Arizona Health Insurance Exam

Marketing Characteristics of an Exclusive Agency System/Captive Agents

- 1 agent represents 1 company - exclusive - commissions on personal sales - renewals can only be placed with the appointing insurer

Marketing Characteristics of an Independent Agency System/American Agency System

- 1 independent agent represents several companies - nonexclusive - commissions on personal sales - business renewal with any company

4 Determining Factors in Life Insurance

- Age of insured - Medical history - Occupation - Sex of insured

Elements of Insurable Risks

- Due to chance - Definite and measurable - Statistically predictable - Not catastrophic - Randomly selected and large loss exposure

What are the 5 ways that private insurance companies can be classified?

- Ownership - Authority to transact busniess - Location - Marketing and distribution systems - Rating (financial strength)

What is given in the relationship between the agent/producer and the insurer?

- an agent represents the insurer, not the insured - any knowledge of the agent is presumed to be knowledge of the insurer - if the agent is working within the conditions of their contract, the insurer is fully responsible - when the insured submits payment to the agent, it is the same as submitting a payment to the insurer

Marketing Characteristics of a Managerial System

- branch manager (supervises agents) - salaried - agents can be insurer's employees or independent contractors

Marketing Characteristics of a General Agency System

- general agent/entrepreneur represents 1 company - exclusive - compensation and commissions - appoints subagents

Marketing Characteristics of a Direct Response Marketing System

- no agens - company advertises directly to consumers through mail, internet, television, etc. - consumers apply directly to the company

What are the 4 elements of a legal contract?

1. Agreement 2. Consideration 3. Competent Parties 4. Legal Purpose

The purpose of retention is:

1. to reduce expenses and improve cash flow 2. to increase control of claim reserving and claims settlements 3. to fund for losses that cannot be insured

What is the Law of Agency?

A law that defines the relationship between the principal and the agent/producer. The acts of the agent/producer within the scope of authority are deemed to be acts of the insurer.

What is a participating policy?

A policy in which policy owners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are nontaxable.

What is a nonparticipating policy?

A policy issued by a stock company in which policy owners do not share in profits or losses that does not pay dividends to policy owners, but does pay taxable dividends to stock holders.

How are insurance companies classified?

According to the location of incorporation (domicile).

To protect themselves from __________, insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage.

Adverse selection

What is a nonadmitted or nonauthorized insurer?

An insurance company that has not applied, or has applied and been denied, for a Certificate of Authority and may not transact insurance.

What determines if someone is considered competent enough to enter into a contract?

Both parties must be: - of legal age - mentally competent to understand the contract - not under the influence of drugs or alcohol

_________ are organized and owned by a corporation or firm to serve the parent organization;s insurance needs at lower rates than other insurers and without the uncertainties of commercial insurance.

Captive Insurers

__________ insurance insures against the loss and/or damage of property resulting in liabilities.

Casualty

Before an insurer may transact business in a specific state, they must apply for a license or ___________ from the state Department of Insurance and meet any financial (capital and surplus) requirements set down by the state. A __________ is issued by the state Department of Insurance and shows that the insurer has power to write insurance contracts in that state.

Certificate of Authority

Regardless of where an insurance company is incorporated, it must obtain a __________ before transacting insurance within the state.

Certificate of Authority

In a mutual company, __________ are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. They are not guaranteed.

Dividends

Risk avoidance is __________ but seldom __________.

Effective/Practical

A __________ is an organization formed to povide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. They sell only t their members are are considered charitible institutions, not insurers. They are not subject ot all of the regulations that apply to the insurers that offer coverage to the public at large.

Fraternal Benefit Society

What is the major difference between government programs and private insurance programs?

Government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums.

__________ insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury.

Health

When an insurance company issues a policy of a 35 y/o male, the company really has no way of kning or accurately predicting when he will die. So they use the __________ to look at people who are the same age, sex and have similar health and lifestyle conditions to make conclusions based on the statistics of past losses. This allows the insurance company yo have a general idea about the predicted time of death for this type of insured and to set the premiums accordingly.

Law of Large Numbers

In ___________ insurance, the policy protects survivors from losses suffered after the insured's death

Life

__________ insures against the financial loss caused by premature death of the insured.

Life

What is the exception to a personal contract?

Life Insurance; a policy owner can transfer or assign ownership of the policy to another person, but the insurer must still be notified in writing

In __________, each individual promises to pay a specified amount in the event that the contingency insured against occurs. Members are liable for only their portion of the risk and are not bound to assume any portion of a defaulting member.

Lloyd's Associations

__________ are a group of individuals who operate an insurance mechanism using the same principles of individual liability insurers in which each individual underwriter assumes part of each risk.

Lloyd's Associations

__________ operate almost exclusively in the property insurance field.

Llyod's

__________ hazards involve evaluationg the character and reputation of the proposed insured.

Moral

__________ refer to those applicants who may life on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

Moral

__________ hazards exist because of physical condition, past medical history, or a condition at birth.

Physical

__________ risks tend to seen insurance or file claims to a greater extent than __________ risks.

Poorer/Better

__________ insurance insures against the loss of physical property of the loss of income producing abilities.

Property

In __________ risk, there is no opportunity for financial gain

Pure

__________ risk is the only type of risk that insurance companies are willing to accept

Pure

A __________ is a formal risk-sharing agreement.

Reciprocal insurance exchange

A __________ is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry.

Risk Retention Group

A __________ may reinsure another group's liability as long as the members of the second group are engaged in the same or similar business industry.

Risk Retention Group

The purpose of a __________ is to assure and spread all or part of the liability of its group members.

Risk Retention Group

Risk retention is also known as __________ when the insured accepts the responsibility for the loss before the insurance company pays.

Self-insurance

What is the basis of insurance?

Sharing the risk among members of a large homogeneous group with similar exposure to loss

__________ risk is not insurable

Speculative

Which law forms the basis for statistical prediction of loss upon which insurance rates are calculated?

The Law of Large Numbers

In insurance, who makes the offer and who accepts it?

The applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

What is another term for reinsurer?

The assuming insurer

What is the originating company that procures insurance on itself from another insurer called?

The ceding insurer (because itcedes, or gives, the risk to the reinsurer)

What is the major difference between government and private insurance?

The government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums.

What is the purpose of reinsurance?

To protect insurers against catastrophic losses.

The most effective way to handle risk is to __________ it so that the loss is borne by another party.

Transfer

Insurance is the most common method of __________ risk from an individual or group to an insurance company. Though the purchasing of insuranc will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring.

Transferring

Insurance __________ the risk of loss from an individual or business to an insurance company

Transfers

What is a reinsurance treaty?

When an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it. Usually negotiated for a period of a year or longer.

Personal Contract

a contract between the insurance company and an individual that can't be changed to another individual without the written consent of the insurer

Insurance

a contract in which one party (the insurance company) agrees to "make whole" the insured party against loss, damage or liability arising from an unlikely event

Contract of Adhesion

a contract that is prepared by the insurer and accepted or rejected by the insured on a "take it or leave it" basis that is not open to negotiation

Unilateral Contract

a contract that only requires one of the parties of the contract to be legally bound to do anything; the insured makes no legally binding promises, however an insurer is legally bound to pay losses covered by a policy in force.

Conditional Contract

a contract that requires hat certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligations (ex: the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim)

Reinsurance

a contract under which one insurance company indemnifies another insurance copany for part of all of its liabilities.

Homogeneous

a large number of units having the same or similar exposure to loss

Insurable Risks Due to Chance

a loss that is outside of the insured's control

Insurable Risks that are Definite and Measurable

a loss that is specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be when it becomes payable.

Risk Sharing

a method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group.

Fiduciary Responsibility

a position of trust that an agent has when they have access to the funds of the insured and the insurer

Risk Reduction

actions taken to attempt to lessen the possibility or severity of a loss (ex: installing smoke detectors, annual physicals, making lifestyle changes)

What is an agent/producer?

an individual licensed to sell, solicit or negotiate insurance contracts on behalf of the insurer

Foreign Insurer

an insurance company that is incorporated in another state or territorial possession

Alien Insurer

an insurance company that is incorporated outside of the United States

Domestic Insurer

an insurance company this is incorporated in this state, most often the state in which it was formed

Morale Hazards

arise from a state of mind that causes indifference to loss, such as carelessness and result from actions taken without forethought.

Implied Authority

authority that is not expressed or written in the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal insurer; incidental to and derives from express authority since not every single detail of an agent's authority can be spelled out in the written contract

Hazards

conditions or situations that increase the probability of an insured loss occurring

Risk Avoidance

eliminating exposure to a loss

Physical Hazards

individual characteristics that increase the chances of the cause of loss

Mutual Companies

insurance companies that are owned by the policy owners and issue participating policies

Stock Companies

insurance companies that are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses

Social Insurance Programs

insurance that is provided by federal an state governments in areas where private insurance is not available (Social Security, Medicare, Medicaid, Federal Crop Insurance and National Flood Insurance)

Insurable Risks that are Statistically Predictable

insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates

Insurable Risks that are Not Catastrophic

insurers need to be reasonably certain their losses will not exceed specific limits because there is no statistical data that allows for the development of rates that would be necessary to cover losses from these events.

Speculative Risk

involves the opportunity for loss or gain

Lloyd's Associations

provide support facilities for underwriters or groups of individuals that accept insurance risk

Facultative Reinsurance

reinsurance purchased on a specific policy and underwritten separately for each policy

Pure Risk

situations that can only result in a loss or no change

Consideration

something of value that each party gives to the other (a premium payment and the promise to pay in the event of loss)

Law of Large Numbers

states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.

Moral Hazards

tendencies towards increased risk

Apparent/Perceived Authority

the appearance or the assumption of authority based on the actions, words, or deeds of the principal insurer or because of circumstances the principal insurer created

Express Authority

the authority a principal intends to grant to an agent by means of the agent's contract; the authority that is written in the contract

Peril

the causes of loss insured against an insurance policy.

Adverse Selection

the insuring of risks that are more prone to losses than the average risk

Risk Retention

the planned assumption of risk by an insured throughthe use of deductibles, co-payments or self-insurance.

Loss

the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril.

Risk

the uncertainty or chance of a loss occurring

Insurable Risks that are Randomly Selected and have Large Loss Exposure

there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location.

Exposure

unit of measurement used to determine rates charged for insurance coverage