AAI 83 Segment B

Question 1

Profit-Sharing Agreement

Answer 1

A contractual agreement that pays contingent commissions or bonuses if the insurance agency meets predetermined premium quotas, growth targets, and/or loss ratios.

Question 2

Facultative Reinsurance

Answer 2

Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.

Question 3

Wholesaler

Answer 3

Any insurance entity that serves as an intermediary between an insurance retailer and the insurer.

Question 4

Managing General Agent (MGA)

Answer 4

An authorized agent of the primary insurer that manages all or part of the primary insurer’s insurance activities, usually in a specific geographic area.

Question 5

Surplus Lines Agent, or Surplus Lines Broker

Answer 5

A wholesaler who places insurance policies with non-admitted (surplus lines) insurers.

Question 6

Affordable Method, or all-we-can-afford method

Answer 6

An advertising budgeting method with which an organization focuses all of its internal resources on operations and production and allocates what remains to advertising.

Question 7

Percentage-of-sales method (most commonly used - simple to use)

Answer 7

An advertising budget method with which an organization bases its budget on a of percentage of the sales of the product.

Question 8

Comparative parity method (best used with one or more other methods)

Answer 8

An advertising budgeting method with which an organization assess the competitive environment and uses the amounts spent by its major competitors as benchmarks.

Question 9

Return on investment (ROI)

Answer 9

An advertising budgeting method with which an organization treats advertising expenses as investments and monitors results to determine investment returns.

Question 10

Objective and task method (mostly used with advertising firms)

Answer 10

An advertising method that involves three steps:

1. Defining the advertising communication (media)
   objectives.
2. Determining the strategies needed to attain them.
3. Estimating the costs associated with executing the
   strategies.

Question 11

Cooperative advertising (co-op)

Answer 11

A means of sharing the cost of producing and placing advertisements.

Question 12

Promotional advertising

Answer 12

An advertising program directed towards a targeted group, designed to generate immediate sales of specific products or product lines.

Question 13

Prospect

Answer 13

An individual (or organization) from whom a producer solicits business.

Question 14

Prospects begin with suspects. How do you screen a prospect?

Answer 14

• Do they need the product?
• Are they acceptable from and underwriting standpoint?
• Will they pay premiums promptly?
• Can the producer arrange to meet with them?
• Are they the right type of market for the agency or
  producer?
• Are they likely to buy the targeted product?

Question 15

Profiling

Answer 15

Gathering desired information about customers and prospects.

Question 16

Undifferentiated Market

Answer 16

The entire market of buyers for any particular type of product service.

Question 17

Differentiated Market

Answer 17

A market that contains a number of marketing segments, each with its own characteristics requiring separate marketing strategies.

Question 18

Concentrated Market

Answer 18

A target marketing strategy by which marketers target a segment of a total market with the intent to capture a large or concentrated share of that segment.

Question 19

Niche Market

Answer 19

A small segment of the total market.

Question 20

Behavioristic Segmentation

Answer 20

Purchase Behavior, satisfaction:

User Status (non-user, ex-user, potential user, first-time user, regular user) usage rates (light, medium, heavy), purchase occasion (when consumers buy “regular or special”), benefits sought (economy, convenience, reliability, and prestige) loyalty status (none, medium, strong, and absolute).

Question 21

Geographic Segmentation

Answer 21

Region, county size, climate, city size, and density (urban, suburban, or rural).

The larger the premium and the greater the number of prospects involved, the greater the territory that can be considered.

Question 22

Demographic Segmentation

Answer 22

Age, gender, education, occupation, ethnicity, income, family size, family-life-cycle.

Commercial uses asset size or SIC codes.

Question 23

Psychographic Segmentation

Answer 23

Divides a market by individuals’ values, personalities, attitudes, and life styles.

Question 24

Association Programs Key Marketing Elements

Answer 24

*Homogeneous membership - similar loss exposures
and size.
*Attractive class of business - must be attractive to
insurer.
*Willingness of insurers to provide coverage - does the
insurer offer association group approach?
*Strong association endorsement - producer must sell
the association on the advantages of group insurance.

Question 25

Name seven factors the agency owner should evaluate before establishing a relationship with an insurer:

Answer 25

Financial stability
Reputation
Policyholder services
Claims services
Marketing & Philosophy practices (including compensation or commissions)
Underwriting philosophy and practices
Terms and conditions of representation (the agency agreement)

Question 26

Legal duties when selecting an insurer and monitoring its financial condition:

Answer 26

• Ongoing duty to place coverage with a solvent insurer.
• Ongoing duty to reasonably monitor an insurer’s financial condition.
• Duty to disclose solvency information to the insured.
• Duty to protect the insured when the risk of insolvency becomes to great.

Question 27

GAAP

Answer 27

Generally accepted accounting principles

Question 28

IRIS - Insurance Regulatory Information Systems

Answer 28

Helps regulators identify potentially insolvent insurers through the use of financial ratios and tests.

Question 29

Insurance Regulators’ Financial Oversite

Answer 29

The insurance business is regulated at the state level.

If in more than one state, one state’s regulators may have difficulty assessing the full scope of an insurer’s financial problems.