Chapter 5

Mutual Insurer

Insurance corporation owned by the policy-owners, who elect the board of directors. The board appoints managing executives, and the company may pay a dividend or give a rate reduction in advance to insureds.

Multiple distributions systems

Insurance marketing method that refers to the use of several distribution systems by an insurer; for example, a property and liability insurer may use the independent agency method and direct response system to sell insurance.

Savings bank life insurance (SBLI)

Life insurance originally sold by mutual savings banks in Massachusetts, New York, and Connecticut. Now sold in other states as well.

Agency building system

Marketing system in life insurance by which an insurer builds its own agency force by recruiting, financing, training, and supervising new agents.

Assessment mutual

Mutual insurance company that has the right to assess policyowners for losses and expenses.

Fraternal insurer

Mutual insurance company that provides life and health insurance to members of a social organization.

Mass Merchandising

Plan for insuring individual members of a group, such as employees of firms or members of labor unions, under a single program of insurance at reduced premiums. Property and liability insurance is sold to individual members using group insurance marketing methods.

Lloyd's of London

is not an insurer, but is the world's leading insurance market that provides services and physical facilities for its members

Nonadmitted insurer

insurer not licensed to do business in the state

Broker

Someone who legally represents the insured, soliciting or accepting applications for insurance that are not in force until the company accepts the business.

surplus lines broker

Specialized insurance broker licensed to place business with a nonadmitted insurer (a company not licensed to do business in the state).

Personal-producing general agent

Term used to describe an above-average salesperson with a proven sales record who is hired primarily to sell life insurance under a contract that provides both direct and overriding commissions.

Direct response system

A marketing method where insurance is sold without the services of an agent. Potential customers are solicited by advertising in the mails, newspapers, magazines, television, radio, and other media.

Demutualization

A term to describe the conversion of a mutual insurer into a stock insurer.

Captive insurer

Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens.

Direct writer

Insurance company in which the salesperson is an employee of the insurer, not an independent contractor, and which pays all selling expenses, including salary.

Nonbuilding agency system

Life insurance marketing system by which an insurer sells its products through established agents who are already engaged in selling life insurance.

Advance premium mutual

Mutual insurance company owned by the policyowners that does not issue assessable policies but charges premiums expected to be sufficient to pay all claims and expenses.

Reciprocal exchange

Unincorporated mutual insuring organization in which insurance is exchanged among members and which is managed by an attorney-in-fact.

Managerial system

another type of agency building system

Holding Company

company that directly or indirectly controls an authorized insurer

stock insurer

corporation owned by the stock holders

Agent

Someone who legally represents the insurer, has the authority to act on the insurer's behalf, and can bind the principal by expressed powers, by implied powers, and by apparent authority.

Exclusive agency system

Type of insurance marketing system under which the agent represents only one company or group of companies under common ownership.

General agency system

Type of life insurance marketing system in which the general agent is an independent businessperson who represents only one insurer, is in charge of a territory, and is responsible for hiring, training, and motivating new agents.

Independent agency system

Type of property and liability insurance marketing system, sometimes called the American agency system, in which the agent is an independent businessperson representing several insurers. The agency owns the expirations or renewal rights to the business, and the agent is compensated by commissions that vary by line of insurance.