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18 Cards in this Set
- Front
- Back
refers to characteristics of the legal system or regulatory environment that increase the frequency or severity of losses.
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legal hazard
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the tendency of persons with a higher than average chance of loss to seek insurance at standard (average) rates, which if not controlled by underwriting, results in higher than expected loss levels.
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adverse selection
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states that as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience.
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law of large numbers
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the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss
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pool of risks
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means that the insured is restored to his or her approximate financial position prior to the occurrence of the loss
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Indemnification
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an insurer owned by a parent firm for the purpose of insuring the parent firm’s loss exposures
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captive insurer
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(also called a pure captive) is an insurer owned by only one parent, such as a corporation
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single parent captive
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is an insurer owned by several parents
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association or group captive
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turning away from or preventing risk. how much you are willing to pay for coverage
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risk aversion
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the occurrence of one event affects the occurrence of the other
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dependent events
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the occurrence does not affect the occurrence of another event.
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independent events
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refers to that portion of the rate needed to pay losses and loss adjustment expenses
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pure premium
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refers to the amount that must be added to the pure premium for other expenses, profit, and a margin for contingencies
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loading
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Paid by the insured consists of the gross rate multiplied by the number of exposure units. (e.g. If gross rate is 10 cents per 100 dollars of property insurance, the gross premium for a 500,000 dollar building would be 500 dollars)
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gross premium
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is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance.
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reinsurance
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an insurer domicile in the state; it must be licensed in the state as well as in other states where it does business.
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domestic insurer
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an out of state insurer that is chartered by another state; it must be licensed to do business in the state.
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foreign insurer
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is an insurer chartered by a foreign country. It must also meet certain licensing requirements to operate in the state
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alien insurer
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