Review of Insurance Concepts

Agency is the relationship between an agent representing an insurance company and a policyholder.

Waiver occurs when an insurer knowingly gives up a right under the insurance policy. For example, if an insurer allows a policyholder to continue coverage despite a late premium payment, the insurer may be waiving their right to cancel the policy for late payment.

Estoppel is a legal principle that prevents someone from denying a fact that they previously represented as true, even if the statement was incorrect. In insurance, estoppel can occur if an insurer makes a statement to a policyholder that creates a reasonable expectation of coverage, even if the statement is not technically correct.

Binding authority is the power an agent has to issue coverage immediately. A conditional binder provides temporary coverage until the insurer approves the application.

A legally enforceable contract requires an offer, acceptance, consideration, legal purpose, and legal form.

Insurance contracts are unique because they are based on utmost good faith, are personal in nature, and adhere to the principle of indemnity.

The principle of indemnity states that insurance should restore the insured to their pre-loss financial position, without allowing them to profit from the loss. This is essential for preventing moral hazard, which is the tendency of individuals to take more risks when they are insured.

A conditional receipt provides temporary insurance coverage, subject to the insurer's approval. A binding receipt provides immediate coverage.

A market where supply is limited, often after an event that increases demand, resulting in higher prices.

A market with low demand and abundant supply, leading to lower prices and less competition.

A measure of an insurance company's profitability, calculated by adding the ratio of incurred losses to earned premiums and the ratio of underwriting expenses to earned premiums.

A strategy where insurers prioritize writing a large volume of policies, potentially at lower premiums or narrower profit margins, to maximize income.

A legal principle established by the Supreme Court, allowing states to regulate the insurance industry even when transactions cross state lines, as long as their regulations are reasonable and not unduly burdensome.

An organization of state insurance commissioners responsible for developing model laws, protecting consumers, promoting interstate insurance, and supporting data collection and analysis.

An organization that manages insolvent insurance companies and ensures that unpaid claims are paid through state guarantee funds.

Accounting principles widely accepted by public companies, requiring transparency and adherence to SEC regulations.

A clause in a homeowner's insurance policy that requires the insured to have a certain percentage of coverage (usually 80%) of the home's replacement cost to be paid in full for a loss. If the coverage is less than the required percentage, the insured will only receive a partial payment. For example, if the home is worth $100,000, but the insured only has $75,000 in coverage, they would only receive $75,000 for a total loss.

The insurer's ability to meet its financial obligations to policyholders. Measured by financial strength, revenue and net income.

When insurance premiums are high due to increased demand and low supply, often due to a string of costly claims.

When insurance premiums are low due to less demand and abundant supply, often after a period of fewer claims.

A legal concept that establishes a person's responsibility for causing harm to another. To prove legal liability, three elements must be demonstrated in court: negligence, loss or damage, and a proximate cause.

A form of negligence where the defendant has a higher burden of proof to show their innocence.

A type of negligence where the defendant is held responsible for the actions of another.

Something artificial that attracts children and could cause harm. The doctrine applies to landowners who have a duty to keep their property safe for children, despite the attraction being unintentional.