LAH Prep

Law of Agency

-a set of common law rules that define the legal relationship between two parties: a principal and an agent -authorizes agents to act on behalf of the principal in negotiating and creating legal agreements with a third party

producers are expected to:

-avoid rebating -make sure all product recommendations are suitable for the customer avoid replacing an existing policy unless the replacement is clearly in the customer's best interest disclose all information that pertains to the proposed policy avoid misrepresenting the terms or conditions of a proposed policy

the Risk Retention Act of 1986 requires that:

-it follow the insurance laws of the insurer's state of domicile -shares a common business, occupational, or professional relationship

among the most well-known and respected of these ratings agencies are:

A.M. Best Standard and Poor's Moody's Duff and Phelps

risk retention groups were created through the federal...

Risk Retention Act of 1986

federal government insurance programs include...

SSI medicare

accidental death and dismemberment insurance (AD&D)

These policies provide financial support if the insured dies or is dismembered from an accident -form of limited risk policy

domestic insurers

a company is a domestic insurer in the state in which it is incorporated.

admitted insurer (authorized insurers)

a company that has received a certificate of authority from the state -permits the company to transact insurance within the state -certifies that the company has met the state's requirements for conducting the business of insurance

alien insurers

a company that is incorporated in a country outside of the United States and is doing business in the United States

unilateral contract

a contract in which only the insurer makes a promise that can be enforced

contract

a legally enforceable agreement between at least two parties

valued insurance contracts

a life of health insurance policy that pays a stipulated sum as set in the contract -pays a stated face amount regardless

fiduciary

a person holding funds or valuable property for the benefit of another person -held to a higher standard of care with respect to the held property

surplus lines insurance

a specialized insurance coverage that is offered when either of these conditions arises: (1) a risk or a part of a risk is identified for which there is no market available through the original or producing agent; or (2) a state bars the sale of a specific type of coverage or otherwise prevents insurance companies from providing coverage for a particular risk or restricts them from charging adequate rates

warranty

a statement guaranteed by the maker to be true in all ways -found to be untrue is grounds for cancelling a contract

representation

a statement that is believed to be true to the best of the applicant's knowledge -if applicant answered all questions truthfully, the insurer cannot challenge the contract if it later determines that any of the statements were in fact untrue

all producers are bound to the law of ___________

agency

insurance department

an agency that is responsible for regulating all aspects of insurance transacted in that state

implied authority

an agent's authority is implied when (1) is intended to be given by the insurer, (2) usually relates to the general customs of the business, (3) is not contractually provided or specifically explained

indemnity insurance contracts

an insurance contract in which the payment of a loss is limited to the insured's actual loss -reimburse

non-admitted insurer

an insurer not licensed to do business in the state

reinsurance

an insurer that sells insurance to the public enters into an agreement with another insurance company to accept some of its risks

foreign insurers

any company that does business in a state outside of its state of domicile

producers

anyone who sells insurance for another and gets a policy from the insurer -most state insurance regulations today refer to agents and brokers as producers

insurance policies (are/are not) conditional

are

many states require that applicants be given a policy summary __________ the application is signed

before

With health insurance, _____________ are conditional on the insured incurring covered medical expenses or suffering a covered loss

benefits

insurance companies have used two types of sales representatives to sell their products

career agents independent insurance brokers

contracts can be either...

commutative or aleatory -most are commutative

acceptance of an offer results in a...

contract

apparent authority

contract does not provide, insurer does not intend, and reasonably appears to the customer to be granted by the insurer based on the producer's statements and the actions (or inactions) of the insurer -most likely to lead to problems

contract of adhesion

contract that is drafted by one party and is offered on a take-it-or-leave-it basis -little chance to bargain terms, price or other elements

unique attributes of an insurance contract?

contracts of adhesion aleatory personal unilateral conditional

errors and omission (E&O)

covers injuries and damages that occur due to professional services a producer rendered or failed to render

the products that the surplus lines brokers sell (do/do not) have to be approved by the insurance department of that state

do

home service insurance companies generally (do/do not) require a medical exam to qualify

do not

commutative contract

each party to the contract can expect to receive something of equal value from the other party

what are home service insurance companies structured as?

either stock or mutual company

career agents

employed by an insurance company to sell only that company's products

actuarial

employs actuaries who calculate the insurer's premium rates, determine appropriate cash reserves on claims, and calculate policy dividends on participating life insurance policies

marketing and sales

employs home office employees to promote ("market") the product and licensed producers who represent the insurer and sell its policies

underwriting

employs underwriters who evaluate completed insurance applications to determine the applicant's level of risk, and determine appropriate premium rates and coverages for that risk

Buyer's Guide

explains the general features, benefits, and conditions of the type of insurance being considered A type of disclosure to an insurance applicant that explains the applicant's rights and responsibilities with regard to the insurance coverage.

three levels of producer authority

express implied apparent

With life insurance, payment of the ____________ __________ is conditional on the insured's death

face amount

most states require that the guide be provided to a prospective buyer in the _________ meeting with the producer

first

what are the two types of insurance contracts?

indemnity valued

home service insurance companies distribute a class of insurance called...

industrial life insurance

typical, the applicant makes an offer to the insurance company through a signed application plus the ___________ __________

initial premium

with insurance contracts the applicant's consideration is the...

initial premium payment

the law of agency makes it clear that that producers' actions are generally binding on the...

insurance companies they represent

ceding company

insurer seeking to transfer some of its risk

direct response system

insurers using the direct response method sell directly to consumers, without the use of external agents or brokers, through mail, radio, television, and Internet advertising

self-insurance is a sound option only for __________ _________

large companies

life insurance is not a personal contract in the _______ sense

legal

surplus lines brokers are authorized to:

look to non-admitted insurers outside of the state for coverage not available in-state

two types of career agency systems

managerial system general agency system

surplus lines insurance is a (market/product) for insurance that is not available through any admitted companies in a state

market

insurance operations can be divided into four functions:

marketing and sales actuarial underwriting claims

to be considered legally competent, a person must be:

mentally sound of legal age not under the influence of drugs or alcohol

with reinsurance, the policy owner may...

never be aware of the arrangement

what is the first step in the formation of a legal contract?

offer

a contract requires what five things?

offer acceptance consideration competent parties legal purpose

aleatory contract

one party may receive a benefit that is out of proportion to the consideration he or she is giving -the possibility of receiving the disproportionately large benefit must depend on the occurrence of a chance event

unauthorized company

one that is presenting the products it sells as "insurance" when in fact it is not a legitimate insurance company

self-insurer is any organization that "insures" itself, typically by...

paying for smaller losses with its own money

what is the insurance company's competency demonstrated by?

possession of a certificate of authority

the ceding company pays a __________ to the reinsurer for its share of coverage

premium

surplus lines insurance is more common with...

property and casualty insurance than with life and health insurance

claims

receives policy claims, investigates them, and decides whether to pay the claim as submitted, reject the claim, or offer some other settlement

self-insurer is an example of the _________ __________ approach to risk management

risk retention

self-insurers who want to share the administrative tasks of running a self-insurance program may join a...

risk retention group (RRG)

industrial life insurance offers individual coverage in (small/large) face amounts

small (usually less than $10k)

consideration

something of value that is given by both parties to the contract -each party gives to demonstrate its commitment to the agreement

insurance is primarily regulated at the __________ level

state

insurance is regulated primarily at the ______ level

state

misrepresentations

statements the applicant knows to be untrue -willful misrepresentation is fraud and grounds for voiding the contract if found within the contestability period and possibly even afterward depending on its severity

policy summary

summarizes detailed information about the specific policy being purchased

only through a __________ ___________ ___________ can a non-admitted insurer transact business in a state

surplus lines broker

general agency system

the agency head is an independent contractor (called a general agent, or GA) who employs agents

personal contracts

the agreement between these two parties cannot be transferred to another party ex) health insurance

express authority

the authority given to an agent by the contract between the agent and the insurer

concealment

the deliberate withholding of material facts when applying for insurance -if concealed facts would have changed the insurer's decision to offer the insurance policy, then the insurer has grounds to void the insurance contract

rebating

the giving of anything of significant value to induce someone by insurance

a contract of adhesion is drafted by...

the insurer

with insurance, who makes the binding promise?

the insurer -to pay policy benefits when a covered loss occurs

reinsurance company

the insurer accepting some of the risk being transfered

managerial system

the insurer employs agents through regional offices, branches, or agencies

contestability period

the limited time period after a contract is signed that the insurer has to discover fraud in -usually two years after the policy is issued

career (or captive) agency system

this distribution system uses licensed producers called agents who primarily, if not exclusively, represent one insurer

independent agency system

under this system, licensed producers called brokers are not affiliated with any single insurer but instead represent multiple companies

two related principles that affect insurance contract enforceability are:

waiver estopple

estopple

when a party to a contract gives up a right without intending to do so

counteroffer

when an offeree fails to accept even one term of an offer, even if all the other terms are accepted, this action is considered a rejection of the offer

waiver

when one party to a contract knowingly gives up (waives) a right, either by its actions or its inactions

when is a third party contract formed?

when the policy owner is not the insured (brings in a third party)

independent insurance brokers

who sell insurance products for two or more different companies

fraud

willful deception with the intent to gain something of value -a reason for voiding a contract at any time

state government insurance programs include...

workers compensation medicaid unique state-run medical insurance plans