MC 160 Foundations of Insurance Regulation

Pure Captive

When a single business forms a subsidiary insurer and cedes some or all if its business insurance risks to the subsidiary. -only insures the risk of its parent, nothing else

Segregated cell captive

When each group members risk is partially or fully segregated from the risks of the other group members.

Group Captive

When multiple businesses jointly form a subsidiary captive insurer that insures some or all of the business risks of the member businesses (or group).

OPTins

Your state needs to be a PREMIUM Pro user to get it. This facilitates the submission of: -premium tax, -assessment, -surplus lines tax, -Annual Contracted Producer Report, - other state-specific filings and payments to the states. - Fees are securely transmitted via Electronic Funds Transfer (EFT)

Home Warranty Contract

AKA: residential service contract -covers the repair replacement of your most commonly used home systems and appliances. -It's usually offered when you purchase a home or when you purchase the actual appliance

Utilization review

A system for reviewing the allocation of health care resources and services given to a patient or group of patients (often referred to as medical necessity).

Act

A type of law and is similarly enacted by legislature but is more specific in its purpose and intention. -It may be a provision of a law.

Pro rata reinsurance

A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses)

Private Review Agent (PRA)

AKA: Utilization Review Agent. - reviews the allocation of health care services to make sure these services were medically appropriate. -works for an insurance company, a self-funded third party administrator

DOI: Financial Surveillance

AKA: financial regulation, company supervision, financial examination. -reviews a company's financial solvency. -ensure the carrier's capital requirements are met. -may also be responsible for the licensing of state regulated entities. -Collect and analyze (desk audits) of financial data - Classify and identify troubled companies -Review company transactions - Financial Examinations - Company Licensing

The difference between insurance laws, regulations, bulletins, and NAIC guidance

The difference in these are: Law: Enacted by the legislator (statutes) Act: A more specific law Regulation: Same as above, but don't need the legislator. Bulletins/Guidance: NAIC suggestions "Best Practices"

Principle of Insurable Interest

The insured must be in a position to lose financially if a covered loss occurs. ie. No insuring homeless people and knocking them off.

Export

The placement of insurance with a surplus lines insurer

Underwriting

The process of examining, accepting, or rejecting insurance risks, and classifying those risks accepted in order to charge the proper premium for each. - Principles that guide this are: - Selection according to standards - Balance within classifications - Equity among policyholders

The purpose of insurance.

The purpose of this is to share the risk of financial loss by transferring a possible loss (risk) to an insurance company. They in turn spreads out the cost of possible losses to many individuals through premium.

Unfair Claims Practices Act

The purpose of this is: - To set forth standards for the investigation and disposition of claims arising under policies or certificates of insurance issued to residents. - It is not intended to cover claims involving workers' compensation, fidelity, suretyship, or boiler and machinery insurance.

replacement cost contracts

the cost of replacing the insured property is paid with no deduction for depreciation

DOI: Consumer Protection

- Complaints - Medicare/ Medicaid

Consumer Advocacy Groups

Groups that advocate for the protection of consumers.

U.S. v. South-Eastern Underwriters Association

(1944) the Court ruled that insurance was interstate commerce and was subject to federal antitrust laws

non-NAIC sources of information commonly accessed by regulators.

- AM Best Company - Trade Associations - Consumer Advocacy Groups - State and Federal Legislators - Other State Agencies

Motor Vehicle Service Contract

- Agreement to repair, replace, or maintain a vehicle because of defects or normal wear and tear. - NOT through the Auto Dealer.

Market Compliance

- Carriers must comply with laws and regulations pertaining to market activities. - When requested, carriers must provide claims processing information or clarifications of complaints.

Stakeholders

- Insurance producers - Insurers - Consumers - Legislators - Medical Providers -Other State Departments

DOI: Other Functions

- Legal - Public Affairs - Legislative Policy - HR - IT - Accounting - SIU

DOI: Agent Licensing

- Licensing and Admissions of Agents and Brokers

DOI: Rates and Forms

- Life/Health Policy Form and Premium Rate review - Property/ Casualty Policy Form and Premium Rate review - SERFF

Managing General Agent (MGA)

- Manages all or part of the business for an insurer, including the management of a separate division, department, office or subsidiary of the insurer; - Produces or underwrites premiums at least equal to 5% of the insurer's policyholder surplus for any quarter or yea. A licensed or qualified MGA may: - Negotiate or bind ceding reinsurance contracts for an insurer - Adjust or pay claims of more than $500, or - Maintain loss reserves from which claims may be paid

Conditions for Insurability

- Many independent and identically distributed exposure units - The premium should be economically feasible - Losses should be unintentional and accidental - Losses should be easily determinable

The types of captive arrangements

- Pure Captive - Group Captive - Segregated Cell Captive - Association Captive

DOI: Market Conduct

- Review and analyze nonfinancial data - Market Analysis - Market Conduct - Examinations

A M Best Ratting Grades

- Secure Ratings: - A++ and A+ (Superior) - A and A- (Excellent) - B++ and B+ (Good) - Vulnerable Ratings: - B and B- (Fair) - C++ and C+ (Marginal) - C and C- (Weak) - D (Poor) - E (Under Regulatory Supervision) - F (In Liquidation) - S (Suspended)

The areas of insurance that are regulated by the federal government or other agencies.

- Self-insured health plans (surety laws) - Variable life or annuities (security/surety) - Medicare - Medicaid is a joint federal/state endeavor. - Federal Deposit Insurance Corporation (Banks) - Credit Default Swaps and other derivative products (not really insurance) - Multi-Peril Crop Insurance (FCIC) - The National Flood Insurance Program (FEMA). - The Patient Protection Affordable Care Act (some parts are by the state)

Law

A directive enacted by a legislature that is binding for all people and includes provisions for exceptions and inclusions as well as penalties. -can be called statutes.

Why Financial Strength Rating is important

- Strengthens consumer confidence in insurer's stability and ability to meet contractual obligations. - DOIs may use for financial analysis. - Important in decision making process on whether to buy insurance from insurer.

Distribution

- generally involves one of the following: - Producer - Broker - Direct Writer (typically in combination with a producer) -few insurers market directly to consumers through web based programs, emails, telephone or direct mail.

What happens when there is a violation of the Unfair Trade/claim Practices Act

- the entity involved will receive a statement of charges notifying them of the alleged violations. -A hearing will then be scheduled to give the opposing party the chance to be heard. - If after the hearing, it is found that the act was in violation a cease and desist order will be issued. -If the entity continues to commit the practice, then there will be penalties involved which can get quite expensive.

Level Playing Field

-All carriers must be included, not just the top performers or the largest in the area. - Claims adjusters must be fair when determining the value of hard to determine items.

Common Trade Associations

-American Academy of Actuaries, American Health -Insurance Plan, American Property Casualty Insurance -Association, National Association of Insurance and -Financial Advisors, National Council on Compensation -Insurance, National Association of Mutual Insurance -Companies, and American Council of Life Insurance

Financial Solvency

-Carriers must have enough capital and surplus to pay claims. -Carriers must have proper assets and investments. -Carrier's finances are reviewed quarterly. -Analysts may request a carrier's marketing activities.

Powers of the Commissioner

-Cease and Desist Orders -Penalty Orders

Public Adjuster

-Claimant hirers them -Negotiates claims on the claimant's behalf. -Receives a percentage of the settlement as payment.

pooling

-Combining losses for a group and sharing them in some manner among group members This allows entities to reduce the pure risks faced through transferring and diversifying risk across a wider base of exposures and/or over time.

Pricing

-Determining the prospective amount the insured must pay to finance the potential insurance benefits the insured will receive, as well as necessary administrative expenses and the insurer's cost of capital.

Functions of a DOI

-Financial Surveillance -Market Conduct -Agent Licensing -Rates and Forms -Consumer Protection -Other Misc functions.

Product Design

-Insurers create products by evaluating consumers' risk management and transfer needs and developing insurance products that will meet those needs consistent with basic insurance principles such as indemnity and insurable interest

Surplus lines

-Nonadmitted insurers can conduct business in a given state through the placement of insurance (or export) with this line -only the home state retains the premium tax on multi-state risks. -Business is often placed through a licensed broker who acts as a conduit for making sure that products are being at least stamped or taxes are being filed in the respective states.

Match information types to the NAIC publications, repositories, and/or databases that contain them.

-PDB, Producer Info -NIPR Gateway this links the state's information -SERF handles rates and forms filling -SBS handles app/renewals/inquires/complains etc -OPTins is for surplus lines and state specific filings UCAA- Application form uniformity NAIC Accreditation Program- Law uniformity I-SITE- where it is all at CDC- closed complaints

The four major product lines of insurance

-Property -Casualty -Life -Health

DOI ethical standards

-Role of Protector -Conflict of Interest -Confidentiality

Common Consumer Advocacy Groups

-United Policyholders, Georgetown University Center on Health Insurance Reform, California Health Advocates, -North Carolina Justice Center, Out2Enroll, Automotive Education & Policy Institute, Center for Insurance Research -Families USA, and the University of TX at Austin, University of CT School of Law, Center on Budget and Policy Priorities, -Colorado Consumer Health Initiative, etc.

I-SITE: Consumer Complaints (CDS)

-accessible through I-SITE -contains information about closed consumer complaints filed against insurance entities and producers. -meant solely for use by regulators and is not considered public information. -NOT ALL states participate

Uniform Certificate of Authority Application (UCAA)

-designed to allow insurers to file copies of the same application for admission in numerous states. -States are designated as a uniform state if they use it. -Three different applications: -Primary Application is for new companies and ones wanting to re-domesticate to a uniform state -Expansion Application is for companies that wish to expand their business into a non-resident uniform state. -Corporate Amendments Application is for an existing insurer requesting amendments to its License

best practice

-do not require uniform adoption They can be found in: -White Papers -Handbooks -Bulletins -Guidance

System for Electronic Rate and Form Filing (SERFF)

-enables companies to send and states to receive, comment on, and approve or reject insurance industry rate and form filings - a way to provide a cost-effective method for handling insurance policy rate and form filings between regulators and companies

NAIC Accreditation Program

-establishes and maintains standards to promote sound insurance company financial solvency regulation. -provides a process whereby solvency regulation of multi-state insurance companies can be enhanced and adequately monitored with emphasis on the following: - Adequate solvency laws and regulations to protect consumers and guaranty funds. - Effective and efficient financial analysis and examination processes. - Appropriate organizational and personnel practices. - Effective and efficient processes regarding the review of organization, licensing and change of control of domestic insurers.

Annuities

-systematically liquidate a certain sum. -The insurer agrees to pay the annuitant a certain sum of money for a specified period of time. -The objective is to protect the annuitant against outliving other sources of income. -combined with Life contingencies only pay as long as the annuitant is alive.

the four elements of an insurance contract

1. Agreement - offer and acceptance. 2. Capacity to contract - ability to make legally binding agreements. 3. Consideration - promisor must receive a legal benefit such as money. 4. Legal purpose

Model Law Development Criteria

1. The issue necessitates a national standard and/or requires uniformity amongst all states 2. NAIC Members are committed to devoting resources to educate, communicate, and support it if adopted

When the first Insurance Company was founded

1752, Philadelphia Contributionship, Founder B. Franklin

Insurance Revenue for 2010

18.6 billion

When the first Insurance Commissioner was appointed.

1851

When the NAIC was Founded

1871

Best's Financial Strength Rating

A M Best Ratings opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. -This rating is assigned to insurance companies. -the most commonly used financial rating by the DOI and Consumers

Best's Debt Rating

A M Best Ratings opinion of an issuer's ability to meet its ongoing financial obligations to security holders when due. -is assigned to the debt securities and insurance-linked securities transactions of the entities rated by A.M. Best.

Best's Issuer Credit Rating

A M Best Ratings opinion of an issuer/entity's ability to meet its ongoing senior financial obligations. -is assigned to the insurance companies, related holding companies and other legal entities authorized to issue financial obligations.

Bail Bonds Agent

A entity that posts a bail

Facultative Reinsurance

A form of reinsurance that is is individually underwritten. -normally written on a case by case basis and involve an unusual risk or large risk. -The insurer may only seek the this in the event that unusual risk can't be transferred to other risk. -may be a pro-rata type reinsurance model.

Treaty Reinsurance

A form of reinsurance where the insurer and reinsurers agree in advance that certain lines or classes of business will be seeded or transferred to the reinsurer.

Insurance

A legal binding promise of compensation for specific potential future losses in exchange for a periodic payment.

Unfair Trade Practice

A practices is considered one of these if: - It is committed flagrantly and in conscious disregard of the Act named for it or -It has been committed with such frequency to indicate a general business practice to engage in that type of conduct.

Law of Large Numbers

A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

master confidentiality agreement

All states have entered in to one of these which enables them to share otherwise confidential information with one another.

Captive Insurer

Allows a company or group to manage some of their own risk. -It is licensed and regulated either as an insurance company or as a reinsurance company -manage the business of a parent company and is controlled by the parent company.

Viatical Settlement Provider

Allows a third party to purchase a life insurance product from the owner at less than the policy benefit limits. -they negotiate the terms contract. -often initiated when the insured has been diagnosed with a terminal illness and needs money for medical expenses -In the states where these providers are not required to be licensed they are required to file specific documents or provide specific disclosures.

Casualty Insurance

Also known as liability insurance. -Provides coverage to a person or a business for negligent acts that cause bodily injury or property damage to others. -Some common types are: errors and omissions, fidelity, and various types of malpractice insurance. -Homeowners and auto insurance are examples

Admitted Insurers

An insurer that is licensed to do business in a state is considered this in that state. -can be either domestic or foreign. -often referred to as authorized insurers because they are authorized to do business in the state.

The consumer protections afforded under the Unfair Trade Practices and Unfair Claims Practices Acts.

Any of the following practices are in violation of this act: -Misrepresentations and False Advertising of Insurance Policies -False Information and Advertising Generally -Defamation -Boycott, Coercion and Intimidation -False Statements and Entries -Stock Operations and Advisory Board Contracts -Unfair Discrimination -Prohibited Group Enrollments -Failure to Maintain Marketing and Performance Records -Failure to Maintain Complaint Handling Procedures -Misrepresentations in Insurance Applications -Unfair Financial Planning Practices -Failure to file or certify information regarding the endorsement or sale of long-term care insurance -Failure to Provide Claims History

Advisory Organization

Assist the insurers with filings and ratemaking by furnishing loss or expense statistics. -do not make filings themselves Examples: ACORD, which is the Association for Cooperative Operations Research and Development, and the ISS, which is the Independent Statistical Services.

State Based Systems (SBS)

Enables DOI's to more efficiently and effectively process: - license applications, -renewals, -inquiries, -complaints, -enforcement actions with a minimum of effort and remain compliant with national uniformity initiatives.

Conflicts of Interest

Examples of this are being a regulator and a: - Shareholder of an insurance company - Retain an insurance producer license - Author trade articles - Accepting gifts

NAIC Committees

Executive Committee Internal, Administration Subcommittee Current Special Initiatives Life Insurance and Annuities Property and Casualty Insurance Financial Condition International Insurance Relations Health Insurance and Managed Care Market Re and Consumer Affairs Financial Reg. Standards and Accreditation

The amount of revenue the states put back in to regulation.

In 2010 about 7%

Principle of Indemnity

Insureds should not profit from a covered loss but should be restored to no better

Pharmacy Benefit Manager (PBM)

Manages the pharmacy benefits of HMOs, health insurers, and self-insured employers. -manages processes such as mail-order drugs, claims processing, retail network management, and clinical formulary. -Almost half of the states have laws or regulations to address PBM's audit processes.

Medical Discount Plan (DMP)

Members pay to receive discounts on specified medical services from specified providers. - Marketed as cheaper than health insurance, but does not offer the same risk transfer as insurance. -due to marketing concerns of these plans, some states require that they register with the state DOI

valued policy

Pays the face amount of insurance regardless of the actual cash value of the loss -sometimes used to insure items for which it would be difficult to determine the actual cash value or fair market value, such as rare antiques

The Interstate Insurance Compact

Promotes uniformity through application of national product standards embedded with strong consumer protections. -enhance speed-to-market efficiencies while continuing to provide insurance consumers with strong and established protections.

Role of Protector

Protect the public from unfair practices by insurers.

Life Insurance

Provides a sum of money to a beneficiary when the insured dies. -The owner of the policy must suffer a genuine loss if the insured dies. -Whole _____ policies pay the death benefit whenever the insured dies no matter what age. - Term _____ policy pays a death benefit only if the insured dies within the "term" or time window of the policy. -The premiums for a term policy are much lower than whole. -Universal_____ and Variable_____ are policies that provide management and investment opportunities for whole _____ policies.

Health Insurance

Provides coverage to a person for medical expenses. -expenses can include emergencies, hospital stays, physician visits, medications, and other related medical expenses. -The most common health insurance plans are comprehensive (or group) coverage plans such as Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Indemnity, and other company sponsored major medical plans. -Supplemental or Limited Benefit plans include coverage such as dental, vision, or specified disease/illness.

Property Insurance

Provides coverage to a person or a business whose property is: - stolen, -damaged -destroyed. Some common risks insured against are: fire, theft, earthquake, lightening, and explosions. Example- Home Owners Insurance

Unfair Trade Practices Act

Regulates trade practices in accordance with the intent of Congress by defining the determination of all such practices that constitute unfair methods of competition or unfair or deceptive acts or practices and prohibiting them.

Why insurance is primarily regulated at the state level

The states are able to more efficiently protect consumers. Also a whole bunch of court cases.

DOI and NAIC.

Their relationship includes: -NAIC performs many functions on behalf of the states -NAIC website has tools that allow states to share info such as past exams, contact information, premium information, and market analysis information. -NAIC also creates model laws with the help of regulators.

High Risk Pools

These accept high risk individuals, exposures or properties that insurers reject during underwriting. -Law of large numbers says it will all work out in the end.

Model Laws

These are are NAIC laws and regulations requiring uniform enactment. - Allows for stylistic, formatting changes. -Uniformity is achieved through implementation of language and provisions that are substantially similar. - people are comforted that a there is a national standard.

The consumer protections in the Unfair Claims Practices Acts.

These are illegal under this Act: -Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue. -Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies. -Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies. -Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear. - Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them. -Refusing to pay claims without conducting a reasonable investigation. -Failing to affirm or deny coverage of claims within a reasonable time after having completed its investigation related to such claim or claims. -Attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured or beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application. -Attempting to settle or settling claims on the basis of an application that was materially altered without notice to, or knowledge or consent of, the insured. -Making claims payments to an insured or beneficiary without indicating the coverage under which each payment is being made. -Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form. -Failing in the case of claims denials or offers of compromise settlement to promptly provide a reasonable and accurate explanation of the basis for such actions. -Failing to provide forms necessary to present claims within fifteen (15) calendar days of a request with reasonable explanations regarding their use. -Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by or required to be used by the insurer are performed in a workmanlike manner.

white papers

These contain best practice guidelines that do not requiring uniform adoption or the level of dedicated resources to implement as a Model Law.

The types of non-insurance entities that are typically licensed or registered by insurance departments.

These fall in to two categories Property and Casualty -Public Adjuster -Motor Vehicle Service Contract -Rating Organization -Advisory Organization -Bail Bonds Agent -Captive Insurer -Home Warranty Contract Life and Health -Pharmacy Benefit Manager -Private Review Agent(PRA) -Medical Discount Plan -Viatical Settlement Provider -Preneed Funeral Contract Provider

DOIs and other DOIs

These have a formalized relationships with one another through membership in NAIC. -They also have informal working relationships with one another. ( cross border issues etc)

Non-admitted insurers.

These insurers are not licensed in the state in which they are transacting insurance business. -often referred to as unauthorized insurers. -may or may not be legally able to offer coverage.

Other State and Federal Agencies Interactions

These interact with each other by: - Center for Medicaid and Medicare Services - regulates Medicaid and Medicare products. - Department of Labor - regulates employer group health plans, self funded health plans and pensions. - National Flood Insurance Program. - Secretary of State - securities and variable annuities. - Department of Labor - Workers Compensation - Attorney General's Office - Merchandising Act - High Risk pools for Health and Casualty - Guaranty Associations

State and Federal Legislators Interactions

These interact with each other by: - National Coalition of Insurance Legislators (NCOIL) - Attend and participate at NAIC meetings. - Provide update on federal initiatives. - Serve as resource for states when implementing federal legislation. - Constituent concerns. - writing or reviewing proposed legislation, testifying, providing data to support initiative, etc.

NAIC and State Interaction

These interact with each other by: - Testifying at NAIC hearings. - Participating on working groups. - Participating in writing or reviewing/commenting on white papers, model law proposals and rule proposals. - Legislative Initiatives. - Participation on advisory groups.

The measures states have taken to promote regulatory uniformity, and explain when uniformity is and is not appropriate

These measures include: -enacting NAIC model laws. -The Interstate Insurance Compact -Interstate Insurance Product Regulation Commission Property and Casualty lines have more state specific regulation due to local geographic characteristics, such as earthquakes, tornados, or volcano activity and therefore are less likely to achieve uniformity through the Interstate Compact.

Risk retention groups (RRG)

These were authorized by the Liability Risk Retention Act of 1986 -A federally created way of purchasing liability insurance. -They accept the insurance risk of a group of businesses. -only for liability insurance. -regulation is done by the state in which it resides and other states have limited ability to regulate

A M Best Ratings

They are a resource for DOI's and consumers since 1906 -develops credit ratings of companies -rating includes reviewing and evaluating -company's balance sheet -operating performance -business profiles and -details of debt security (when needed)

McCarran-Ferguson Act

This Act of 1945 exempts the "business of insurance" from most federal regulation.

The Insurance Product Cycle

This cycle is: Product Design Pricing Distribution Producers/Brokers/Direct Writers Marketing Application Underwriting Issuance Lapses, Cancellations and Terminations

State Legislature

This entity: - Sets policy for insurance regulation. - Oversees state insurance departments. - Enacts, reviews, and revises state insurance laws. - Approves regulatory budgets.

Financial regulation

This focuses on quantitative measurements by analyzing an insurance carrier's financial solvency and ability to pay claims owed to consumers.

Consumer Protection

This foundation of insurance regulation states: - A state's most significant challenge is to be vigilant in the protection of consumers. - DOI's work together with policyholders and insurers to resolve disputes. - The Consumer Information Source (CIS) database is available for consumers to research company complaint and financial data.

Company Licensing

This foundation of insurance regulation states: - All insurance companies must be licensed. - There are approximately 7800 insurers in the U.S. - The UCAA helps expedite the licensing review process. - The Form A database allows streamlined reviews of holding companies and mergers.

Product Regulation

This foundation of insurance regulation states: - DOI's must ensure that all insurance products are reasonable, fair, and comply with state law. - Some states require approval for rates of some insurance products such as Personal Property & Auto - this would be Prior Approval rate filing. If no approval needed, then it would be File & Use rate filing.

Financial Regulation

This foundation of insurance regulation states: - The domiciled state's financial examiners investigate an insurer's accounting to verify the company is in good financial standing. - This ensures that the insurer can pay it's claims. - The domiciled state's insurance department may take control of insurers deemed to be in serious financial condition to ensure consumer protection.

Market Regulation

This foundation of insurance regulation states: -Ensures fair and reasonable prices for insurance products. - The domiciled state's market conduct examiners investigate an agent licensing, complaints, products sold, claims handling, and many other market-related aspects.

Producer Licensing

This foundation of insurance regulation states: -Insurance producers and brokers must be licensed and must comply with state laws and regulations - States administer CE programs to ensure producers continue to meet high standards. - The National Insurance Producer Registry (NIPR) operates a national repository for producer licensing.

Servicing

This includes, but is not limited to: -maintaining loss reserves -issuance of policies and certificates -claims administration -premium collection -underwriting -policy loan -surrender processing . Examples: Managing General Agents and Third Party Administrators.

Self funded insurance

This insurance: -has no monthly premiums that can be used for risks associated with individuals or businesses. -Used by companies in combination with other insurance policies, such as a stop-loss policy.

Pure risk

This involves no chance of economic gain and uncertainty about whether a financial loss will occur and possibly how much that financial loss will be

Speculative risk

This involves the chance of gain or loss and, in theory, is not insurable. (Gambling)

Reinsurance

This is Insurance for Insurance Companies. -Part of the risk from insureds (retention) and using this to cover the portion the insurer doesn't want to keep (ceding). -The main types of this are: - Treaty - Facultative - Pro Rata

Risk

This is a condition in which more than one outcome is possible.

NIPR Gateway

This is a network that links regulators with the entities they regulate to facilitate the electronic exchange of producer information. Key Benefits are: • Reduction or elimination of paperwork and data entry • Uses national standards regarding electronic transmission of licensing data • Faster turnaround time, including real time in certain states

Third Party Administrators (TPAs)

This is a person that has: - Control over or custody of premiums, contributions, or any other money with respect to a plan, for any period of time (this does not include an insurance producer that is not also responsible for adjustment, payment or settlement of benefit claims); or - Discretionary authority over the adjustment, payment or settlement of benefit claims under a plan or over the investment of a plan's assets.

Producer Database (PDB)

This is an electronic database consisting of information relating to insurance agents and brokers (producers). Key Benefits are: -Increased productivity, less cost -Reduction or elimination of paper -Real time information -National verification of license and status -Web based access -Single source of data vs. multiple web sites -includes data from RIRS to provide a more comprehensive producer profile

Rating Organization

This is an entity (not an insurer) who's objective is the making/ filing of rate plans, and may also review/examine evidences of insurance. -relied on to handle the administrative portion of rate and form filing, and sometimes statistical data for an insurer. Examples: - Insurance Services Organization (ISO) - National Council on Compensation Insurance (NCCI) - American Association of Insurance Services (AAIS)

Preneed Funeral Contract Provider

This is for Prearrangement of funeral services. -Funds are usually held in a trust and earn interest. -Funds may or may not be guaranteed to pay for the agreed on funeral services

The business of insurance

This is interpreted by the courts by analyzing three factors: 1. Transferring or spreading a policy-holder's risk. 2. Integral part of the policy relationship between the insurer and the insured. 3. Limited to entities within the insurance industry.

Association Captive

This is when an association forms a captive to insure the risks of the association members. -Typically only provide coverage to the members of the association. -primarily write P&C coverages though there is now movement for health and life

Captives Insurers

This is when businesses insure themselves through a subsidiary insurance company.

Market Conduct Annual Statement

This provides a uniform system of collecting market related information to help states monitor the market conduct of companies

DOI and stakeholders

This relationship involves: -involvement in insurance legislative and rulemaking, -can be adversary or supportive -Some have standing advisory committees other are more of an ad hoc fashion. -Can be with other agencies, ie Dept of Health or Dept of Labor

Interstate Insurance Product Regulation Commission (IIPRC)

This serves as a central point of electronic filing for: -life insurance -annuities -disability income -long-term care insurance It is used to develop uniform product standards, affording a high level of protection to purchasers of asset protection insurance products.

Confidentiality

This standard states that you DO NOT disclose or share any information you learn in your official capacity that is not available to the public.

Approving the IDEA

This step of a model law is when on approval by the responsible Parent Committee, Chair will present the request to the Executive Committee for consideration - The Executive Committee may allow an opportunity for comments -must pass the model law criteria test

Drafting the Model

This step of a model law is when the IDEA is developed. -it has one year to do this. -Must decide if it will be a Model Law, Model Regulation or Model Guideline

Vetting and Voting

This step of a model law is when the Working Group has agreed on the language and the IDEA is in final draft form : - then they requests that the responsible Task Force put the IDEA on its agenda for public review, public comment, and hopefully approval at the Task Force's next public meeting. Then they request -It's parent Committee does the same thing. Then they request - EX Committee does the same thing. Then they request -Plenary do the same thing -If the Plenary votes to approve the IDEA draft - it becomes a MODEL.

IDEA

This step of a model law is when the issue is vetted publicly before drafting is even started and must: -be apparent that further action is needed - be of national interest If it fails one of these it is shelved.

Adoption of the Model Law

This step of a model law is when the model has already received a minimum two-thirds majority vote in the responsible parent Committee -It's the big green ok stamp.

Publications

This step of a model law is when the model is made available online through the Publications link on the NAIC website, and a copy can usually be found at every state. -a state action page cites each state's enacted Model or similar/related legislation -case law annotations which present court interpretations on major subjects covered by the NAIC Model Laws

Implementation of the Model Law

This step of a model law is when: -NAIC Members devote significant regulator and NAIC resources to communicate, educate and support the Model Law. -NAIC staff will provide briefing materials, testimony, make state visits and answer questions. -The Executive Committee provides quarterly updates to the NAIC Plenary on the status of adoption by states of the Model Law. - The NAIC will post information on its website and issue public releases when a state adopts a Model.

Issuance

This step of the product cycle : - If accepted, the insurance contract/policy will be issued for delivery to the consumer. - A counter-offer can only be made for the premium amount or the amount of the coverage issued, not the policy/contract.

Application

This step of the product cycle : - is the main source of information for underwriting. - The producer or broker usually is required to provide disclosures with this.

Marketing

This step of the product cycle : - to trim costs insurers have started using direct writing systems or direct response solicitations such as: - Direct mail - Telephone - Email / Internet - Advertise through social media outlets such as Twitter and Facebook.

Lapses, Cancellations and Terminations

This step of the product cycle happens when : - If an insured stops paying the premiums, or in some cases is late. - The insurer or the insured may request it voluntarily per term sin the contract. - Some policies may automatically do this after a specific milestone is reached such as age, date, or event.

Brokers

This type of agent: - Represent and advise consumers (buyers) and seek coverage on behalf of the consumer. - typically represent commercial insurance lines. - may provide a broader range of services to the consumer including risk management advice. -paid by commission or fee-for-service basis.

Producers

This type of agent: - acts on the behalf of insurers and submit an insurance application and premium to the insurer. - There are two types: - Independent Producers: can represent more than one insurer and "own" their business. - Exclusive or Captive Producers: represent one insurer and do not own the business they generate.

Direct Writers

This type of agent: -Allows the consumer to obtain insurance quickly and without leaving their homes by: - Transacting business without the services of a producer or broker. - Utilizing Exclusive or Captive Producers within the company.

Foreign Insurers

This type of insurer is incorporated or formed in a different state, not a different country. -may or may not be licensed (admitted) in states other than their home state.

Alien Insurers

This type of insurer is incorporated or formed under the laws of another country. -are non-admitted insurers and can offer surplus lines under certain conditions.

Domestic Insurers

This type of insurer is located within the home state or has its primary office is within that state. -The location of offices or operations within the state may be required by some states as a prerequisite to being a domestic insurer.

Market conduct regulation

This type of regulation reviews: -a carrier's policies and -procedures and -how claims are processed to ensure companies comply with laws and regulations pertaining to market activities.

indemnity

a payment for damage or loss

Number of insurance Regulators nation wide

about 12,000

risk premium

an additional premium over the expected loss -meant to cover the costs of administering the pool in return for the reduction in risk

Peril

an event that causes a loss, such as hostile fires, earthquakes, windstorms and premature death.

Rebates

an incentive to purchase a policy. It could be a return of part of an agent's commission, a return of some premiums, or anything of significant value that induces someone to purchase a policy. - Like, so illegal

Trade Associations

an organization formed to represent the collective interests of a number of businesses of the same trade.

Twisting

misrepresentation, including any intentional misquote of premium rate, for the purpose of inducing the purchase, lapse, forfeiture, exchange, conversion or surrender of any policy.

Gramm-Leach-Bliley Act

requires financial institutions to ensure the security and confidentiality of customer data

Model Guidelines

used when the IDEA is of national significance but not all state Insurance agencies regulate the product or the practice.