BASIC PRINCIPLES: Chapter 1

Question 1

Actuarial Department

Answer 1

Calculates policy rates, reserves and dividends.

Question 2

Alien Insurer

Answer 2

An insurer in the United States whose principal office and domicile is located outside the country.

Question 3

Admitted insurer

Answer 3

Admitted or authorized insurer is an insurer who has received a certificate of authority from a states department of insurance authorizing them to conduct insurance business in that state.

Question 4

Broker

Answer 4

Represents themselves and the insured (the client or customer)

Question 5

Captive insurer

Answer 5

An issuer established and owned by a parents firm for the purpose of insuring the parent firms loss exposure.

Question 6

Certificate of Authority

Answer 6

A license to an insurer by a department of insurance (or equivalent state agency) which authorizes that company to conduct business in that particular state.

Question 7

Claims department

Answer 7

Responsible for processing, investigating, and paying claims

Question 8

Dividend surplus

Divisible surplus

Answer 8

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

Question 9

Domestic insurer

Answer 9

An insurer with it’s principal office in a state where it is authorized.

Question 10

Foreign insurer

Answer 10

An insurer with it’s principal office of domicile location in a state different from the state it is transacting insurance business.

Question 11

Fraternal benefit society

Answer 11

Nonprofit benevolent organizations that provide insurance to its members.

Question 12

Industrial insurer

Answer 12

Make up a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums. Other names include home service or debit insurers.

Question 13

Insurance

Answer 13

The transfer of risk through the pooling or accumulation of funds.

Question 14

Insured

Answer 14

The customer receiving protection under an insurance policy

Question 15

Insurer

Answer 15

The insurance company

Question 16

Lloyd’s of London

Answer 16

Not an insurer but a group of individuals and companies that underwrite unusual insurance.

Question 17

Multi-line insurer

Answer 17

Insurance company or independent agent that provides a one stop shop for business or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowners, long term care, life and health insurance.

Question 18

Mutual insurance company

Answer 18

Insurance company characterized by having no capital stock, being owned by it’s policy owners and usually issue participating insurance.

Question 19

Non admitted insurer

Answer 19

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

Question 20

Nonparticipating policy

Answer 20

Typically issued by a stock companies, so not allow policy owners to participate in dividends or electing board of directors.

Question 21

Participating plan

Answer 21

Is an insurance policy under which the policy owners share in the company’s earnings through receipt of dividends and also elect the company’s board of directors.

Question 22

Private (commerical) insurer

Answer 22

Private or commerical insurance companies owned private citizens or groups that off r one or more insurance lines. Commercial insurers are NOT government owned

Question 23

Reciprocal insurer

Answer 23

An unincorporated organization in which all members insure one another.

Question 24

Reinsurance

Answer 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.

Question 25

Reinsurer

Answer 25

A company that provides financial protection to insurance companies. Reinsurers 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.

Question 26

Risk retention group

Answer 26

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

Question 27

Self insurer

Answer 27

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

Question 28

Stock insurance company

Answer 28

Insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary I. The issuance of guaranteed, fixed premium, nonparticipating policies.

Question 29

Surplus lines insurance

Answer 29

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

Question 30

Underwriting department

Answer 30

The department within the insurance company responsible for reviewing applications, approving or declining applications and assigning risk classifications.