Life and Health Insurance and Annuities

State Guaranty Associations

(or funds) are funded by insurance companies through assessments and exist to protect consumers if an insurer becomes insolvent.

Reinsurer

A company that provides financial protection to insurance companies, they insure the insurer. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Certificate of Authority

A license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.

Risk Retention Group

A mutual insurance company formed to insure people in the same business, occupation, or profession (pharmacists, dentists, engineers, etc.) Group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members. Formed for the primary purpose of retaining or pooling risks. Owned by policyholders (business owners aka shareholders).

Stock Insurance Company

A private organization; organized and incorporated under state laws for the purpose of making a profit for its stock holders. They issue non-participating insurance policies that do not allow policy holders to participate in the company's profits (dividends).

Reinsurance

Acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

Admitted Insurer

An insurance company authorized and licensed to transact business in a particular state.

Foreign Insurer

An insurance company that is incorporated in another state.

Domestic Insurer

An insurance company that is incorporated in the state.

Alien Insurer

An insurance company that is incorporated outside the United States.

Private Insurer

An insurer that is not associated with federal or state government. Offer individual, group, industrial, or blanket insurance policies.

1970 Fair Credit Reporting Act

Attempt to protect an individual's right to privacy, the federal government passed this, which is the authority that requires fair and accurate reporting of information about consumers, including applications for insurance. Insurers must inform applicants about any investigations that are being made upon completion of the application. If any consumer report is used to deny coverage or charge higher rates, the insurer must furnish to the applicant the name of the reporting agency conducting the investigation. Any insurance company that fails to comply with this act is liable to the consumer for actual and punitive damages. The maximum penalty for obtaining Consumer Information Reports under false pretenses is $5,000- and 1-year imprisonment.

Liquidity

Availability of resources to meet short-term cash requirements. Indicates a company's ability to make unpredictable payouts to policyowners.

Career Agency System

Branches of major stock and mutual insurance companies that are contracted to represent an insurer in a specific area. Agents are recruited, trained, and supervised by manager employee or General Agent. Focus is on building sales staff.

Multi-line insurer

Companies that sell more than one line of insurance

Personal Producing General Agency System (PPGA)

Do not recruit, train, or supervise career agents. Primarily sell insurance. May build small sales force to assist. Responsible for maintaining their own offices and admin staff. Agents hired considered employees of that system and not the insurance company. Supervised by regional directors.

Producers

Full range of individuals who solicit insurance products to the public.

Role of insurance

Helps to reduce the financial uncertainty of the policy owner with regard to possible future losses.

Mutual Insurance Company

Insurance companies, organized and incorporated under state laws, characterized by having no capital stock (no stock holders), being owned by its policy owners (customer = owner). Policyowner holds right to vote for members of the board of directors. Usually issue participating insurance (policyowners participate in dividends).

Government Insurer

Insurance program for the public; Covers perils not insurable by commercial insurers (war, flood, nuclear reaction). Competes w/commercial marketplace (Worker's Comp). OASDI (Social Security); Medicare; Medicaid; Serviceman's Group Life Insurance; Veteran's Group Life Insurance; National Flood Insurance Program; Federal Crop Insurance Corporation

NAIFA (National Association of Insurance and Financial Advisors) and NAHU (National Association of Health Underwriters)

Members of these organizations are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals. These organizations created a Code of Ethics detailing the expectations of agents in their duties toward clients.

Lloyds of London

NOT an insurer, but a group of individuals and companies that underwrite unusual insurance

Surplus Lines Insurance

Non traditional insurance offer coverage for high substandard or unusual risks not available through private or commercial carriers. In order to qualify, efforts must have been made to secure coverage in the authorized market. Unable to secure this coverage just because it may be less expensive.

Fraternal Benefit Society

Nonprofit benevolent organizations with lodge systems that provide insurance to its members. Noted primarily for their social, charitable, and benevolent activities. Memberships based on religious, national, or ethnic lines. Must be formed for reasons other than obtaining insurance.

Participating Plan

Policy owners share in the company's earnings through receipt of dividends, also elect company's board of directors.

Treaty Reinsurance

Reinsurance contract between two insurance companies which involves an automatic sharing of risks assumed.

Solicitors

Represent and solicit insurance on behalf of an agent

Agent

Represent insurer who sponsors them.

Broker

Represents themselves and the insured.

Service Providers

Sell medical and hospital care services to their subscribers, not insurance, in return for a premium payment.

Benefits

Services provided by hospitals and physicians participating in the plan.

1944 United States v. South-Eastern Underwriters Association (SEUA)

Supreme Court ruled that the insurance industry is a form of interstate commerce and should be regulated by the federal government, subject to a series of federal laws, nullifying state laws that conflicted with federal legislation. Shifted balance of regulatory control to the federal government.

2001 -Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act

The Patriot Act, which amends the Bank Secrecy Act (BSA), was adopted in response to the September 11, 2001, terrorist attacks. The Patriot Act is intended to strengthen U.S. measures to prevent, detect, and deter terrorists and their funding. The act also aims to prosecute international money laundering and the financing of terrorism. These efforts include anti-money laundering (AML) tools that impact the banking, financial, and investment communities.

1959 Intervention by the SEC (Securities and Exchange Commission)

The Supreme Court ruled that federal security laws applied to insurers that issued VARIABLE ANNUITIES requiring the insurers to conform to both this and state regulation. They also regulate variable life insurance.

Underwriting Department

The department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

Insurance

The transfer of risk through the pooling or accumulation of funds.

1999-Financial Services Modernization Act (Gramm-Leach-Bliley Act, or GLBA)

This Act allowed commercial banks, investment banks, retail brokerages, and insurance companies to engage in each other's lines of business. This Act requires financial institutions, including insurance companies, to protect the privacy of their customers' personal information. The main components of the rule are that financial institutions must:Notify consumers about their privacy policies.Provide consumers with the opportunity to prohibit the sharing of their protected financial information with non-affiliated third parties.Obtain affirmative consent from consumers before sharing protected health information with any other parties, affiliates, and non-affiliates.

2003-CAN-SPAM Act

This Act creates rules for commercial emails and messages. Specifically, the regulation outlines the right for a consumer to request a business to stop sending emails, the requirements for businesses to honor such requests, and the penalties incurred for those who violate the Act. The Act covers all electronic mail messages with the primary purpose of advertisement or promotion of a product, service, or commercial websites. The Act does not apply to transactional and relationship messages. According to the Federal Trade Commission, the main requirements of the CAN-SPAM act include: Don't use false or misleading header information (i.e., "From," "To," "Reply-To," etc.) Don't use deceptive subject lines (i.e., the subject line must accurately reflect the content of the message. Identify the message as an advertisement. Include the companies valid physical postal address in every email Tell recipients how to opt out of receiving future emails (i.e., a return email address or another easy Internet-based way to allow people to communicate their choice to opt out). Honor opt-out requests promptly (i.e., within 10 business days. Don't charge a fee, require the recipient to give personally identifying information beyond an email address, or make overcomplicate the process.

Unfair Trade Practices Act

This act gives the head of each state insurance department power to investigate insurance companies and producers, to issue cease and desist orders, and to impose penalties. The act also gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair. The context of unfair trade practices is misrepresentation and false advertising, coercion and intimidation, unfair discrimination, and inequitable administration of claims settlements.

1868-Paul v. Virginia

This case, which was decided by the U.S. Supreme Court, involved one state's attempt to regulate an insurance company domiciled in another state. The Supreme Court sided against the insurance company, ruling that the sale and issuance of insurance is not interstate commerce, thus upholding the right of states to regulate insurance.

National Association of Insurance Commissioners (NAIC)

This organization has committees that regularly examine various aspects of the insurance industry and recommend applicable insurance laws and regulations. The NAIC has four broad objectives: To encourage uniformity among the state insurance laws and regulations. To assist in the administration of those laws and regulations by promoting efficiency. To protect the interests of policyowners and consumers. To preserve state regulation of the insurance business.

Subscribers

Those who purchase plans in which medical and hospital care services are packaged into.

Producer Responsibilities

To help all insurance company customers with the best service possible. To solicit new business for the company they represent by assisting clients in the process of acquiring products from application to policy delivery. This responsibility includes the requirement of being extremely knowledgeable about all company products and services. Guide customers to the right products to meet their actual needs and maintain such a relationship regularly. Build a more substantial business for the company by keeping current customers satisfied and actively seeking referrals for new business. Diligently assist in the claims process, keep customers apprised of continuing developments with any claims, and help assure a prompt and equitable claims experience. The producer must be acutely aware of company underwriting guidelines to minimize wasting the underwriter's valuable time and skills on poorly matched products and customers and to assist the underwriter in any way to facilitate the application process.

Non-participating policy

Typically issued by stock companies, do not allow policy owners to participate in dividends or electing the board of directors

1958 Intervention by the FTC (Federal Trade Commission)

When they tried to control the health insurance industry's advertising and sale's literature in the 1950s, the Supreme Court held that the McCarran-Ferguson Act disallowed such supervision by the FTC, a federal agency in 1958.

1945 The McCarran-Ferguson Act

While the federal government has authority to regulate insurance, it WOULD NOT exercise its right if the insurance industry was regulated effectively by the state. Today, the insurance industry is considered to be state regulated. Anyone who violates this act faces a fine of $10,000 or up to 1 year in jail.

Independent Agency System

a creation of the property and casualty industry, does not tie a sales staff or agency to any one particular insurance company. Instead, agents represent any number of insurance companies through contractual agreements. They are compensated on a commission or fee basis for the business they produce. AKA the American agency system

Claim Settlement Practices

all states require prompt, fair, and equitable practices.

2003-Do Not Call Implementation Act

allows consumers to include their phone numbers on the list to which telemarketers cannot make solicitation calls. Calls made on behalf of charities, political organizations, and surveys are exempt. Insurance calls are not exempt from the do not call registry.

captive insurer

an issuer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure

Reciprocal Insurer

an unincorporated organization in which all members insure one another

Managerial System

branch offices are established in several locations. Instead of a general agent running the agency, a salaried branch manager is employed by the insurer. 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.

Actuarial Department

calculates policy rates, reserves, and dividends

Private (Commercial) Insurer

companies owned by private citizens or groups that offer one or more insurance lines. NOT government owned

Advertising Code

developed by the NAIC. The Code specifies certain words and phrases that are considered misleading and, as such, cannot be used in advertising of any kind. Also required under this Code is the full disclosure of policy renewal, cancellation, and termination provisions.

Service Representatives

employees of an insurer

Adjuster

engages in investigative work to obtain information for adjusting, settling, or denying insurance claims.

Self-Insurers

establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company

Buyer's Guides and Policy Summaries

explain the various types of life insurance products (including variable annuities) in a way that the average consumer can understand. containing information about the specific policy being recommended. It identifies the agent, the insurer, the policy, and each rider. It also includes information about premiums, dividends, benefit amounts, cash surrender values, policy loan interest rates, and life insurance cost indexes of the specific policy being considered. Most states require this to be done before the applicant's initial premium is accepted.contains cost indexes that help the consumer evaluate the suitability of the recommended product. The net payment cost comparison index gives the buyer an idea of the policy's cost at some future point in time compared to the death benefit. The surrender cost comparison index compares the cost of surrendering the policy and withdrawing the cash values at some future time.

Rating Services

help publicize the financial health of insurers. The financial strength (solvency) and stability of an insurance company are two vitally important factors to potential insurance buyers and insurance companies. The PRIMARY purpose of this type of company, such as A.M. Best, Fitch Ratings, Standard & Poor's, and Moody's, is to determine the rated company's (the insurer) financial strength. An insurer's financial strength can be evaluated by looking at the companies reserves and liquidity.

Insurer

insurance company

In any dispute between the insured or beneficiary and the insurer, the agent who solicits an insurance application represents the

insurer

Non-admitted insurer

insurer not licensed to do business in the state

1994-United States Code (USC) Sections 1033 and 1034

it is a criminal offense for an individual who has been convicted of a felony involving dishonesty or breach of trust to willfully engage or participate (in any capacity) in the business of insurance without first obtaining a "Letter of Written Consent to Engage in the Business of Insurance" from the regulating insurance department of the individual's state of residence. The Fraud and False Statements federal law makes it illegal to lie, falsify, or conceal information (orally or in writing) from a federal official. As it applies to insurance, any person engaged in interstate insurance business who engages in intentional unfair or deceptive insurance practices or overvalues an insurance product in a financial report or document presented to a regulatory official, will violate federal law. Other violations include but are not limited to embezzling money from an insurance company, misappropriating insurance premiums, and writing threatening letters to insurance offices. The punishment for violation is a fine of up to $50,000, imprisonment up to 15 years, and license revocation. An individual convicted of a felony involving dishonesty may engage in insurance business ONLY after receiving written consent from the state insurance regulatory agency and a 1033 waiver.

Industrial Insurer

make up a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums. Other names for industrial insurers include home service or debit insurers.

2010-Patient Protection and Affordable Care Act (PPACA

represents one of the most significant regulatory overhauls and expansions of health insurance coverage in U.S. history. The chronology cited reflects the courts and the federal government's roles in regulating the insurance industry. All states are interested in protecting the interests of the buying public, and as a result, the actions of individuals soliciting insurance sales are strictly regulated. Laws regarding insurance marketing, trade practices, and regulation can vary from state to state, but overall, there are more similarities than differences.

Claims Department

responsible for processing, investigating, and paying claims

Agent Marketing and Sales Practices

standards designed to protect consumers and promote suitable sales and application of insurance products. Some of these standards include: Selling to needs: The ethical agent determines the client's needs and then determines which is best suited to address those needs. Two principles of needs-based selling include finding the facts and educate the client. Suitability of recommended products: The ethical agent assesses the correlation between a recommended product and the client's needs and capabilities by asking and answering the following questions. What are the client's needs? What products can help meet those needs? Does the client understand the product and its provisions? Does the client have the capability, financially and otherwise, to manage the product? Is this product in the client's best interest? Full and accurate disclosure. The ethical agent makes it a practice to inform clients about all aspects of the products recommended, including benefits and limitations. There should never be an attempt to hide or disguise the product's nature or purpose or the company being represented. Insurance products are highly effective financial planning tools. They should be presented clearly, completely, and accurately. Documentation. The ethical agent documents each client's meeting and transaction. The agent uses fact-finding forms and obtains the client's written agreement for the needs determined, the products recommended, and the decisions made. Some documentation is required by state law. Ethical agents know these laws and follow them precisely. Client service. The ethical agent knows that a sale does not mark the end of a relationship with a client, but rather the beginning. Routine follow-up calls are recommended to ensure that the client's needs always are covered, and the products in place still are suitable. When clients contact their agents for service or information, these requests are given top priority. Complaints are handled promptly and thoroughly.

Reserves

the accounting measurement of an insurer's future obligations to its policyholders. They are classified as liabilities on the insurance company's accounting statements since they must be settled at a future date.

Divisible Surplus

the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes

Insured

the customer receiving insurance protection under an insurance policy