Free CA P&C Exam Flashcards

A peril is the actual cause of a loss (fire, theft, windstorm). A hazard is a condition that increases the chance or severity of a peril. Knowing the difference is foundational because policies insure perils, while underwriting evaluates hazards.

Physical hazard is a tangible condition (oily rags, icy steps). Moral hazard is dishonesty, such as faking a loss for payment. Morale hazard is carelessness or indifference because insurance exists. Only physical hazard is a property condition; the other two stem from the insured's attitude.

Insurance restores the insured to the financial position held just before a loss, no better. It prevents profiting from a claim and underlies actual cash value settlement, subrogation, and the requirement of an insurable interest.

A financial stake such that the person suffers a measurable loss if the property is damaged. For property coverage it must exist at the time of loss (unlike life insurance, where it must exist at policy inception).

ACV pays replacement cost minus depreciation, so the insured absorbs the wear-and-tear loss. Replacement cost pays to repair or replace with new property of like kind and quality with no depreciation deduction, usually requiring the building to be insured to a stated percentage of value.

A named perils policy covers only perils specifically listed; the insured must prove the loss came from a covered peril. An open/all-risk policy covers all direct physical loss except what is excluded; the insurer must prove an exclusion applies. Open perils gives broader coverage and shifts the burden of proof.

Requires the insured to carry coverage equal to a stated percentage (often 80%) of property value or share in a partial loss. Recovery = (limit carried / limit required) x loss, minus deductible. Underinsuring triggers a penalty even on partial losses.

The most common homeowners form. The dwelling and other structures are covered on an open-perils basis, while personal property is covered on a named-perils basis. It also includes liability and medical payments to others.

HO-4 is the tenant (renters) form covering personal property and liability but not the building. HO-6 is the condominium unit-owner form covering personal property, interior improvements, and liability, coordinating with the association's master policy.

Typical exclusions include flood, earth movement (earthquake), war, nuclear hazard, intentional acts, ordinance or law, and wear and tear. Flood and earthquake are bought separately, which is heavily tested in California.

A package policy bundling commercial property and general liability for small to mid-size eligible businesses, often at a lower cost than separate policies. It typically excludes workers' compensation, professional liability, and auto, which are purchased separately.

Pays lost net income and continuing expenses while operations are suspended after a covered direct physical loss, during the period of restoration. It usually requires a covered property peril first; pure economic losses without physical damage are generally not covered.

Coverage A is bodily injury and property damage liability, Coverage B is personal and advertising injury, and Coverage C is medical payments paid regardless of fault. Defense costs are typically paid in addition to the limits.

An occurrence policy responds to injury or damage that happens during the policy period regardless of when the claim is filed. A claims-made policy responds only to claims first made during the policy period (subject to a retroactive date), often needing tail coverage when canceled.

The per-occurrence limit is the most paid for any single covered event. The aggregate limit is the most paid for all covered losses during the policy period. Once the aggregate is exhausted, no further claims are paid even if the per-occurrence limit remains.

Numbered symbols on a commercial auto policy define which vehicles are covered for each coverage. Symbol 1 means any auto (broadest), while other symbols narrow it to owned, hired, or non-owned autos. The symbol controls coverage scope, not the description alone.

Excess liability adds higher limits over an underlying policy following the same terms. An umbrella adds higher limits and can also be broader, sometimes dropping down to cover gaps the underlying policy excludes, usually subject to a self-insured retention.

After paying a claim, the insurer assumes the insured's right to recover from the responsible third party. It supports the indemnity principle by preventing double recovery and shifting cost to the at-fault party.

When more than one policy covers a loss, a pro rata clause splits the loss in proportion to each policy's limit. An excess clause makes one policy pay only after other valid coverage is exhausted. These clauses prevent the insured from collecting more than the actual loss.

A written addition that changes the original policy by adding, removing, or modifying coverage. If endorsement language conflicts with the base policy, the endorsement controls because it represents the more specific, later agreement.

Temporary evidence of insurance providing coverage before the formal policy is issued. It can be oral or written, states the essential terms, and remains effective until the policy is issued or coverage is declined.

A representation is a statement believed true that voids coverage only if materially false. A warranty must be literally true. Concealment is intentionally withholding a material fact. Material misstatements can let the insurer rescind the policy.

Cancellation ends a policy during its term and requires specific notice based on the reason. Non-renewal lets a policy expire at its term end and is not allowed mid-term. California requires distinct advance-notice periods for each, especially for homeowners coverage.

The state agency that regulates all P&C insurance in California: licensing producers, reviewing rates under Proposition 103, conducting market-conduct exams, handling consumer complaints, and disciplining licensees under the California Insurance Code.

Head of CDI, elected by California voters to a four-year term. California is one of only about a dozen states with an elected commissioner, which is a direct result of Proposition 103. The Commissioner enforces the Code, adopts regulations, and approves rates.

Created the elected Commissioner, imposed prior-approval rate regulation for most P&C lines, required an initial 20% rate rollback, mandated a good driver discount, and allowed consumer intervention in rate proceedings. It is the single most-tested California regulatory topic.

Auto rates must be based primarily on three factors in priority order: 1) driving safety record, 2) annual mileage, 3) years of driving experience. Optional factors may be used but cannot outweigh these three.

California prohibits or restricts gender, credit score, education, and occupation as auto rating factors, and territory/ZIP code cannot be the primary factor. This is why CA auto rating differs sharply from most states.

Proposition 103 requires every auto insurer to offer at least a 20% discount to a qualified good driver: licensed at least 3 years, no more than one point, and no at-fault accident causing injury in the prior years. A good driver also has the right to buy a policy from the insurer of their choice.

$15,000 bodily injury per person, $30,000 bodily injury per accident, $5,000 property damage. Among the lowest minimums in the nation; producers must know these exact figures.

Bars an uninsured motorist from recovering non-economic damages (pain and suffering) from an accident even when not at fault, and bars recovery by drunk drivers and felons injured during a crime. A narrow exception lets an uninsured victim of a convicted drunk driver still recover non-economic damages.

California uses pure comparative negligence: a claimant's recovery is reduced by their percentage of fault, but they may still recover even if 99% at fault. Economic damages are joint and several among defendants, while non-economic damages are several only.

A state program offering reduced-cost liability coverage to income-eligible drivers with good records. It provides lower-than-standard limits to help low-income Californians meet financial responsibility laws affordably.

Besides a liability policy, a California driver may satisfy financial responsibility with a DMV cash deposit, a surety bond, or a self-insurance certificate for fleets. Most drivers use a policy, but the exam tests that alternatives exist.

The state's insurer of last resort providing basic property (mainly fire) coverage when the voluntary market declines a risk, often due to wildfire exposure. It is shared among admitted insurers, costs more, and covers less than a standard homeowners policy.

A separate policy paired with a bare FAIR Plan policy to fill gaps such as liability, theft, water damage, and broader perils. Together they approximate the breadth of a standard homeowners policy for hard-to-place risks.

A publicly managed, privately funded program offering standardized residential earthquake coverage with deductible tiers (commonly 5%, 10%, 15%, or 25%) covering dwelling, contents, and loss of use. Insurers writing residential property must offer earthquake coverage or participate in the CEA.

An insurer writing or renewing a residential property policy must offer earthquake coverage. The homeowner may decline, but the coverage is always optional and never mandatory; the offer requirement protects consumer choice.

After a declared wildfire disaster, California law imposes a moratorium (generally one year) barring insurers from non-renewing or canceling homeowners policies solely due to wildfire risk for properties within or adjacent to the affected area.

Every California employer with one or more employees must carry workers' compensation. Operating uninsured exposes the employer to civil penalties, possible criminal prosecution, stop-work orders, and personal liability for claims.

California's public, non-tax-supported workers' compensation insurer of last resort. It must accept all applicants and competes with private carriers, ensuring coverage is always available to employers.

The licensed rating organization that collects loss data, maintains class codes and experience modifications, and files advisory pure premium rates with CDI. Individual insurers then file their own actuarially justified rates.

Coverage placed with a non-admitted insurer when the admitted market cannot provide it. Generally requires a diligent search (typically three admitted insurers declined) unless the risk is on the Export List, must use a licensed surplus lines broker, and is subject to a surplus lines tax.

Pays covered claims of insolvent admitted P&C insurers, generally up to $500,000 per claim, with workers' compensation paid without a cap. It excludes surplus lines, self-insured plans, and title insurance, and producers may not use it as a selling point.

Under the Fair Claims Settlement Practices Regulations, an insurer must acknowledge a claim within 15 days, accept or deny it within 40 days after receiving proof of claim, and pay an accepted claim within 30 days of settlement, updating the claimant every 30 days if more time is needed.

Offering any inducement not specified in the policy, such as returning part of the premium or paying for referrals to unlicensed persons, is prohibited rebating. Filed discounts, premium financing, and items of nominal value are permitted.

Twisting is using misrepresentation to induce a client to replace a policy. Churning is repeatedly replacing policies to generate commissions regardless of the client's benefit. Both are prohibited and can lead to fines and license revocation.

An agent legally represents the insurer (while still treating clients fairly), whereas a broker represents and owes a fiduciary duty to the client to act in the client's best interest. This distinction drives liability when coverage is misplaced.

Producers holding client premiums must keep them in a separate trust account, never commingled with personal or business funds. Using premiums for personal purposes is conversion, a serious violation subject to discipline and restitution.

Producers must retain client and transaction records for 5 years and complete 24 hours of continuing education every 2-year license term, including 3 hours of CDI-approved ethics. Address, name, and disciplinary changes must be reported to CDI within 30 days.