Define consideration.
- a requirement of all contracts in common law provinces
- is it what one party gives or promises to give in exchange for the act/promise of the other party to the contract.
Define indemnity.
- is a principle of insurance by which insureds, up to the limit of the policy, are fully compensated for the actual cash value of what they have lost, so that they neither gain or lose as a result of a loss.
Define actual cash value.
- is the current cost of replacing an article with a smiliar one in the same condition
What are examples of insurable risk?
1) personal risk
- premature death
- physical disability
- old age
- unemployment
2) property risk
direct - damage or destruction to property insured
indirect - occur as a consequence of direct losses
3) liability risks - based on your responsibility
-his/her conduct
- operation of vehicles
- manufacture of products
- rendering professional services
-ownership/occupancy of property
Direct loss VS. indirect loss.
direct
- the result of an event (fire, flood, theft) you had a loss
indirect loss
- a result of direct loss such as business interruption
What are the classes for insurable business
1) personal lines
- being the insurance relating to individuals in their private capacity
2) commercial lines
- being the insurances relating to commercial operations such as stores, professional offices, and trucking operations.
3) special lines
- being the insurance relating to large industrial firms such as factories, multi-location stores, and highrise properties
(- unique or new businesses
- such as Uber, CN Tower, concerts, movie industry, mines)
How to deal with risk.
1) Reduce/eliminate
- analysing risk and doing everything possible to prevent mishaps from occurring.
2) Assume or retain risk (deductibles)
i) bear cost from your own pocket
ii) captive insurance company
3) Transfer risk
- buy insurance and receive financial protection
How to determine chance of loss.
1) principles of probablity
- based on past experiences
- if statistics are kept onthe losses suffered by a large group of people, the number of losses suffered by a similar group can be predicted with reasonable accuracy, although one cannot tell which individuals will suffer the loss.
2) law of large numbers aka law of averages
- the larger the #, the more accurate prediction of losses
- reliance to be placed upon a given probability is increased when the number of trials or cases is increased
Define perils.
- the event that may cause a loss to occur
ex) fire, flood, explosion, falling object, vandalism, windstorm, smoke, riot
Define hazard.
- a condition that may cause the peril to occur or make a loss more severe.
What is a physical hazard?
- subject matter of insurance
includes: - mats, property location, slippery floors, wiring
What is a moral hazard?
- relates to conditions attributable to the human element of risk.
ex) insured is uncooperative with insurer, integrity and honesty of the insured
Who is the insured?
- first party
- individual who is insured
Who is the insurer?
- second party
- insurance company
Who is the third party?
- person claiming against policy, but is not a part of the contract
ex) car accident occurs, other person who is involved
What is written evidence of a contract?
- insurance policy
What is an agent?
- sells insurance
- acts as intermediary between insured and insurer
- works for only one insurance company
What is a broker?
- sells insurance
- acts as intermediary between insured and insurer
- works for more than one insurance company
What is a staff adjuster?
- works for insurance company
- when a loss occurs, the insured and insurer may deal with eachother directly
What is an independent adjuster?
- representative of the insurer
- appointed by insurer
What is a public adjuster?
- independent businessperson who may be engaged by insurance company to help with a claim, usually if there is a dispute
- works for the insured, not the insurer
- receives a % of damage $
What is a direct writer?
- employee of insurance company
- contacted by phone, skips broker and goes directly to insurance company
What are examples of risk reducing measures?
- fire alarms, smoke detectors, sprinkler systems
- seat belts in autos to reduce possible injury
- nonslip wax on floors
- safety devices on machinery
- tamperproof locks, burglar alarms, installing a safe
- storing flammables outside
Define contract.
- the agreement enforceable at law, which sets out in detail the arrangements between insurer and insured concerning
- premiums
- contingency insured against
- manner and method of settling losses
