Fin 341 Chapter 5 and rest of section 3

Types of distribution channels

-Direct -Indirect -Agents -Brokers

Types of marketing systems

1.Personal selling systems 2.Financial institutions distributing systems. 3.Direct response system 4.Others

Insurance contract characteristics

Aleatory contract- values exchanged by 2 parties are not equal. insurance is 600 and coverage is 200,000.

Health Maintenance organization

Favorable tax treatment, and are organzaid plans of health care that proved comprehensive health care services. Cost sharing such as deductible and co pmnt.

MS insurance commissioner

Mike Chaney

Savings bank life insurance

Refers to operating costs and the life insurance that was sold originally by mutual savings banks in three states=NY, MASS, and Conn. Purpose is to provide low cost life insurance to consumers by holding down operating costs and the payment of high sales commissions.

Assessment Mutual

Right to asses policy holders an additional amount if the insurers financial operations are unfavorable. coverage is limited and operate in small numbers.

Private insurers

Stock Insurers Mutual Insurers Reciprocal Exchange Lloyd's of London

Multiple distribution system

Using more than 1 distribution center to sell insurance.

Independent agency system

Business firm that usually represents several unrelated insurers. 2nd agency owns expirations or renewal rights to business. 3rd. independent agent is compensated by commissions that vary by line of insurance.

Reciprocal exchange

A reciprocal exchange (also called an interinsurance exchange) can be defined as an unincorporated organization in which insurance is exchanged among the members (called subscribers). -Similar to mutual, the reciprocal's policyholders own the company and get insurance at cost. -Different from mutual, It is unincorporated with no capital other than advance premiums. A reciprocal is managed by an attorney-in-fact.

Property casualty and Liability

Applicant will fill out application and pay initial premium. Agent can either accept or reject.

Holding company

Company that directly or indirectly controls an authorized insurer 1 .easier and less expensive way to raise capital to expand/remain competitive. 2.Can enter new area of insurance more easily 3.Stock option can be given to attract/retain key executives and employees. Downside=Policyholders could be financially hurt by the change, mutual holding structure could result in a reduction of dividend and other financial benefits to the policy holders. Usually own 51% or more of stock. Conflict of interest because management may be given stock or stock options for earning higher operating profits, which results in lower dividend or high premiums.

Fraternal Insurer

Mutual insurer that provides life and health insurance to members of a social or religious organization. To qualify, insurer must have a social or religious organization existence.

Life and health insurance marketing

Personal Selling Systems Financial Institution Distribution Systems Direct Response Systems Other Distribution Systems

Direct Writer

insurer in which the salesperson is usually employee of insurer, not independent.

Direct response system

marketing system in which life/health insurance are sold directly to customers without face 2 face meeting.

Advance Premium mutual

most owned by policy holder, no stock holders and insurer does not issue assessable policies. Once surplus exceeds certain limit, state will not let you issue assessable policy.If any loss, it is paid out of companies surplus. LH usually will get a dividend, but PC will not, usually get a reduce premium.

Personal selling systems

systems in which commissioned agents solicit and sell life insurance to prospective insured=majority today Career/affiliated agents= represent 1 insurer, paid by commission Multiple line exclusive agency system=agents who sell primarily property and casualty insurance also sell individual life insurance=Captive agents Independent property=Independent contractors who represent multiple insures and sell proper/casualty insurance Personal producing agent=PPGA= independent agent who receives special financial consideration for meeting minimum sales required.

Surplus line Broker

Special type of broker who is licensed to place business with a non admitted insurer

Other Marketing systems

Workiste marketing= go to worksite and sell life insurance to middle/lower class Stock broker=sell both stocks and life insurance & annuities Financial Planners=provide investment ideas.

Financial institution distributing systems

using financial bank or other institutions as a distribution center to market life insurance and annuities.

Property and Casualty Insurance marketing

Independent Agency System Exclusive Agency System Direct Writer Direct Response System Multiple Distribution Systems

Broker

A broker is someone who legally represents the insured even though he or she receives a commission from the insurer. A broker legally does not have the authority to bind the insurer.

Syndicates

A group of companies or underwriters who join together to insure very high-valued property or high-hazard liability exposures.

Modes of demutualization

1.Pure Conversion-policy holder amends articles and reorganized to stockholder. 2.Merger-mutual insurer and stock insurer are merged together into 1 company and stock insurer is surviving company. 3.Bulk Reinsurance-a mutual insurer cedes all of its assets and liabilities to a stock company, and the mutual insurer is then dissolved

Mutual insurer

A mutual insurer is a corporation owned by the policyholders. There are no stockholders. A mutual insurer is not for profit. The excess funds go to policyholders. There are several types of mutual insurers: Advance premium mutual Assessment mutual Fraternal insurer

Life and health insurance agents

Don't have power to bind insurer. Transfer application to insurer They can either accept or reject

Agents Authority

Express Authority-specific power agent has from insurer Implied Authority-Agent has power to perform all incidental acts necessary to exercise powers that are expressly given Apparent Authority-public reasonably believes the agent posses to act based on actions of principal.

Captive insurance

insurance company owned by parent firm for purpose of insuring parent firms loss exposure. Single parent of Associate captive. 1.Parent company may have difficulty getting insured 2.Formed offshore for favorable cost may be lower 3.Parents insurance cost will be lower 4.Makes access to reinsurance easier 5.May be a source of profit 6.May have income tax advantage

Lloyds of London

Lloyd's of London is not an insurer, but is the world's leading insurance market that provides services and physical facilities for its members to write specialized lines (i.e., surplus lines) of insurance. Members include some of the world's major insurance groups and companies listed on the London Stock Exchange, as well as individuals (called Names), and limited partnerships. Lloyd's technically is not an insurance company, but is a society of members (corporations, individuals, and limited partnerships) who underwrite insurance in syndicates. Individual name who belong to syndicates have Limited legal liability. Only licensed in small # of US states.

Demutualization

There is trend towards demutualization. Demutualization means that a mutual insurer is converted into a stock insurer. The reasons are as follows, 1.The ability to raise new capital is increased. 2.Stock insurers have greater flexibility to expand by acquiring new companies or by diversification. 3.Stock options can be offered to attract and retain key executives and employees. 4.Conversion to a stock insurer may provide tax advantages.

Exclusive agency system

Agent only represents 1 insurer or group of insurers under common ownership. Agents are compensated more for more business.

Agents

An agent is someone who legally represents the principal and has the authority to act on the principal's behalf. The principal represented is the insurance company. Harder to bind with life insurance.

Surplus line broker

type of broker licensed to place business with a non admitted insurer.

Stock insurers

A stock insurer is a corporation owned by stockholders. The objective is to earn profits for the stockholders. Stock insurers sell non-assessable policy.

Requirements of Insurance contract

1.Offer and Acceptance 2.Consideration--> value each party gives one another. Insured= pays premium and abide by the conditions in policy Insurer=Pay claims and provide service such as loos control 3.Component Parties only so no Incompetent=Insane or drunk ppl Must be licensed to sell insurance to sell insurance except Surplus line line insurance: singers voice 4.Legal Purpose- cannot be illegal such as a drug deal

Group insurance marketing

Group Representative- Employers receive salary and incentive payments based on group sales, persistently, and profitability of business. Mass Merchandising- selling indivually under written property & casualty coverage to group members.

Property and Casualty insurance agents

have power to bind insurance companies, by the use of a binder( temp. contract). They can bind

Blue Cross Blue shield

insurance organization that is usually non-profit, community orientated. Most merge to single entity, but there are family plans. Favorable tax treatment

non admitted insurer

not licensed to do insurance business in state