Insurance Section 2
The Four Steps of the Underwriting Process
1) Gather any necessary underwriting information 2) Make the underwriting decision 3) Implement the decision 4) Monitor the decision
Certificate of Liability and Evidence of Property Insurance
A certificate of insurance proves the insured has coverage that is currently in force.
Code Definition of Transacting Insurance
A person shall not act as an agent, broker, or solicitor in soliciting, negotiating, or effecting contracts of insurance, unless the person holds a valid license issued by the department of insurance.
Life and Disability Analyst
A person who, for a fee or compensation of any king, offers advice on a life or disability insurance contract.
Errors and Omissions Insurance
A type of professional liability insurance for non-medical professionals that pays for losses or the defense of lawsuits that might be filed against them. Protects the agent in the event s/he gives incorrect advice or unknowingly provides incorrect information to the client.
Differences between Agents, Brokers, & Solicitors
Agents = person (individual or entity); appointed to represent insurer; can bind; cannot charge fees; can have an unlimited number of appointments; can also transact as a broker but not as a solicitor. Brokers = person (individual or entity); NOT appointed; represents buyer not insurer; can charge fees; can have unlimited broker contracts; needs insurers permission to bind; can be an agent at the same time but not a solicitor Solicitor = individual (human being); appointed and employed to represent only on agent or broker at a time; cannot bind; cannot transact as an agent or broker until the solicitor appointment is terminated.
Lost Policy Release
An agreement signed by the insured that relives the insurer from liability under an insurance contract that has been misplaced, lost, or is unavailable for another reason.
Limited Lines Automobile License
Authorized to transact auto insurance only for non-commercial vehicles with load capacity of 1,500 or less. Must be appointed by insurer or a business entity. No Brokers.
Qualified Resident Producer - Personal Lines
Insurance Agent • appointed/represents insurer • Can represent/unlimited appointment Insurance Broker • Not appointed/transacts on behalf of insured/fees • Can be a broker or agent with several insurers at once Insurance Solicitor • Appointed/employed by agent or broker • Sells same lines as a personal lines agent/broker • Customer service rep. Must be a natural person • Can be appointed only by one agent/broker at a time
Qualified Resident Producer - Property & Casualty
Insurance Agent • appointed/represents insurer • Sell all lines other than (except) life • Can represent/unlimited appointment Insurance Broker • Not appointed/transacts on behalf of insured/fees • Sell all lines other than (except) life • Can be a broker or agent with several insurers at once Insurance Solicitor • Appointed/employed by agent or broker • Sells all lines other than (except) life - same lines as agent/broker • Customer service rep. Must be a natural person • Can be appointed only by one agent/broker at a time
Producer's Responsibilities
Producers = agents, brokers, solicitors = field underwriters • Field underwriting refers to producer's personal contact with the applicant. • Analyzing risks and exposures, taking steps to avoid or reduce risks, consider loss control efforts, & submitting risks to the proper market.
Transaction of Insurance
Solicitation: is the act of someone trying to sell insurance to another. Negotiation: is a dialogue intended to produce an agreement upon the sale of an insurance policy. (Bargaining) Execution: includes steps required to make an insurance contract legally valid. Transaction: of matters subsequent to the execution of the contract & arising out of it means - servicing.
Pre-Selection
The underwriter reviews the submitted application, gathers information from other underwriting sources & then makes their decision as to whether or not to accept the risk. (first 3 bullet points)
Post-Selection
This involves periodic review of the information after the policy is in force, especially at renewal, to determine whether or not to cancel or renew the rick. (last bullet point)
What is the most important responsibility to the insurer?
To furnish the insurer with complete and accurate applications for insurance. This is vital to proper underwriting.
Diligent Search Report
When brokers must show proof of attempts to place insurance through at least 3 admitted carriers before placing it with a non-admitted insurer.
Direct Mail or Response and Internet
• A distribution channel that markets directly to customers. • No agent is involved. • Direct response/mail relies heavily on advertising and targeting specific groups of customers.
Non-admitted Insurer
• A domestic, foreign, or alien insurer not authorized to transact in the state of CA. • Only surplus lines or special surplus lines brokers can aid, assist, or advertise for a non-admitted. • It's a misdemeanor and a $500 penalty ($100 for every month you continue) for an other licensee.
Personal Lines Licensee
• A person authorized to act as an agent, broker, or solicitor for the same products as P&C EXCEPT for commercial products, 24-hour coverage, disability insurance, and long-term health care. • Can only transact: personal auto, personal watercraft, residential property, earthquake, flood, inland marine, and umbrella.
Property and Casualty License
• A person authorized to act as an insurance agent, broker, or solicitor for products. • Also authorized to transact commercial insurance products. • Requires 40 hours and 12 hours of ethics.
Insurance Adjuster
• A person who engages in the business of making an investigation for the purpose of obtaining information in the course of adjusting or participating in the disposal of any claim. • Normally employed by an insurance company, are paid salary, and do not require a license. • If they're representing the insurer then they do require a license.
Public Insurance Adjuster
• A person who is compensated & acts on behalf of an insured in negotiating the settlement of a claim or damage under any policy of insurance covering real or personal property. • Public adjusters work for a fee paid by the claimant not the insurance company. • Required to be licensed.
Relationship of Agent and Principal
• An agent is appointed to represent an insurance company - Agent's actions = insurer's (principal's) actions - Has authority to bind business • A broker represents another person (buyer) - Don't have authority to bind business, must submit applications for binding approval
Independent Agency System
• Appointed to represent several insurers. • Own their book of business. • Self-employed.
Life Agent Only and/or A&H Agent
• Are the only ones authorized on behalf of a life, disability, or life and disability insurer to transact life, disability, or life and disability insurance. • Life agents do not bind coverage but must submit applications for approval by insurer. • 20 hours and 12 hours of ethics required for license.
Managing General Agent (MGA)
• Can be any person, firm, association, partnership, or corporation that manages all or part of an insurer's business. • When an insurance company doesn't want to open up a local office. Test Q* MGA can do anything a local insurance company can do.
Exclusive Agencies
• Captive agencies/agent • Appointed to represent a single insurer or a group of related insurers. • Book of business belongs to the company, which they buy back if the relationship between agent/business is terminated. • Self-employed.
Types of Authority of an Agent
• Express Authority - Specific authority a principal gives to the agent in writing. • Implied Authority - NOT in writing & not specifically expressed; between the agent & insurer. • Apparent Authority - Public assumes agent has, & the insurer does nothing to state the agent does not have that authority. (Between the agent, insurer, & the public)
Agent's Responsibilities to the Insured/Applicant
• Fiduciary - A client places their certificate, faith, or trust that an agent will secure the proper coverage and forward their premiums on to the insurer. • Honesty - Not conceal or misrepresent information. • Competency - Know what they are doing & continue to improve their knowledge. • Professional - Conduct business in a professional manner
Agent's Responsibilities to the Insurer
• Fiduciary - To handle funds responsibly & ethically, keep records, and remit premiums when do. • Loyalty - Avoid conflicts of interest. • Obedience - Follow instructions and act within the scope of their contract. • Disclosure - The agent has an obligation to share relevant information with the insurer.
Penalties for Actions of Unlicensed Persons
• Guilty of a misdemeanor • Fine of $50,000 or imprisonment in county jail for a period not exceeding one year, or both.
Notice of Appointment
• Is filed by an insurer for a licensed broker/agent with the DOI, that person is deemed to be acting in the capacity of an agent for that insurer. • This confirms that person's character & reputation with the public.
Renewal Responsibilities
• Is the continuation of coverage under an insurance policy beyond its original term. • Can be done by a renewal receipt (or certificate) that takes effect when the old policy expires.
Applications
• Is the document in which the applicant states facts and answers questions regarding the insurance s/he wants to purchase. • The company will use the information on the application to determine whether to accept or reject the applicant.
Surplus Line and Special Surplus Line Broker
• Known as a wholesaler • These brokers are the only ones who can seek to provide insurance coverage through a non-admitted carrier, and only when no coverage is available through an admitted carrier. • When the risk is too large or the hazards are extreme, a special surplus lines broker would be needed. • No agent, broker, or solicitor is permitted to transact any insurance with a non-admitted insurer, except a surplus lines or special surplus lines broker.
Suspense/Diary System
• Monitors and tracks client transactions & communications for the agent & serves as a reminder to follow up on policy changes, additional coverage, etc. made by the insured.
Insurance in Connection with Sales or Loans
• No lender can require, as a condition to get a loan, that the borrower choose a particular agent or insurer (however, they can recommend in writing) • Lenders can make available the info in the insurance policy unless the insured requests that they don't. • Lenders can disapprove of borrower's choice of insurer only for allowable reasons. • If borrower does not provide insurance, the lender can force place insurance & transfer the cost to the borrower. • In auto sales, if insurance is part of the price or loan a detail statement & breakdown of the coverages is required. • Violation is punishable by suspension or revocation of license; cease and desist; misdemeanor.
Credit Insurance License
• Permits a business to sell credit insurance and receive a commission without having to be licensed as a life agent/ or property and casualty agent or broker. • A business may register its employees who solicit or sell credit insurance to be listed as "endorsees."
Title 18 - Federal Law
• Punished for activities that affect interstate commerce by making false statements or reports about financial condition of an insurer. • Punishment of mandatory prison sentence of up to 10 or 15 years plus civil fines of $50,000 for each violation.
Binders
• Referred to as "covering notes" • A temporary contract between the insured & insurer that require a premium charge. • Actual policy must be issued within 90 days; with commissioner's approval can be extended for an additional 60 days. • Binders can be up to $1 million; no binders in life/disability • Issuing without authority can result in suspension of license
Direct Writing System
• Uses sales representatives who are considered employees, not self-employed. • Book of business belongs to the company. • Paid through commission, salary, or both.
