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I.

Griffith Insurance Edu Foundation Property and Casualty

Section I - Property Coverages, Dwellings and other structures


• Protects houses and structures attached to house
• Detached structures on premises
• Ex. Garage, pool, pool house
• Perils insured against depend on policy
• Real property - anything fixed to the land
• Personal property - property other than dwelling and other structures
• Loss of use - financial losses when insured residence in uninhabitable
• Indirect loss
• Reimbursement for living or meal expenses
• Fair rental value

Section II - Liability coverages, personal liability


• Bodily injury or property damage for which insured is legally liable
• Insurer is obligated to defend insured
• Coverage for case where homeowner becomes liable for losses happens inside home
• Ex. Child throwing ball to window, dog biting someone at dog park

Section II - Medical Payments


• For persons injured at insured's premises
• Applies whether or not insured is liable
• Claim must be made within 3yrs

Policy Choices - Insureds


• Owner-occupants - own home
• Tenant- leasing or renting doesn’t have to be homeowner to have homeowner policy
• Condominium - own units of building

Perils
• Perils - causes of loss
• Named perils - listed in policy
• If not listed, not covered
• Open perils - all perils not excluded by policy, all risk agreement
• Lists perils that are not covered
• If peril is not excluded, then its covered

Owner Occupant Policies


HO-2 (broad form) - named peril
HO-3 (special form) - open peril

II. Coinsurance for Property Insurance Explained


• Majority of claims are less than value of property
• Coinsurance - insure close to full value; limit is 80%
• Insure to value
• Common is 80%
• 80% * 1,000,000 = 800,000
• Have to coinsure 800,000 of building
• DID/SHOULD - insurance coverage you did have over coverage you should have
• Had 60% coverage. 600,000/800,000=0.75. 75%. If loss of 100,000 insurance co. will only
pay 75%

III. Named Peril vs. Open Peril


• Basic and broad means named peril
• If it ain't named, it ain't covered
• Burden of proof falls on you
• Broad
▪ Falling object, ice/sleet, collapse, water damage
• Special is open peril
• Covered for everything except what is excluded
• Burden of proof falls on insurance company
• HO-3
• Special - open peril
▪ Ex. Carpet - part of building
▪ Blood is not listed as exclusion so covered
• Broad - named peril
▪ Ex. Coach
▪ Blood is not listed as named peril so not covered

IV. Property and Casualty


Just the title
• Fire/property - your house, car,
• "you" & Yours"
• First party = insured
• 2nd party = insurer
• Casualty - their house, their car (covers their stuff)
• "them", "theirs"
• Third party
• Liability - In case you damage their stuff

Contract Terminology
• Insurance is a contract to indemnify loss
• Indemnity - restore what you had
• Loss - uncertain future event
• Insurable interest
• Time of sale - . when policy goes into effect
• Time of loss - cant collect after sold house

Risk
• Speculative - loss or gain
• Pure - loss only (insurable)
• Retain - loss occurs, pay for everything out of pocket
▪ Ex. Can afford worst case scenario so no need to buy insurance
▪ Higher deductible - lower premium
▪ Don’t buy insurance or increase deductible
• Reduce
• Avoid
• Transfer - paying premium for uncertain loss, claim,
▪ Sharing risk
• Reinsurance
• Coinsurance

Reinsurance
• Primary/ceding company
• Retention limit - maximum amount of risk company can assume on any one policy
• Company has to share risk with other companies

Coinsurance
• DID/SHOULD * Loss = Claim - deductible
• DID - coverage purchased
• Should - require minimum by ins co (80%)
• Loss - damage amount
• Deductible may or not be listed

Premium Determination
• Pure rate - every insurance charges same premium
• Every company invests differently
• Portion of every premium is placed in reserve account to cover current/future expected losses
• Pure rate - interest + expenses = gross premium

Solvency
• To be solvent insurance companies needs
• Minimum paid-in capital
• Surplus
• Reserves - liabilities
• Guarantee Association (CIGA) - if company goes insolvent, gets coverage for bankruptcy
• Do not use existence of any guarantee association as inducement or enticement to sell policy
• Every insurance company doing business is required to be member of CIGA

Contract
• Consideration - act for a promise
• Legal purpose - protect against the loss; to not get a gain
• Agreement -
• Competent parties - people in the right mind

Policy
• Declarations - first page, summarizes coverages
• Insuring agreement/clause - type of policy bought
• Conditions agreement/clause
• Duties/rights of each party
• Exclusions
• Definitions - defines insured contract, bodily injured etc
• Endorsement - features and benefits for additional charge

Insurers
• Location - where did company originally domicile
• Domestic - within state
• Foreign - out of state
• Alien - outside US
• Approval
• Certificate of authority - license to transact in state
• Admitted/authorized
• Non-admitted - did not get approved to transact
• Mutual
• Raises capital by selling policies
• Participating policies
• Non-taxable dividends paid to policyholders
• Demutualization - mutual transforms to stock
• Stock
• Raises capital by selling stock
• Non participating policies
• Taxable dividends paid to shareholders
• Mutualization - stocks transforms to mutual
• Fraternal - non profit, business engage in charitable activities
• Reciprocal/ inter-insurance exchange - unincorporated
• Pays premium for own account and vote for attorney in fact
• Lloyd's of London - insurer
• Provide physical location for buyers and insurers get together
• Risk Retention Group - entities insuring risk
• Government - insurer
• Workers compensation
• Medicaid/Medical

Parts of Insurance Company


• Actuarial - set rates for underwriter to charge, keep company financially sound
• Underwriter - risk selection process, gather info and decided what to charge, protect from adverse
selection
• Marketing/sales
• Claims
• Insurance adjuster
• Public insurance adjuster

Valuation Clause
• Replacement cost - new
• Actual cash value = RC - depreciation
• Items in the house - clothes, tv, jewelry
• Replacement cost without depreciation = replacement cost
• Market value = sold
• Stated or valued policy - think of fine arts or antique cars (appraisals)
Property Casualty License
• Insurance agent
• Person - any legal entity
• Insurance broker - person
• Insurance solicitor - natural person
• Excess or surplus lines broker - allow place business with non admitted companies
• Special lines surplus lines broker

Life and Health


• Life agent
• Life and disability insurance
• Managing general agent - hire agents, trained and fire them if they don’t produce
• Gets piece of commission

Agents vs. Brokers


• Agents - sell insurance
• Brokers - represent client

Representation
• Oral
• Writing
• Best knowledge
• Promise of future
• Agrees with assertions and stipulations
• If does not agree, said to be false
• May be altered or withdrawn before contract goes intro effect

Warranty
• Implied - assumed under the contract
• Express
• Statement of fact
• Carries most weight in insurance

Definitions
• Adhesion - insurance contract is stuck to terminology of contract and things may be unclear
• Ex. Flood is defined by accumulation of water. Damage was from water by wind. Definition
of flood unclear.
• Aleatory - unequal distribution
• May get more or less for what you paid for
• Law of large numbers - measure past to predict the future
• Personal - between insured and insurer
• Subrogation - substitution
• Unilateral - one-sided promise, client can cancel policy anytime
• Utmost good faith - rely on representation of party without attempt of conceal

How Perils Interact


Concurrent Causation
• 2 peril act in tandem
• One is covered, one is not
• Both would be covered

Concurrent Causation Exclusion


• 2 perils act in tandem
• One is covered, one is specifically is excluded
• Neither is covered
• Fire and explosion an exception

Coverage
Concurrent policies
• Broad
• Broad
• Similar coverages

Nonconcurrent policies
• Broad
• Special
• Perils don't match
• Different coverages pay on primary and excess

Tort Law
• Legal wrong
• Not include crime, breach of contract
• Negligence - duty to act/not act
• Breach of that duty
• Losses suffered
• Ex. Watching house burn without doing anything
• Proximate cause - uninterrupted chain of events up to loss
• Occurrence - one time event
• Tort feasor - someone who commits tort

Tort Law Items


• Absolute liability - public demanded held responsible
• Ex. Worker's compensation
• Strict liability - manufacturer defect
• Negligence
• Contributory - if contributed to loss, gain nothing
• Comparative - partially responsible collect partial amount; sharing claim
• Gross - total disregard; intentional
• Vicarious liability - responsible for actions of another
▪ Parent/children
▪ Employer/employee
• Assumption of risk
▪ Ex. Skydiving; chance parachute may not open but still agree to engage in high risk
activity
• Fellow servant rule - blame coworker
Damage Awards
• Specific - special
• Ex. Know exact amount to pay for damages
• Special - lost wages or income
• General - non specific
• Mental anguish
• Pain/suffering
• Punitive - monetary penalty and sets example for industry
• Ex. McDonald's hot coffee

Loss Settlement
• Liability = arbitration
• Bother parties choose arbitrator
• Arbitrator choose third party
• Third part makes decision
• Property = appraisal
• Both parties choose appraiser
• Appraiser choose umpire
• Umpire makes decision

V. Kevin Chidwick, CEO, Elephant Auto Insurance


• Organization is important
• Humility is key
• Surround yourself with smart people
• Common sense
• Data is crucial
• Admiral group - UK car insurance company
• 10-11% market share
• Recently launched homeowner insurance
• People switch to internet to shop for car insurance
• Convenient
• Low cost
• Combined ratio - all of costs/ all of revenue
• Less than 100 means profit
• More than 100 means loss
• Texas - 2nd largest state for car insurance in the U.S.
• Assessment and pricing is crucial
• Customers need to believe insurance company is credible
• Have to be good at pricing for the right risk
• Communication is key – people want to know what is going on with their business
• Fun is important in business
• Insurance company with high acquisition costs - faster you grow, more you are going to lose
• Auto insurance will evolve as automated car advances
• 10 - 20 years
• Just because you made a good decision, doesn’t mean you're super clever or have to be super
earnest to be successful
• Keep feet on the ground
• Pay more for riskier decision
• Acquisition and turning around culture is tricky