Chapter 3: Types of Insurers and Their Marketing Systems

mutual insurers include (1) and (2)

(1) advance premium mutuals (2) assessment mutuals

nonprofit organizations formed for the purpose of prepaying subscribers' medical care expenses. (1) plans provide coverage primarily for hospital expenses, and (2) plans provide coverage primarily for physicians' services.

(1) blue cross and (2) blue shield organizations

3 Main Agency Systems in Life Insurance

- General agent system - Branch office system - PPGA system

disadvantages of demutualization

- time, cost, and complexity maybe enormous due to the difficult regulatory, tax, legal, and accounting problems that must be overcome. - regulatory requirement that the policyowners of the company that seeks to demutualize be compensated adequately for loss of their ownership rights. -stock company, the insurer might become vulnerable to a hostile takeover. - as a stock insurer, the company would have to meet SEC and state rules relating to its equity securities -demutualization represents a major change in corporate philosophy by introducing an explicit profit motive, a change that may be difficult for senior executives and other long-standing employees of the former mutual company to accept

brach office systems

-Insurance company establish branch offices in areas where they write business. -They'll have a branch manager in charge. BM is typically a W2 employee (works directly for company) that employs I9 type employees (agents have contracts)

agent's duties to insurers

1. Need to exercise reasonable care 2. Obey principal's instructions 3. Maintain accurate accounting records 4. Keep principal informed 5. Comply with agency contract

insurer's duties to the agent

1. Pay for agent's services 2. Maintain accurate accounting records 3. Reimburse agents for authorized expenses 4. Reimburse agents for liabilities incurred 5. Comply with agency contract

why do some mutual companies convert to stock companies

1. Raising new capital 2. Insurer diversification- mergers and acquisitions 3. Noncash executive compensation (stock options) 4. Federal income tax savings (since 1984 IRS rulings insurance companies feel they're not as favorably taxed as stock companies)

property liability agents typically have (1) authority to bind their companies for most cases involving a homeowner's policy. even if the agent didn't have (1) authority to bind the company in this case,the company would be bound by the agent's (2) authority exercised when the agent told Tom he was covered.

1. express 2. apparent

(1) agents usually do not have binding authority, but (2) agents are normally authorized to bind insurance on behalf of the insurance companies they represent.

1. life insurance 2. property-liability insurance

property- liability agent binding authority

Agents appointed to represent property and liability insurers are granted the authority set forth in the agency agreement. These agents may bind their companies for a client's coverage in certain cases. This is done by an oral or written binder, which is temporary evidence of coverage until the full insurance policy is issued by the insurance company

true or false: life insurance agent has the authority to cover a client immediately

FALSE

(T/F) When representing an insurance company, an insurance agent has only the express authority spelled out in the agency contract.

False. An insurance agent has implied authority and may act with apparent authority, as well as having the express authority spelled out in the agency contract.

Thrivent Financial, Knights of Columbus)

Fraternal insurer- insuring organization that writes mainly life insurance on members of a church, fraternal society, or nonprofit social organization (

general agency system

Hire, train, pain, house, do EVERYTHING for the insurance company in a certain geographical area and it all goes through the agent

commissions: independent agency vs exclusive system (property and liability)

In the independent agency system, commission rates are generally the same for renewing property and liability policies as for the sale of new policies, while in the exclusive agency system, lower commission rates are paid for renewals than for new business

difference between reciprocal exchanges and mutual insurance

Reciprocal exchanges are not mutual insurers in the legal sense because the individual subscribers assume liability as individuals, not as a group as a whole. Another basic difference from mutual insurers is that reciprocal exchanges are not incorporated but are formed under separate laws as associations under the direction of an attorney-in-fact.

life insurance agent binding authority

The life insurance agent's authority is limited in the ability to accept business or bind the coverage. The life insurer issues the contract after receiving the written,- signed application and, often, a medical examination report. The agent may not cover the policyowner immediately, nor may contract modifications be made later without the insurance company's approval.

Ripley is an agent for the XYZ Insurance Company, which specializes in preferred auto insurance. Ripley also has a broker's license that includes auto insurance. Ripley may have authority to bind coverage for an applicant in XYZ, but Ripley has no authority to bind coverage that he wishes to place with another insurer for which he acts a broker.

True

whats the difference between a general agent and a PPGA

Unlike a traditional general agent, the personal producing general agent's main responsibility is his or her personal production. The PPGA is expected to sell the insurer's products, rather than to build an agency force for the company. The PPGA often receives higher commissions than other agents. The PPGA may be expected to meet certain sales quotas for the company but may also be allowed to represent other insurers.

exclusive agency system

a. Agent represents only one insurer (or group affiliated insurers) Insurer may own business written by agents b. **The Insurer owns the business written by the agents. The agent have a financial stake in the business but do not own it

independent agency system

a. Agent represents several insurers or groups of insurers b. ***Agent owns the business written by the agency c. Fran Martino Insurance

a mutual insurance company that establishes the full premium for coverage at the start of the policy period

advance premium mutuals

a legal representative of an insurance company with authority to act on behalf of the insurer

agent

an insurance company with the authority to conduct business in the state but is domiciled in another country

alien insurer

a mutual insurance company that reserves the right to levy assessments on its policyowners to cover adverse underwriting experience

assessment mutuals

a temporary written or oral agreement between an agent and an applicant for insurance whereby the principal-insurer is committed to provide the desired insurance

binder

in life insurance, a marketing system whereby insurers establish branch offices in the areas where they write business. The offices are headed by branch managers.

branch office system

a full-time insurance producer who works independently and has no primary relationship or minimum production requirements with any company

brokers

an option for mutual insurance companies wishing to expand their access to capital markets by converting to a stock form

demutuliazation

No agent or broker involved May use direct mail, telephone, television and radio advertising

direct-response marketing

a method of marketing insurance without the intermediary of an agent or broker

direct-response marketing

an insurance company with the authority to conduct business within a particular state

domestic insurer

a marketing system in property and liability insurance in which the agent represents only one insurer (or group of affiliated insurers), and the insurer has ownership rights over the business written by the agents

exclusive agency system

an insurance company with the authority to conduct business in the state but is domiciled in another state

foreign insurer

a not-for-profit insuring organization that writes mainly life insurance on members of a fraternal society

fraternal insurer

in life insurance marketing, the term used to describe a marketing system whereby a __________ is granted a franchise by an insurer to build an agency force for marketing the insurer's products in a given geographic area

general agency marketing

a marketing system in property and liability insurance in which an agent represents several insurers or groups of insurers and has ownership rights over the business written by the agency

independent agency system

The two main agency systems that dominate in the property and liability field are the

independent agency system the exclusive agency system

an ______ is often referred to as a producer because he or she produces business for the insurance company or companies that he or she represents

insurance agent

Captive Insurance Company

insurance company owned by corporations(s) it insurers, used primary for reinsurance (Ford Motor Company- The American Road)

an association of individual insurers in which insurance is underwritten by its members rather than by the association itself

llyod's associations

a holding company controlled by policyowners that owns a controlling interest in a new stock insurance company that takes over a mutual insurer's business

mutual holding company

a not-for-profit insurance company owned by its policyowners, who elect its board of directors

mutual insurance company

an insurer that does not have a license to conduct insurance business in a particular state. These insurers typically provide surplus lines insurance.

nonadmitted insurers

Llyod's of London

not an insurer, but a society of members who underwrite insurance in syndicates a British organization made up of and regulating the activities of members, both individual and corporate, who act as insurers. The organization itself does not write insurance. The insurer=underwriters at Llyods

· Admitted verses non-admitted insurer

o Admitted- you are licensed by the state insurance department to do business in a particular state o Non admitted- not licensed to do business in a particular state o Surplus Lines Insurers- can be approved when coverage is otherwise unavailable o Unauthorized Insurer- someone placing business by a non-admitted insurer is ILLEGAL

classification of private insurers domicile

o If New York Life is selling insurance in the state of new York, they're a domestic insurer. Just like Prudential selling in NJ, that's domestic o If New York Life and sells in NJ, now they're a 'foreign' insurer. Doing business in a state other than your state of incorporation o Swiss RE doing business in America is an alien insurer

classification of private insurers by lines of business

o Life and Health Insurer o Property and liability insurer o All- lines/ multi lines insurer § writing life, health, property, and liability insurance) o Monoline specialty insurer § specializing in one line of coverage, such as medical professional liability insurance

an agent of a life insurance company who is the insurer's general agent in a given territory but whose primary task is to sell the insurer's products, rather than to build an agency force for the insurer. A PPGA may also be allowed to represent other insurers.

personal producing general agent

a surplus lines broker often deals with the ______ rather than the

policy owner's broker directly with the policyowner

a type of insurer organized as an unincorporated pool of funds owned by policyowners and managed by an attorney-in-fact. The insured/insurer relationship is governed by a Subscribers Agreement or Power of Attorney in which policyholders assume liability as individuals and grant the attorney-in-fact the right to manage, for a fee, as an insurer, the funds contributed by policyholders and others to the unincorporated association.

reciprocal exchange

an insurance company owned by stockholders

stock insurance company

a broker who is authorized to place insurance with nonadmitted insurers in certain circumstances

surplus line brokers

a broker who is authorized to place insurance with nonadmitted insurers in certain circumstances. Also known as an excess lines broker.

surplus lines broker