Chapter 1 - General Insurance Flashcards
Private Firm and Insurers
- Insurers manufacture and sell insurance coverage by way of insurance policies or contracts.
- Insurance agencies are independent organizations that recruit, contract with and support sales agents and producers.
- Insurance agents or producers are licensed individuals representing an insurance company when transacting insurance.
- An insured is the person or entity that buys insurance for protection from loss of life, health, property or liability.
Trade and Regulatory Associations
- National Association of Insurance Commissioners (NAIC) consists of all State and territorial insurance commissioners or regulators.
- Federal Insurance Office (FIO)
- Insurance producer and company trade associations also exist to provide education, support, networking and lobbying for insurance companies and producers.
Federal insurance Office (FIO)
The federal insurance office was established by the DoddFrank Wall Street Reform and Consumer Protection Act. The office monitors the insurance industry and identifies issues and gaps in the state regulation of insurers. It also monitors access to affordable insurance by traditionally undeserved communities and consumers, minorities, and low-and moderate-income persons. The FIO is not a regular or supervisor. Insurance is primarily regulated by the individual States.
National Association of Insurance Commissioners (NAIC)
a. NAIC provides resources, research, legislative and regulatory recommendations and interpretations for state insurance regulators.
b. The association promotes uniformity among. Members may accept or reject recommendations.
c. The NAIC has no legal authority to enact or enforce insurance laws.
Insurance Regulation at the State Level
Insurance is regulated primarily at the state level. Legislative branch writes and passes state insurance laws, or statutes, to protect the insuring public. The judicial branch is responsible for interpreting and determining the constitutionality of the statutes. The role of a state’s executive branch is to enforce the existing statutes that have been put in place. The Commissioner, Director, or Superintendent of Insurance is typically appointed by the Governor, and the Commissioner has the power to issue rules and regulations to help enforce these statues.
Insurance Regulation at the Federal Level
The McCarran-Ferguson Act of 1945 determined that the federal government can not regulate insurance in areas over which states have the authority to do so. Congress created federal agencies to provide regulatory oversight impacting insurance practices. Government insurers step in (as a last resort) when private insurers are unable to provide protection relative to the catastrophic nature or unpredictability of a risk.
Private versus Government Insurers
Most insurance is written through private insurers. However, there are instances where governmental-based insurers step into offer an insurance alternative when private insurers are unable to provide protection. This usually relates to the catastrophic nature of the risk, capacity to handle the risk, and lack of desire to engage in a line of insurance where experience to evaluate necessary premium intake to offset potential loss is lacking.
Types of Insurers - Insurance Companies or Carriers
Stock Insurance Company Mutual Insurance Company Reciprocal Insurance Company Lloyds of London Fraternal Benefit Societies Risk Retention Groups (RRG)
Stock Insurance Company
- a stock company is owned by stockholders or shareholders
- directors and officers direct the company operations and are elected by stockholders.
- stockholders receive taxable corporate dividends as a return of profit when declared by the Directors.
- Dividends are not guaranteed.
- Traditionally stock insurers issue Non-Participating policies.
Mutual Insurance Company
- A mutual company is owned by policyholders (who may be referred to as members).
- A Board of Trustees or Directors directs the company operations and is elected by policyholders.
- Policyholders receive non-taxable dividends as a return of unused premium when declared by the directors.
- Dividends are not guaranteed.
- Traditionally, mutual insurers issue Participating policies.
Reciprocal Insurance Company
- A group-owned insurer whose main activity is risk sharing.
- A reciprocal insurer is unincorporated, and is formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a subscriber.
- Each subscriber assumes a part of the risk of all other subscribers. If premiums collected me insufficient to pay losses, an assessment of additional premium can be made.
- The exchange of insurance is affected through an Attorney-In-Fact.
Lloyds of London
- Lloyds of London is not an insurance company, but consists of groups of underwriters called Syndicates, each of which specializes in insuring a particular type of risk.
- Lloyds provides a meeting place and clerical services for syndicate members who actually transact the business of insurance.
- Members are individually liable for each risk they assume.
- Coverage provided underwritten by a syndicate manager such as an attorney-in-fact or individual proprietor.
Fraternal Benefit Societies
- Fraternal benefit societies are primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members.
- Membership typically consists of members of a given faith, lodge, order, or society.
- They are usually organized on a non-profit basis.
Risk Retention Group (RRG)
- A group-owned insurer that primarily assumes and spreads the liability related risks of its members.
- Licensed in at least one state and may insure members of the group in the other states.
- Owned by its policyholders.
- Group must be made up of a large number of homogeneous or similar units.
- Membership is limited to risks with similar liability exposures such as theme parks, go cart tracks or water slides.
- Must have sufficient liquid assets to meet loss obligations.
- Each member assumes a portion of the risks insured.
Self-Insurer
To self-insure means to assure the financial risk one’s self. This is generally an option only for large companies who may even reinsure for risks above certain maximum limits.
