Concepts Review for the Second Exam on Wednesday, November 18 2009
Basic Insuring Principles:
Principle of Indemnity
Proximate cause of loss
Peril
Adverse selection
Definition of Insurance --- as a financial loss sharing arrangement
Subrogation
Insurable interest
Utmost Good Faith
Contract is both unilateral and one of adhesion
Statutory purpose of insurance reserving and policyholder surplus
How interest rate risk impacts insurance operations
Insurance Demutualization
How an insurer might deal with interest rate risk –e.g. rising interest rate environment 
shorten asset maturity structure, consider a short hedge; decreasing interest rate environment
 locking in a long, fixed rate, consider a long hedge
Entire Contract Provision
Sections to the Insurance Contract --- Declarations, Insuring Agreements, Exclusions,
Conditions, Application
What is required for an insurance policy to exist --- offer, acceptance, consideration, competent
parties, legal form
Conditions that may give rise to the denial of a claim
Did the insurance policy come into existence?
Is the insurance contract voidable? Concealment or misstatement of a material fact
Is the claim specifically excluded in the policy?
Was there insurable interest? Was insurable interest shown when required [e.g. life
insurance – at inception of the contract, auto, home, casualty insurance – time of loss]
What insurance contract provision might limit the amount of the payment of a claim?
Methods for paying claims under the contract --- Actual Cash Value, Cost to Repair or
Replace, valued amount specified in the policy [e.g. $1,000 limit in HO policy on loss of
Silverware due to theft]
Special Insurance Features that govern settlement
Was the policy written on occurrence based or claims made underwriting?
In the case of life insurance, has the policy been in existence beyond the 2 year
incontestability period?
How does the exclusion section of an all-risk policy seek to define the insurance coverage?
Different Types of Insurer Reserves --- IBNR [Incurred But Not yet Reported Reserves],
Unearned Premium Reserves [particularly important when looking at the volume of business
for a small insurer  rationale for use of reinsurance.
Advantages and Disadvantages of centralized versus decentralized claim settlement processes
for an insurer
An understanding of those provisions within the insurance contract that reinforce the principle
of indemnity when settling claims --- Actual Cash Value, Insurable Interest, Subrogation,
Exclusions, Appraisal, Conditions when seeking settlement --- proof of loss, immediate notice,
cooperation
The Role of Independent Agents, Insurance Brokers and Independent Claims Adjusters to sn
insurers operations.
The difference between insurance operations and investment operations within an insurance
company]
The main difficulty encountered in applying rating factors to determine credible premiums
The different rate making methods --- Pure Loss Premium Method, Loss Ratio Method,
Judgment Method
What might constitute a material misrepresentation for home, auto and life insurance policies?
What are the conditions that must exist in order for one to be legally liable and covered by
insurance?
Civil not criminal wrong
Failure to do something a reasonable person would do or do something a reasonable
person would not do – which causes injury to another.
Breach of contract