Insurance 1.1-1.8

Claims Department

Assists the policy holder in the event of a loss

Applicant Challenge

credit reporting agency must reinvestigate within 6 months, if applicant challenges accuracy

Loss exposure

the condition of being at risk for a loss. Purely by existing, property and people are at risk for loss

Physical Hazard

A physical condition that increases the probability of loss; use, condition, or occupancy of property

Risk Retention Groups

1. A group-owned insurer that primarily assumes and spreads the liability related risks of its members. 2. Licensed in at least one state and may insure members of the group in other states. 3. Owned by its policyholders. 4. Group must be made up of a large number of homogeneous or similar units. 5. Membership is limited to risks with similar liability exposures such as theme parks, go cart tracks, or water slides. 6. Must have sufficient liquid assets to meet loss obligations. 7. Each member assumes a portion of the risks insured.

Stock Insurance Company

1. Owned by stockholders or shareholders. 2. Directors and officers direct the company operations and are elected by stockholders. 3. Stockholders receive taxable corporate dividends as a return of profit when declared by the directors. 4. Dividends are not guaranteed. 5. Traditionally stock insurers issue Non-Participating policies.

Reciprocal Insurance Company

1. A group-owned insurer whose main activity is risk sharing. 2. A reciprocal insurer is unincorporated, and is formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a subscriber. 3. Each subscriber assumes a part of the risk of all other subscribers. If premiums collected are insufficient to pay losses, an assessment of additional premium can be made. 4. The exchange of insurance is affected through an Attorney-In-Fact.

Residual Markets

1. A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers. 2. A Joint Underwriting Association or Joint Reinsurance Pool requires insurers writing specific coverage lines in a given state to assume the profits/losses accruing their share of the total voluntary market premiums written in that state. 3. Risk Sharing Plan 4. Coverage is typically written as Workers' Compensation, personal auto liability or property insurance on real property.

Producer's Responsibility to the Insurance

1) Fiduciary duty to the insurer in all respects, especially when handling premium funds. 2) Must keep premium funds in a trust account separate from other funds and forward to insurer promptly. 3) Must report any material facts that may affect underwriting. 4) Responsible for soliciting, negotiating, selling, and cancelling the insurance policies with the insurer. 5) Duty to only recommend the purchase of suitable policies.

Producer's Responsibilities to Insured

1) Forward premiums to insurer on a timely basis. 2) Seek and gain knowledge of the applicant's insurance needs. 3) Review and evaluate the applicant's current insurance coverage, limits and risks. 4) Serve the best interests of the applicant or insured, although producers represent the insurer 5) Recommend coverage that best protects the insured from possible loss and NOT the most profitable coverage from the perspective of the producer.

Pure Risk

1) Situations where there is no chance for gain; the only outcome is for nothing to occur or for a loss to occur. 2) Pure risk can be insured. Examples include: a) The possibility of damage to property caused by a fire or other natural disaster. b) The possibility of financial loss as a result of death.

Mutual Insurance Company

1. A ____ is owned by policyholders (who may be referred to as members). 2. A Board of Trustees or Directors directs the company operations and is elected by policyholders. 3. Policyholders receive non-taxable dividends as a return of unused premium when declared by the directors. 4 Dividends are not guaranteed. 5. Traditionally, ____ insurers issue Participating policies.

Reinsurance Companies

1. An insurance company that assumes all or a portion of a risk from a primary or ceding insurance company. 2. Reinsurance transfers risk among insurance companies. 3. The insurer requesting reinsurance is the primary or ceding company. 4. The Insurer sharing in the risk is the reinsurance company. 5. Consumer inquiries must originate with the ceding company, which then obtains reinsurance.

Financial Rating Service

1. Independent financial rating services evaluate and rate the financial stability of insurance companies. 2. These companies assign rating codes to show financial strength or weakness of each company rated. 3. The ratings are available to the public. 4. Producers are responsible for placing business with insurers that are financially sound. 5. Examples of rating services include: A.M. Best Company, Standard &Poor's, Moody's Investment Services, Weiss Insurance Rating, and Fitch Ratings.

Lloyds of London

1. ____ is not an insurance company, but consists of groups of underwriters called Syndicates, each of which specializes in insuring a particular type of risk. 2. ____ provides a meeting place and clerical services for syndicate members who actually transact the business of insurance. 3. Members are individually liable for each risk they assume. 4. Coverage provided is underwritten by a syndicate manager such as an attorney-in-fact or individual proprietor.

Fraternal Benefit Societies

1. _____ societies are primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members. 2. Membership typically consists of members of a given faith, lodge, order, or society. 3. They are usually organized on a non-profit basis.

Hazard

A specific condition that increases the probability, likelihood, or severity of a loss from a peril.

Inaccuracies

Agency must forward to applicant inaccurate information give out within previous two years

Career Agency System

Agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company.

Law of Large Numbers

As the number of units in a group increase, the more likely it is to predict a particular outcome.

Morale Hazard

Attitude that increases the probability of a loss

Apparent

Authority created when the producer exceeds the authority expressed in the agency contract. This occurs when the insurer does nothing to counter the public impression that such authority exists. An example would be the producer's acceptance of premiums on a lapsed policy

Implied

Authority the public assumes the producer has. An example would be the business activities of providing quotes, completing applications and accepting premiums on behalf of the insurer.

Breach of Trust

Based on fiduciary relationship of parties and wrongful acts violating the relationship

Merchant Marine Act of 1920

Because Workers' Compensation laws do not apply to seamen, the Jones Act allows insured seamen to make claims for injuries suffered during the course of employment. It also regulates maritime commerce in U.S. waters, transportation of cargo, and the rights of seamen.

Risk Sharing Plan

Insurers agree to apportion among themselves those risks that are unable to obtain insurance through normal channels.

Exclusive or Captive Agency System

Deals with the insured through an ____ agent. a. Agent represents solely one company or group of companies having common ownership. b. Insurer retains ownership rights to the business written by the agent. c. The agent is an employee or a commissioned independent contractor. d. Insurer may or may not provide office and agency support services.

Motor Carrier Regulatory and Modernization Act

Deregulated the trucking industry by prohibiting any entity from interfering with a motor carrier's right to set its own rates. Motor carriers and private motor carriers that transport property are required to establish evidence of financial responsibility in the form of insurance, a bond, a guarantee, or qualification as a self-insurer.

Moral Hazard

Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people

Retention

Managing Risk: Assume the responsibility for loss. Self insure the entire loss or a portion of the loss. Choosing deductibles is a method of risk retention. It might be economically practical for an insured to not insure each exposure to loss and instead insure only those risks that threaten financial stability security

Avoidance

Managing Risk: Elimination of the risk. Avoid the activity that gives rise to the chance of loss. After potential areas of hazards have been identified, it may be found that some exposure to risk can be eliminated, but it is impossible to avoid all risk.

Reduction

Managing Risk: Minimizing the chance of loss, but not preventing the risk. For example, sprinkler systems, burglar alarms, pollution controls and safety guards on machinery. Pooling or spreading the risk among a large number of persons or entities.

Financial Anti-Terrorism Act

Imposes record keeping and government reporting requirements on banks, financial institutions and non-financial businesses for specific financial transactions and customer financial records (a part of the Bank Secrecy Act).

Sharing

Managing risk: Investments of a large number of people may be pooled by use of a corporation or partnership

Non-Admitted

Insurer has either applied for authorization to do business in this state and was declined or they have not applied. They are not authorized to transact insurance in this state.

Fair Credit Reporting Act

Protects consumer privacy. a. Ensures data collected is confidential, accurate, relevant and used for a proper and specific purpose. b. Protects the public from overly intrusive information collection practices

Loss

Reduction, decrease, or disappearance value. The basis of a claim for damages under the terms of an insurance policy

Facultative Agreement

Reinsurance agreement that allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risk

Speculitive Risk

Situations where there is a chance for loss, gain, or neither loss nor gain to occur. An example of _______ is gambling. _____ cannot be insured.

Peril

The cause of a loss

Self-Insurer

To self-insure means to assume the financial risk one's self. This is generally an option only for large companies who may even reinsure for risks above certain maximum limits.

Risk

a. A condition where the chance, likelihood, probability or potential for a loss exists. b. Uncertainty concerning a loss.

Broker

a. A licensed individual who negotiates insurance contracts with insurers, on behalf of the applicant. b. Represents the applicant or insured's interests, not the insurer, and thus does not have legal authority to bind the insurer. c. A broker's license is not applicable in all states.

Law of Agency

a. A relationship between two or more parties where one party (the agent or producer) acts on behalf of the other party, known as the principal or insurer. b. The agent or producer binds the actions and words of the principal.

Independent Agency

a. An agent or agency that enters into agency agreements with more than one insurer. It may represent an unlimited number of insurers. b. Agency retains ownership of the business written. c. An independent contractor that is paid a commission and covers the cost of agency operations.

Adverse Selection

a. An imbalance created when risks that are more prone to losses than the average (standard) risk are the only risks seeking insurance within a specific marketplace. For example, only those living in earthquake-prone areas seek to buy earthquake insurance. b. High-risk exposures tend to seek or continue insurance at a higher participation rate than the average risk exposures do.

Managing Risk

a. Analyzing exposures that create risk and designing programs to minimize the possibility of a loss.

Personal Producing General Agent

a. Does not recruit career agents. b. Sells insurance for carriers it is contracted with and maintains its own office and staff.

Insurer Obligations

a. Insurer is not responsible for correcting inaccuracies on any reports. b. If an applicant is denied coverage because of inaccurate information they are entitled to certain rights.

Direct Writing System

a. Producer or Agent is an employee of the insurer. b. Insurer owns the accounts. c. The agent may be paid a salary, salary plus bonus, or commission

Direct Mail or Direct Response Company

a. Sells insurance policies directly to the public with licensed employees or contractors. b. A marketing system utilizing direct mail, newspapers, magazines, radio, television, internet, web sites, call centers and vending machines.

Management

a. The determination of what types of protection are required to meet an insured's needs. b. A survey of the insured's operations, health, assets and exposures that could give rise to losses. c. Assessment of potential loss frequency and severity. d. Physical inspections, applications or medical exams used for underwriting help to manage a risk.

Mass Marketing

a. _____ is used to target a specific type of insurance to a large group of individuals, such as the American Association of Retired People (AARP). b. Insurer reduces marketing and underwriting expenses.

Foreign

an insurer not organized under the laws of this state but in one of the other states or jurisdictions within the united states, whether or not it is admitted to do business in the state or jurisdiction

Alien Insurer

an insurer organized under the laws of any jurisdiction outside of the United States, whether or not it is admitted to do business in this state.

Domestic Insurer

an insurer organized under the laws of this state, whether or not it is admitted to do business in this state

Express

authority that is written into the producer's agency contract. An example would be the producer's binding authority if written in a contract.

McCarran-Ferguson Act of 1945

determined that the federal government cannot regulate insurance in areas over which states have the authority to do so.

Federal Insurance Office

established by Doddle Frank Wall Street Reform and Consumer Protection Act. This office monitors the insurance industry and identifies issues and gaps in the state regulation of insurers.

actuarial department

gather and interpret statistical information used in rate making. An actuary determines`` the probability of loss and sets premium rates

Insurance agencies

independent organizations that recruit, contract with, and support sales agents and producers

Insurance agents

licensed individuals representing an insurance company when transacting insurance

Transfer

managing risk: Transferring the risk from one party to another, such as from a consumer to an insurance company. Transfer the uncertainty of loss via a contract

Executive

oversee the operation of business

Treaty Agreement

reinsurance agreement that covers all risk contained in the subject lines of business automatically

Disallowed information

report must not include lawsuits over 7 years old or bankruptcies over 10 years old

Marketing/ Sales Department

responsible for advertising and selling

Underwriting Department

responsible for the selection of risks (persons and property to insure) and rating that determines the actual policy premium

Admitted

the insurer is authorized by this State's commissioner of Insurance to do business in this State. It has received the certificate of Authority to do business in this State.

Domicile

the jurisdiction where an insurer is formed or incorporated

insured

the person or entity that buys insurance for protection from loss of life, health, property or liability.