1 • Basic Principles of Insurance KeyWords
Admitted Insurer
(Also called authorized insurer) is an insurer who has received a certificate of authority from a states department of insurance authorizing them to conduct insurance business in that state
Non-admitted Insurer
(Also called unauthorized insurer) an insurer who has not received a certificate of authority from a state Department of insurance authorizing them to conduct insurance business in that state
Captive vs independent agent
A captive agent sells for a specific company while brokers (independent) sell for several companies
Reinsurer
A company that provides financial protection to insurance companies. 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
Risk Retention Group
A group owned liability insurer which assumes and spread products liability and other forms of commercial liability risks among its members
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
Alien Insurer
An insurer whose principal office and domicile location is outside this country
Foreign insurer
An insurer with its principal office or domicile location in a state different from the state it is transacting insurance business
Domestic insurer
An insurer with its principal or home office in a state where it is authorized
National Association of Insurance Commissioners (NAIC)
An organization composed of insurance commissioners from all 50 states, the district of Columbia and all the 4 US territories
Reciprocal Insurer
An unincorporated organization in which all members insure one another
Multi-line insurer
And insurance company or independent agent that provides a one stop shop for businesses or individuals seeking coverage for all of their insurance needs.
Participating plan
And insurance policy under which the policy owners share in the company's earnings through receipt of dividends and also elect the company's board of directors
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. Commercial insurers are NOT government-owned
Self-insurers
Establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company
Independent Rating Services
Independent credit rating agencies rate or grade the financial strength and stability of insurance companies. Ratings are based on claims, liquidity, reserves and company profits
Liquidity
Indicates a company's ability to make unpredictable payouts to policy owners
Industrial Insurer
Industrial insurers 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
Mutual insurance company
Insurance company is characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance
Stock insurance company
Insurance company 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, non-participating policies
captive insurer
Issuer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure
Lloyd's of London
NOT an insurer but a group of individuals and companies that underwrite unusual insurance
Fraternal Benefit Society
Nonprofit benevolent organizations that provide insurance to its members
Surplus lines insurance
Nontraditional insurance only available form a surplus lines insurance they offer coverage for substandard or unusual risks not available through private or commercial carriers
State Guarantee Associations
Protect policy owners in the advent of an insurance company going out of business, coming in solvent or the inability to pay claims
Annuities
Provide a stream of income by making a series of payments over a certain period of time
1970 Fair Credit Reporting Act
Provide individuals privacy protection and fair and accurate credit reporting Maximum penalty is $5000
Broker
Represents themselves and the insured
Claims Department
Responsible for processing, investigating, and paying claims
Reinsurance
The acceptance by one or more insurers, called reinsurers, of a portion of the risk under written by another insurer who has contracted for the entire coverage
Reserves
The accounting measurement of an insurer's future obligations to its policyholders
Divisible surplus
The amount of earnings paid to policy owners as dividends after the insurance company set aside funds required to cover reserves, operating expenses, and general business purposes
Underwriting department
The department with an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications
Insurer
The insurance company
Insured
The insured is the customer receiving insurance protection under an insurance policy
Insurance
The transfer of risk through the pooling or accumulation of funds
Nonparticipating policy
Typically issued by stock companies, do not allow policy owners to participate in dividends or electing the board of directors
Mutualization
When a stock company converts into a mutual company
1945 McCarran and Ferguson Act
While the federal government has the authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively in adequately by the states