The Role Of Insurance

Actuary ( Key People Within am Insurance Company)

Actuary refers to the person who calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports. The actuary is concerned about the cost of insurance as a whole or for a specific class of risk.

Producer ( Key People Within am Insurance Company)

Producer refers to the full range of individuals who solicit insurance products to the public. The various types of producers include (1) Agents who represent the insurer which sponsors them; (2) Brokers who represent themselves and the insured (i.e., the client or customer); (3) Solicitors who represent and solicit insurance on behalf of an agent; and (4) Service Representatives who are employees of an insurer. Service representatives who do not engage in sales activities that pay commissions need not be licensed. If commissions are paid, the recipient must possess an insurance license. Any person who solicits or countersigns policies or collects premiums from policyowners must be licensed in most locales. Licensed producers are obligated to act in a fiduciary capacity on behalf of the insurers with which they place insurance business and the clients they represent in insurance transactions. Producers are typically considered to be part of the sales department.

Private Versus Government Insurance

• Private citizens or groups own private (commercial) insurance companies. • Offer individual, group, industrial, or blanket insurance policies. • Government insurers are owned and operated by a Federal or State entity. • May either: • write insurance to cover perils that are not insurable by commercial insurers (i.e., war, flood, a nuclear reaction): or • write insurance on insurable risks and thus compete with the commercial marketplace (i.e., Social Insurance such as Workers' Compensation). • Government insurers generally write insurance to cover catastrophic perils (i.e., flood) or to protect a segment of society (i.e., the elderly) against catastrophic medical costs (i.e., Medicare). • Examples of government insurance programs include: • National Flood Insurance Program, and Federal Crop Insurance Corporation • Social Security, Medicare, and Medicaid • Serviceman's Group Life Insurance (SGLI) and Veteran's Group Life Insurance (VGLI)

Departments within an Insurance Company

• The Marketing or sales divisions are responsible for increasing the number of prospective applicants, thereby increasing the number of insureds, through various advertising mediums and 1-1 appointments with prospective buyers • The sales department is typically the department completing the application. They may also be known as field underwriters. • The underwriting department is responsible for reviewing applications, conducting investigations to gain additional information about applicants, assigning risk classifications, and approving or declining an application. • The claims department is responsible for processing, investigating, and paying claims for losses incurred by insureds. The actuarial department calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports focusing on morbidity and mortality tables.

Benefits and Costs of Insurance to Society

• Most contracts of insurance are contracts of indemnity designed to pay off financial losses and reimburse the insured. • The premium cost can be reduced when the insured implements loss control measures (for example, smoke alarms or a sprinkler system) to lower the chance of a loss occurring in the first place. • Insurers take some of their revenue and invest it back into local and national economies to benefit all society.

Underwritter ( Key People Within am Insurance Company)

Underwriter refers to the person who identifies, assesses, examines, and classifies the amount of risk represented by an applicant (proposed insured) to determine if coverage should be provided and, if so, at what cost (premium). An underwriter approves or declines insurance applications and determines the cost to provide insurance.

Insurer Classification According To Domicile

• A domestic insurer has its principal or home office in a state where it is authorized. • Is chartered in or formed under the laws of the state where it is authorized. • Nationwide Insurance Company of Columbus, Ohio, operates as a domestic insurer in the State of Ohio. • A foreign insurer is authorized in one state, but its charter or principal office is in another State. • Nationwide Insurance Company is also licensed or authorized in the State of Illinois as a foreign insurer. Alien insurers are insurers authorized in any state within the U.S., whose principal office is located outside this country. • Nippon Life of Tokyo, Japan, or Sun Financial Services of Toronto, Canada, are examples of alien insurers.

National Association of Insurance Commissioners

All state insurance commissioners or directors are members of the 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. Unfair Trade Practices Act Most jurisdictions have adopted the NAIC's 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. Advertising Code A principal problem of states in the past was regulating misleading insurance advertising and direct mail solicitations. Many states now also subscribe to the 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.

Adjuster ( Key People Within am Insurance Company)

An insurance adjuster is a person who engages in investigative work to obtain information for adjusting, settling, or denying insurance claims. An insurance adjuster will primarily use claim forms, but depending on the claim, may also be involved with investigations into an insured's identity, habits, conduct, business, occupation, honesty, integrity, or credibility, etc. A public adjuster refers to a person who, for compensation, acts on behalf of or aids an insured with settling an insurance claim.

Evolution of Industry Oversight

The insurance industry is regulated by a number of authorities, including some inside the industry itself. The primary purpose of this regulation is to promote the public welfare by maintaining insurance companies' solvency. Other purposes are to provide consumer protection and ensure fair trade practices and fair contracts at fair prices. It is essential that insurance agents understand and obey the insurance laws and regulations.

TYPES OF INSURANCE COMPANIES

There are many ways to classify organizations that provide insurance. Conventional methods of insurer classification include where the company is located, how the company is owned, or if the company is authorized in a given state. In the broadest of terms, insurance companies are typically classified as private/commercial and government. Within these two classes are many categories of insurance providers, as well as insurance plans and insurance producers. It is important to note that the company providing the insurance is called the insurer. The covered person is known as the insured.

Insurer Classification According To Authorization

• An insurer that is allowed or authorized to conduct insurance business in a particular state is referred to as an authorized or admitted insurer. • Authorized (admitted) insurers are issued a certificate of authority. • An unauthorized insurer (non-admitted company) is not permitted nor allowed to conduct insurance operations in a particular State. • Unauthorized (non-admitted) insurers do not have a certificate of authority. • In some states, non-admitted insurers may still offer surplus lines insurance without a certificate of authority if no authorized insurer in the market is available or willing to take the risk.

The role of Insurance

• Insurance spreads the risk of loss from one person to large number of persons through the pooling of premiums. • Insurance is the transfer of risk from one party to another through a legal contract; or the transfer of risk through pooling funds. • The policyowner is transferring the chance of a possible financial loss to another party (i.e., the insurer) • The insurer assumes the risk since it receives a premium. • When the transfer of risk is accomplished by purchasing an insurance policy, the policyowner obtains a large quantity of coverage in return for a small fee (i.e., premium).