1 • Basic Principles of Insurance KeyWords

Admitted Insurer

(Also called authorized insurer) is an insurer who has received a certificate of authority from a states department of insurance authorizing them to conduct insurance business in that state

Non-admitted Insurer

(Also called unauthorized insurer) an insurer who has not received a certificate of authority from a state Department of insurance authorizing them to conduct insurance business in that state

Captive vs independent agent

A captive agent sells for a specific company while brokers (independent) sell for several companies

Reinsurer

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

Risk Retention Group

A group owned liability insurer which assumes and spread products liability and other forms of commercial liability risks among its members

Certificate of authority

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

Alien Insurer

An insurer whose principal office and domicile location is outside this country

Foreign insurer

An insurer with its principal office or domicile location in a state different from the state it is transacting insurance business

Domestic insurer

An insurer with its principal or home office in a state where it is authorized

National Association of Insurance Commissioners (NAIC)

An organization composed of insurance commissioners from all 50 states, the district of Columbia and all the 4 US territories

Reciprocal Insurer

An unincorporated organization in which all members insure one another

Multi-line insurer

And insurance company or independent agent that provides a one stop shop for businesses or individuals seeking coverage for all of their insurance needs.

Participating plan

And insurance policy under which the policy owners share in the company's earnings through receipt of dividends and also elect the company's board of directors

Actuarial Department

Calculates policy rates, reserves, and dividends

Private (commercial) insurer

Companies owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned

Self-insurers

Establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company

Independent Rating Services

Independent credit rating agencies rate or grade the financial strength and stability of insurance companies. Ratings are based on claims, liquidity, reserves and company profits

Liquidity

Indicates a company's ability to make unpredictable payouts to policy owners

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

Mutual insurance company

Insurance company is characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance

Stock insurance company

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, non-participating policies

captive insurer

Issuer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure

Lloyd's of London

NOT an insurer but a group of individuals and companies that underwrite unusual insurance

Fraternal Benefit Society

Nonprofit benevolent organizations that provide insurance to its members

Surplus lines insurance

Nontraditional insurance only available form a surplus lines insurance they offer coverage for substandard or unusual risks not available through private or commercial carriers

State Guarantee Associations

Protect policy owners in the advent of an insurance company going out of business, coming in solvent or the inability to pay claims

Annuities

Provide a stream of income by making a series of payments over a certain period of time

1970 Fair Credit Reporting Act

Provide individuals privacy protection and fair and accurate credit reporting Maximum penalty is $5000

Broker

Represents themselves and the insured

Claims Department

Responsible for processing, investigating, and paying claims

Reinsurance

The acceptance by one or more insurers, called reinsurers, of a portion of the risk under written by another insurer who has contracted for the entire coverage

Reserves

The accounting measurement of an insurer's future obligations to its policyholders

Divisible surplus

The amount of earnings paid to policy owners as dividends after the insurance company set aside funds required to cover reserves, operating expenses, and general business purposes

Underwriting department

The department with an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications

Insurer

The insurance company

Insured

The insured is the customer receiving insurance protection under an insurance policy

Insurance

The transfer of risk through the pooling or accumulation of funds

Nonparticipating policy

Typically issued by stock companies, do not allow policy owners to participate in dividends or electing the board of directors

Mutualization

When a stock company converts into a mutual company

1945 McCarran and Ferguson Act

While the federal government has the authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively in adequately by the states