1-C Types of Insurers

Question 1

Characteristics of Social Insurance

Answer 1

1. NON PROFIT
2. MANDATORY PARTICIPTATION
3. BENEFITS PRESCRIBED BY LAW
4. DESIGNED TO MEET NEEDS OF GENERAL PUBLIC
5. GOV HAS MONOPOLY

Question 2

Characteristics of private insurers

Answer 2

1. Sell insurance based on consumer preferences
2. Offer a wide variety of insurance products
3. Exists to generate profit or benefit a group
4. Insured party voluntarily participates

Question 3

Stock insurance companies?

Answer 3

Always for profit
Usually Public traded
stockholders provide capital and participate in profits/ losses
Non- Participating insurers: No dividends go to policyholders
ex. All state, Geico, Aflac

Question 4

Mutual insurance companies

Answer 4

1. Owned by policyholders (zero shareholders)
2. Policyholders elect board of directors
3. Participating insurers: policyholders participate in dividends.

Question 5

Re-Insurer?

Answer 5

An insurer that provides insurance for other insurers.
1. The insurer buys insurance to reduce its exposure to loss.
2. The re-insurer pays a percentage of the insurers losses or any losses over a certain amount.

Question 6

Reciprocal insurer

Answer 6

• Unincorporated
• Always nonprofit
  -Operated by attorney in fact
  -members pay into individual accounts
  -cost of claims shared by whole group

Question 7

Fraternal Benefit Societies

Answer 7

-Also called fraternal associations
-nonprofit, mutual aid organizations
-engage in charitable activities
-provide some types of insurance to members
-typically consist of ppl with similar religions, ethnicities or occupations

Question 8

Fraternal Benefit Insurance

Answer 8

• Used to fund altruistic activities
  -Must be assessable by law
• Members are both providers and recipients
  -If claims payment ability is impaired, members help pay the difference.

Question 9

Self insurers

Answer 9

Simply set aside money to protect against potential losses rather than pay premiums.

Question 10

Captive insureres

Answer 10

1. Created by businesses in order to retain risks
2. Exist to provide insurance only for their parent company.
3. All profits belong to parent company
4. Permitted in some states

Question 11

Risk retention groups

Answer 11

1. Owned by their members who assume the risk and share profits.
2. Provide commercial liability insurance but not workers comp.

Question 12

Risk retention groups

Answer 12

1. Owned by their members who assume the risk and share profits.
2. Provide commercial liability insurance but not workers comp.
3. Must be involved in similar business endeavors.
4. Don’t need to be licensed in multiple states

Question 13

Classification based on location

Answer 13

Domestic- adhere to state laws
Foreign insurer- adhere to states or use laws, but can be located elsewhere.
Alien insurer- adheres to the laws of another country all together.

Question 14

Surplus Lines?

Answer 14

When standard insurance isn’t covered or you are denied coverage, you can have surplus lines.

If it’s standard insurance carrier
- Licensed by the state to sell specific lines of insurance.
-Must Contribute to a state insurance guaranty fund, an association that protects policyholders if the insurer becomes insolvent

Nonadmitted insurance carriers
-Not licensed by the state, but licensed in their own state.
-Not backed by guaranty fund: Must prove financial stability.

Licensed brokers provide surplus (aka excess) lines insurance: Property and casualty insurance.

It’s a last resort!

-Surplus line not available in standard market
-Must meet certain conditions