L&H&A Chapter 2
Reinsurers
Reinsurers accept risks of other insurers. Reinsurers are responsible for any portion of risk assumed by the ceding insurer.
DEF insurer is nonadmitted. All of the following are possible explanations for why DEF insurer cannot sell insurance in a state EXCEPT: a. DEF has been denied licensure. b. DEF sells excess and surplus lines insurance. c. DEF has not applied for a license. d. DEF is not licensed.
Excess and surplus lines insurers are unauthorized, or nonadmitted, but are still permitted to sell excess and surplus lines insurance. The correct answer is: DEF sells excess and surplus lines insurance.
Fraternal benefit societies are described by all of the following, EXCEPT: a. They provide insurance to their members. b. They can be religion-based. c. They include ethnic or charitable organizations. d. They include stock and mutual companies.
Fraternals are religious, ethnic or charitable organizations that provide insurance to their members. The correct answer is: They include stock and mutual companies.
A market where individuals and groups of people gather to exchange insurance is a: a. Risk retention group b. Noncommerical insurer c. Lloyd's of London d. Lloyd's association
A Lloyd's association is best described as an insurance marketplace. Lloyd's of London is the most prominent Lloyd's association. The correct answer is: Lloyd's association
Which of the following is best described as an insurance marketplace where people gather to exchange insurance? a. Lloyd's association b. Risk retention group c. Noncommercial insurer d. None of the Above
A Lloyd's association is best described as an insurance marketplace. Lloyd's of London is the most prominent Lloyd's association. The correct answer is: Lloyd's association
Who do agents represent?
Agents Represent = Insurer
Foreign Insurer
A foreign insurer is any insurer that conducts business in a state or district in which it wasn't incorporated.
ABC insurer is incorporated in Texas. Which of the following is true? a. ABC insurer is foreign in Texas. b. ABC insurer is domestic in Louisiana. c. ABC insurer is alien in Great Britain. d. ABC insurer is domestic and foreign in Texas.
ABC insurer is incorporated in Texas, so it is a domestic in Texas, foreign in Louisiana and alien in Great Britain. The correct answer is: ABC insurer is alien in Great Britain.
An excess and surplus lines insurer is categorized as a(n): a. Unauthorized insurance company b. Authorized insurance company c. Domestic insurer d. Admitted insurer
Even though excess and surplus lines insurers are considered unauthorized insurers in a state, they are permitted to conduct insurance business in that state. The correct answer is: Unauthorized insurance company
Two common types of service providers:
HMOs - health maintenance organization PPOs - preferred provider organizations
Which of the following insurers/organizations are not technically insurance companies? a. Noncommercial organizations b. Commercial insurers c. Stock insurers d. Mutual insurers
Noncommercial insuring organizations are not technically _insurers_ and are better described as service organizations that provide prepaid health plans for medical, surgical, and hospital expenses. The correct answer is: Noncommercial organizations
Private insurers can be grouped into these non-commercial insurers:
Noncommercial organizations, Fraternal benefit societies, Lloyd's Associations, Risk retention groups, Risk purchasing groups, Reciprocal exchanges, Reinsurers, Assessment insurers and Excess and surplus lines.
All of the following are OASDI benefits EXCEPT: a. Disability b. Medicaid c. Retirement d. Survivor's
OASDI stands for Old Age, Survivors and Disability insurance. It is government insurance that is commonly referred to as Social Security. Medicaid is a separate dual state-federal program that provides welfare assistance. The correct answer is: Medicaid
What is does OSADI stand for with social security?
Old Age, Survivors' and Disability Insurance
Insurers can be grouped into two main types:
Private and Government. Private insurers offer insurance to people through the individual market. Government insurance redistributes incomes to help people afford costs associated with fundamental risks.
Private Insurers:
Private insurers offer insurance to people through the individual market. In most cases, private insurance is sold on a voluntary basis; however, some forms of insurance offered through private insurers are compulsory.
Producers
Producers are people who sell, solicit and negotiate insurance. This term encompasses agents and brokers. In some states, solicitors are licensed to work as insurance producers.
Preferred Provider Organization (PPO)
Provide discounted medical services to members. A group wishing to provide health care services to it's members form a PPO. Receives a special discounted rate by using certain medical practitioners, hospitals, and clinics. In exchange, the PPO will refer members to these medical professionals.
Health Maintenance Organization (HMO)
Provide the medical care and finances required to fund health care services. Subscribers obtain medical care through hospitals and physicians that have contracted with the HMO.
Railroad employees are eligible for federal insurance through the:
Railroad Retirement Act.
SECTION 2: Examples of private insurers include:
Fraternal benefit societies, Lloyd's Associations, Risk retention groups, Risk purchasing groups, Reciprocal exchanges, Reinsurers, Assessment insurers and Excess and surplus lines.
Which of the following best describes an insurer that is a charitable organization providing insurance only to its members? a. Stock and mutual companies b. Mutual company c. Fraternal benefit society d. Stock company
Fraternals are religious, ethnic or charitable organizations that provide insurance to their members. The correct answer is: Fraternal benefit society
After private insurers, what is the second main group of insurers?
Government Insurance
Agents are appointed to work on behalf of: a. Insurance companies b. Insureds c. Beneficiaries d. None of the above
Agents are appointed to work on behalf of insurance companies. The correct answer is: Insurance companies
Insurance Agents Types
Agents are either: Captive, Exclusive/career agents or Independent agents. Captive agents work for only one insurer. Independent agents work for themselves or for several insurers non-exclusively.
Agents
Agents are insurance producers who represent the insurer, not the insured. Life and health agents cannot bind insurance (commit insurers to provide coverage by a written or oral agreement); however, property and casualty agents can bind insurance.
SECTION 4: What is the agent?
An agent is defined as an individual who works on behalf of another individual or entity, called the principal, in dealing with the contractual agreements of third parties. In the insurance industry, the insurer is the principal. The law of agency states that the acts of an insurance agent are deemed the acts of the insurer.
Alien Insurer
An alien insurer is any insurer that conducts business in a country in which it wasn't incorporated.
A reciprocal exchange is characterized by which of the following? a. It cannot be administered by an attorney-in-fact. b. It consists of an unincorporated group of individuals. c. It is the same as a mutual insurer. d. The insured acts only as an insured.
Reciprocal exchanges are very similar to mutual insurers, except they are unincorporated and each insurer acts as both the insurer and the insured. The correct answer is: It consists of an unincorporated group of individuals.
Independent Rating Services
Each rating service has its own rating system, but most use an A to F letter grading scheme. The Nationally Recognized Statistical Rating Organizations that rate insurers are: A.M. Best, Moody's Investors Service, Standard and Poor's (S&P), Fitch Ratings, Ltd., LACE Financial, and Japan Credit Rating Agency, Ltd.
Excess and Surplus Lines
Excess and surplus lines insurers (also referred to as unauthorized insurers or nonadmitted) exist to insure risks that traditional insurers will not insure due to the nature or amount of coverage of the risk. Excess and surplus lines insurers provide insurance for risks that authorized insurers cannot insure or do not have a market to insure. Excess and surplus lines insurers are not subject to the rate and form laws that standard market insurers are subject to, which means the insurer can offer flexible coverage without needing to file rates and forms with the state insurance department. Excess and surplus lines brokers place such risks with excess and surplus insurers. Excess and surplus lines insurers provide insurance for risks that authorized insurers cannot insure or do not have a market to insure.
Which of the following is another term for reciprocal exchange? a. Reinsurer b. Insurance exchange c. Risk purchasing group d. Risk retention group
Reciprocal exchanges, also referred to as interinsurance exchanges or simply reciprocals, are unincorporated groups of individuals. Each individual member, called a subscriber, provides insurance for other members through indemnity contracts. Each subscriber acts as both the insurer and the insured. The correct answer is: Insurance exchange
Which of the following is a group of companies that collectively assumes and spreads its own risk? a. Stock insurer b. Reciprocal exchange c. Risk retention group d. Fraternal benefit society
Risk retention groups are companies which jointly self-insure their risks as a group in order to spread their own risk. The correct answer is: Risk retention group
Which of the following is a limited liability company or member-owned corporation which collectively assumes and spreads its members' liability risks through self insurance? a. Risk purchasing group b. Risk retention group c. assessment insurer d. Reciprocal exchange
Risk retention groups are limited liability companies or member-owned corporations which collectively assume and spread its members' liability risks through self insurance. The correct answer is: Risk retention group
The government also provides military, federal and state employees with a variety of life and health insurance programs including:
Servicemen's Group Life Insurance, CHAMPUS, and TRICARE.
What are the different types of government insurance?
Social security, Medicare, and Medicaid
Solicitors
Solicitors are licensed salespeople who work for an agent or broker. Solicitors perform the duties of brokers; however, like brokers, they cannot bind coverage.
Private Insurers are grouped into two groups of commercial insurers:
Stock and Mutual
A nonparticipating insurer is: a. A stock insurer b. A mutual insurer c. BlueCross BlueShield d. A noncommercial organization
Stock insurers are called nonparticipating because policyholders do not participate in the profits of the company. Instead, stockholders partake in the profits and losses and receive dividends. The correct answer is: A stock insurer
Government Insurance
The purpose of social insurance is to provide protection against fundamental risks by redistributing income to help people who cannot afford to pay the cost of incurring such losses themselves. Government insurance also provides insurance protection for catastrophic risks that private insurers will not cover.
Mutualization
Transformation of a stock insurer into a mutual insurer.
Risk Retention Groups and Risk Purchasing Groups
Two means of obtaining group liability insurance
Nonadmitted Insurer
Unauthorized insurers, also referred to as non-licensed or nonadmitted insurers, are not allowed to transact insurance business in a particular state, with the exception of excess and surplus lines insurers. Unauthorized insurers do not have licensure because they have not yet applied, have applied and been denied licensure, or are excess and surplus lines insurers. Even though excess and surplus lines insurers are considered unauthorized insurers in a state, they are permitted to conduct insurance business in that state.
State government insurance includes:
Unemployment insurance, Workers' Compensation and State Children's Health Insurance Programs (SCHIP).
Career Agency System
With the career agency system, agents, working as employees of the insurer, sell the insurance company's products to the public, while brokers represent prospective insureds. General agents earn commissions on the policies they sell and on those sold by other agents they manage. In contrast to independent agents, the insurer owns policies sold by captive agents, so the insured is the insurer's customer.
Managerial System
With the managerial system, branch offices are established in several locations. Instead of a general agent running the agency, the insurer employs a salaried branch manager. The branch manager supervises agents working out of that branch office. The insurer pays the branch manager's salary and pays him a bonus based on the amount and type of insurance sold and number of new agents hired.
Personal Producing General Agency System (PPGA)
With the personal producing general agency (PPGA) system, agents work for an independent agency selling policies from several insurance companies. Unlike the career agency system, agents are not employees of the insurance company. Instead, they work for the PPGA. In other words, while career general agents (CGA) primarily recruit and train, PPGAs primarily sell.
Stock insurers and mutual insurers share this in common:
a board of directors
Dividends paid out from mutual insurers are considered:
a non-taxable return of overcharged premium.
Reciprocal Exchanges
also referred to as interinsurance exchanges or simply reciprocals are unincorporated groups of individuals. Each individual member, called a subscriber, provides insurance for other members through indemnity contracts. Each subscriber acts as both the insurer and the insured. A separate account is set up for each subscriber to which premiums are paid and losses are assessed. Each subscriber's loss is shared among all subscribers in the reciprocal. An attorney-in-fact functions as the administrator of the reciprocal exchange by underwriting coverage, handling premiums, plan membership, sales and claims. Examples of reciprocal exchanges are USAA and Farmers Insurance Group.
OSADI and Social Security
are the same thing and provides disability income, survivor benefits and retirement benefits.
Mutual Insurers:
commercial companies owned by their policyholders. There are no stockholders. Different because they lack capital stock and profits are distributed among their members - the policyholders. the funds required to start the company must be obtained from an individual or group of people. It is fairly common for mutual insurers to start out as stock insurers to gain the necessary funds before becoming mutual insurers.
What is government insurance also known as?
Social insurance
Dividends paid out from stock insurers are considered:
profits experienced by the company
The primary types of agency systems are:
1. Career Agency System 2. Personal Producing General Agency System 3. Independent Agency System 4. Managerial System 5. Mass Marketing.
SECTION 3: What are the key differences between private and government insurers?
1. Private insurance must be fully funded. Government insurance is not fully funded. 2. Participation in private insurance is voluntary. Participation in government insurance is compulsory. 3. Government insurance is based on statutes and laws. Private insurance is based on contractual rights. 4. Government insurance is established to benefit a social need and private coverage that Private insurers cannot afford or refuse to issue. 5. Government insurance focuses on sufficient benefits for all participating people. Private insurance focuses on equitable coverage for buyers. Book: 1. Private insurance purchased by individuals must be fully funded. Private insurers must have liquid capital to pay claims. Private insurance is funded by premiums. Government insurance is not fully funded, relying on subsidies and loans. 2. Generally, participation in the private insurance industry is voluntary, while participation in government insurance is compulsory. In cases where private insurance is mandatory, such as auto insurance, insureds are permitted to choose their insurers. In cases where government insurance is voluntary, the cost of insurance is subsidized through tax dollars, so in effect participation is unanimous. 3. Government insurance is based on statutes (laws) whereas; private insurance is based on contractual rights. In other words, a person who receives medical benefits through a private insurer can legally demand payment of benefits based on the terms of the contract. On the other hand, medical benefits provided by government insurance, such as Medicare or Medicaid, are based on laws, which can be changed.
What are the similarities between risk retention groups and risk purchasing groups?
1. rules for membership within the group 2. types of exposure the group is subject to 3. the coverage available
There are three types of private insurers. Which of the following is a true statement about the different insurers? a. An insurer that conducts business in states other than the state in which it was incorporated is an alien insurer. b. An insurer that conducts business in countries that it was not incorporated in is an alien insurer. c. An insurer that conducts business in countries that it was not incorporated in is a foreign insurer. d. An insurer that conducts business in a foreign country is a domestic insurer.
An insurer that conducts business in states other than the state in which it was incorporated is a foreign insurer. An insurer that conducts business in countries that is was not incorporated in is an alien insurer. Conducting business in the state where it was incorporated is a domestic insurer. The correct answer is: An insurer that conducts business in countries that it was not incorporated in is an alien insurer.
Domestic Insurer
An insurer that conducts business in the state it was incorporated is a domestic insurer.
A foreign insurer is: a. An insurance company conducting business in a foreign country b. An insurance company conducting business in the state in which it is incorporated c. An insurance company conducting business in a state in which it wasn't incorporated d. Always unauthorized
An insurer's domicile of incorporation is the state or district in which it became an incorporated company. A foreign insurer is any insurer that conducts business in a state or district in which it wasn't incorporated. Be sure you are not tempted to confuse foreign and alien insurers. The correct answer is: An insurance company conducting business in a state in which it wasn't incorporated
A domestic insurer is: a. An insurance company conducting business in a foreign country. b. An insurance company conducting business in the state in which it is incorporated. c. An insurance company conducting business in a state in which it wasn't incorporated. d. Always unauthorized
An insurer's domicile of incorporation is the state or district in which it became an incorporated company. An insurer that conducts business in the state it was incorporated is a domestic insurer. The correct answer is: An insurance company conducting business in the state in which it is incorporated.
LMO Insurer is incorporated in New Hampshire, conducts business in all of the eastern seaboard states and in Germany. How is LMO Insurer classified in Germany? a. Excess and surplus lines b. Alien c. Foreign d. Domestic
An insurer's domicile of incorporation is the state or district in which it became an incorporated company. LMO Insurer is incorporated in the state of New Hampshire, so it is an alien insurer in Germany. The correct answer is: Alien
Another form of mass marketing is:
Another form of mass marketing is franchise marketing, where insurance is sold to a small group or association and each insured receives their own individual policy. One final form of mass marketing is insurance sold through noninsurance sponsors, such as a bank offering credit card balance protection.
Who does Medicaid cover?
Another medical insurance program subsidized by both the federal and state governments is Medicaid, which provides health care to impoverished people.
Mass Marketing
Another way to sell insurance is through mass marketing methods. These methods are commonplace today, and include direct response, such as insurance sold: On television, On radio, By mail, Over the internet, and In vending machines.
Assessment Insurers
Assessment insurers assess policyholders a premium when losses are incurred. Some assessment insurers only collect premiums when losses are incurred, while others collect advance premiums and additional premiums, as necessary, if losses cannot be sufficiently covered by the advance premium.
All of the following statements regarding unauthorized insurers are true, EXCEPT: a. Excess and surplus lines insurers must apply for a certificate of authority to become admitted. b. Unauthorized insurers are insurers that are unlicensed because they have not yet applied for a certificate of authority, have applied and been denied licensure, or are excess and surplus lines insurers. c. All excess and surplus lines insurers are unauthorized. d. Unauthorized insurers are also referred to as nonadmitted insurers, and do not hold a certificate of authority.
Authorized insurers are also referred to as admitted or licensed insurers. Unauthorized, (non-licensed or nonadmitted) do not have licensure because they have not yet applied, have applied and been denied licensure, or are excess and surplus lines insurers. Even though excess and surplus lines insurers are considered unauthorized insurers in a state, they are permitted to conduct insurance business in that state. The correct answer is: Excess and surplus lines insurers must apply for a certificate of authority to become admitted.
Admitted Insurer
Authorized insurers, also referred to as admitted or licensed insurers, are insurers who have received a certificate of authority authorizing them to transact insurance in a particular state for a particular line or lines of insurance.
Which of the following insurers cannot be categorized as commercial? a. Mutual insurer b. Stock insurer c. Demutualized insurer d. BlueCross BlueShield
BlueCross BlueShield organizations are noncommercial organizations. However, they are not technically insurers and are better described as service organizations. The correct answer is: BlueCross BlueShield
BlueCross pays: a. Surgical costs b. Medical costs c. Hospital costs d. Surgical, medical and hospital costs
BlueCross health plans pay for hospital costs. The correct answer is: Hospital costs
Who do brokers represent?
Brokers Represent = Insured
Brokers
Brokers are insurance producers who represent the insured, not the insurer. Brokers work for several different insurers. Brokers' duties are similar to agents' in soliciting coverage, collecting applications and initial premiums, and delivering policies; however, brokers cannot bind insurance.
What are agent brokers?
Brokers are not appointed with any insurance company, and can sell insurance for several companies. For insurance transactions, brokers represent the purchaser.
Stock Insurers:
Capital Stock Insurers: incorporated commercial companies owned by their stockholders. Stock insurers have a capital fund, surplus and reserves that are financially supported by their stockholders. Each stockholder owns a portion of the insurer, and is a source of capital for the insurer. Stockholders assume the risk of the individuals insured by the stock insurer. Because stockholders are essentially co-owners of the stock insurer, they take part in the profits and losses that the insurer experiences. Stock insurers' shares are traded on stock exchanges. A board of directors chosen by the stockholders manages stock insurers. When stock insurers experience profits, the board of directors will pay out earnings to stockholders in the form of dividends. Traditionally, stock insurers have been called nonparticipating insurers because policyholders do not participate in the profits of the insurer, and thus do not receive dividends.
Consultants
Consultants provide insurance advice to insureds for a fee. Consultants work for insureds, not insurers.
What is the reverse of mutalization?
Demutalization
Which of the following terms means the ways insurance products are marketed and sold to the public? a. Distribution system b. Premium c. Contract d. Insurable interest
Distribution systems are the ways insurance products are marketed and sold to the public. The correct answer is: Distribution system
Distribution Systems
Distribution systems are the ways insurance products are marketed and sold to the public. Insurance can be purchased through licensed insurance producers, who are either agents or brokers, or through a number of other ways.
A mutual company pays dividends to: a. Stockholders b. Policyholders c. Insureds d. Debtors
Dividends are considered a return of overcharged premium. Mutual companies pay dividends to policyholders. The correct answer is: Policyholders
Home Service Insurers
Home service insurance is industrial insurance sold by home service or debit insurance companies. Face amounts are small, usually $1,000 to $5,000. Premiums are paid weekly or monthly.
BlueCross Health plans are intended for ______ whereas BlueShield health plans are intended for ______.
Hospital costs Medical and surgical costs.
Risk Purchasing Groups
In contrast to risk retention groups, risk purchasing groups do not retain risk. Risk purchasing groups buy group liability insurance from an outside insurer or from a risk retention group. Risk purchasing groups do not act as insurers, underwrite coverage, nor require members to provide capital. Risk purchasing groups must be registered in each state they offer insurance. An example of a risk purchasing group is the Special Markets Purchasing Group, Inc.
Authorized -vs- Unauthorized
In order to sell insurance in a state, insurers must receive a license from that state's department of insurance. The license, called a certificate of authority, authorizes an insurer to sell insurance for particular lines (i.e., life, health, property, casualty, etc.)
Agents who own the policies they sell and can work for multiple insurers are known as: a. Captive agents b. Exclusive agents c. Independent agents d. Managing general agents
Independent agents have control of and own the policies they sell and may work for multiple insurers. The correct answer is: Independent agents
Independent Agency System or American Agency System
Independent insurance agents are appointed to work for several insurers non-exclusively. They may also work for themselves or under other insurance agents. Independent insurance agents have control and ownership over their clients' accounts. This means they may place clients' business with a different insurer when policies are up for renewal. Independent insurance agents earn commissions on the sales they make, and overrides on sales made by agents they manage.
Domestic, Foreign and Alien Insurers
Insurers are categorized as domestic, foreign or alien based on where their business is transacted with respect to the location of incorporation. An insurer's domicile of incorporation is the state or district in which it became an incorporated company.
Financial Status
Insurers are required to undergo financial examinations periodically performed by the state insurance department in which the insurer operates. Independent rating organizations are credit rating agencies that rate or grade the financial strength and stability of insurers based on claims, reserves, and company profits. Consumers, producers, and the general public alike have the right to know the financials of insurers prior to applying or purchasing insurance coverage, and in the case of producers, accepting appointments with insurers.
Risk retention group
LLC or member-owned corporations that collectively assume and spread their members' liability risks through self-insurance. All members of a risk retention group must be employed in similar types of businesses so that they have similar liability exposures. must be licensed in at least one state or district. Upon licensure, risk retention groups act as insurers, where members underwrite coverage, retain their own risk, and issue insurance policies to their members throughout the United States at attractive rates. Risk retention groups require members to provide capital to fund the risk. This encourages each member to avoid excessive and unnecessary claims. Most risk retention groups purchase reinsurance.
What is the oldest and best known Lloyd's?
Lloyd's of London
Medicare provides benefits to what age?
Medicare is part of the Social Security program, and provides medical benefits to qualifying people age 65 and older.
What are the two distinct characteristics that distinguish mutual insurers from stock insurers? a. Mutual insurers lack capital stock and profits are distributed among the members. b. Mutual insurers are not governed by a board of directors and are owned by stockholders. c. Mutual insurers have capital stock and are owned by stockholders. d. Mutual insurers do not have policyholders and have capital stock.
Mutual insurers are distinct from stock insurers in two primary ways: they lack capital stock, and profits are distributed among their members _ the policyholders. The correct answer is: Mutual insurers lack capital stock and profits are distributed among the members.
ABC company pays its stockholders dividends. ABC undergoes a change in company ownership and begins to pays its policyholders dividends, instead of its stockholders. What is the term that describes the transformation that ABC company has undergone? a. Demutualization b. Mutualization c. Transfer to a noncommercial insurer d. Transfer to a nonprofit insurer
Mutualization is the transformation of a stock insurer into a mutual insurer. The correct answer is: Mutualization
Mutualization occurs when: a. A mutual insurer becomes a stock insurer b. A stock insurer becomes a mutual insurer c. A nonprofit insurer becomes a mutual insurer d. A nonprofit insurer becomes a stock insurer
Mutualization occurs when a stock insurer becomes a mutual insurer, while demutualization is when a mutual insurer becomes a stock insurer. The correct answer is: A stock insurer becomes a mutual insurer
Federal government insurance for catastrophic risks includes:
National Flood Insurance, War Risk Insurance, and Federal Crop Insurance.
All of the following are false regarding stock insurers, EXCEPT: a. Stock insurers do not have a capital fund and are financially supported by policyholders. b. Stock insurers do not pay dividends to stockholders, instead policyholders receive dividends as a return of overcharged premium. c. Stock insurers are managed by a board of directors, who are chosen by the company stockholders. d. A stock insurer may transform into a mutual insurer via the process of demutualization.
Stock insurers have a capital fund, surplus and reserves which are financially supported by the company's stockholders. Stock insurers do pay dividends to their stockholders. Unlike mutual insurers, stock insurers do not pay dividends to policyholders. Stock insurers are managed by a board of directors, who are chosen by the stockholders. Finally, the process of mutualiztion occurs when a stock insurer is transformed into a mutual insurer. The correct answer is: Stock insurers are managed by a board of directors, who are chosen by the company stockholders.
The Mayflower Insurance Company is a stock insurance company. What is its operating objective? a. To have the lowest net premium b. To make a profit for stockholders c. To make a profit for policyholders d. To have the lowest gross premium
The operating objective of any stock company, including a stock insurance company, is to make a profit for its stockholders. The correct answer is: To make a profit for stockholders
Service Providers or ______ are not technically insurers and do not sell insurance. They are better described as service organizations that provide prepaid health plans for medical, surgical, and hospital expenses. They sell medical services to members who are termed subscribers. The insured is not reimburses for the medical services received. Instead, the service provider pays benefits directly to the health care providers the subscribers' use.
noncommercial organizations
Since mutual insurers issue dividends to their policyholders, they are referred as:
participating insurers
Lloyd's Associations, or simply Lloyd's
private insurers, even though they are not technically insurance companies. Lloyd's are better described as a market where individuals and groups gather to exchange insurance, much like stock exchanges provide a place to buy, sell and trade stocks. Lloyd's are corporations that advertise and market the financial services of an association of underwriters. Lloyd's do not underwrite coverage or issue polices. Members, who can be individuals (termed Names) or groups, form syndicates to underwrite and issue insurance coverage. One or more members can form syndicates. Each member can be thought of as one insurance company and provides the capital required to assume the risks undertaken. Each member is liable for the amount of risk assumed. Most of the business Lloyd's of London transacts is reinsurance, property and casualty risks. Most American Lloyd's are prohibited because of strict insurance regulations by the states.
Fraternal benefit societies, also known as fraternal insurers or simply fraternals
special types of mutual insurers/nonprofit religious, ethnic or charitable organizations that provide insurance exclusively to their members. Fraternal benefit societies are exempt from federal income tax and state premium tax because they are categorized as charitable organizations. Fraternal benefit societies are mostly involved in life and health insurance. An example of a fraternal benefit society is the Modern Woodmen of America.