CT Health Insurance Exam

1945 McCarran-Ferguson Act

-Enacted by Congress, Public Law 15. -This law made is clear that the states' continued regulation of insurance was in the public's best interest. -It also made possible the application of federal antitrust laws to the extent that [the insurance business] is not regulated by state law. -Led each state to revise its insurance laws to conform to the federal laws. Today, the insurance industry is considered to be state regulated.

Rating Services

-The PRIMARY purpose of this service is to determine a company's financial strength and publish the rating. Examples include A.M. Best, Fitch Ratings, Standard & Poor's, and Moody's, -An insurer's financial strength can usually be evaluated by looking at the companies reserves and liquidity.

Adhesion

A contract confounded by this describes a contract that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the terms of the contract on a "take it or leave it" basis when accepted.

Claims Department

A department which is responsible for processing, investigating and paying claims

Insurer Classification According to Domicile

A domestic insurer has its principle or home office in a state where it is authorized

Treaty Reinsurance

A reinsurance contract between two insurers in which the risks are automatically shared

Limited insurer

A type of insurer which limits the exposures it writes to those of its owners

Principle of Indemnity

Accident, health, property, and casualty insurance contracts are this kind of contract. Their purpose is to make the insured "whole" again financially; reimbursing loss while not making the insured better than they were prior to the loss.

Agents contract and the insurance company's appointment

An agent's authority to bind an insurer to an insurance company contract may be granted by this

Insurer Classification According to Authorization

An insurer that is allowed or authorized to conduct insurance business in a particular state is refered to as an authorized or admitted insurer

Unfair Trade Practices Act

Most jurisdictions have adopted the NAIC's Unfair Trade Practices Act. Gives the head of each state insurance department power to issue a cease and desist order, investigate insurance companies and producers, and impose penalties for violations. Gives officers the authority to seek a court injunction to restrain isuers from using any methods believed to be unfair. Included in the conect of unfair trade practices: Misrepresentation False Advertising, Coercion Intimidation Inequitable administration of claims settlement

Examples of government insurers

National Flood Insurance Program, Social Security, Medicare, Medicaid

Examples of Alien Insurers

Nippon Life of Tokyo, Japan, or Sun Financial Services of Toronto, Canada

Competent Party

One who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms and not influenced by drugs or alcohol.

Agent

Represents themselves and the insurer at the time of application.

1933 Glass-Stegall Act (Baking Act of 1933)

Separated commerical and investment banking by barring common ownership of banks, insurance companies, and securities firms. Erected a regulatory wall between banks and non-financial companies

Adverse Selection

Something Insurers look to minimize. Broadly defined as a selection against the company. It includes the tendency of people with higher risk to seek or continue insurance to a greater extent than those with little or less risk. This phenomena also includes the tendancy of policyowners to take advantage of favorable options in insurance contracts.

Advertising Code

Specifies certain words and phrases that are considered misleading and cannot be used in advertising of any kind. Requires full disclosure of policy renewal, cancellation, and termination provisions.

Risk Pooling/ Loss Sharing

Spread risk by sharing the possibility of loss over a large number of people. It transfers risk from an individual to a group.

Reserves

The accounting measurement of an insurance company's future obligations to its policyowners

Apparent Authority

The appearance of the insurer providing the agent authority to preform unspecified tasks based on the agent-insurer relationship.

Telemarketers

The group which the Do Not Call Registry is designed to protect against

1969 The National Conference of Insurance Legislators (NCOIL)

The organization formed to help legislators make informed decisions on insurance issues that affect their constituents and declare opposition to federal encroachment of state authority to oversee the business of insurance, as authorized under the McCarran-Ferguson Act of 1945

Consideration

The part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

Multi-line insurer

an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.

Stock Insurance Company

an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the compnay provides the saftey margin necessary in the insurance of guaranteed, fixed premium, nonparticipating policies.

Participating Plan

an insurance policy under which the policy owners share the company's earnings through receipt of dividends and also elect the company's board of directors.

Certificate Insurer

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

Captive Insurer

an insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure. Agents who are this, represent only one insurance company.

Non-admitted Insurer

an insurer who has not received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.

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.

Reciprocal Insurer

an unincorporated organization in which all members insure one another.

Hazard

any factor, condition, or situation that creats an increased possibility that a peril (a cause of a loss) will actually occur

Substandard Risks

are considered to be a poor risk for the insurance company and have a higher potential for loss. Substandard risks may be insured with an increased premium, a lower benefit, or could be declined altogether.

Standard Risk

are considered to have an average potential for loss. Standard risks are typically insured with a predetermined standard premium.

Risk Retention Groups (RRG) and Risk Purchasing Groups (RPG)

are group-owned liability that assume and spread product liability and other forms of insurance to its members. This type of group is formed for the primary purpose of retaining or pooling risks.

Physical Hazard

are physical or tangible conditions existing in a manner that makes a loss more likely to occur

Indemnity contract

attempt to return the insured to their original financial position.

The administrator who typically manages premiums collected from the group's members

attorney-in-fact

Actuarial Department

calculates policy rates, reserves, and dividends.

Advance Premium Assessment Mutual

charges a premium in advance at the beginning of the policy period.

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 losses instead of transferring the risk to an insurance company.

Alien Insurer

in the United States is an insurer whose principal office and domiciled location is outside the country.

Fraud

includes the deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.

Examples of Risk Transference:

incorporation and hold-harmless clause

Mutual Insurance Company

insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance.

Law of Large Numbers

is a fundamental principle of insurance that the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period.

Admitted Insurer

is an insurer who has received a certificate of authority from a state's department.

Surplus Lines Insurance

is nontraditional insurance only available from a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers.

Express Authority

is the explicit authority granted to the agent by the insurer, as written in the agency contract. An appointed producer might derive their implied authority from this

Industrial Insurer

makes 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.

Fraternal Benefit Society

nonprofit benevolent organizations that provide insurance to its members.

Lloyds of London

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

Risk Avoidance

occurs when individuals avoid risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation.

Service Providers

offer benefits to subscribers in return for the payment of a premium. These services are packaged into various plans, and those who purchase the plans are known as subscribers. Examples of this are Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO).

Applicants

provide the insurer with a completed application and initial premium as consideration for insurance.

Broker

represents themselves and the insured (i.e. the client or customer)

Marketing or Sales Division

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.

Risk Reduction

takes place when the chances of a loss are lessened, or the severity of a potential loss is minimized.

Reinsurance

the 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

Risk Retention

the act of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable. Risk retention is often associated with self-insurance.

Risk Transfer

the act of shifting responsibility of risk to another in the form of an insurance contract.

Divisible surplus

the amount of earnings paid to policy owners 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

Underwriting Department

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

Peril

the immediate, specific event causing loss and giving rise to risk.

Estoppel

the legal impediment to one party denying the consequences of its own actions of deeds if such actions or deeds result in another party acting in a specific manner or if certain conclusions are drawn.

Risk Management

the process of analyzing exposures that create risk and designing programs to handle them is called risk management.

Loss Exposure

the risk of a possible loss.

Speculative Risk

the type of risk that involved the chance of both loss and gain; is is not insurable.

Risk

the uncertainty regarding loss, the probability of a loss occurring for an insured or prospect.

Loss

the unintentional decrease in the value of an asset due to a peril.

Nonparticipating policy

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

Homogeneous Exposure Units

when similar objects of insurance that are exposed to the same group of perils.

Career Agency System

Branches of major stock and mutual insurance companies that are contracted to represent an insurer in a specific area.

Assessment Mutual Companies

Classified by the way in which they charge premiums

1944-United States v. Southeast Underwriters Association (SEUA)

Decided by the Supreme Court again.In the SEUA case, the Supreme Court ruled that the insurance industry is a form of interstate commerce. As such, the industry is subject to a series of federal laws, many of which conflicted with existing state laws.It did not affect state' power to regulate insurance, but it did nullify state laws and conflicted with federal legislation.The decision shifted the balance of regulatory control to the federal government

1968 Paul v. Virginia

Decided by the 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 insurance of insurance is not interstate commerce, thus upholding states' right to regulate insurance.

1958 Intervention by the FTC

Decided by the supreme court. Federal Trade Commission (FTC) sought to control the advertising and sales literature used by the health insurance industry. The Supreme Court held that the McCarran-Ferguson Act disallowed such supervision by the FTC, a federal agency.

Other Methods of Selling Insurance

Direct selling, mass marketing, internet, newspaper.

1999 Financial Services Modernization Act

Enacted by Congress. Repealed by the Glass Stegall act of 1933. Commercial banks, investment banks, retail brokerages, and insurance companies can now enter each other's lines of business.

1970 Fair Credit Reporting Act

Enacted by the federal government. Attempt to protect an individual's right to privacy. The authority 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 fale pretenses is $5,000- and 1-year imprisonment.

Pure Risk

a type of risk that involves the chance of loss only; there is no opportunity for gain; it is the ONLY kind of risk which is insurable.

Agent Marketing and Sales Practices

Every state requires its licensed producers to adhere to specific standards designed to protect consumers and promote suitable sales and application of insurance product -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? 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 will document 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. Ethical agents know the state laws regarding documentation and follow them precisely. Client service The ethical agent knows that a sale marks the beginning of a client relationship. 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.

Personal Producing General Agency System

Independent agents (American Agency Systems) represent any number of insurance companies through contractural agreements.

Elements that make risk insurable

Losses that happen due to chance, loss being definite and measurable, loss must be predictable, losses may not be catastrophic, the loss exposure to be insured must be substantial, the loss must be randomly selected.

Producer Responsibilities

The producer is the conduit between the company and the insurance-buying public and must make sure that at all times, their actions are compliant with all current insurance regulations. To help all insurance company customers with the best service possible. Solicit new business for the company by assisting clients in the process of acquiring products from application to policy delivery. Knowledgable 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 and 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 experiece. The producer must be acutely aware of company underwriting guidelines to minimized 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. Buyer's 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. Policy Summary: help consumers evaluate the suitability of the recommended product. Guaranty Associations are established by all states to support insurers and protect consumers in the event an insurer becomes insolvent. State life and health guaranty associations provide a saftey net for all member life, health, and annuities insurers in a particular state. Guaranty associations protect insureds in the event of insurer insolvency or inability to pay claims up to a specific limit.

Fiduciary

The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients. A fiduciary is in a position of trust with regards to the funds of their clients and the insurer.

1959 Intervention by the SEC

The supreme court rules that federal securities laws applied to insurers that issued variable annuities and thus, required these insurers to conform to both SEC and state regulation. The SEC also regulates variable life insurance.

Insurance

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

Aleatory Contract

This kind of contract presents the potential for an unequal exchange of value or consideration between both parties. These contracts are conditioned upon the occurrence of an event.

Conditional

This kind of policy describes the insurer's promise to pay benefits depends on the occurrence of an event covered by the contract.

2001 USA Patriot Act

Uniting and Strengthening America by Providing Appropriate Tools Required to intercept and Obstruct Terrorism Act) is designed to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions. 2003 National Do Not Call Registry: Insurance calls are not exempt from the do not call registry. National Association of Insurance Commissioners All state insurance comissioners, directors, or superintendents are members of the National Association of Insurance Commissioners (NAIC). Establishes 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 state insurance laws and regulations To assist in the administration of those laws and regulations by promoting efficiency To protect the interests of policy owners and consumers To preserve state regulation of insurance business -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.

Faculatative Reinsurance

What the process is called when a ceding insurer transfers a portion of its risk to an assuming insurer on a case by case basis

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 spreads product liability and other forms of commercial liability risks among its members.

Moral Hazard

a hazard arising from indifference to loss because of the existence of insurance. Moral Hazards are often associated with having a careless attitude.

Certificate of Authority

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