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personal producing general agency system

(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. Furthermore, personal producing general agents primarily sell insurance, instead of recruiting and training new agents as in the career agency system.

S.G.L.I. and V.G.L.I

(Serviceman's or Veteran's Group Life Insurance: life insurance for active and retired members of the military)

2001 USA Patriot Act

(Uniting and strengthening america by providing appropriate tools required to intercept and obstruct terrorism) as it relates to the insurance industry, is designed to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions.

participating insurers

(mutual companies) participate in receiving dividends and electing board of directors

NAIFA and NAHU

- National Association of Insurance and Financial Advisors -national association of health underwriters members of these orgs are life and health agents dedicated to supporting industry and advancing quality of service provided by insurance pros -creates code of ethics detailing the expectations of agents in their duties towards clients

How insurance is sold

-Distribution System -Career Agency System -Personal Producing General Agency System -Managerial System -Mass Marketing

standards and ethics to sell inurance

-selling to needs -sustainability of recommended products -full and accurate disclosure -documentation -client services -buyers guide -policy summary

NAIC four broad objectives

1. Encourage uniformity in state Insurance laws and Regulations 2. Assist in the administration of those laws and regulations by promoting efficiency 3. To Protect the interest of policy owners and consumers 4. To preserve state regulations of the insurance business

government insurance programs are offered through

1. Social Security 2. Medicare 3. Medicaid

which of the following requires insurers to disclose when an applicants consumer or credit history is being investigated

1970 fair credit reporting act

mixed insurer

A company that operates as both a participating and nonparticipating insurer -div. never guaranteed

Self-funded plans

A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues

private companies

AKA commercial insurance companies; are funded through premiums & sell insurance for a profit

reserves

Accounting measurement of an insurer's future obligations to its policyholders. -classified as liabilities on the insurance companys accounting statements since they must be settled at a later date -set aside by company and designated for pmt of future claims

Multi-line insurer

An insurance company selling more than one line of insurance

Industrial Insurance

Characterized by relatively small face amounts with premiums paid weekly

Dividends payable to a policyowner are

Declared by the insurance company

government insurance

Federal and state government are also insurers. They provide social insurance, to protect against risks by redistributing income to help people who can't afford the cost of losses themselves.

primary insurer

In reinsurance, the insurer that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual arrangement.

Independent Agency System (american agency system)

Independent agents represent a number of insurance companies under separate contractual agreements. -may work for themselves or under other insurance agents -have control over their clients accts ; may place clients business w a different insurer when policies are up for renewal -earn commision on the sales they make and override sales made by agents they manage

Lloyd's of London

Not an insurance company. Members of the association form syndicates to underwrite and issue insurance- like coverage. This is a group of investors who share in unusual risk.

Pure Assessment Mutual Company

Operates on the basis of loss-sharing by group members. No premium is payable in advance. Instead, each member is assessed an individual portion of losses that actually occur.

national association of insurance commissioners

Organization composed of insurance commissioners from all 50 states, DC, and the four US territories; responsible for reccomending appropriate laws and regs responsible for creation of advertising code and unfair trade practices act and medicare supplement insurance minimum standards model act

mutual companies

Owned by the policy owners and issue participating policies.

annuities

Provide a stream of income by making a series of payments to the annuitant for the annuitant's lifetime or for a specifically designated period of time.

types of government insurance

Social Security - Medicare - Medicaid S.G.L.I. - Serviceman's Group Life Insurance, which is life insurance for members of the military. Tri-Care - this is health insurance for members of the military.

reinsurers

Specialized branch of the insurance industry that insures other insurance companies' risk; insurance company sells reinsurer the risk

1945 McCarran and Ferguson Act

States that while federal government has the authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively and adequately by the states. -minimum penalty of a producer who has gained personal info about client w/o having a legit reason is a fine of 10000

Oversight of Insurance Industry

The National Association of Insurance Commissioners is an organization composed of insurance commissioners from all 50 states, the District of Columbia and the four territories -NAIC is responsible for resolving insurance regulatory problems and they are active in the formation and recommendation of insurance legislation, designed to bring uniformity from each state and simplify mktg of insurance

reinsurer

The company assuming the risk

sustainability of recommended products

The ethical agent assesses the correlation between a recommended product and the client's needs

ceding company

The insurance company transferring the risk

industry oversight and regulation

The insurance industry is primarily regulated on a state-by-state basis with minimal federal oversight.

mutualization

The process of a stock company being converted into a mutual company

role of insurance

To transfer the risk of financial loss from an individual or business to an insurance company

mutualization

Transformation of a stock insurer into a mutual insurer.

captive agents

Work for only one insurer

Demutualization

a mutual company is converted into a stock insurer

demutualization

a mutual insurer is converted into a stock insurer

selling to needs

agents must first determine the consumers' needs then determine which policy fits their needs best.

reinsurance

an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance

documentation

an ethical agent must document each clients meeting and transaction

Full and accurate disclosure

an ethical agent must inform consumers of the benefits and limitations of recommended products. Recommendations must be accurate, complete, and clear.

client services

an ethical agent must know that a sale does not mark the end of the relationship, but rather the beginning of the relationship. Therefore, routine follow-up calls are recommended

Stock Insurance Company

an insurance company organized and incorporated under state law owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies (get paid a share of company profit through dividends) non participating or non par

liquidity

an insurers ability to make unpredictable payouts to policyowners

captive insurer

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

Strong Assessment Mutual Companies

are classified by the way the charge premium. -pure assessment mutual company -advance premium assessment mutual

Independent Rating Services

are credit rating agencies that rate or "grade" the financial strength and stability of insurers based on claims, reserves, and company profits. The nationally recognized statistical rating organizations that rate insurers are A. M. Best, Moody's, Standard and Poor's, and Fitch Ratings. Each rating service has its own rating system, but most use an A to F letter grading scheme.

Independent Rating Services

are credit rating agencies that rate or "grade" the financial strength and stability of insurers based on claims, reserves, and company profits. The nationally recognized statistical rating organizations that rate insurers are A. M. Best, Moody's, Standard and Poor's, and Fitch Ratings. Each rating service has its own rating system, but most use an A to F letter grading scheme.

commercial insurers

are in the business of selling insurance for a profit. is divided into two main groups: stock and mutual insurers.

risk retention groups

are mutual companies formed by a group of people in the same industry or profession. Examples would be pharmacists, dentists, and engineers.

Reciprocal Insurers

are unincorporated groups of individual members that provide insurance for other members through indemnity contracts. Each member acts as both insurer and insured and are managed by Attorney in Fact.

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.

Advance Premium Assessment Mutual

charges a premium in advance at the beginning of the policy period. if og premium exceeds operating expenses and losses, surplus is returned to stockholders as div -if total premiums are not enough to meet losses, additional assessments are levied against the members. the amount of assessment that may be levied is limited by state law or as provision

Career Agency System

commercial insurers establish offices in certain locations. Career agents are recruited to work at these locations. A general agent hires and trains new producers and supervises a number of other producers. All producers under the career agency system are captive agents and employees of the insurer.

mass marketing

direct selling (direct mail) method where agents are not used -policies marketed and sold via tv radio print magazines newspapers main vending machines and internet

buyers guide

each state requires agents to deliver a buyer's guide to consumers that explain various types of life insurance products and other information on the recommended policy, such as premiums, dividends, and benefit amounts.

Guaranty Association

established by all states to support insurers and protect consumers in case an insurer becomes insolvent -state life and health associations provide a safety net for all member life, health and annuities insurers in a certain state -protect insureds in the event of the insurer insolvency or inability to pay claims up to a certain limit

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the

fair credit reporting act

a nonprofit incorporates society that does not have capital stock and operates for the sole benefit of its members is known as a

fraternal benefit society

govt programs

funded w taxes and serve national and state purposes

1905 The Armstrong Investigation Act

gave the authority to the states to regulate insurance.

unfair trade practice acts

gives chief financial officer the power to investigate insurance companies and producers to impose penalties -gives officers authority to seek court injunction to restrain insurers from using any methods believed to be unfair

life insurance

guarantees a specific sum of money when someone dies

tri-care

health insurance for members of the military and their family

medicare

health insurance for the elderly

medicaid

health insurance to aid the financially needy

policy summary

help consumers evaluate the suitability of the recommended product

Home Service Insurers

industrial insurance sold by home service or debit life insurance companies. Face amounts are small; usually $1,000 to $2,000 and premiums are paid weekly.

2003 Do Not Call Registry

insurance calls are not exempt from the do not call registry

home service insurer

is sold by home service or debit life insurance companies face amounts 1-2k aka industrial insurance

reinsurers

make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the Ceding Company and the company assuming the risk is the Reinsurer. -in reinsurance agreement, insurance company that transfers its loss exposure to another insurer is called primary insurer

service providers

offer benefits to subscribers in return for the payment of a premium -hmos and ppos

service providers

offer benefits to subscribers in return for the payment of a premium -packaged into various plans and those who purchase are known as subscribers _HMO (health maintenance org) and PPO (preferred provider org) are examples

2010 Patient Protection and Affordable Care Act

often shortened to affordable care act represents one of the most significant regulatory overhauls and expansions of coverage in U.S. history

stock companies

organized and incorporated under state laws for the purpose of making a profit for its stockholders (shareholders) -when declared, dividends are paid to stock holders -divs are taxable because theyre considered profit

mutual company dividends

paid to policyholders -not subject to taxes , div are considered to be return of premium -only exception is if policyowner lets the dividends sit and collect interest; accum interest is taxable

Who elects the governing body of a mutual insurance company?

policyholders

mutual insurers

policyholders are the owners; no conflict of interest; can't generate more stock so has to rely on profits get paid a share of company profit via div participating/par; policy owners participate in being paid dividends

nonparticipating insurers

policyholders do not participate in receiving dividends or electing the board of directors, unless they are also a stockholder of the company.

Types of Insurance Companies

private commercial and government

State Guarentee Association

protects policy owners in the event of any insurance company going out of business, becoming insolvent or the in ability to pay claims

health insurance

provides funds to cover med bills due to sickness or injury and also to cover the loss of money because of a disability

social security and Old Age, Survivors, and Disability Insurance (OASDI)

provides income benefits for the elderly (retirement, survivors of those who died young (young child of deceased parent) and those qualifying for federal disability

1970 Fair Credit Reporting Act

provides individuals privacy protection and fair and accurate credit reporting -insurance companies are required to notify applicants if credit check will be made on them -minimum fine of producer who was gained consumer info reports under false pretenses is 5000

1999 Gramm-Leach-Bliley Act (Financial Services Modernization Act)

repeals the glass steagall act allows banks, retail brokerages and insurance companies to enter each others lines of business

the stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is known as

reserves

self insurers

retain risks and must have a large number of similar risks and enough capital to pay claims. However, they may save money if the loss experience is lower than the expected costs. -not a method of transferring risk establish own self funded plan to cover potential losses

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a

risk retention group

1944 United States vs Southeastern Underwriters Association

ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulations -many federal laws were conflicting with existing state laws -however this did not effect the power of states to regulate insurance

Fraternal Benefit Societies

special types of mutual companies/nonprofit religious, ethnic, or charitable organizations that provide insurance solely to their members. -must be formed for other reasons than obtaining insurance -knights of columbus

insurance

spreads the costs of unexpected fin'l loss to many individuals

two main groups of commercial insurance

stock and mutual

two most popular commerical insurers

stock companies and mutual

1869 Paul v. Virginia

the U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce.

advertising code

the code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind

distribution systems

the ways insurance products are marketed and sold to the public -can be purchased from licensed insurance producer (agents or brokers) agents either captive or independent

What type of reinsurance contract involves two companies automatically sharing their risk exposure?

treaty

independent agent

works for self and sells products for many companies