FIN 341 Chapter 5-Test 1 Spring 2015

Identify the major types of mutual insurers

Advance premium mutual , Assessment mutual , Fraternal insurer

The corporate structure of mutual insurers—especially life insurers—has changed significantly over time. Three trends are?

Increase in company mergers Demutualization Mutual holding company

Financial institution distribution systems are used how?

Many insurers today use commercial banks and other financial institutions as a distribution system to market life insurance and annuity products.

Types of distribution systems in the marketing of life insurance are?

Personal selling systems, Financial institution distribution systems, Direct response system, Other distribution systems

Other Distribution Systems Life insurers also use a variety of additional distribution systems to sell their products such as? .

Worksite Marketing, Stockbrokers, and financial planners

Mutual holding company is?

a company that directly or indirectly controls an authorized insurer. This is much easier than demutualization.

A fraternal insurer is

a mutual insurer that provides life and health insurance to members of a social or religious organization. This type of insurer is also called a "fraternal benefit society."

PRACTICE All of the following are property and liability insurance marketing systems EXCEPT independent agency system. financial institution distribution system. exclusive agency system. direct writer system

financial institution distribution system

PRACTICE Paula is involved in insurance marketing. She represents insurance purchasers rather than insurance companies. She solicits insurance applications and then attempts to place the coverage with the appropriate insurer. Paula does not have the authority to bind the insurance coverage. Paula is a(n) independent agent. direct writer. insurance broker. exclusive agent

insurance broker.

Distribution systems are?

marketing systems that refer to the methods for selling and marketing distribution systems.

Under the exclusive agency system, the agent?

represents only one insurer or a group of insurers under common ownership. The agent may be prohibited by contract from representing other insurers

Mass merchandising is a plan for?

selling individually underwritten property and casualty coverages to group members; auto and homeowners insurance are popular lines that are frequently used in such plans

A broker is?

someone who legally represents the insured even though he or she receives a commission from the insurer. It is contrast to an agent who represents the insurer.

What is an agent?

someone who legally represents the principal and has the authority to act on the principal's behalf. The principal represented is the insurance company.

A direct response insurer sells directly to the public by

television, telephone, mail, newspapers, and other media.

Demutualization means

that a mutual insurer is converted into a stock insurer. This is cumbersome, expensive, and slow, and it requires the approval of regulatory authorities

An assessment mutual has

the right to assess policyholders an additional amount if the insurer's financial operations are unfavorable.

The major distribution systems for marketing property and casualty insurance include the following:

Independent agency system Exclusive agency system Direct writer Direct response system Multiple distribution systems

Describe the basic characteristics of a reciprocal exchange.

It is another type of private insurer, also called an interinsurance exchange and can be defined as an unincorporated organization in which insurance is exchanged among the members (called subscribers).

What is Lloyd's of London.

It is not an insurer, but is the world's leading insurance market that provides services and physical facilities for its members to write specialized lines of insurance.

Explain the basic characteristics of Lloyd's of London

Technically is not an insurance company, but is a society of members (corporations, individuals, and limited partnerships) who underwrite insurance in syndicates. The insurance is written by the various syndicates that belong to Lloyd's. Third, new individual members or Names who belong to the various syndicates now have limited legal liability. Lloyd's is licensed only in a small number of jurisdictions in the United States. In the other states, Lloyd's must operate as a nonadmitted insurer.

The direct response system for selling life insurance is a marketing system by which ?

life and health insurance products are sold directly to consumers without a face-to-face meeting with an agent. Potential customers are solicited by television, radio, mail, newspapers, and the Internet.

An advance premium mutual is

owned by the policyholders; there are no stockholders, and the insurer does not issue assessable policies.

An unincorporated mutual in which insurance is exchanged among the members with each member insuring the other members and, in turn, being insured by the other members, is called a stock insurer. health maintenance organization. fraternal insurer. reciprocal exchange.

reciprocal exchange.

Who owns the policy expirations or the renewal rights to the business under the independent agency system?

the agency owns the expirations or renewal rights to the business.

PRACTICE One marketing system for life and health insurance and property and liability insurance does not use agents or brokers. Instead, potential customers are solicited by television, radio, print ads, and other media. This marketing system is called the exclusive agency system. personal selling distribution system. the direct response system. the direct writer system.

the direct response system

a direct writer is an insurer in which?

the salesperson is an employee of the insurer, not an independent contractor. The insurer pays all the selling expenses, including the employee's salary.

Hal sells property and liability insurance. He is an employee of XYZ Insurance Company and is paid a salary plus a bonus based on the amount of insurance he sells. Hal is a(n) independent agent. exclusive agent. direct writer. insurance broker.

direct writer.

All of the following statements about Lloyd's of London are true EXCEPT Lloyd's of London syndicates are not permitted to write reinsurance. Members of Lloyd's of London write coverage on many diverse loss exposures. Lloyd's of London does not write insurance; insurance is written by syndicates that are members of Lloyd's of London. Lloyd's of London operates as a nonadmitted insurer in most states in the United States.

Lloyd's of London syndicates are not permitted to write reinsurance.

Which of the following statements about the independent agency system is (are) true? I.Independent agents are paid a higher commission rate on new business than on renewal business. II.Independent agents, rather than the insurers they represent, own the expiration rights to insurance business they write. neither I nor II I only II only both I and II

II only

To increase their profits, many property and casualty insurers use more than one distribution system to sell insurance. These systems are referred to as?

multiple distribution systems.

Describe the basic features of mutual insurers.

A mutual insurer is a corporation owned by the policyholders There are no stockholders The policyholders elect a board of directors, who appoint executives to manage the corporation Because relatively few policyholders bother to vote, the board of directors has effective management control of the company.

personal selling distribution systems are?

How the majority of life insrance policies and annuties are sold today. Agents sell to prospective people

PRACTICE Which of the following statements about insurance companies is (are) true? I.Mutual insurance companies are owned by their policyowners. II.Stock insurance companies can issue assessable policies. neither I nor II II only I only both I and II

I only

Describe the basic characteristics of stock insurers.

a corporation owned by stockholders. The objective is to earn profits for the stockholders. The stockholders elect a board of directors, who in turn appoint executive officers to manage the corporation.

Brenda works for an insurance company that is owned by its policyowners. The company provides life and health insurance to members of a certain religious faith. The type of company that Brenda works for is called a(n) stock insurer. fraternal insurer. reciprocal exchange. assessment mutual

fraternal insurer.

Independent agency system also called the American agency system has several characteristics. They are?

is a business firm that usually represents several unrelated insurers. the agency owns the expirations or renewal rights to the business. the independent agent is compensated by commissions that vary by line of insurance.

Some property and liability insurance companies market coverages to individuals who are members of a group under a single program of insurance at reduced premiums. Individual underwriting is used. This type of marketing system is known as a(n) direct writing system. mixed marketing system. mass merchandising system. independent agency system

mass merchandising system.