Basic Concepts

Question 1

This department calculates policy rates, reserves, and dividends

Answer 1

Actuarial department

Question 2

Insurer whose principal office and domiciled location is outside the country

Answer 2

Alien Insurer

Question 3

Insurer who has received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state

Answer 3

Admitted insurer/authorized insurer

Question 4

Represents themselves and the insured (client or customer)

Answer 4

Broker

Question 5

Insurer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure

Answer 5

Captive insurer

Question 6

Admitted/authorized insurers are issued a … by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state

Answer 6

Certificate of Authority

Question 7

Department that is responsible for processing, investigating, and paying claims

Answer 7

Claims Department

Question 8

Amount of earnings paid to policy owners as dividends after the insurance company sets asides funds required to cover reserves, operating expenses, and general business purposes

Answer 8

Divisible Surplus

Question 9

Insurer with its principal or home offices in a state where it is authorized

Answer 9

Domestic Insurer

Question 10

Insurer with its principal office of domicile location in a state different from the state it is transacting insurance business

Answer 10

Foreign Insurer

Question 11

Nonprofit benevolent organizations that provide insurance to its members

Memberships based on religious, national, or ethnic lines.

More concerned about maintaining minimum reserves and surpluses for coverage than providing dividends and profits

Answer 11

Fraternal Benefit Society

Question 12

Specialized branch of the industry that primarily provides policies with small face amounts with weekly premiums (home services or debt insurers)

Answer 12

Industry Insurer

Question 13

Transfer of risk through the pooling or accumulation of funds

Answer 13

Insurance

Question 14

Customer receiving insurance protection under an insurance policy

Answer 14

Insured

Question 15

The insurance company is called…

Answer 15

The Insurer

Question 16

NOT an insurance company, but a group of individuals and companies that underwrite unusual insurance

Answer 16

Lloyds of London

Question 17

Insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs.

Answer 17

Multi-line Insurer

Question 18

Insurance companies characterized by having no capital stock, being owned by its policy owners , and usually issue participating insurance

Answer 18

Mutual Insurance Company

Question 19

An insurer who has not received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state

Answer 19

Non-admitted Insurer

Question 20

Typically insured by stock companies, do not allow policy owners to participate in dividends or electing the board of directors

Answer 20

Nonparticipating policy

Question 21

Insurance policy under which the policy owners share in the company’s earnings through receipt of dividends and also elect the company’s directors

Answer 21

Participating Plan

Question 22

Companies owned by private citizens or groups that offer one or more insurance lines. NOT government owned.

Answer 22

Private (Commercial) Insurer

Question 23

Policyholders themselves insure the risk of the other policyholders. Each policyholder assumes a share of the risk brought to the company by others

Answer 23

Reciprocal Insurer

Question 24

The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage

Answer 24

Reinsurance

Question 25

Company that provides financial protection to insurance companies. Handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business that they would otherwise be able to.

Answer 25

Reinsurer

Question 26

Group owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members

Primary purpose of retaining or pooling risks

Formed by a group of people in the same industry or profession (pharmacists, dentists, or engineers)

Answer 26

Risk Retention Group

Question 27

Establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company

Answer 27

Self-Insured

Question 28

Insurance company owned and operated by a group of stockholders whose investment in the company provides the safety margin necessary in the insurance of guaranteed, fixed premium, nonparticipating policies

Purpose of making a profit for its stockholders

Answer 28

Stock Insurance Company

Question 29

Nontraditional insurance only available from a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers

Answer 29

Surplus Lines Insurance

Question 30

Department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classification.

Answer 30

Underwriting Department

Question 31

1. Avoidance
2. Reduction
3. Sharing
4. Retention
5. Transfer

Answer 31

5 Ways to Handle Risk