Intro to P&C: Assignment Two - Insurance Functions: Marketing

Businesses and not-for-profit organizations

(such as educational, religious, and governmental entities) purchase commercial insurance to insure their loss exposures.

Insured

A broker represents the

Insurer

A company that sells insurance policies to protect insureds against financial hardship caused by financial losses.

Risk control

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.

Claim

A demand by a person or business seeking to recover from an insurer for a loss that may be covered by an insurance policy.

Expiration List

A distinguishing feature of the independent agency and brokerage system is the ownership of the ____ ____, commonly referred to as "ownership of expirations." The typical independent agency or brokerage contract specifies that the independent agency or brokerage—not the insurer—owns the list of policyholders and, most importantly, the right to solicit these policyholders for insurance.

Agency bill

A payment procedure in which a producer sends premium bills to the insured, collects the premium, and sends the premium to the insurer, less any applicable commission.

Direct bill

A payment procedure in which the insurer assumes all responsibility for sending premium bills to the insured, collecting the premium, and sending any commission payable on the premium collected to the producer.

Commission

A percentage of the premium that the insurer pays to the agency or producer for new policies sold or existing policies renewed.

Underwriting

A successful ____ function ensures that those applicants who are selected receive the level of coverage that adequately reflects their loss exposures at the appropriate price.

Binder

A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued.

Marketing

Advertising a new policy program for small businesses

Underwriting

After selecting insureds, ____ determines the price for the insurance. The goal is to charge a premium that is commensurate with the loss exposure. In other words, each insured's premium should be set at a level that is adequate to enable the total premiums paid by a large group of similar insureds to pay the losses and expenses of that group and to allow the insurer to achieve a reasonable profit.

Customer service

After the dry cleaner's policy was issued, the owner called Bob asking for a certificate of insurance. Bob assured the owner he would provide one, and did so.

Sales

Aleski, an insurance agent, formed a proposal and presented it to a prospective client. The policy was accepted with some minor changes, so Aleski issued a binder. Which one of the following is the function being performed by Aleski?

Sell

An agent or a broker also has the right to ____ its expiration list to another independent agent or broker. If the agency or brokerage were to be sold, for example, the buyer would want to keep the previous owner's customers and would need the expiration list to solicit those customers.

Transaction

An insurance ____ occurs when a customer, called the insured or policyholder, purchases insurance either directly from an insurer or through a producer.

Producer

An insurance ____'s typical functions vary widely from one producer to another and depend on the size of the producer's firm, the types of customers, and the complexity of accounts the producer handles; they typically engage in prospecting, risk management review, and sales activities.

Direct response distribution channel

An insurance distribution channel that markets directly to the customer through such distribution channels as mail, telephone, or the Internet.

Direct writer marketing system

An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer.

Exclusive agency marketing system

An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers).

Independent agency and brokerage marketing system

An insurance marketing system under which producers (agents or brokers), who are independent contractors, sell insurance, usually as representatives of several unrelated insurers.

Underwriter

An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions.

Risk Control

An insurer's ____ ____ representatives also provide a valuable service for insureds by helping them prevent losses or reduce their effect. For example, a representative can provide expert advice concerning sprinkler systems for fire suppression.

Producer

Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both.

Insured

Any person or organization who is insured under an insurance policy.

Direct Writer

Because ____ ____ agents are employees of the insurers they represent, they do not have any ownership of expirations.

Claims

Because more than half of what insurers spend goes to the ____ function, its proper and efficient performance is important to an insurer's profitability.

Premium Auditors

Because of their direct contact with policyholders, ____ ____ also have an opportunity to share their observations with other insurer departments. Auditors can notify underwriters of larger loss exposures than originally contemplated, unacceptable operations, new products, new operations, or financial problems.

Sales

Bob prepared a proposal and presented it to the dry cleaner, and the proposal was accepted.

Claims

Determining the cause and amount of a policyholder's loss

Underwriting

Determining the premium for a new customer's personal auto policy

After

For example, the premium of a workers compensation policy that pays when an employee is injured on the job is based on the amount of the employer's payroll. However, due to new hires, raises, terminations, and retirements during the policy period, the employer won't know the actual size of its payroll until the end of the policy period. It is only (before/after) the policy period is over that the insurer and the insured are able to determine how much the premium should be.

Direct Bill

For small commercial accounts and the majority of personal insurance, the insured is usually directed to send premium payments to the insurer, bypassing the producer in a procedure known as the ____ ____ process.

Producer

Generally, the functions that insurance ____ are to perform are specified in the agency or brokerage contract. These functions vary widely from one to another and depend on the size of the firm, the types of customers, and the complexity of accounts they handles

Prospecting

He made several cold calls to dry cleaners, one of his specialties.

Direct Bill

In premium collection, the insured may be directed to send premium payments to the insurer, bypassing the producer. This is known as the ____ ____ process.

Independent agency and brokerage marketing system

In the agency contract, the insurer has granted the agency possession and ownership of expirations.

Claims

Insurers expect to pay ____. Without ____, insurance would be unnecessary.

Commission

Insurers pay independent agents and brokers a ____ for each policy sold. These rates might vary for new and renewal business and by type of policy.

Commission

Insurers pay independent agents and brokers a ____, which is typically a percentage of the premium.

Marketing

Insurers use many types of ____ systems, also known as distribution channels, designed to meet their particular marketing objectives.

Exclusive

Like independent agents, ____ agents are independent contractors and are not employees of an insurer. In contrast to independent agents, most of these agents have contracts that prohibit them from selling insurance for any other insurer.

Audit

Many commercial insurance policies are written subject to ____ because the premium amount is calculated using a loss exposure measurement that can change during the policy period, which is often one year.

Premium audit

Methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided.

Transactions

Most insurance ____ involve at least two parties: an insured (policyholder) and an insurance company, or insurer.

Risk management review

One of the cold calls resulted in a visit to a dry cleaner's shop, where Bob interviewed the owner to get information about the shop's loss exposures.

Insurer

One role of an ____ is to provide ongoing customer service.

Individuals and families & Businesses and not-for-profit organizations

Property-casualty insurers sell insurance to two broad groups of customers:

Insurer

Prospective insureds complete insurance applications, which are submitted to one or more ____. Their staff reviews these applications to determine whether the characteristics of the customer match the ____ eligibility and selection guidelines.

Underwriting

Selection of insureds and pricing of coverage are intertwined with a third ____ activity—determining policy terms and conditions, which requires certain circumstances to occur or not occur before coverage will apply to a loss.

Direct Response Distribution Channel

The ____ ____ ____ ____ does not use producers. Although this distribution channel is also called direct mail, customers can contact insurers via the Internet or telephone, not just by mail; they rely heavily on advertising and targeting specific groups of affiliated customers.

Risk Control

The ____ ____ function supports underwriters in selecting which loss exposures to insure. These representatives can provide information to underwriters beyond what the application provides. For example, field inspection reports on an applicant's premises and operations can provide important details about the applicant's loss exposures that are not apparent on the application.

Agency Bill

The ____ ____ process may be used for personal insurance policies, but it is more commonly used with large commercial accounts.

Insurer

The ____ often handles many administrative functions for the exclusive agency. These functions include policy issuance, premium collection, and claim processing.

Producer

The ____ owns the policy expirations in the independent agency and brokerage marketing system.

Underwriting

The ____ process involves gathering the necessary information, making the underwriting decision, and implementing that decision.

Exclusive agency marketing system

The agency contract specifies that the agent is an independent contractor but is to represent only the insurer named in the contract.

Premium Auditor

The insured pays an estimated premium at the beginning of the policy period. At the end of the policy period, typically one year, a ____ ____ examines, or audits, the insured's records to determine the final premium. If the final premium exceeds the estimated premium, an additional premium is charged. If the final premium is less than the estimated premium, the insured receives a partial refund.

Direct writer marketing system

The insurer uses its own employees to sell insurance.

Risk Control

The primary purpose of an insurer's ____ ____ function is to prevent or reduce losses, if possible. From an economic viewpoint, controlling losses is preferable to insuring losses because it reduces the waste of valuable resources. As a practical matter, both insuring and controlling losses are likely to be used jointly for most large loss exposures, because preventing all losses is seldom possible.

Underwriting

The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.

Claims

The purpose of the ____ handling process is to achieve a fair and equitable settlement based on the circumstances of the loss. Loss settlements that are too high increase the cost of insurance for everybody. Loss settlements that are too low deprive the insured of the full benefits of the insurance policy. Paying inadequate loss settlements also diminishes the insurer's business reputation and can negatively affect the marketing function.

Audit

The purpose of the ____, which occurs at the end of a policy period, is to determine any adjustments to the premium that may be required based on the insured's actual loss exposures during that period.

Agency expiration list

The record of an insurance agency's present policyholders and the dates their policies expire.

Underwriting

The role of the ____ function is to determine what loss exposures will be insured, for what amount of coverage, at what price, and under what conditions.

Exclusive Agent Marketing System

The uses independent contractors called exclusive agents, who represent only one insurer or a group of related insurers, possibly under common ownership.

Exclusive

Unlike independent agents, ____ agents do not own the policy expirations; the insurer does. Therefore, if the agent does not renew its agency contract with the insurer, the insurer retains control of the policies written by the ____ agent.

Risk control

Visiting a prospective insured's factory to inspect the fire suppression system

Premium audit

Visiting an insured's premises after the end of the policy period to examine payroll records for the preceding year

Claims

When policyholders purchase insurance, they are buying protection for the potential financial consequences of covered losses. The insurer promises to make payments to or on behalf of the insured for covered losses. The ____ function is responsible for keeping this promise to the insured by providing prompt and professional loss adjustment services.

Risk Control

When practicing sound ____ ____, an organization is likely to use insurance to treat large loss exposures.

Determining cause of loss and loss amount

Which one of the following activities is included in the claim handling process?

Each function contributes or detracts from the overall effectiveness of the insurer.

Which one of the following is true about the functions within an insurance organization?

It is available for not-for-profit organizations.

Which one of the following is true regarding commercial insurance?

Risk Management Review

Which one of the following producer functions is used to determine a prospect's insurance needs?

Brokers; Independent Agents

____ & ____ ____ are intermediaries between insurers and insurance buyers, and both collect premiums from insureds and remit them to insurers. Both are in the business of finding people with insurance needs and selling insurance appropriate to those needs.

Insurers; Producers

____ & ____ can also elect to market their products and services through a financial institution. Marketing arrangements can range from a small insurance agency placing an agent at a desk in a local bank to a large insurer forming a strategic alliance with a national financial holding company to solicit customers.

Premium Audit

____ ____ information can also identify marketing opportunities and assist the claim department in adjusting certain types of losses.

Exclusive

____ agents are usually paid commissions, and the commission percentage is sometimes higher for new business than it is for renewal business. These agents may also receive a bonus for exceeding sales goals.

Producers

____ in the independent agency and brokerage marketing system are not employees of any insurer and are usually free to work with as many insurers as they want. They sell insurance products to individuals and businesses and provide policy services, such as analyzing customers' insurance needs, explaining and recommending various coverages, and completing the insurance application.

Selling

____ insurance products and services is one of the most important functions of an insurance producer because sales are essential to sustaining the livelihood of the agency or brokerage. Commission on policy premiums produced is the principal source of income for producers and the agencies or brokerages for which they work.

Insurers

also collect premiums; pay covered losses; and provide ongoing customer service, such as processing policy changes, providing risk control services, and responding to billing questions.

Premium Audits

are conducted because the amount of the loss exposure is unknown at the start of the policy period, and the premium must be adjusted to reflect the actual loss exposure during the period.

Exclusive Agents

are independent contractors and are not employees of an insurer.

Producers

are involved in the sale of insurance products and include sales representatives, agents, and brokers.

Commercial Loss Exposures

are those that affect an organization's operation—for example, damage to business property from loss due to fire or vandalism, work-related injuries to employees, liability for injuries to customers, liability for injuries to others caused by the use of autos, and damage to the insured's own autos.

Underwriters

carefully screen potential insureds to determine which ones to insure. They make their selections by applying the ____ criteria set by the insurer to the loss exposures of customers who have applied for insurance policies.

Insurance Marketing Systems

consist of the independent agency and brokerage marketing system, the exclusive agency marketing system, the direct writer marketing system, and alternative distribution channels. These marketing systems differ by these characteristics of the agents or brokers who use each system: their contractual relationship with the insurers whose policies they sell, their method of compensation, and their ownership of expirations.

Commercial Loss

exposures are best described as those that affect an organization's operation.

Marketing

involves determining the products or services customers want and need and delivering them to those customers. This function contributes significantly to an insurer's profit goals and its goals of meeting customers' needs. The insurer cannot make a profit if it does not provide products and services the customer needs.

Prospecting

involves locating persons, businesses, and other entities that might be interested in purchasing the insurance products and services offered by the insurer or company the producer represents.

Prospecting

involves locating persons, businesses, and other entities that might be interested in purchasing the insurance products and services offered by the insurer.

Direct Writer Agent

is employed by the insurer and receives a salary, a bonus, commissions, or a combination of the three.

Broker

is similar to an agent in that they also sells insurance products to individuals and businesses and provides policy services. However, he/she represents the prospective insured, while the agent represents the insurer.

Direct Writer Marketing System

is similar to the exclusive agency system in that the sales representatives used by the insurer are restricted to representing only that insurer or a group of insurers under common ownership and management.

Risk Management Review

is the principal method used to determine a prospect's insurance needs.

Producer

is typically responsible for his or her own prospecting. However, large agencies and brokerages may have employees who specialize in locating prospective clients.

Producer

may be either an insurance agent or an insurance broker; may work independently, or they may be salaried or commissioned employees of an insurer.

Individuals and Families

purchase personal insurance to insure their nonbusiness exposures. The two major types of personal property-casualty insurance policies are homeowners and personal auto policies.