Nyce - Foundations

  1. Elements of risk
    • Uncertainty of outcome
    • Possibility of a negative outcome
  2. Elements of loss exposures
    • An asset exposed to loss
    • Cause of loss (peril)
    • Financial consequence of that loss
  3. Causes of loss
    • Peril
    • Hazard
    • Financial consequence of loss
  4. Hazard categories
    • Moral hazard
    • Morale hazard
    • Physical hazard
    • Legal hazard
  5. Types of loss exposures
    • Property loss exposure
    • Liability loss exposure
    • Personal loss exposure
    • Net income loss exposure
  6. Potential net income losses that may affect individuals
    • Reduction in revenues
    • Increase in expenses
    • Loss of goodwill
    • Failure to perform
    • Missed opportunities for profit
  7. Factors on which the level of competition in insurance depends
    • Number and size of competing insurers
    • Existence of insurance substitutes
    • Buyer's knowledge of the market
    • Size and growth of the overall insurance market
  8. Elements affecting supply and demand for insurance
    • SUPPLY
    • Capacity to assume new business
    • Investment opportunities
    • Production costs
    • Regulatory environment

    • DEMAND
    • Insurance mandates and reguations
    • Risk tolerance
    • Financial status
    • Real service rendered
    • Tax incentives
  9. Premium-to-surplus ratio
    • Written premium / policyholder surplus
    • Indicates an insurers financial strenght by relating net premiums to policyholder surplus
    • Regulators use as benchmark to indicate potential financial difficulty (ratio of 3-to-1 is considered to be a sign of financial weakness)
  10. Key issues that affect how insurance markets function with regard to pricing
    • Adverse selection
    • Moral and morale hazard
    • Actuarial vs social equity
    • Timing
  11. Insurance vs pooling
    • Pooling is a risk sharing mechanism
    • Insurance is a risk transferring mechanism
    • Insurance companies have additional financial ressources which provide stronger guarantees that losses will be paid, further reducing risk
  12. Characteristics of an ideally insurable loss exposure
    • Pure risk
    • Fortuitous loss
    • Definite and measurable loss
    • Large number of similar exposures
    • Independent and not catastrophic
    • Affordable
  13. Steps of stare decisis
    • Courts looks for similar cases in its state
    • If none, seeks similar cases in other states
    • If still none, analyze rulings in similar cases
    • Court will analyze current cases to find similarities and differences from prior cases
    • If no prior cases law direclty applies, then case is a treshold case and judges will consult all applicable law in attempt to make a fair decision
  14. Cases when courts do not follow precedents
    • Acceptable law a century ago in many cases would not be acceptable now
    • Courts finds that prior decision was clearly wrong and decides not to use it
    • Earlier rule or law has lost its usefullness
    • Original reasons for the rule no longer exist
  15. Burden of proof in criminal and civil law
    • Criminal: must establish guilt beyond a reasonable doubt
    • Civil: evidence supporting jurys decision must be of greater weight than evidence against
  16. Broads types of torts that result on legal liability
    • Negligence
    • Intentional torts
    • Strict liability torts
  17. Legal elements of negligence
    • Defendant owes a legal duty of care to the plaintiff
    • Defendant breached that duty
    • Defendants breach of duty was the proximate cause of the plaintiffs injury or damage
    • Plaintiff suffered actual injury or damage
  18. Define proximate cause
    Event that sets in motion an uninterrupted chain of events leading to a loss
  19. Remedies to tort law
    • Compensatory damages
    • Punitive or examplary damages
    • Injunction
  20. Categories of compensatory damages
    • Special damages: actual losses that the plaintiff claims resulted from the defendant wrongful acts
    • General damages: damages that do not have an economic value and that are presumed to follow from the type of wrong claimed by the plaintiff (eg: pain and suffering, mental anguish, bereavement)
  21. Characteristics unique to insurance policies
    • Indemnity
    • Utmost of good faith
    • Contract of adhesion
    • Exchange of unequal amounts
    • Conditional
    • Nontransferable
  22. Principle of indemnity
    Insurance policies should compensate the insured only for the value of the loss; policyholder should not profit from insurance
  23. Why insurance policy doesn't always "make whole"
    • Most policies contain limits, deductibles, or other provisions or limitations
    • Do not always indemnify the insured for inconvenience, time, and other non-financial expenses
    • Valued policy: that pre-establishes a dollar amount the insurer will pay for an insured loss, (eg, life insurance policy, rare piece of art)
  24. Sophisticated insured rule
    • Degree of sophistication of the insured should be taken into consideration in determining the intent of policy language that may be unclear
    • Unsophosticated: insurer drafts policy; true of most personal insurances
    • Sophisticated: drafts some or all of policy; negociate policy wording-> contact of adhesion doctrine may not apply
  25. Factors to consider when determining whether an insured is sophisticated
    • Size of the insured
    • Size of insureds management department
    • Involvment of insurance broker or legal counsel on insureds behalf
    • Relative bargaining power of the parties
  26. Reasonable expectation doctrine
    • Insurance policy is interpreted to provide the protection that the insured might reasonably have expected, even though that expectation is not clearly expressed in or supported by the policy
    • Can be applied to renewal policies because insured can reasonably expect that the provisions of the renewal are the same as the expired contract, unless there is some oral or written explanation
  27. Consideration
    Something of value given by each party to a contract (offered by the insured is the premium, offered by the insurer is promise to indemnify the insured in event of covered loss)
  28. Policy sections containing property-liability provisions
    • Declarations
    • Definitions
    • Insuring agreements
    • Conditions
    • Exclusions
    • Miscellaneous provisions
  29. Purposes of exclusions
    • Eliminate coverage for uninsurable exposures (war, wear and tear, non-accidental events)
    • Assist in management of moral and morale hazards (blatantly intentional acts)
    • Reduce the likelihood of coverage duplications (personal liability usually excludes losses from business activities)
    • Eliminate coverages that are not needed by typical insured (aircraft and watercraft loading and unloading)
    • Eliminate coverage requiring special treatment (steam boiler explosions, product calls)
    • Assist in keeping premiums reasonable
Card Set
Nyce - Foundations
Exam 5 Nyce Foundations