Chapter 1: Basic Principles of Insurance

Question 1

What is an Actuarial department?

Answer 1

The actuarial department calculates policy rates, reserves, and dividends.

Question 2

What is an Alien Insurer?

Answer 2

An Alien Insurer in the United States is an insurer whose principal office and domiciled location is outside the country.

Question 3

What is an Admitted Insurer:

Answer 3

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

Question 4

What is a Broker?

Answer 4

A Broker represents themselves and the insured (i.e., the client or customer).

Question 5

What is a Captive Insurer?

Answer 5

A Captive Insurer is an issuer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure.

Question 6

What is a Certificate of Authority?

Answer 6

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

Question 7

What is a Claims Department?

Answer 7

The claims department is responsible for processing, investigating, and paying claims.

Question 8

What is a Divisible Surplus?

Answer 8

Divisible surplus is the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Question 9

What is a Domestic Insurer?

Answer 9

A Domestic Insurer is an insurer with its principal or home office in a state where it is authorized.

Question 10

What is a Foreign Insurer?

Answer 10

A Foreign Insurer is an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business.

Question 11

What is a Fraternal Benefit Society?

Answer 11

Fraternal Benefit Societies are nonprofit benevolent organizations that provide insurance to its members.

Question 12

What is a Industrial Insurer?

Answer 12

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

Question 13

What is Insurance?

Answer 13

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

Question 14

What is a Insured?

Answer 14

The insured is the customer receiving insurance protection under an insurance policy.

Question 15

What is a Insurer?

Answer 15

The insurer is the insurance company.

Question 16

What is Lloyds of London?

Answer 16

Lloyds of London is NOT an insurer, but a group of individuals and companies that underwrite unusual insurance.

Question 17

What is a Multi-line Insurer?

Answer 17

A multi-line insurer is an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.

Question 18

What is Mutual Insurance Company?

Answer 18

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

Question 19

What is a Non-admitted Insurer?

Answer 19

A non-admitted or unauthorized insurer is 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.

Question 20

What is a Nonparticipating policy?

Answer 20

A nonparticipating insurance policy, typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.

Question 21

What is a Participating Plan?

Answer 21

A participating plan is an insurance policy under which the policyowners share in the company’s earnings through receipt of dividends and also elect the company’s board of directors.

Question 22

What is a Private (Commercial) Insurer?

Answer 22

Private or commercial insurance companies are companies owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned.

Question 23

What is a Reciprocal Insurer?

Answer 23

A Reciprocal Insurer is an unincorporated organization in which all members insure one another.

Question 24

What is Reinsurance?

Answer 24

Reinsurance is 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

What is a Reinsurer?

Answer 25

A reinsurer is 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 than they would otherwise be able to.

Question 26

What is a Risk Retention Group?

Answer 26

A Risk Retention Group is a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members.

Question 27

What are Self-Insurers?

Answer 27

A self-insurer establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.

Question 28

What is Stock Insurance Company?

Answer 28

A stock company is an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.

Question 29

What is Surplus Lines Insurance?

Answer 29

Surplus Lines Insurance is nontraditional insurance only available form a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers.

Question 30

What is an Underwriting Department?

Answer 30

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