General Insurance

Acceptance

Acceptance takes place when an insurer's underwriter approves the application and issues a policy

Applicability

All forms of health care, life insurance, prepaid legal services, and disability insurance (both longterm and shortterm) are considered employee welfare benefit plans

Agency

An agent/producer is an individual licensed to sell, solicit or negotiate insurance contracts on behalf of the principal (insurer)

Admitted vs. Nonadmitted Insurers (Authorized vs. Nonauthorized Insurers)

Before insurers may transact business in a specific state, they must apply for and be granted a license or Certificate of Authority from the state department of insurance and meet any financial (capital and surplus) requirements set by the state (example: are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer. Those insurers who have not been approved to do business in the state are considered unauthorized or non-admitted. Most states have laws that prohibit unauthorized insurers to conduct business in the state, except through licensed excess and surplus lines brokers.

Private vs. Government Insurers

Federal and state governments provide insurance in the areas where private insurance is not available, called social insurance programs (example: Government insurance programs include Social Security, Medicare, Medicaid, Federal Crop insurance and National Flood insurance the government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums

Violent Crime Control and Law Enforcement Act of 1994

Federal law makes it illegal for any individual convicted of a crime involving dishonesty, breach of trust or a violation of the Violent Crime Control and Law Enforcement Act of 1994 to work in the business of insurance affecting interstate commerce without receiving written consent from an insurance regulatory official (Director of Insurance, or Commissioner of Insurance) a 1033 waiver. The consent of the official must specify that it is granted for the purpose of 18 U.S.C. 1033. Anyone convicted of a felony involving dishonesty or breach of trust, who also engages in the business of insurance, will be fined, imprisoned for up to 5 years or both. Section 1034, Civil Penalties and Injunctions for Violations of Section 1033, states that the Attorney General may bring a civil action in the appropriate U.S. district court against any person who engages in conduct that is in violation of Section 1033 of not more than $50,000 for each violation, or the amount of compensation the person received as a result of the prohibited conduct, whichever is greater.

Reasonable Expectations

If an agent implies through advertising, sales literature or statements that these provisions exist, an insured could reasonably expect coverage

Producer/Insurer Relationship

If the agent is working within the conditions of his/her contract, the company is fully responsible

Insurer as Principal

In applying the law of agency, the insurer is the principal. The acts of an agent or producer who is acting within the scope of his or her authority are the acts of the insurer

Adverse Selection

Insurance companies strive to protect themselves from adverse selection, the insuring of risks that are more prone to losses than the average risk (example: insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage

Reduction

Since we usually cannot avoid risk entirely, we often attempt to lessen the possibility or severity of a loss

Fair Credit Reporting Act

The law also protects consumers against the circulation of inaccurate or obsolete personal or financial information

Transfer

The most effective way to handle risk is to transfer it so that the loss is borne by another party Insurance is the most common method of transferring risk from an individual or group to an insurance company

misrepresentations

Untrue statements on the application are considered misrepresentations and could void the contract

Reinsurance

a contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities

Estoppel

a legal process that can be used to prevent a party to a contract from reasserting a right or privilege after that right or privilege has been waived

Pure risk

a loss or no change (only type of risk that insurance companies are willing to accept)

Sharing

a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group

Indemnity

a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract

warranty

absolutely true statement upon which the validity of the insurance policy depends

Domestic

an insurance company that is incorporated in this state

Alien

an insurance company that is incorporated outside the United States

National Association of Insurance Commissioners (NAIC)

an organization composed of insurance commissioners from all 50 states resolves insurance regulatory problems. They are active in the formation and recommendation of model legislation and regulations designed to bring uniformity from state to state and simplify the marketing of insurance

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

any employer with 20 or more employees to extend group health coverage to terminated employees and their families after a qualifying event Qualifying events include the following: Voluntary termination of employment; Termination of employment for reasons other than gross misconduct (e.g. company downsizing); Employment status change: from full time to part time. For any of these qualifying events, coverage is extended up to 18 months. The terminated employee must exercise extension of benefits under COBRA within 60 days of separation from employment. The employer is permitted to collect a premium from the terminated employee at a rate of no more than 102% of the individual's group premium rate. The 2% charge is to cover the employer's administrative costs. For events such as death of the employee, divorce or legal separation, the period is 36 months for the dependents. It is important to remember that COBRA benefits apply to group health insurance, not group life insurance. In addition, unlike the conversion privilege in which the individual converts coverage to an individual health insurance policy, COBRA continues the same group coverage the employee had and the employee pays the group premium that the employer paid (or employer and employee paid if the plan was contributory). Note that under the Patient Protection and Affordable Care Act, coverage for children of the insured must extend until the adult child reaches the age of 26. The same age limit applies to COBRA coverage for eligible children of the insured. In addition, in the event of loss of "dependent child" status under the group plan, the dependent child qualifies for a maximum period of continuation coverage of 36 months

Purchasing Groups

any group which main purpose is the purchase of liability insurance on a group basis to cover their similar or related liability exposure

Insurer

any person or company engaged as the principal party in the business of entering into insurance contracts (Example: there are several classifications of insurers depending on the type of ownership, location of incorporation, and other characteristics)

Peril

causes of loss insured against in an insurance policy

Hazards

conditions or situations that increase the probability of an insured loss occurring

Producer Associations

created for agents or producers within the same division of the insurance industry. There are such associations for life agents, property casualty agents, adjusters, managing general agents, health insurance providers, fraternal field managers associations, etc. Producer associations gather to share research, and statistical information for their area of expertise.

National Conference of Insurance Legislators (NCOIL)

created to help legislators make informed decisions on insurance issues affecting their constituents also opposes federal encroachment of state authority to oversee the insurance industry. either chair or are members of committees responsible for insurance legislation

. Variable Products

dually regulated by the State and Federal Government. Due to the element of investment risk, the federal government has declared that variable contracts are securities and are thus regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)

Avoidance

eliminating exposure to a loss

Professionalism

engaged in an occupation requiring an advanced level of training, knowledge, or skill. Being professional means placing the public's interest above one's own in all situations

Employee Retirement Income Security Act of 1974 (ERISA)

federal law that was enacted to ensure that employees receive the pension and other benefits promised by their employers

Guaranty Associations

formed to protect policyowners, insureds, beneficiaries, and anyone entitled to payment under an insurance policy from the incompetence and insolvency of insurers The Association is funded by its members through assessment. All authorized insurers, which are required to be the members of the Association, contribute to a fund to provide for the payment of claims for insolvent insurers. It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association

Utmost Good Faith

implies that there will be no fraud, misrepresentation or concealment between the parties expected to provide accurate information on the application for insurance, and the insurer must clearly and truthfully describe policy features and benefits, and must not conceal or mislead the insured

Foreign

insurance company that is incorporated in another state

Elements of Insurable Risks

insurers will insure only pure risks, or those that involve only the chance of loss with no chance of gain Insurable risks involve the following characteristics: Due to chance: a loss that is outside the insured's control. Definite and measurable: a loss that is specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable. Statistically predictable: Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates. (In life and health insurance, the use of mortality tables and morbidity tables allows the insurer to project losses based on statistics.) Not catastrophic: Insurers need to be reasonably certain their losses will not exceed specific limits. That is why insurance policies usually exclude coverage for loss caused by war or nuclear events: There is no statistical data that allows for the development of rates that would be necessary to cover losses from events of this nature. Randomly selected and large loss exposure: There must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location.

Speculative risk

loss or gain (example of speculative risk is gambling)

Competent parties

must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcoho

Legal purpose

must be legal and not against public policy

Surplus Lines

not available in the regular market place from admitted insurers

Risk Retention Groups

not regulated as a company by state authorities (example: develop rates, collect premiums, and pay claims to accepted members)

Unilateral Contract

only one of the parties to the contract is legally bound to do anything

Ambiguities in a Contract of Adhesion

only the insurance company has the right to draw up a contract, and the insured has to adhere to the contract as issued, the courts have held that any ambiguity in the contract should be interpreted in favor of the insured

Fraternal Benefit Societies

organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government (example: sell only to their members and are considered charitable institutions, and not insurers

Mutual Companies

owned by the policyowners and issue participating policies. With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are therefore nontaxable

Stock companies

owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses (example: stock companies issue nonparticipating policies, in which policyowners do not share in profits or losses)

Risk retention

planned assumption of risk by an insured through the use of deductibles, co-payments, or self insurance (example: To reduce expenses and improve cash flow; To increase control of claim reserving and claims settlements; and To fund for losses that cannot be insured

Conditional Contract

requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

Agent

responsible to the insurer when completing applications for insurance, submitting the application to the insurer for underwriting, and when issued, delivering the policy to the policyowner and explaining the contract

Investigative Consumer Reports

similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits The primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer. Unlike consumer reports, these reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested. The consumers must be advised that they have a right to request additional information concerning the report, and the insurer or reporting agency has 5 days to provide the consumer with the additional information. An individual who unknowingly violates the Fair Credit Reporting Act is liable in the amount equal to the loss to the consumer, as well as any reasonable attorney fees incurred in the process. An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500 The consumer has the right to know what was in the report The prohibited information includes bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, or any other negative information that is more than 7 years old

Consideration

something of value that each party gives to the other

Representations

statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true.

Implied

that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

Law of Large Numbers

that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. (example: this law forms the basis for statistical prediction of loss upon which insurance rates are calculated)

Apparent

the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Offer

the applicant usually makes the offer when submitting the application

Express

the authority a principal intends to grant to an agent by means of the agent's contract. It is the authority that is written in the contract

Fraud

the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party

Concealment

the legal term for the intentional withholding of information of a material fact that is crucial in making a decision

Loss

the reduction, decrease, or disappearance of value of the person or property insured in a policy

law of agency

the relationship between the principal and the agent/producer: the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer In this relationship, it is a given that An agent represents the insurer, not the insured; Any knowledge of the agent is presumed to be knowledge of the insurer; If the agent is working within the conditions of his/her contract, the insurer is fully responsible; When the insured submits payment to the agent, it is the same as submitting a payment to the insurer. The agent is responsible for accurately completing applications for insurance; submitting the application to the insurer for underwriting; and delivering the policy to the policy owner

Risk

the uncertainty or chance of a loss occurring

Market conduct

the way companies and producers should conduct their business It is a Code of Ethics for producers. Producers must adhere to certain established procedures, and failure to comply will result in penalties. Some of the market conduct regulations include, but are not limited to, the following: Conflict of interest; A request of a gift or loan as a condition to complete business; and Supplying confidential information

Aleatory Contrac

there is an exchange of unequal amounts or values

Responsibilities to the Applicant/Insured

they are legally obligated to treat applicants and insureds in an ethical manner. Because an agent handles the funds of the insured and the insurer, he/she has fiduciary responsibility. A fiduciary is someone in a position of trust. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

Insurance

transfers the risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals

Financial Status (Independent Rating Services)

two vitally important factors to potential insureds based on prior claims experience, investment earnings, level of reserves (amount of money kept in a separate account to cover debts to policyholders), and management, to name a few Guides to insurance companies' financial integrity are published regularly by the following various independent rating services: AM Best Fitch Standard and Poor's Moody's Weiss Weiss

Fraud and False Statements

unlawful insurance fraud for any person engaged in the business of insurance to willfully, and with the intent to deceive, make any oral or written statement that are either false or omit material facts Anyone engaged in the business of insurance whose activities affect interstate commerce, and who knowingly makes false material statements may be fined, imprisoned for up to 10 years or both. If the activity jeopardized the security of the accompanied insurer, the punishment can be up to 15 years. If the embezzlement was in an amount less than $5,000, prison time may be reduced to 1 year

Self Insurers

when a person or entity, as an alternative to the purchase of insurance from an insurance company, develops a formal program identifying, evaluating and funding its losse

Consumer report

written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources