Chapter 1 Flashcards
Insurance Companies
Manufacture and sell insurance coverage in the form of insurance policies or contracts of insurance
Insurance Agencies
Are captive or independent organizations that recruit, contract with, train, and support insurance producers
Insurance Producers
Are Licensed individuals representing and appointed by an insurance company when transacting insurance business
An Insured
Is the person or entity that is covered by the Insurer, which covers losses due to loss of life, health, property, or liability
An Owner
Is not necessarily the insured under the policy but is responsible for paying the policy’s premium and has various rights as specified in the contract
The Nation Association of Insurance Commissioners (NAIC)
Provides resources, research, legislative, and regulatory recommendations and interpretations for state insurance regulators (No legal authority)
Federal Insurance Office (FIO)
(Dodd-Frank Wall Street Reform and Consumer Protection Act) Monitors the insurance industry and identifies issues and gaps in the state regulation of insurers.
Insurance is regulated at what level?
The State
Who typically appoints the Commissioner, Director, or Superintendent of Insurance?
The Governor
A _______ insurance company is owned by its policy holders.
Mutual
A _______ insurance company is owned by stockholders or shareholders.
Stock
If premiums collected are insufficient to pay losses, an assessment of additional premiums can be made
Reciprocal Insurance
Lloyd’s of London is not an insurance company, but consist of a group of underwriters called ________
Syndicates
_______ are primarily social organizations that engage in charitable and benevolent activities that can provide life and health insurance to their members
Fraternal benefits societies
Group-owned insurers that primarily assume and spread the liability-related risks of it’s members
Risk Retention Groups (RRG)
_______ assume all of the financial risk faced without transferring that risk to an insurer
Self-insurer
Residual Markets
Last resort private coverage source for businesses and individuals who have been rejected by the voluntary insurance market
Treaty
Reinsurance agreement that automatically accepts all new risks presented by the ceding insurer (the company seeking or requesting the reinsurance from the reinsurer)
Facultative
Reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher due to their substandard (higher risk) nature
Independent financial rating services evaluate and rate the claims paying ability and financial stability of insurance companies
Financial Rating Services
An insurer incorporated in New York is considered a(n) ______ to New York
Domestic Insurer
An insurer incorporated in New York is considered a(n) ______ to Kansas
Foreign Insurer
An insurer incorporated in Ontario, Canada, is considered a(n) ______ to New York
Alien Insurer
Admitted vs Non-admitted
Refers to whether or not an insurer is approved or authorized to write business in this state
Who issues a Certificate of Authority
A State Commissioner of Insurance
Domicile of Insurers
Where an insurance company is incorporated
______ Oversee the operation of the business
Executives
______ gather and interpret statistical information used in rate making
Actuarial department
Underwriting Department
Responsible for the selection of risks (persons or property) to insure and rating that determines policy premiums
Marketing/Sales Department
Responsible for advertising and selling
Claims Department
Assists the policyholder, insured, or beneficiary in the event of a lost and processes, and pays the amount of the claim in a timely manner based upon the contractual provisions and the amount insured
Exclusive/Captive Agent
Agent represents one company
Direct Writing System
Producer or Agent is an employee of the insurer and the insurer owns the accounts
Independent Agent
Enters into selling agreements with more than one insurer. Paid a commission and covers the cost of agency operations
Career Agency System
Agents are recruited, trained, and supervised by either a managing employee or General Agent who is contracted with the insurance company
Personal Producing General Agent
Doesn’t recruit career agents and sells insurance for carriers it is contracted with. Maintains its own office and staff
Direct mail or Direct Response Company
Insurers who sell insurance policies directly to the public with licensed employees or contractors
Mass Marketing
used to target a specific type of insurance to a large group of individuals (AARP)
An individual that represents the insurance company when selling an insurance policy
Producer
Authority that is written into the producer’s contract
Express
Authority the public assumes the producer has
Implied
Authority created when the producer exceeds the authority expressed in the agency contract
Apparent
Fiduciary
A legal or ethical relationship of trust between two or more parties
A licensed individual who negotiates insurance contracts with insurers on behalf of the applicant
Broker
Situations where there is a chance for loss, gain, or neither
Speculative Risk
Situations where there is no chance for gain
Pure Risk
Physical Hazard
Can be seen, heard, felt, tasted, or smelled
ex. Flammable material stored near a furnace
Moral Hazard
Dishonest tendencies that increase the probability of a loss
lying, cheating, or stealing
Morale Hazard
Reckless or neglectful actions that increase risk
ex. Not wearing a seat belt, Smoking, etc.
Loss exposure
The condition of being at risk of loss
Adverse Selection
A situation that increases risk higher than the average within a specific marketplace
ex. Living in an earthquake-prone area and seeking insurance for it
Pooling or spreading risk among a large number of persons or entities
Sharing Risk
Transferring the risk from one party to another
Transfer Risk
Elimination of risk
Risk Avoidance
Minimizing the chance of loss, but not preventing the risk
Risk Reduction
Assume the responsibility for loss
Risk Retention
Parole Evidence Rule
A contract cannot be altered without written consent from both parties
Contract of Adhesion
A contract written by one party and no negotiation is involved
Aleatory Contract
Insured’s premium payment is less than the potential benefit to be received in the event of a loss
Personal Contract
A contract between the insurance company and the individual on a case by case basis
Unilateral Contract
Only one party is legally bound to the contractual obligations after the premium is paid to the insurer
Conditional Contract
Both parties must perform certain duties and follow rules of conduct to make the contract enforceable
Principle of Indemnity
Prevents the insured from profiting from a claim
ex. a $200,000 house can not a have $300,000 policy
Underwriting Factors
Age Gender Tobacco use Medical history and preexisting conditions hazardous hobbies and occupations
Rate
The dollar amount charged for a particular unit of insurance
