Insurance Chapter 3

BCBS Plans

organizations formed for the purpose of prepaying subscribers' medical care expenses. Blue Cross plans provide coverage primarily for hospital expenses, and Blue Shield plans provide coverage primarily for physicians' services.

Surplus lines broker

a broker who is authorized to place insurance with nonadmitted insurers in certain circumstances. Also known as an excess lines broker.

Stock insurance company

an insurance company owned by stockholders.

Demutualization

the process of converting a mutual insurance company into a stock company.

Nonadmitted Insurer

am insurer that does not have a license to conduct insurance business in a particular state. Nonadmitted insurers typically provide surplus lines insurance.

Personal Producing general agent

an agent of a life insurance company who is the insurer's general agent in a given territory but whose primary task is to sell the insurer's products, rather than to build an agency force for the insurer. A PPGA may also be allowed to represent other insurers.

Lloyd's associations

an association of individual insurers in which insurance is underwritten by its members rather than by the association itself.

Domestic insurer

an insurer incorporated in the state where it does business.

Alien Insurer

an insurer that is formed in a country other than the United States but that writes business in the United States.

Foreign Insurer

an insurer that writes business in a state but is incorporated in another state.

Brokers

a marketing intermediary between the insurer and policyowner who represent the policyowner.

Mutual insurance company

a not-for-profit insurance company owned by its policyowners, who elect its board of directors.

Fraternal insurer

a not-for-profit insuring organization that writes mainly life insurance on members of a fraternal society.

Advance-premium mutuals

a mutual insurance company that establishes the full premium for coverage at the start of the policy.

Assessment mutual

a mutual insurance company that reserves the right to levy assessments on its policyowners to cover adverse underwriting experience.

Binder

a temporary written or oral agreement between an agent and an applicant for insurance whereby the principal-insurer is committed to provide the desired insurance.

Direct-response marketing

a method of marketing insurance without the intermediary of an agent or broker.

Mutual holding company

a holding company controlled by policyowners that owns a controlling interest in a new stock insurance company that takes over a mutual insurer's business.

Agent

a legal representative of an insurance company with authority to act on behalf of the insurer.

Independent Agency System

a marketing system in property and liability insurance in which an agent represents several insurers or groups of insurers and has ownership rights over the business written by the agency.

Exclusive agency system

a marketing system in property and liability insurance in which the agent represents only one insurer, and the insurer has ownership rights over the business written by the agents.

Reciprocal exchange

a type of insurer organized as an unincorporated pool of funds owned by policyowners and managed by an attorney-in-fact. The insured/insurer relationship is governed by a Subscribers Agreement or Power of Attorney in which policyholders assume liability as individuals and grant the attorney-in-fact the right to manage, for a fee, as an insurer, the funds contributed by policyholders and others to the unincorporated association.

General agency system

in life insurance marketing, the term used to describe a marketing system whereby a general agent is granted a franchise by an insurer to build an agency force for marketing the insurer's products in a given geographic area.

Branch office system

in life insurance, a marketing system whereby insurers establish branch offices in the areas where they write business. The offices are headed by branch managers.