Chapter 1: Basics Flashcards

1
Q

Define Reserves

A

Accounting measurements of an insurer’s future obligations to its policyholders (what is paid to a policyholder when they need it)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define liquidity

A

The insurance company’s ability to make unpredictable payments to the policyholder

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Describe Private Insurance Companies - Commercial

A
  • Commercial insurers offer many types of insurance.

- Multi-line insurers sell more than one type

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define Stock Companies - nonparticipating

A
  • Private organization

- Organized under state law to make profit for stockholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define Mutual Companies - Participating

A
  • Also organized under state laws
  • No stockholders (policyholders are owners)
  • Both costumer and an owner
  • Can participate in aspects of company and receive dividends (this is the participating part)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define Strong Assessment Mutual/Insurers

A
  • Charges a premium at the beginning of the policy period

- This results in a policyholder either receiving money (dividend) or owing money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define Reciprocal Insurers

A
  • Organized by ownership of policyholders

- Policyholders insure the risk of other policyholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define Lloyds of London

A

Acts as an arena for settling claims and disputes, provide coverage that may not be available in certain areas and put together underwriting information

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Define Reinsurers

A
  • Insuring of insurance companies
  • Transfers a portion of risk to another company
  • Ceding company transfers risk to reinsurer (another company)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define Captive Insurer

A

An insurance company owned by a parent firm for the purpose of insuring that parent firms losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define Risk Retention Group (RRG)

A

Mutual insurance company formed to insure people in the same occupation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Define Fraternal Benefit Societies

A
  • Membership based on religious, national or ethnic lines
  • Originally to help poorer members
  • Must be nonprofit, have a lodge system with ritualistic work and must have elected officers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Define Industrial Insurers

A
  • Specializes in a particular type of insurance
  • Small accounts ($1,000 to $2,000)
  • Premiums paid weekly
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define Service Providers

A
  • They sell medical and hospital care services not insurance
  • Pay a premium for services provided at a hospital or physician participating in the plan
  • Health maintenance organization (HMO) is also a service provider (they stress preventative health care)
  • Preferred Provider Organization (PPO) is the third type. Discounts or special services when going to a certain health care provider
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define Government as Insurer

A
  • Both federal and state governments
  • Ranges from crop insurance to savings and loans
  • includes social security and Medicare/Medicaid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Define Self-Insurers

A
  • Self-funded insurance
  • Often used by large companies for pension plans and some health insurance plans
  • Company will only use insurance company when they suffer a maximum loss
17
Q

How is insurance sold?

A
  • Mostly agents who present products and services for an insurance company
  • Agents represent the insurers and brokers represent the buyers
  • Captive career agents work for a company
  • Independent agents sells products from many companies and works for themselves
18
Q

Define Career Agency System

A
  • Branches of major stock and mutual insurance companies that represent a specific area
  • Employees are recruited, trained and supervised by members of the agency or a general agent
19
Q

Define Personal Producing General Agency System

A

Similar to career agency system but they Do Not recruit, train and supervise

  • Employees only work for the system not the insurance company
20
Q

Define Independent Agency System

A
  • Independent agents represent any number of insurance companies through contracts
  • Receives commission for bussiness they produce
21
Q

Define direct selling method

A
  • Type of insurance sold through mass marketing or direct sale to the consumer
22
Q

1868 - Paul v. Virginia

A

Upheld the right of states to regulate insurance (insurance is not interstate regulated)

Example: New York cannot regulate an insurance company in Ohio

23
Q

1944 - United States v. Southeastern Underwriters Association

A

Changed Paul v. Virginia slightly

  • Nullified state regulations that were in conflict with federal legislation
  • Shifted power to federal government though
24
Q

1945 - The McCarran-Ferguson Act

A
  • Regulation by state is in the peoples best interest
  • However the federal government has a right to interfere if the insurance company is not being run effectively
  • Must have a legitimate reason to obtain personal information about a client
  • Penalty: $10,000 minimum for violation
25
Q

1958 - Intervention by the Federal Trade Commission (FTC)

A

FTC lost this case

They wanted to control advertising and sales of the health insurance companies

26
Q

1959 - Intervention by the Securities and Exchange Commission (SEC)

A
  • Variable Annuities

- Required insurance companies to conform to both SEC and state regulations

27
Q

1970 - Fair Credit Reporting Act

A
  • Rights to privacy
  • requires fair and accurate reporting information about consumers. This includes informing an applicant about any investigations being made
  • Protects consumer when denied coverage or charged higher rates
  • Penalty: $5,000 for violation
28
Q

1999 - Financial Services Modernization Act

A
  • This overturned The Glass-Steagall Act of 1933
  • Financial Services Modernization Act allows commercial banks, investment banks, retail buyers and insurance companies to enter each other’s lines of business
29
Q

Marketing and Sales Practices

A

The ethics and professionalism that requires an agent to protect consumers

  • Determine a clients needs and provide coverage to best suit these needs
  • Inform clients of all aspects of products provided
  • Full documentation
  • Ongoing relationship with client
30
Q

What should be provided when meeting with potential clients?

A
  • Buyers Guide (details on products offered)

- Policy Summary

31
Q

What are the goals of the National Association of a Insurance Commissioners?

A
  1. To encourage uniformity in state insurance laws and regulations
  2. Assist in administration of those laws
  3. Protect interests of policyowners
  4. Preserve state regulation of the insurance business
32
Q

What is the State Guaranty Associations job?

A

To protect consumers when an insurance company is unable to pay claims

33
Q

What is the Advertising Code

A
  • Put in place by the NAIC

- Prohibits misleading information when dealing with insurance sales and marketing

34
Q

Claim settlement practices

A

These are regulated by State Insurance departments

35
Q

What is the job of an insurance company?

A

To transfer risk from an individual or business to an insurance company

36
Q

What are annuities?

A

They provide a stream of income by making a series of payments over a certain amount of time

37
Q

Define Demutualization

A

The process of a mutual company being converted to a stock company

38
Q

What are Independent Rating Services?

A

Credit agency rate financial strength of an insurance company based on claims, reserves and company profits.

Companies are:

  • AM Best
  • Standard and Poor’s
  • Moody’s
  • Fitch