probability of a loss occurring
2. Less than catastrophic results
3. The loss must be measurable
4. The loss must be significant
5. The loss must be accidental and unintended
Mutual Insurance Companies - ✔️✔️- owned by policyholders; each policyholder
"owns" a part of the company proportionate to their share
- elects a board of directors who appoint officers
- surplus returned to policyholders in the form of non-taxable policy dividend
Insurance - ✔️✔️- a plan of spreading the risk of possible loss over a large number of
people (Law of Large Numbers)
- protects against the risk (uncertainty) of when a financial loss might occur
Speculative Risk - ✔️✔️- when there is a chance of gain as well as a chance of loss
(ex: buying a stock, gambling)
- insurance IS NOT intended to protect against this
Pure Risk - ✔️✔️- when there is a chance of loss only
- not all pure risks are insurable
Law of Large Numbers - ✔️✔️- makes it possible to predict future losses based upon
prior experience
- law states that as a large # of events are included, the difference between actual and
expected results become smaller
Spread of Risk - ✔️✔️- involves spreading the company's policies over a broad
geographical area in order to avoid large losses in the event of a catastrophic event
Adverse Selection - ✔️✔️- occurs when insureds with a high risk of loss attempt to
purchase insurance and are successful in doing so
- insurers attempt to PREVENT THIS (bad risk)
- prevented by:
1. refusal to write
2. rating up
3. insurability standards
*** deductibles do not prevent this
,Retention - ✔️✔️- when liability for a loss is maintained by an individual by NOT
PURCHASING INSURANCE
- deductible is an example of retention
Transfer - ✔️✔️To shift the responsibility for a loss to an insurance company through
the purchase of insurance
Control/Reduction - ✔️✔️- an attempt to prevent a loss or to reduce the amount of the
loss
- ex: installation of a sprinkler system to reduce the amount of loss
Perils - ✔️✔️Actual cause of a loss such as fire, theft, wind, hail, etc.
Hazards - ✔️✔️- increase in the probability of a peril occurring
- ex: bald tires on a car, faulty wires, damaged steps
Principle of Indemnity - ✔️✔️- the fundamental idea that the purpose of insurance is to
restore the insured to the original financial position that was enjoyed before a loss, BUT
WITHOUT GAIN
Private/Voluntary Insurance - ✔️✔️- neither required nor made available by the
government, but does not meet recognized needs
- ex: collision insurance in a PAP
Social Insurance - ✔️✔️- programs either require or made available by government
- ex: facility, workers comp, flood insurance
Reinsurance - ✔️✔️- where insurers sell portions of their individual contracts of
insurance to other companies; helps spread risk
- insurance for an insurance company
Capital Stock Companies - ✔️✔️- in business to make a profit for stockholders
- owned by stockholders; elect a board of directors
- profit is fully taxable to stockholder
Reciprocal (Assessment) Companies - ✔️✔️- policyholders are insured by other
policyholders
, - managed by Attorney-In-Fact who can assess the policyholders for additional
premiums
Classifications of Insurance Companies - ✔️✔️1. Domestic: organized in state
2. Foreign: organized in a different state
3. Alien: organized in another country
Independent Agency System - ✔️✔️- agent can represent more than one insurance
company
- owns the business and retains all rights to the accounts
Direct Writers (captive/exclusive) - ✔️✔️- can only represent one insurance company
- insurance company retains ownership rights, not the agent
Agents - ✔️✔️- representatives of the insurance company
- requires a contract and appointment (something stating they can sell insurance)
- given binding authority (binder = temporary evidence insurance is in effect); must be
written or oral (says you ARE covered); cannot cancel binder - only the policyholder or
company can
Broker - ✔️✔️- representatives of the insured
- shop the market for their customers and obtain coverage through an agent
- must have $15,000 bond
- CANNOT bind coverage
When Agents are PERSONALLY Liable - ✔️✔️1. The agent breached their authority
2. The agent represents an incompetent principal or a non-admitted insurance company
Agents Duties to the Insurance Company - ✔️✔️1. Loyalty
2. Obedience
3. Use of Reasonable Care
4. Accurate Accounting
5. Communication of info held by the agent to the company
Errors and Omission (E&O) - ✔️✔️Insurance to protect agents in case of
negligence/civil liabilities
Underwriting - ✔️✔️- prevents bad business; "quality control"
Loss Ratios - ✔️✔️- directly affected by underwriting standards
- determined by dividing the losses of the company by the premiums collected
- determine whether a company has had an underwriting loss or profit
Application - ✔️✔️The most important document when underwriting is determining
eligibility
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