Loss: is a financial consequences.

Exposure: is a unit of measurement that measure the amount of risk.

Risk: is a chance that a loss will occur. It must have an element of uncertainty.

Peril: is a reason a loss occurred. Cause of loss.

Risk is a chance a fire will destroy a house. If house is destroyed by fire (reason) then fire is a peril.

Hazard: is something that causes the risk to be much greater that it should be. Icy sidewalk is hazard.

1. Moral: resulting from intentional/corrupt action. Setting own car on fire to get claim.
2. Morale: result of carless action. Smoking cigarette in bed, drive car with worn out tires.

Indemnity: to “make whole” i.e. insured should be put back to the same financial situation they were in
before the loss occurred.

Liability: A person is legally liable for causing damage to someone or someone’s property due to
negligence.

Insured is first party, insurer is second party and claimant is third party.

Property Insurance: Covers insured’s property damaged by unexpected event.

Property insurance usually covers first party losses.

Casualty Insurance: Covers liability loss for damages to someone or someone else’s property caused by
insured’s negligence.
Casualty insurance usually covers third party losses.

Worker’s Compensation: Employers are required to purchase WC insurance for their employees.

NAIC: The National Association of Insurance Commissioners (NAIC) is an organization consisting of the
head insurance regulator from each state.

Underwriting

Related to P&C, the duties are-

1. Underwriters analyze the risks. Risk can be either accepted or rejected.

2. Restrict the coverages on risk.
3. Examine the physical hazard and condition of property.
4. Examine the eligibility of proposed insured based on criminal history, driving record and prior
claim history.
5. Increase the market share & policy count and only accept very best risks so losses can be
minimized.
6. Classify the accepted risk so that appropriate premium can be charged.
7. Submit policy with correct options & endorsements for that type of risk.