Exam FX General Insurance

Apparent

(also known as periceved authority) is appearance of the assumption of authority based on the actions,words,or deeds of the principal created.

Insurer

(principal) -the company who issues a policy of insurance

Exclusive Agency System/ Captive Agents :

1 agent represent 1 company Exclusive Commission on personal sales Renewals can only be placed with the appointing insurer.

Independent Agency System/American Agency System:

1 independent agent represents several companies Non Exclusive Commissions on personal sales Business renewal with company

3 Types of Agent Authority

1. Express 2. Implied 3. Apparent

The purpose of retention is:

1. To reduce expenses +improve cash flow 2.To increase control of claim reserving + claims settlement. 3.To fund for losses that can be insured

Currently the United States has:

5 major U.S. Territories : American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the US.Virgin Island. (For Example): A company chartered in California would be a foreign insurer with in the state of New York.

Know This!

A domicile refers to the location where an insurer is incorporated, not necessarily where the insurer conduct business.

Sharing

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss who share the losses that occur within that group.

Insured

A person covered by an insurance policy. This person may or may not be the policyowner

*Know This!:

A risk is a chance that a loss will occur; a hazard increase the portability of loss;a peril is the cost of loss.

Know This!

As number of people a risk pool increases, future losses become more predictable.

Managerial System:

Branch manager (supervises agents) Salaried Agents can be insurer's employees or independent contractors

Not catastrophic

Insurers need to be reasonably certain their losses will not exceed specific limits.

Direct Response Marketing System:

No agents Company advertises directly to consumers (through mail, internet, television, other, mass, marketing) Consumers apply directly

For instance, a company chartered in :

Pennsylvania would be considered a Pennsylvania domestic company.

2 Types of Risks are pure and speculative,only one of which is insurable

Pure Risk :refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure Risk is the only type of risk that insurance companies are willing to accept. Speculative Risk: involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risk are not insurable. Know This! Only pure risks are insurable

Premium

The money paid to an insurance company to purchase a policy

Insurance Policy

a contract between a policyholder (and/or insured) an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

Agent/Producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

Due to chance

a loss that is outside the insured's control

Definite + Measurable

a loss that is specific as the cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable.

Reciprocity/Reciprocal

a mutual interchange of rights and privileges

Life Insurance

against the financial loss caused by the premature death insured.

Responsibilites to the Apparent + Insured

although the agents act for the insurer, they are legally obligated to treat appliciants +

Those insurers who have not been approved to:

do business in the state are considered authorized or non-admitted.

Risk Avoidance is

effective but seldom practical.

With participating policies, policy owners are:

entitled to dividends, which in case of mutual companies are return of excess premiums and are therefore nontaxable.

A reciprocal insurance

exhale is a formal risk-sharing arrangement

Self-Insurer (INSURANCE)

frequently structure their programs to only retain losses up to a certain specified limit +purchase insurance to cover losses above that level.(This called stop-loss coverage)

Dividends are not

guaranteed

Moral

hazards are tendencies towards increased risk.

Perils are the causes of loss insured against

in an insurance policy

Marketing Distribution Systems is :

insurance companies market their products in different ways; through agents or direct solicitation to the customers.

A foreign insurer is an :

insurance company that is incorporated in another state or territorial possession.

Risk

is the uncertainty or chance of a loss occuring.

Elements of insurable risk are:

not all risk are insurable. (As note earlier, insurers will insure only pure risk, or those that involve only the chance of gain.

The financial strength of an insurance company is based on:

prior claims experience, investments earnings, level of reserves (amount of money kept in separate account to cover debts to policyholders), and management, to name a few.

Federal + State Governments

provide insurance in the areas where private insurance,is not available call social insurance programs

Policy owner

the person entitled to exercise the rights and privileges in the policy

Insurance

transfer of loss and protection

Risk

uncertainty concerning the occurrence of a loss

Admitting vs. Non-admitted Insures:

Before insurers may transact business in a specific state, they must apply for and be granted a license of Certificate of Authority from the state department of insurance and meet any financial (capital) and surplus) requirements set by state.

General Agency System

General agent-entrepreneur represents 1 company Exclusive Commission + Commission Appoints sub agents

Type of Marketing Arrangements is :

Independent Agency System /American Agency System, Exclusive Agency System/Captive Agents,General Agency System, Managerial System,Direct Response Marketing System

Know This !

Insurance agents represent the insurer (principal)"Who is your pal ?" The Principal

A.Contract

Insurance is a contract in which one party(the insurance company) agrees to indemnify (make whole) the insured party against loss, damage, or liability arising from an unknown event, in life insurance the policy protects survivors from losses suffered after an insured' s death. Insurance is a transfer of risk loss from an individual or business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals. If there were no insurance mechanism, the cost of a loss would have to borne solely by the individual who suffered the loss. Know This! : Insurance is the transfer of risk. Insureds' losses are transferred over to the insurer.

Know This!:

Insurers must obtain a Certificate of Authority before transacting insurance within state.

Mutual Companies

Owned by the policy owners and issue participating policies.

Private Insurance Companies can be classified in variety ways:

Ownership;; Authority to transact business;; Location (domicile);; Marketing and distribution systems;; OR Rating (financial strength)

Types of Insurers

Stock, Mutual, Reciprocal, Fraternal, Lloyd's, Reinsurers, Excess and Surplus Lines, Risk Retention Groups, Self Insurers, The United States Government as Insurer

The basis of insurance are sharing risk:

among the members of the largely homogeneous group with similar exposure to loss.

Broker

an insurance producer not appointed by an insurer and is deemed to represent the client

Hazards

are conditions or situations that increase the probability of an insured loss occurring.

Stock Companies

are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses.

Express

authority is authority a principal intends to grant to an agent contract. It is authority that is written in the contract.

Certificate of Authority :

authorizes a company to start conducting business and specifics the kind(s) of the insurance company can transact business.(It is illegal for an insurance company to transact insurance without this certificate.

Perils

cause of loss

Domestic, Foreign and Alien Insurers insurance companies are:

classified according to the location of incorporation (domicile), regardless of where an insurance company is incorporated, it must obtain Certificate of Authority.

Most states have laws that prohibit unauthorized insurers from:

conducting business in the state,except through licensed excess and surplus line brokers.

Physical

hazards are individual characteristics that increase the chances of the cause of loss. Physical hazards exists because of a physical condition,past medical history,or a condition at birth, such as blindness

Moral

hazards involve evaluating the character + reputation of the proposed insured.

Moral

hazards similar to moral hazards,except that they arise from a state mine that causes indifference to loss, such as careless. Action taken without forethought may cause physical injuries.

A large number of the units having the same or similar exposures to loss is known as:

homogeneous

Insurers who meet the state financials requirements and are :

improved to transact business in the state are considered authorized or admitted into the as the legal insurer.

Adverse Selection

insurance companies strive to protect themselves from adverse selection insuring of risks that are more prove losses than average risk.

Financial Status (Independent Rating Services) the financial strength and stability of an :

insurance company are two vitally important factors to potential insureds.

A domestic insurer is an:

insurance company that is incorporated in the state.

An alien insurer is an:

insurance company that is incorporated outside the United States.

Insurer

insurance is available from both privileges companies and the government.

Staistically

insured must be able to estimate the average frequency and severity future losses + set appropriate premium rates.

Casually Insurance

insures against the loss and/or damage of property resulting.

Property Insurance

insures against the loss of physical property or the loss of its income-producing abilities.

Health Insurance

insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury.

Reinsurance

is a contract under while one insurance company (the reinsurance indemnifies another insurance company for part of all its liabilities.

Exposure

is a unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates: .The aged of insured .Medical History .Occupation .Sex

Fraternal Benefit Societies

is an organization formed to provide insurance benefits for members of an affiliate lodge, religious organizations, or fraternal organization with representatives form of government.

Risk Retention

is the planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. It is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays.

Self-Insurers

is when a person a or entity develops a formal program identifying evaluating and funding losses as alternative to purchasing of insurance from an insurance company.

The law of numbers states that

larger number of people with a similar exposures to loss, the more predictable actual losses.

Avoidance

one of the methods of dealing with risk is avoidance, which means eliminating exposure to loss.

Applicant

or purposed insured- a person applying for insurance

Loss

reduction of value +basis of claim

Loss is defined as:

reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer loss.

Exclusive or Captive Agency System

represent only one company and are compensated by commission

Independent Agents

sell the insurance products of several companies and work for themselves or other agents.

5 Law of Numbers the basics of insurance is

sharing risk among a large- pool with a similar exposures to loss (a homogeneous group)

Reduction

since we usually cannot avoid risk entirely, we often attempt to lessen possibility.

Government Insurance Programs include

social security,Medicare,Medicaid,Federal Crop Insurance + National Flood Insurance

In most cases, the company's home office is in the :

state in which it was formed- the company domicile.

Implied

suggested but not directly expressed

Authority +Powers of Producers

the agency contract details the authority an agent has within his or her company.

The major difference between government programs and private insurance programs is that :

the governments programs and private insurance programs is that the government programs are funded with taxes and serve national and state social purposes while private policies are funded by premiums.

Transfer

the most effective way to handle rise to transfer it so that the loss is borne another party

Randomly

there must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender,sex,occupation health and economic status and geographic location.

The independent agent owns the expirations of the policies he/she sells,meanin

they may place that business with another insurer upon renewal if in the best interest of the client.

Dividends are generated

when the premiums and the earnings combined. exceed the actual costs of providing coverage, creating a surplus..

Reduction

would include actions such installing smoke detectors in our having an annual physical to detect health problems early, or perhaps making a change in our lifestyle.