chapter one

Net retention

the amount of insurance kept by the ceding company aka the net line

apparent authority

the appearance or assumption of authority based on the principals actions, words, or deeds

express authority

the aurthority a principal deliberately gives to its agen

captive or career agent

works for one insurance company and sells only that companys insurance policies

independent agent

works for themselves and sells insurance of many companies

Foreign Insurer

authorized in one state, but principle office is in another. ex: nation insurance co of ohio is also licensed in the state of illinois as a foreign insuerer

Treaty Reinsurance

automatic sharing of assumed risk bewteen two insurance agencies.

actuarial deparment of co

calcuates policy rates, reserves, and dividends, and makes other applicable statistical studies and reports focusing on morbidity and mortablity tables

implied authority

is the unweritten authority that is not ecpressly granted, but which the agent is assumed to have an order to transact the business of the principal

Risk Retention Group (RRG) and Risk Purchasing Groups (RPG)

liability insurers that assume and spread product liability and other forms of insurance risk among its members. members are business owners and also policy/shareholders only has to be liscenced in one state but can work in many.

ways the insured can reduce premium cost

loss control measures ie: smoke alarms, to lower chance of loss occuring in the first place

1970 Fair Credit Reporting Act

-protects individuals right to privacy -applicants must be informed of any investigations that are being made

three roles of insurance

1. spreads the risk of loss from one person to a large number of persons through pooling of premiums 2. transfers risk from one party to another through pooling funds 3. policy owner obtains large coverage in return for a small fee (the premium)

rating services

AM Best, Fitch Ratings, Standard and Poors and, Moodys purpose is to determine a companys financial strength and publish the rating

Career Agency System

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

Surplus Lines Insurance

An insurance co. authorized to sell nontraditional insurance for unusual risks . You can only go to a surplus lines if you cant get it from a regular insurance company

Alien Insurer

An insurance company that is authorized in teh US but whose principle office is outside of the country

Strong Assessment Mutual/Insurers

Assessment mutual companies are classified by the way in which they charge premiums

multi line insurers

Companies that sell more than one line of insurance

Fraternal Benefit Societies

Life or health insurance companies formed to provide insurance for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government with elected officeers. Must be nonprofit, have a lodge system (including ritualistic work)

Mutual Companies - Participating

Mutual insurance companies are also organized and incorporated under state laws, but they have no stockholders. Instead, the owners are the policyholders Anyone purchasing insurance from a mutual insurer is both a customer and an owner. He has the right to vote for members of the board of directors. By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings. Referred to as participating companies because policyowners participate in dividends. policyowners share divisible surplus

service providers

Offer benefits in return for a premium. Participants are known as subscribers.

Pure Assessment Mutual Company

Operates on the basis of loss-sharing by group members. No premium is payable in advance. Instead, each member is assessed an individual portion of losses that actually occur.

Stock Companies - Nonparticipating

Organized and incorporated under state law; owned by stockholders who get paid a share of profit through dividends; policyholders are not paid dividends -directors/officers are responsible to stockholders

advertising code

Specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind -requires full disclosure of policy renewal, cancellation, and termination provisions

1945 McCarran and Ferguson Act

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

Mutualization

The process of a stock company being converted into a mutual company

Demutualization

Transformation of a mutual insurer into a stock insurer.

Liquidity

a company's ability to pay for its near-term obligations

producer agents represent

a particular company

Self-insurance

a self-funded plan to cover potential losses. -often used by large companies for funding pension plans -a self insurer may look to an insurance company to provide insurance above specified max level of loss

policy summary

a written statement describing the features and elements of the policy being reccommended

independent agency system

agencies that are independent contractors contract with several different companies to represent and sell insurance for those companies.

agents represent ______________ brokers represent _______________

agents represent the insurer brokers represent the buyer

an agents authority to bind an insurer to an insurance contract may be granted in the

agnets contract and the insurance companys appointment

Reinsurance

an arrangement by which the primary insurer that initially writes the insurance (ceding company) transfers to another insurer (the reinsurer) part or all of the potential losses associated with such insurance -portion of the risk that the ceding company retains is called the net retention (net line) -cuts losses should large claim occur

captive insurer

an insurer owned by a parent firm for the purpose of insuring the parent firm's loss exposures wholly own and controlled by its insured

Authorized (Admitted) Insurer

an insurer that is allowed to conduct insurance business in a particular state -unauthorized insureres do not have a certificate of authority

a reciprocal insurer typically has an administrator who manages the premiums collected from the groups memebers. this administrator is called a(n)

attorney - in -fact

Advance Premium Assessment Mutual

charges a premium in advance at the beginning of the policy period. if premium exceeds expenses/losses -> payable in dividends if premium not enough to meet losess ->additional assessment is levied by the members

Personal Producing General Agency

do not recruit train or supervise agents. primarily sell insurance

buyers guild

each state requires agents to deliver a buyers guid to consumers expains various types of life insurance products and info on the reccommended policy such as : premiums, dividends, benefit amounts

guaranty association

established by all states to support insurers and protect consumers in the event an insuer becomes insolvent.

Agent Marketing and Sales Practices

every state requires its licensed producers to adhere to specific standards designed to protect consumers and promot suitable sales and application of insurance products

when a ceding insurer transfers a portion of risk to an assuming insurer on a case by case basis, this process is referred to as

facultative reinsurance

Domestic Insurer

home office in state where its authorized. -formed under state laws

only time unauthorized (non admitted) insurers may still offer insurnace

may offer surplus lines without a certificate IF no other authorized insurer in the market is available or willing to take the risk

reserves

measurment of an insurers future obligations to its policy holders classified as liabilities on the insurance company's accounting statement

producer brokers

not tied to any particular company and can represent many insurers products

Government Insurance

owned/oporated by a federal or state entity generally cover catastrophic perils (flood, war) or to protect a segment of society (elderly)

dividends from a mutual insurance company are paid to whom

policy holders

rating service

primary purpose is the determine the financial strength of the industry insurers

which of the following outlines the authority given to the producer on behalf of the insurer

producer contract

which of the following outlines the authority given to the producer on behalf of the insurer?

producer contract

national association of insurance commisoners

regularly examine aspects of insurance industry and recomment applicable insurance laws and regulations -enoucrages uniformity among state inruance -assists in the administration of those laws -protects the interests of policyowners/consumers -preserve state regulation of the insurance business

what is the accounting measurement of an insurance companys future obligations to its policy owners

reserves

an insurers financial strength can be evaluated by looking at what two things

reserves and liquidity

marketing/ sales division of co

responsible for increasing the nnumber of prospecitve applicants

claims department of co

responsible for processing, investigating, and paying claims for losses incurred by insureds.

the underwriting department

responsible for reviewing applications, conducting investigations to gain additional information about applicants, assigning risk classifications and approving or declining application

who regulates an insurer's claim settlement practices?

state incurance department

unfair trade practice acts

state lead can issue : cease and destain, investigation, penalty/violation restrain insurers from using any methods believed to be unfair. -misrepresentation, false advertising, coercion, intimidations, discrimination

Mixed Plan insurance and its 2 options

stock insurance company issuing both participating and non participating policies. participating: allow policyholders to elect board of directors and receive dividends from divisible surplus nonparticipating: do not allow policyholders to elect board of directors or dividends. instead, dividends go to stockholders.

Lloyd's of London

syndicate of individuals and companies who individually underwrite (gaurentee payment in case loss or damage occurs) insurance (think, NYSE) functions: underwrite claims, help associate settle claims and disputes and through underwritiers it provides coverages that might otherwise be unabailable in certain areas

which grou pis the DO Not Call registry designed to protect against

telemarketers

divisible surplus

that portion of an insurer's surplus that is declared as a dividend to be distributed to policyowners. typically distributed on annual basis

sales department of co

the department completing the application. "field underwriters"

private insurance

the insured pays a monthly premium for insurance plan offer individual, group, industrial, or blanket insurance policies

Reinsurer

the insurer that accepts the insurance from the ceding company

ceding company

the primary insurer that initially writes the insurance

which reinsurance contract between two insurers involves an automatic sharing of risks assumed

treaty reinsurance

Reciprocal Insurers

unincorporated groups of people that provide insurance for one another through individual indemnity agreements