Insurance Exam
Multi-line Insurer
A multi-line insurer is an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.
Career Agencies
Career Agencies recruit, train, and supervise agents through managers or general agents. They primarily build staff.
Divisible Surplus
Divisible surplus is the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.
Fraternal Benefit Society
Fraternal Benefit Societies are nonprofit benevolent organizations that provide insurance to its members.
1958-intervention by the FTC.
In the mid-1950s, the Federal Trade Commission (FTC) sought to control the health insurance industry's advertising and sales literature. In 1958 the Supreme Court held that the McCarran-Ferguson Act disallowed such supervision by the FTC, a federal agency. Additional attempts have been made by the FTC to force further federal control, but none have been successful.
Independent Agents
Independent agents (American Agency System) represent any number of insurance companies through contractual agreements.
What is the role of insurance?
Insurance helps to reduce the financial uncertainty of the policyowner with regard to possible future losses.
Lloyds of London
Lloyds of London is NOT an insurer, but a group of individuals and companies that underwrite unusual insurance.
NAIFA (National Association of Insurance and Financial Advisors) and NAHU (National Association of Health Underwriters)
Members of these organizations are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals. These organizations created a Code of Ethics detailing the expectations of agents in their duties toward clients.
Mutual Insurance Company
Mutual Insurance Companies are insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance.
PPGA (Personal Producing General Agent )
Personal Producing General Agencies (PPGA) do not recruit, train, or supervise agents. They primarily sell insurance.
Private (Commercial) Insurer
Private or commercial insurance companies are companies owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned.
Reinsurance
Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.
Define Reserves
Reserves are the accounting measurement of an insurer's future obligations to its policyholders.
Important:
Stock insurance companies issue nonparticipating insurance policies. Nonparticipating insurance policies do not allow policyholders to participate in the company's profits (i.e., receive dividends)
A financial program should include:
the individual or family's general and specific financial goals and a plan to achieve those objectives
The NAIC has four broad objectives:
To encourage uniformity among the state insurance laws and regulations. To assist in the administration of those laws and regulations by promoting efficiency. To protect the interests of policyowners and consumers. To preserve state regulation of the insurance business.
1999-Financial Services Modernization Act
(Gramm-Leach-Bliley Act, or GLBA). This Act allowed commercial banks, investment banks, retail brokerages, and insurance companies to engage in each other's lines of business. Repealed the Glass-Steagall Act of 1933
Broker
A Broker represents themselves and the insured (i.e., the client or customer).
Captive Insure
A Captive Insurer is an issuer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure.
Certificate of Authority
A Certificate of Authority is a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.
Domestic Insurer
A Domestic Insurer is an insurer with its principal or home office in a state where it is authorized.
Foreign Insurer
A Foreign Insurer is an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business.
Reciprocal Insurer
A Reciprocal Insurer is an unincorporated organization in which all members insure one another.
Risk Retention Group
A Risk Retention Group is a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members
Non-admitted Insurer
A non-admitted or unauthorized insurer is an insurer who has not received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.
Nonparticipating policy
A nonparticipating insurance policy, typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.
Participating Plan
A participating plan is an insurance policy under which the policyowners share in the company's earnings through receipt of dividends and also elect the company's board of directors.
Reinsurer
A reinsurer is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.
Self Insurers
A self-insurer establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.
Stock Insurance Company
A stock company is an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.
Important:
A typical reinsurance contract between two insurance companies is called treaty reinsurance, which involves an automatic sharing of the risks assumed.
Participating Policies VS Nonparticipating Policies
Participating policies allow policyholders to participate in the company by electing the board of directors and receiving dividends from the divisible surplus. Non-participating policies to not allow to policyholders to participate in elections or dividends and instead aim to increase profit for the shareholders.
State Guaranty Associations
All states have established guaranty funds or guaranty associations to support insurers and protect consumers if an insurer becomes insolvent.
Alien Insurer
An Alien Insurer in the United States is an insurer whose principal office and domiciled location is outside the country.
Admitted Insurer
An admitted or authorized insurer is an insurer who has received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.
What happens when an insurance company fails to comply with 1970 Fair Credit Reporting Act
Any insurance company that fails to comply with this act is liable to the consumer for actual and punitive damages. The maximum penalty for obtaining Consumer Information Reports under false pretenses is $5,000- and 1-year imprisonment.
1970-Fair Credit Reporting Act.
In an attempt to protect an individual's right to privacy, the federal government passed the Fair Credit Reporting Act, which is the authority that requires fair and accurate reporting of information about consumers, including applications for insurance. Insurers must inform applicants about any investigations that are being made upon completion of the application. If any consumer report is used to deny coverage or charge higher rates, the insurer must furnish to the applicant the name of the reporting agency conducting the investigation.
How does one qualify for Surplus Line Insurance?
In order to qualify for surplus lines coverage, an effort has to be made to secure coverage in the authorized market. An individual may not attempt to secure coverage just because it may be less expensive.
1959-intervention by the SEC
In this instance, the issue was variable annuities: Is a variable annuity an insurance product that should be regulated by the states or a securities product that should be regulated federally by the Securities and Exchange Commission (SEC)? The Supreme Court ruled that federal securities laws applied to insurers that issued variable annuities and, thus, required these insurers to conform to both SEC and state regulation. The SEC also regulates variable life insurance.
Industrial Insurer
Industrial Insurers make up a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums. Other names for industrial insurers include home service or debit insurers.
1994-United States Code USC
Sections 1033 and 1034. According to 18 U.S.C. § 1033 AND 1034, it is a criminal offense for an individual who has been convicted of a felony involving dishonesty or breach of trust to willfully engage or participate (in any capacity) in the business of insurance without first obtaining a "Letter of Written Consent to Engage in the Business of Insurance" from the regulating insurance department of the individual's state of residence.
Surplus Lines Insurance
Surplus Lines Insurance is nontraditional insurance only available form a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers.
Rating Services purpose
The PRIMARY purpose of a rating service company, such as A.M. Best, Fitch Ratings, Standard & Poor's, and Moody's, is to determine the rated company's (the insurer) financial strength. An insurer's financial strength can be evaluated by looking at the companies reserves and liquidity.
Actuarial department
The actuarial department calculates policy rates, reserves, and dividends.
Claims Department
The claims department is responsible for processing, investigating, and paying claims
The concept of insurance:
The concept of insurance, in generic terms, may be defined as the transfer of risk from one party to another through a legal contract
1944-United States v. Southeastern Underwriters Association (SEUA).
The decision of Paul v. Virginia was held for 75 years before the Supreme Court again addressed the issue of state versus federal regulation of the insurance industry. In the SEUA case, the Supreme Court ruled that the insurance industry is a form of interstate commerce. As such, the insurance industry should be regulated by the federal government and subject to a series of federal laws, many of which conflicted with existing state laws. This decision did not affect states' power to regulate insurance, but it did nullify state laws that conflicted with federal legislation. The result of the SEUA case was to shift the balance of regulatory control to the federal government.
Insured
The insured is the customer receiving insurance protection under an insurance policy.
Insurer
The insurer is the insurance company.
Violation of the Fraud and False Statements results in:
The punishment for violation is a fine of up to $50,000, imprisonment up to 15 years, and license revocation. An individual convicted of a felony involving dishonesty may engage in insurance business ONLY after receiving written consent from the state insurance regulatory agency and a 1033 waiver.
Insurance
The transfer of risk through the pooling or accumulation of funds.
1945-The McCarran-Ferguson Act.
The turmoil created by the SEUA case prompted Congress to enact Public Law 15, the McCarran-Ferguson Act. This law made it clear that the states' continued regulation of insurance was in the public's best interest. However, it also made possible the application of federal antitrust laws to the extent that [the insurance business] is not regulated by state law. This act led each state to revise its insurance laws to conform to the federal laws. Today, the insurance industry is considered to be state regulated. Any person who violates the McCarran-Ferguson act faces a fine of $10,000 or up to one year in jail.
Underwriting Department
The underwriting department is the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.
2003-CAN-SPAM Act.
This Act creates rules for commercial emails and messages. Specifically, the regulation outlines the right for a consumer to request a business to stop sending emails, the requirements for businesses to honor such requests, and the penalties incurred for those who violate the Act.
1868-Paul v. Virginia.
This case, which the U.S. Supreme Court decided, involved one state's attempt to regulate an insurance company domiciled in another state. The Supreme Court sided against the insurance company, ruling that the sale and issuance of insurance is not interstate commerce, thus upholding states' right to regulate insurance.
Claim Settlement Practices
While specific time frames may vary from state to state, all states require prompt, fair, and equitable claim settlement practices.
The Fraud and False Statements
federal law makes it illegal to lie, falsify, or conceal information (orally or in writing) from a federal official. As it applies to insurance, any person engaged in interstate insurance business who engages in intentional unfair or deceptive insurance practices or overvalues an insurance product in a financial report or document presented to a regulatory official, will violate federal law. Other violations include but are not limited to embezzling money from an insurance company, misappropriating insurance premiums, and writing threatening letters to insurance offices.
Primary Insurer
the insurance company that transfers its loss exposure to another insurer
The McCarran-Ferguson Act made it clear that
the states' continued regulation of insurance was in the public's best interest. The National Conference of Insurance Legislators (NCOIL) was formed to help legislators make informed decisions on insurance issues that affect their constituents and declare opposition to federal encroachment of state authority to oversee insurance business, as authorized under the McCarran-Ferguson Act of 1945.
2001-Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act. The Patriot Act,
which amends the Bank Secrecy Act (BSA), was adopted in response to the September 11, 2001, terrorist attacks.