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North Carolina Property and Casualty
Exam Terms Questions and Answers
Contract ✔✔A legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration
Contracts must exhibit: ✔✔Competent parties Legal Purpose Offer and Acceptance Consideration
Principle of indemnity ✔✔When a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss, no more or no less
Aleatory ✔✔A contract contingent on an uncertain event (A loss) that provides for unequal transfer of value between two paries
Adhesion (Contracts) ✔✔One party has greater power over the other party in drafting the contract
Unilateral (Contracts) ✔✔One Sided; Only the insurance company is legally bound to perform its part of the agreement
Contract of utmost good faith (Contracts) ✔✔The truthfulness and integrity of the applicant when providing information that leads to issuing a policy.
Conditional (Contracts) ✔✔A number of conditions that both the insured and the insurer most follow by in order to keep the contract valid
Five parts of an insurance contract ✔✔Declarations Insuring Agreements Conditions Exclusions Definitions
Declarations (Contain) ✔✔Name of Insured Address Amount of Coverage Description of Property Perils covered
Insuring Agreements (Contain) ✔✔Losses for which the insured will be indemnified What is covered What perils covered
Lloyd's Association ✔✔Voluntary association of individuals, or groups of individuals, who agree to share in insurance contracts. Each individual, or "syndicate" is individually responsible for the amounts of insurance they write
Fraternal benefit society ✔✔Incorporated society or order, without capital stocks, that is operated on the lodge system and conducted solely for the benefit of its members and their beneficiaries and not for profit. Only available to their members
Risk Retention Groups ✔✔A self-insurance or group captive insurance company set up to protect manufacturers against product liability exposures and to purchase liability insurance.
Self-Insurance ✔✔When a company takes part of all of the risk of loss without the benefit of insurance coverage to fall back on if a loss occurs
Residual market insurance ✔✔When the government steps in and provides insurance that is not ordinarily available from private insurers. It provides War Risk Insurance Nuclear Energy Liability insurance Flood insurance Federal Crop Insurance
Four Lines of Insurance ✔✔Property Casualty
Life Health and disability
Life insurance ✔✔designed to handle the risk of premature death or the risk that an individual may outlive his or her financial resources
Health and Disability insurance ✔✔Designed to handled the risk of medical bills and loss of income resulting from injury or sickness
Property Insurance ✔✔Many types of insurance designed to handle the risk that we will suffer financial loss because something we own is damaged or destroyed
Dwelling Homeowners Commercial property Inland Marine Ocean Marine Crime
Casualty insurance (Lines) ✔✔Aviation Auto Workers Compensation Surety
Agents also have responsibilities toward the insurance company or companies they represent. Agents must: ✔✔be loyal to the insurer's interests and avoid engaging in any business activity that competes or interferes with the insurer's business;
obey all legal instructions provided by the insurer;
deposit funds belonging to the insurer in a separate account in the insurer's name;
perform all duties with the degree of care and skill that a reasonably prudent person would exercise in the same circumstances;
keep the insurer informed of all facts related to the agency relationship.
Agency Relationship ✔✔When one party (an agent) is authorized to act on behalf of another (A principal)
Express authority ✔✔Authority specifically given to an agent, either orally or in writing, by the principal
Implied authority ✔✔authority given by the insurance company to the agent that is not formally expressed or communicated
Apparent authority ✔✔a doctrine that holds that an agent may have whatever authority a reasonable person would assume an agent has
Exclusive or captive agency (distribution systems) ✔✔insurance company contracts with agencies, which are independent businesses, to represent and sell insurance for only that company
Direct writer system ✔✔the insurance company's agents are actually employees
Direct response system ✔✔Companies sell through direct mail or over the phone
Independent agency system ✔✔Agencies are independent contractors with several different companies to represent and sell insurance for those companies
Solicitor ✔✔sells insurance, cannot issue or countersign policies
Broker ✔✔represents the insured; cannot bind an insurer to a contract
Excess/Surplus Lines Agent ✔✔An agent licensed by the state to handle the placement of such coverage's with nonadmitted companies
Producer ✔✔Someone who sells insurance, such as an agent, broker, or solicitor
State insurance department ✔✔each state has an insurance department headed by an official charged with the responsibility for controlling insurance matters within that state
North Carolina Commissioner is named ✔✔Wayne Goodwin
NAIC (National Association of Insurance Commissioners) ✔✔A national organization that is made up of all the states commissioners and makes recommendations for the states insurance markets, non of which are binding
Admitted/Authorized Insurer ✔✔A company that meets the insurance departments standards and is authorized to do business in a state
Non-admitted/unauthorized insurer ✔✔Not authorized to do business in a state and may only do so under special circumstances
Domestic Insurer ✔✔A company's status within the sate it is domiciled
Foreign Insurer ✔✔A company's status within states other then where it is domiciled
Alien Insurer ✔✔A company that is domiciled within a company other then the united states but is doing business within the states
Fiduciary ✔✔A person who stands in a special relationship of trust to another person.
Misrepresentation ✔✔Agents may not misrepresent or falsely advertise the terms or benefits of a policy or the financial condition of the company
Twisting ✔✔Twisting is a form of misrepresentation in which the agent convinces the client to cancel already-existing insurance and buy another policy from the agent, to the detriment of the insured. Twisting is illegal
Rebating ✔✔rebating is giving or offering some benefit other than those specified in the policy, such as cash, gifts, or securities, to induce a customer to buy insurance.
Unfair Discrimination ✔✔Agents can be in violation of the law if they unfairly discriminate against insured's, giving a lower or higher rate than another in identical circumstances
Ratification ✔✔Approval of policy forms, endorsements, and rates used by companies doing business in their states
Prior approval ✔✔Insurance company must obtain official approval before using new forms and rates
File and use ✔✔A company may begin using forms and rates as soon as they have been filed
Noncombustible ✔✔Class Three
Masonry Noncombustible ✔✔Class Four
Modified Fire Resistive ✔✔Class five
Fire Resistive ✔✔Class six
Judgment Rating ✔✔Premiums are established buy considering the individual risk; premiums are established through careful judgment
Manual Rating ✔✔Rates are arranged by various classes or categories; Then you calculate the printed rate and do the formula Rate per unit x Number of units = premium
Experience Rating ✔✔form of merit rating that modifies that manual premium on the basis of the insured's loss experience
Loss Experience ✔✔Dollars paid out in claims vs. the premium received
Retrospective rating ✔✔Rating based on losses incurred during the policy period
Schedule Rating ✔✔A rating system with debits and credits to reflect characteristics of a particular insured
Certificate of Insurance ✔✔Proof that a policy was written
Material Fact ✔✔a fact that would cause an insurer to decline a risk, charge a different premium, or change the provisions of the policy that was issued
Concealment ✔✔With-holding a material fact on which the insurer relies
Fraud ✔✔Deliberate misrepresentation that causes harm
Elements of an act of Fraud ✔✔Deliberately Lying The intent of the lie is for someone else to rely on that lie Another person relies on that lie The other person suffers harm as a result of relying on that lie
representations ✔✔statements that the applicant believes are true
Warranties ✔✔An agreement between the insured and insurer that certain conditions will be met
Insurance Services Office (ISO) ✔✔An institute that provides a standard form of applications for insurance companies
Named Insured ✔✔The person, business, or other entity named in the declarations to whom the policy is issued
First named insured ✔✔Person listed first on the declarations page
Additional Insured ✔✔An individual or business that has an invested in the insured property so they are also listed on the declarations
Policy Limit ✔✔The maximum amount the insurance company will pay for a loss
Valued or agreed amount contract ✔✔Contracts written for a specified amount
Additional Coverage's ✔✔Coverage's that may have reduced or separate limits of liability or require the insured to meet certain policy requirements before they apply
Named Peril ✔✔Policies that list specific perils or causes of loss insured against under the contract; such as lightning, fire, windstorm
Open Peril; All Risk; Special ✔✔Insures against all risks of physical loss except those specifically excluded in the policy.
Direct Loss ✔✔Financial loss resulting directly from a loss to property, such as a house being damaged in a windstorm or a valuable piece of jewelry being stolen
Indirect Loss ✔✔Loss that comes as a result or consequence or the original loss
Nonaccidental Losses (exclusion categories) ✔✔Nonaccidental losses are excluded because they are certainties, not risks. EX: Wear and Tear, rust, mechanical breakdown
Concurrent Causation (exclusion categories) ✔✔A situation where two or more perils act concurrently (at the same time or in a sequence) to cause a loss
Losses controllable by the insured (exclusion categories) ✔✔Losses that can be controlled or prevented with extra care or effort on the insured's part are excluded.
Extra-hazardous perils (exclusion categories) ✔✔Perils that are extra hazardous such as an earthquake
Catastrophic Losses (exclusion categories) ✔✔Losses so broad in their scope that they could bankrupt any company that insured against them
Actual Cash Value (ACV) ✔✔calculated by determining the items replacement cost and subtracting an amount for depreciation as illustrated here
Market Value ✔✔What something can be sold for at the time of a loss
Coinsurance ✔✔The minimum amount of insurance the insurance the insured should carry on the property, which is expressed as a percentage of the property value
Deductible ✔✔The insured pays the first part of every loss up to the amount set as a deductible
Abandonment ✔✔the insured my not abandon property to the company and ask to be reimbursed for full value
Subrogation ✔✔The transfer of the right of recovery to someone else
Arbitration ✔✔When the insured and the insurer cannot agree on the amount of indemnification and parties collect two appraisers and an umpire to settle the dispute
Liberalization ✔✔If the insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will be constructed to contain the broadened coverage
Assignment ✔✔specifies that a policy may not be transferred to anyone else without the written consent of the insurer unless the named insured dies
Bailee ✔✔Person or organization that has temporary possession of someone else's personal property
Mortgage Condition ✔✔The rights and duties of the mortgagee, or loss payee, under the policy
Liability Loss ✔✔Loss as a result of an individual as a result of his actions towards other people or their property
Tort ✔✔A civil wrong that violates the rights of another
Negligence ✔✔The lack of reasonable care required to protect others from the unreasonable chance of harm
Establishing Negligence ✔✔Legal duty owed Breach of legal duty owed Proximate cause Damages
Degree of care ✔✔The duty owed by one person to another
