Brokers exam Flashcards
Commercial Insurers
(Also known as private insurance companies) people in the business of selling insurance for a profit
Multi-line insurer
An insurance company selling more than one line of insurance. Commercial insurance is divided into two main groups: stock and mutual insurers
Stock Companies
organized and incorporated under state law for the purpose of making a profit for its stockholders. Also called nonparticipating insurers because policy owners do not receive dividends. When declared, stock dividends are paid to stockholders
Term Mutilization/ Demutilization
the transformation from a stock insurer to a mutual insurer
Mixed Insurer
a company operating as both a participating and nonparticipating insurer. Dividends can never be guaranteed regardless of the type of company offering them
how are strong assessment mutual companies classified by?
the way they charge a premium
Pure assessment mutual company
operates based on loss sharing by group members, no premium is payable in advance, instead, each member has assessed an individual portion of losses that occur
Advanced premium assessment mutual
charges a premium at the beginning of the policy period. if the original premiums exceed operating expenses and losses, the surplus is returned to the policy owners as dividends. If the total premiums are not enough to meet the losses, additional assessments are levied against the members.
Fraternal benefit societies
a special type of mutual companies, nonprofit religious, ethnic, or charitable organizations that provide insurance solely to their members. Fraternals must be formed for other reasons than getting insurance.
Risk-retention groups
mutual companies formed by a group of people in the same industry or profession. Ex: doctors, dentists, and engineers.
Service Providers
offer benefits to subscribers in return for the payment of a premium. These services are packaged into various plans, and those who purchased the plans are known as subscribers. Ex: HMO, PPO
Reciprocal Insurers
Unincorporated groups of individual members that provide insurance for other members through indemnity contracts. Each member acts as the insurer and insured and is managed by Attorney in Fact.
Reinsurers
make arrangements with other insurance companies to transfer a portion of their risks to the reinsurer. The company transferring the risk is called the Ceding company and the one assuming the risk is the Reinsurer
Primary Insurer
the insurance company that transfers its loss exposure to another insurer
Captive Insurer
insurer established and owned by the parent company to ensure the parent companies loss exposure
Home Service Insurers
also known as industrial insurance
sold by home service or debit life insurance companies. Face amount is small; usually $1,000 to $2,000 and premiums are paid weekly
Government Insurance
provide social insurance programs, to protect against universal risks by redistributing income to help people who cannot afford such losses themselves.
Medicare
Health insurance to CARE for the elderly
Medicaid
Health insurance to Aid the financially needy
Self insurers
establish their own self-funded plan to cover potential losses. A self funded plan is a plan in which an employer pays insurance benefits from a fund derived from the employers current revenues
Lloyd’s of London
A group of investors who share in unusual risk
Distribution Systems
the ways insurance products are marketed and sold to the public. Captive agents work for only one insurer. Independent agents work for themselves for several insurers non-exclusively
Career Agency System
commercial insurers establish offices in certain locations where career agents are recruited to work at these location
Personal Producing General Agency System
(PPGA) Agents work for an independent agency selling policies from several insurance companies.
Independent Agency System
Independent agents represent a number of insurance companies under separate contractual agreements. They may also work for themselves or other agents. They have control and ownership over their client’s accounts. They earn commissions on the sales they make and overrides on the sales made by agents they managed
Managerial System
Branch offices are established in several locations. A manager runs the branch, while the insurer pays the branch managers salary and pays him a bonus based on the amount and type of insurance sold and the number of new agents hired
1869 Paul v. Virginia
The U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce
1905 The Armstrong Investigation Act
Gave the authority to the states to regulate insurance
1944 United States V. South-Eastern Underwriters Association
Ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulation. Thus T many federal laws were conflicting with existing state laws.
1945 The McCarran Ferguson Act
States that while the federal government has authority to regulate the insurance industry, it would not exercise its right if the insurance industry was regulated effectively and adequately on the state level. The minimum penalty of a producer who has obtained personal information about a client without having a legitimate reason to do so is a fine of $10,000
1970- Fair Credit Reporting Act
provides individuals privacy protection and fair and accurate credit reporting. The maximum penalty of a producer who has obtained consumer information reports under false pretenses is a fine of $5,000
1999 Gramm-Leach-Billey Act (Financial Services Modernization Act)
This law repealed the Glass-Steagall Act; this allows Banks, retail Brokerages and Insurance companies to enter each other’s line of business
2001 USA Patriot Act
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
designated to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions
2010 Patient Protection and Affordable Care Act (PPACA)
often shortened to the Affordable Care Act (ACA) represents one of the most significant regulatory overhauls and expansions of coverage in U.S. history
The National Association of Insurance Commissioners (NAIC)
an organization composed of insurance commissioners from all 50 states, the District of Columbia, and the 4 US territories. They recommend appropriate laws and regulations. They are responsible for the creation of the Advertising Code and the Unfair Trade Practices Act and the Medicare Supplement Insurance Minimum Standards Model Act
NAIC Objectives
- To encourage uniformity in the state insurance laws and regulations
- To assist in the administration of those laws and regulations by promoting efficiency
- To protect the interest of policy owners and consumers
- To preserve state regulation of the insurance business
Advertising Code
The code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind.
Unfair Trade Practices Act
Gives the chief financial officer the power to investigate insurance companies and producers to impose penalties. The act gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair
NAIFA ( National Association of Insurance and Financial Advisors)
NAHU ( National Association of Health Underwriters)
Members are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals
Buyers Guide
explains various types of life insurance products and other information on the recommended policy, such as premiums, dividends, and benefit amounts
Policy Summary
Help consumers evaluate the suitability of the recommended product
Reserves
the accounting measurements of an insurer’s future obligations to its policyholders. They are classified as liabilities on the insurance companies accounting statements since they must be settled at a future date. Reserves are set aside by an insurance company and designated for the payment of future claims
Liquidity
An insurer’s ability to make unpredictable payouts to policy owners
Guaranty Associations
Established by all states to support insurers and protect consumers in case an insurer becomes insolvent. Provides a safety net for all member life, health, and annuities insurers in a particular state. They protect insureds in the event of insurer insolvency, or inability to pay claims up to a certain limit.
Independent Rating Services
Credit rating agencies rate the financial strength and stability of insurers based on claims, reserves, and company profits.