Chapter 5

holding company

As an alternative to demutualizing, Big Mutual Insurance Company reorganized itself into a corporate form that can directly or indirectly own a stock insurance company. This form of organization is called a(n)

Binder

Authorization of coverage by an agent given before the company has formally approved a policy. Provides evidence that the insurance is in force

Captive insurer

Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens.

Savings bank life insurance

Life insurance originally sold by mutual savings banks in Massachusetts, New York, and Connecticut. Now sold in other states as well.

surplus lines policy

Where can coverage be placed for a high exposure that can't be placed with an admitted carrier?

Employees evaluated as a group

Which is NOT a characteristic of mass merchandising plan?

payment of premiums through payroll deduction

Which of the following is a characteristic of a typical mass merchandising plan?

They specialize in writing life and health insurance.

Which of the following statements is true about fraternal insurers?

Lloyd's of London

is not an insurer, but a society of members who underwrite insurance in syndicates

Mutual insurer

Insurance corporation owned by the policyholders, who elect the board of directors. The board appoints managing executives, and the company may pay a dividend or give a rate reductio in advance to insureds

Multiple distribution systems

Insurance marketing method that refers to the use of several distribution systems by an insurer; for example, a property and casualty insurer may use the independent agency method and direct response system to sell insurance.

Demutualization

a term to describe the conversion of a mutual insurer into a stock insurer

Broker

someone who legally represents the insured, and: -solicits applications and attempts to place coverage with an appropriate insurer -is paid a commission from the insurers where the business is placed -does not have the authority to bind the insurer

Agent

someone who legally represents the principal and has the authority to act on the principal's behalf

Reciprocal exchange

An unincorporated mutual insuring organization in which insurance is exchanged among members and which is managed by an attorney in fact

direct response system.

ABC Term Life Insurance Company uses an interesting marketing system-it has no agents. Instead, the company markets its coverages through television and radio ads, newspaper inserts, and the Internet. The type of marketing system that ABC Term Life Insurance Company uses is called the

Stock companies are exempt from state insurance regulation.

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT

cooperative insurers

Insurance companies formed to return profits in the form of premium saving are called

Stock insurers

Insurance companies formed with capital from investors expecting a return are called

captive insurer.

R.I.P. Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. R.I.P. established its own insurance company based in Bermuda for the purpose of insuring R.I.P.'s loss exposures. The company that R.I.P. formed is called a

insurance broker.

Scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n)

binder

Temporary evidence of insurance until a policy is actually issued is provided by a(n)

Captive

When efficient, a company may self insure its risk by forming a subsidiary called

Exclusive agency system

Type of insurance marketing system under which the agent represents only one company or group of companies under common ownership.

Independent agency system

Type of property and casualty insurance marketing system, sometimes called the American agency system, in which the agent is an independent businessperson representing several insurers. The agency owns the expirations or renewal rights to the business, and the agent is compensated by commissions that vary by line of insurance.

Multiple line exclusive agency system

Under this marketing system, agents who sell primarily property and casualty insurance also sell individual life and health insurance products. The agents represent only one insurer or group of insurers that are financially interrelated or under common ownership. The agents are also called captive agents.

managing general agent.

Vincent is a specialized wholesale producer who had been vested with underwriting authority by an insurer. Vincent helps to write professional liability insurance, surplus lines, and some personal lines in a sparsely populated area in his territory. Vincent is a(n)

Consolidation

combining of business organization through mergers and acquisitions

Reciprocal exchanges

are unincorporated mutual insurance companies.

Personal selling distribution systems

A distribution system in which commissioned agents solicit and sell life insurance products to prospective insureds.

Personal-producing general agent

An above-average salesperson with a proven sales record who is hired primarily to sell life insurance under a contract that provides both direct and overriding commissions.

Direct response

An insurance marketing system that bypasses the agent is called

demutualization.

Big Mutual Insurance Company would like to take advantage of financial services deregulation by acquiring a bank and a stock brokerage firm. Big Mutual, however, would have trouble raising the funds needed to make these acquisitions under the mutual form of organization. Big Mutual is planning to switch from the mutual form of organization to the stock form, and to issue shares of common stock to raise capital. This change in organizational structure is called

Lloyd's of London

Coverage is actually written by syndicates who belong to Lloyd's of London. Group of underwriters who underwrite insurance, not an insurance company.

Direct writer

Insurance company in which the salesperson is an employee of the insurer, not an independent contractor, and which pays all selling expenses, including salary. In property and casualty insurance, the term "direct writer" is also used to describe insurers that use the exclusive

surplus lines broker

Jim would like to start a business raising thoroughbred racehorses. Obtaining insurance on the horses is a key concern, and he was dismayed to learn that none of the insurers authorized to operate in his state offer this specialty insurance. What is the name of the intermediary that Jim can use to place this coverage with an insurer not admitted to his state?

Advance premium mutual

Mutual insurance company owned by the policy holders that does not issue assessable policies but charges premiums expected to be sufficient to pay all claims and expenses

Assessment mutual

Mutual insurance company that has the right to assess policyholders for losses and expenses.

Fraternal insurer

Mutual insurance company that provides life and health insurance to members of a religious faith, think group or social organization

Mass merchandising systems

Plan for insuring individual member of a group, such as employees of firms or members of labor unions, under a single program of insurance reduced premiums. Property and liability insurance is sold to individual members using group insurance marketing methods

Independent

What type of agent works more like an independent contractor, representing several carriers?

Underwriter

Which of the following entities are not involved in the sale of insurance to the end user?

Stock insurer

Which of the following is NOT a form of cooperative insurer?

They may pay dividends to their policyholders.

Which of the following statements about mutual insurers is true?

Underwriter

Which of the following would not be considered a producer?

Underwriter

Which of the following would not be involved in settling small claims?

Direct response system

a marketing method where insurance is sold without the services of an agent. Potential customers are solicited by advertising in the mails, newspapers, magazines, television, radio and other social media

Captive agent

a term to describe agents who represent only one insurer or a group of insurers what are financially interrelated or under common ownership