AD Banker Personal lines chapter 1 page 8 and on

Producer (agent)

- A person or agency appointed by an insurance company to represent it and to present policies on its behalf. - A producer possesses three types of authority: - Express- Authority written into the producer's agency contract. An example would be the producers binding authority if written in the contract. - Implied- Authority the public assumes the producer has. An example would be the business activities of providing quotes, completing applications and accepting premiums on behalf of the insurer. - Apparent- Authority created when the producer exceeds the authority expressed in the agency contract. This occurs when the insurer does nothing to counter the public impression that such authority exists. An example would be the producer's acceptance of premium on behalf of the insurer.

Law of agency

- A relationship between two or more parties where one party (the agent or producer) acts on behalf of the other party, known as the principal or insurer. - The agent or producer binds the action and words of the principal.

Producer's responsibility to the insured

- Fiduciary duty to the insured in all respects, especially when handling premium funds. - Must keep premium funds in a trust account separate from other funds and forward to insurer promptly. - Must report any material facts that may affect underwriting. - Responsible for soliciting, negotiating, selling and cancelling the insurance policies with the insurer. - Duty to only recommend the purchase of suitable policies.

Insurer (Principal)

- Insurer is the source of authority from which the producer must abide. - Insurer is responsible for all acts of a producer, when producer is acting within the scope of its authority. - Producer may be personally liable when his/her actions exceed the authority of the agency's contract.

Fair credit reporting act (15 usc 1681-1681d)

- Protects consumer privacy (ensures data collected is confidential, accurate, relevant and used for proper and specific purpose & protects the public from overly intrusive information collection and practices. - when an application is taken it must inform the applicant a credit report will be obtained. (used to determine the financial and moral status of an applicant) - Applicant has the right to review the information (applicant challenge- credit reporting must investigate within 6 months) inaccuracies- agency must forward to applicant inaccurate information given out within previous 2 years. Disallowed information- report must not include lawsuits over 7 years or bankruptcies over 14 years. - Insurer obligations- insurer is not responsible for correct inaccuracies on any reports. If an applicant is denied coverage because of inaccurate information they are entitled to certain rights.

Broker

- a licensed individual who negotiates insurance contracts with insurers, on behalf of the applicant. - represents the applicant or insured's interests, not the insurer, and thus dose not have legal authority to bind the insurer. - A broker's license is not applicable in all states.

Producer's responsibility to insurance applicant or insured

- forward insurance premiums on a timely basis. - seek and gain knowledge of the applicant's insurance needs. - Review and evaluate the applicant's current insurance coverage, limits and risks. - Serve the best interests of the applicant or insured, although producers represent the insurer. - Recommend coverage that best protects the insured from possible loss and not the most profitable coverage from the perspective of the producer.

Fraud and false statements (fraudulent insurance act)

- fraud always involves a false statement and deceit. It can either be a criminal or a civil crime. Federal laws prohibit the commission of fraud. - in 2001 the naic adopted model legislation for the prevention and enforcement of insurance fraud. Each of the state enacted its own fraudulent insurance act. - A fraudulent act involves a misstatement of material fact by a person who knows or believes that statement to be false. The statement is made by another person who relies on its accuracy to make a decision or to act and is subsequently harmed by relying on the deliberately false statement. - state fraudulent insurance acts do not modify the privacy of any individual. They protect producers, brokers, and insurers in the event fraudulent information is provided by consumers.

Gramm-leach-Bliley act (glba aka the financial services modernization act of 199) the privacy act

- repealed parts of the glass-steagall act of 1933 to allow the merger of banks, securities companies, and insurance companies. It also established the financial privacy rule and safeguards rule for the protection of consumers' privacy. - the financial privacy rule requires financial institutions which include insurers to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. - the privacy notice must explain- the info collected, where the information is shared, how the information is used, how the information is protected. - the notice must also indentify the consumer's right to opt out of the information being shared with unaffiliated parties pursuant to the provisions of the fair credit reporting act. - should the financial institutions privacy policy change at any time the consumer must be notified again for acceptance. -Each time the privacy notice is re-established, the consumer has the right to opt out again.

Merchant marine act of 1920 (Jones act)

Because worker's compensation laws do not apply to seamen, the jones act allowed seamen to make claims for injuries suffered during the course of employment. It also regulates maritime commerce in us waters transportation of cargo and the rights of seamen.

Four elements of legal contract

Competent parties- must have legal capacity to enter into a contract. legal purpose- all parties must enter for a legal purpose agreement- one part must make and communicate an offer to the other party and the second party must accept. (offer- submitted by applicant) (acceptance- insurance company agrees to issue insurance.) consideration- something of value is exchanged. the exchange for an act of promise. premium payment vs promise to pay for covered losses.

Motor carrier regulatory and modernization act (motor carrier act of 1980)

Deregulated the truck industry by prohibiting any entity from interfering with a motor carrier's right to set its own rates. Motor carriers and private carriers that transport property are required to establish evidence of financial responsibility in the form of insurance, a bond, a guarantee or a qualification as a self insurer.

Financial anti-terrorism act (us patriot act)

Imposes record keeping and government reporting requirements on banks, financial institutions and nonfinancial businesses for specific financial transactions and customer financial records ( a part of the bank secrecy act.)

Fraud and false statements (fraudulent insurance act) B

Insurance applications and claim forms must contain a disclosure about how false statements will be treated by the insurer. If a person engaged in the business of insurance whose activities affect insurance commerce willfully embezzles, misappropriates funds, property, knowingly and with the intent to deceive makes a false material statement or purposely overstates the security of an insurer, the following penalties apply: - a fine of no more than 50,000, imprisonment for up to 10 years or both. - If the violation jeopardized the safety and soundness of an insurer and was a significant cause of the insurer being placed in conservation, rehabilitation or liquidation by an appropriate court, imprisonment can be up to 15 years. - if the amount embezzled or misappropriated does not exceed $5000, violators will be fined up to 50,000 or imprisoned for up to 1 year or both. - If a person uses threats, force or attempts to impede/obstruct the administration of the law during any proceeding involving the business of insurance before any regulatory official, they will be fined up to 50,000 or imprisoned up to 10 years or both. - any individual who has been convicted of a felony involving dishonesty or a breach of trust, who then willfully engages or permits an individual to engage in the business of insurance and whose activities affect interstate commerce, will be fined up to 50,000 or imprisoned for up to 5 years or both.

Terrorism risk insurance ask and its extensions of 2005 & 2007

TRIA of 2002- enacted in response to the terrorist attacks of 2001. Congress provided temporary financial compensation to insured parties during its crisis of recovery from the terrorist attacks. - TRIA was intended to respond to the chaos 09/11 terrorist attacks caused in the insurance industry as well as to assure that commercial property and liability insurance would continue to be able to provide coverage for the peril of terrorism. - TRIA expired on 12/31/05 as was extended for 2 years with changes. Scheduled to expire on 12/31/12. - Protects consumer by addressing market disruptions and ensuring the continued widespread availability and affordability of property and casualty insurance. - act provides for a terrorism insurance program established by the dep of treasury. - only commercial property and casualty insurance is covered by the program. personal lines insurance and life and health insurance are not covered. - no payment may be made by the secretary under the program with respect to an insured loss that is covered by an insurer unless- the person that suffers the insured loss files a claim, provides clear disclosure to the policy holder, processes the claim in accordance with appropriate business practices. The insurer submits to the secretary in accordance with such reasonable procedures. - insured must make coverage for insured losses that do not differ materially from the terms, amounts and other coverage limits applicable to losses arising from events other than acts of terrorism. - the secretary shall not make any payment for any portion of the amount of such losses that exceeds 100 billion (cap on annual liability) and no insurer has met its insurer deductible shall be liable for the payment of that amount that exceeds $100 billion - the insurance market place aggregate retention amount is the lesser of 27.5 billion and the aggregate amount for all insurers of insured losses - the insurance co share of losses excess of the deductible is 15% while the federal government is 85%

Which insurance company department accepts the insurance risk?

Underwriting

insurability

ability of an applicant to meet an insurer's underwriting requiement

indemnity contract

agreement to pay on behalf of another party under specified circumstances such as when a loss occurs

Insurable interest

all policies- must exist in every insurance contract. requires the potential for an insured to suffer financial or economic hardship in the event of a loss. must exist at the time of the application or time of loss. life and health policies- Insurable interest must exist at the time of the application but not at time of the loss. Coverage is determined based on the possibility of an economic or financial loss due to an accident, sickness, or death. amount of insurance may be purchased varies based on tpe of coverage. in some case, no coverage limit may apply. property- insurable interest must exist at the time of the loss. property ownership is evidence of insurable interest. - casualty- insurable interest must exist at the time of the loss. Insurable interest usually results from the property or contract rights and potential legal liability.

Insurable events

any event that may cause loss damage or create legal liability.

contact of utmost good faith

both parties bargain in good faith when forming and entering into a contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.

conditional contract

both parties must perform certain duties and follow rules of conduct to make that contract enforeceable. the insurer must pay claims if the insured has complied with all the policy's terms and conditions.

risk

chance or likelihood of loss uncertainty concerning a loss

Loss exposure

condition of being at risk for a loss. purely by existing.

valued contract

contract that pays a stated amount in the event of a loss.

hold harmless agreement

contractual agreement that transfers the liability of one party to another party. It is used by landlords, contractors and others as a way to avoid or reduce risk.

aleatory contract

exchange of value is unequal- premium payment is less than the potential benefit to be received.

misrepresentation

false statement contained on the application; usually doesn't void coverage or the policy.

Adverse selection

imbalance created when risks that are more prone to losses than the average risk are the only risks seeking insurance within a specific marketplace. High risk exposures tend to seek or continue insurance at higher participation rate than the average risk exposures do.

principle of indemnity

insured should not profit.

attained age

insured's age at any point in time of issuance, renewal or conversion

issue age

insured's original age on the policy issue date.

Violent Crime control and law enforcement act of 1994

larges crime bill in us history expands funding to federal agencies such as the fbi, dea and ins and includes provisions that address domestic abuse, firearms, gang crimes, immigration of sexually violent offenders, victims of crime and fraud - made it a felony for a person to engage in the business of insurance after being convicted of a state or federal felony involving dishonesty or breach of trust. - Penalties- fines and possible prison time. - Insurance license applicants and producers- applicants convicted of a felony must apply for consent to work in the business of insurance. - producers must apply for consent in their state. - officers and employees must apply for consent in order to discover if they are permitted or prohibited from the insurance business. - reciprocity- if consent is granted by any state, other states must allow the applicant to work in their state as well. - consent withdrawal- if conditions of consent are not continually met, the consent may be withdrawn.

Insurance contract

legal contract purchased to indemnify the insured against a loss. exchange of relatively small and definite expense for the risk of loss.

Pure risk

no chance for gain. nothing to occur or a loss to occur. Pure risk can be insured.

contract of adhesion-

one party writes the contract without input from the other party- take it or leave it basis, without negotiation, any doubt or ambiguity found is construed in favor of the part that did not write it.

unilateral contract

only one party is legally bound to the contractual obligations after the premium is paid to the insurer.

personal contract

owner cannot transfer or assign ownership of an insurance policy to another person.

non-personal contract

owner may transfer or assign ownership of a life or heath policy to another person.

contract law

pertains to the formation and enforcement of contracts

types of hazard

physical- flammable material near fireplace Moral- dishonest tendencies - burn down your house to collect insurance. Morale- attitude that increases probability of risk- leaving house unlocked.

endorsement

policy form that adds to the provisions of a insurance contract.

assignment

policy owners may not assign or transfer their right under an insurance contract without written consent of the insurer

estoppel

prevents the denial of a fact if the fact was admitted to be true previously

underwriting

process of selecting, classifying, and rating a risk for the purpose of issuing insurance coverage.

Loss

reduction, decrease or disappearance of value. the basis for a claim for damages under the terms of an insurance policy.

hazard

specific condition that increases the probability, likelihood or severity of a loss from a peril

representations

statements made by the applicant on the application that are believed to be true to the best of the knowledge and belief of the applicant; may be withdrawn prior to policy issuance.

Peril

the cause of a loss.

effective date

the date when the insurance coverage begins.

Management

the determination of what types of protection are required to meet an insured's needs. - survey of the insured's operations, health, assest - assessment of potential loss frequency and severity - physical inspections, applications or medical exams used for underwriting help to manage a risk

speculative risk-

there is a chance for loss, gain or neither. Gambling.

tort law

torts are civil wrongs. They're not crimes or breaches of contract. They result in injuries or harm that constitute the basis of a claim by a third party.

waiver

voluntary surrender of a known right, claim or privilege

reasonable expectations doctrine

what a reasonable and prudent policy owner would expect.

concealment

willful hiding or obscuring of material facts pertinent to the issuance of insurance . concealment results in denial of coverage and may void the policy.

parol evidence rule

written contract may not be altered without the consent of both parties.