INS 211 ch 5

Scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n)

insurance broker

Which of the following statements about insurance brokers is (are) true? I. They legally represent the insured rather than the insurance company. II. They are prohibited from being licensed as agents.

I only

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group. The insurer will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be a

fraternal insurer

Some investors decided to start an insurance company. Each investor contributed $50,000 to raise the capital required to charter a new company. Each investor received an ownership interest in the company. The company will raise additional capital by selling ownership rights to other investors. Under this type of organization, the customer and owner functions are separate. This type of insurer is called a

stock company

Advantages of the direct response system for marketing life insurance include which of the following? I. Advertising can be specifically directed to selected markets. II. Complex products can be easily sold.

I only

Which of the following statements about life insurance marketing systems is true?

Some exclusive agents who market property and liability insurance also sell life insurance.

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT

Stock companies are exempt from state insurance regulation.

Which of the following statements about stock insurers is true?

Stockholders bear any losses and share in any profits.

All of the following statements about the independent agency system are true EXCEPT

The insurer rather than the agent owns the renewal rights to the business.

Which of the following statements about mutual insurers is true?

They may pay dividends to their policyholders.

Which of the following statements is true about fraternal insurers?

They specialize in writing life and health insurance.

Temporary evidence of insurance until a policy is actually issued is provided by a(n)

binder.

Which of the following is a characteristic of a typical mass merchandising plan?

payment of premiums through payroll deduction

Which of the following statements about Lloyd's of London is true?

Coverage is actually written by syndicates who belong to Lloyd's of London.

Which of the following statements about Lloyds of London (are) true? I. The majority of the business underwritten by Lloyds of London is for unusual risks, such as valuable race horses and professional athletes. II. Lloyds of London is a group of underwriters who underwrite insurance, not an insurance company.

II only

Which of the following statements about reciprocal exchanges is (are) true? I. Reciprocal exchanges usually specialize in health insurance. II. Reciprocal exchanges are unincorporated mutual insurance companies.

II only

Which of the following statements about the exclusive agency system for marketing property and liability insurance is true?

New exclusive agents may start as employees and after a training period become independent contractors.

Which of the following statements about Blue Cross and Blue Shield plans is (are) true? I. Blue Cross and Blue Shield plans can be organized on a nonprofit basis or on a for-profit basis. II. Blue Cross provides coverage for hospital services; Blue Shield provides coverage for physicians' and surgeons' fees.

both I and II

As an alternative to demutualizing, Big Mutual Insurance Company reorganized itself into a corporate form that can directly or indirectly own a stock insurance company. This form of organization is called a(n)

holding company

Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Sarah's agency owns the expiration rights to the business she sells. Sarah is a(n)

independent agent

Jim would like to start a business raising thoroughbred racehorses. Obtaining insurance on the horses is a key concern, and he was dismayed to learn that none of the insurers authorized to operate in his state offer this specialty insurance. What is the name of the intermediary that Jim can use to place this coverage with an insurer not admitted to his state?

surplus lines broker

Big Mutual Insurance Company would like to take advantage of financial services deregulation by acquiring a bank and a stock brokerage firm. Big Mutual, however, would have trouble raising the funds needed to make these acquisitions under the mutual form of organization. Big Mutual is planning to switch from the mutual form of organization to the stock form, and to issue shares of common stock to raise capital. This change in organizational structure is called

demutualization

ABC Term Life Insurance Company uses an interesting marketing system—it has no agents. Instead, the company markets its coverages through television and radio ads, newspaper inserts, and the Internet. The type of marketing system that ABC

direct response system

RST Insurance Company does not have any agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called

direct response system

A property and casualty insurer in which the salesperson is an employee of the insurer, not an independent contractor, is called a

direct writer.

Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a nonadmitted insurer, Neil should contact a

surplus lines broker.

Under one life insurance marketing system, agents conduct sales interviews at the workplace with the approval of the management of the business. There are few direct costs to the employer, and this marketing system is especially appropriate for low-income and middle-income workers. This life insurance marketing system is called the

worksite marketing system

Why are some mutual insurers referred to as "assessment mutuals"?

They can assess policyholders if premiums are insufficient to pay losses and expenses.

Which of the following statements about personal producing general agents is (are) true? I. They often have the option of recruiting and training sub-agents. II. They are independent agents who produce substantial amounts of life insurance with one insurer.

both I and II

Cathy just started a job with XYZ Manufacturing Company. She attended an orientation and was given a packet providing information about the various employee benefits XYZ offers. One item in the packet was a booklet and application form from an auto insurer. The insurer offers lower premiums to XYZ employees. The insurer's plan for selling individually-underwritten auto insurance to employees of XYZ Manufacturing Company is called

mass merchandising

ABC Insurance has always used the exclusive agency system to market coverages. ABC, however, cannot afford full-time agents in sparsely-populated areas. To reach customers in these areas, ABC enters into agreements with local independent agents. Using more than one marketing system is called employing a

multiple distribution system

Which of the following statements about the sale of property and liability insurance through the direct response system is (are) true? I. Selling expenses are higher because market segmentation tends to be less precise than with other marketing methods. II. It is the most appropriate system for selling complex products.

neither I nor II

David is a successful independent insurance agent. Recently, one of the life insurance companies with whom he places business offered him a special financial arrangement. If David meets sales targets, he will receive large bonuses. He will also be able to recruit and train subagents and receive an over-riding commission based on the amount of life insurance the subagents sell. Based on this description, David is a(n)

personal-producing general agent

The corporate structure of mutual insurers has changed in recent years. All of the following are examples of significant changes EXCEPT

sharp increase in the number of mutual insurance companies.

Brian buys and sells investment securities for his clients. Brian also decided to become a licensed life insurance agent to better serve his customers. While Brian's primary focus is buying and selling financial securities for his clients in exchange for commissions, he also earns commissions on his life insurance sales. Brian is a(n)

stock broker.