fin 350 exam 1

-Objective: Deviation between actual and expected risk
-Subjective: Some situation perceived differently by various people

-Morale (attitudinal): An attitude of indifference because an individual has insurance
-Moral: Making a loss in order to receive payment

-Risk avoidance
-Loss control: prevention (f) and reduction (s)
-Risk retention: active vs passive
-Risk transfer

-Large # of similar exposure units
-Fortuitous losses
-Determinable and measurable losses
-Losses are not catastrophic
-Calculable chance of loss
-Affordable premiums

Pre loss:
-economic treatment of risk
-reduce fear and worry
-meet internal/external constraints (e.g. laws)
Post loss:
-survival of organization
-continuity of operations
-profit stabilization
-social responsibility

1: Identification of risks
2: Evaluation of loss exposures
3: Risk treatment techniques
4: Monitoring the program

L/L: Loss retention
Lf/Hs: Risk transfer
Hf/Ls: Loss control
H/H: Avoidance

-Consolidation: fewer companies because of M and A
-Convergence: Full financial service: Eg banking, investing

-unincorporated mutuals
-e.g. 15 farmers agree to assist one another

-Marketplace with underwriters, they do international reinsurance
-Sell insurance with strange risks
-Like a trading floor, NOT an insurance co.!

-General agency system (NW mutual):
Sales person, but also recruiting and training. Try to build up territory
-Branch office (managerial) system (NY life): Not a sales person. "Niche" marketing

-Not hiring in a new area, just selling

-Sell insurance through media

-Independent agency system (AIA Ins.)
-Exclusive agency system (state farm, farmers): an agent who only sells for one company
-Direct writers (firemans fund): like exclusive writers, but salaried
-Direct response system (GEICO): advertising through media
-Multiple distribution systems (allstate at AIA)
-Mass merchandising (liberty mutual at WSU: group property/liability, but using individual underwriting

Price insurance, using math and statistics. Premiums need to be high enough to cover losses and expenses but low enough to be competitive

Selection and classification of risks

Verify a loss has occurred, determine if the loss is covered, determine the value of the claim, pay the claim and assist the insured

-The agent (small claims)
-The company adjuster
-The independent adjuster
-The public adjustor: hired by insured

Allows an insurer (ceding company) to transfer risk to another insurer (reinsurer). Business kept is the "retention," business reinsured is the "cession"

-Underwriting capacity (write more insurance)
-Catastrophe protection
-Profit stabilization
-Withdraw from a line/area

-Facultative: Shopping, case by case. Primary insurer negotiates a separate contract with a reinsurer for each loss exposure for which reinsurance is desired
Automatic treaty: All business that falls within the scope of the agreement is automatically reinsured according to the terms of the treaty

-Proportional: Loss AND premium sharing in place for both companies, eg. 70/30, 60/40
-Excess: Reinsurer agrees to accept insurance in excess of the ceding insurers retention limit

Actual cash value, includes deduction for depreciation. Personal property on ACV basis, dwelling on replacement. Life insurance, replacement cost insurance are exceptions because you decide how much to buy.

You have to stand to lose in order to have insurable interest on a certain property.
Life: Must have interest at time of purchase
Property insurance: Must have insurable interest at time of loss.

A high level of honesty is required between two parties
Asymmetric (unequal) information in insurance markets: Who has more information, buyer or seller? Purchaser! Eg, purchaser knows about chest pains

After 2 years, there cannot be any changes

-Aleatory: Unequal values are exchanged. Chance is involved. Eg, policy payment in exchange for a whole life policy? Not equal exchange

Unilateral contract: Only one side makes a legally enforceable promise. If you pay premium, must have coverage.

Contracts of adhesion: contract has to be accepted in entirety. If there is any ambiguity in the contract, courts will rule in favor of public

What if the agent gives policies to insureds if the ins. co. doesn't want to insure the insureds?

-No presumption of agency
-Principal responsible for agent's acts
-Authority of the agent

Waiver:
-Voluntary relinquishing a right under a contract
Estoppel:
-Representation of fact. Representation is reasonably relied upon to the extent that it would not fair to have the statement taken back.