Chapter 1 Review

Question 1

Insurance

Answer 1

transfer of risk from one party to another through a legal contract or the transfer of risk through the pooling (accumulation) of funds.

Question 2

Benefit of Insurance

Answer 2

most contracts offered to individuals and organizations in society, including health, property, and casualty policies, are contracts of indemnity whose primary purpose is to pay off financial losses and reimburse the insured.

Question 3

Multi-line Insurers

Answer 3

Companies that sell more than one line of insurance.

Question 4

Stockholders

Answer 4

May or may no be policyholders

Question 5

Life insurance

Answer 5

creates an instant estate, regardless of when death occurs.

Question 6

Two types of Insurance Companies

Answer 6

Private vs. Government

Question 7

Stock Insurance Company

Answer 7

typically issues nonparticipating insurance policies.

Question 8

Nonparticipating

Answer 8

do not allow policyholders to participate in broad elections or dividends and instead aim to increase profit for the shareholders.

Question 9

Participating

Answer 9

Policyowners participate in dividends

Question 10

Divisible surplus

Answer 10

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 11

Pure Assessment Mutual Company

Answer 11

Operates on the basis of loss-sharing by group members.

Question 12

Risk Retention Group

Answer 12

risk purchasing group only has to be licensed in one state but may insure members in any state.

Question 13

Reciprocal Insurer

Answer 13

Organized on the basis of ownership by their policyholders.

Question 14

Fraternal Benefit Society

Answer 14

Must be nonprofit, have a lodge system that includes ritualistic work, and maintain a representative form of government with elected officers.

Question 15

Lloyd’s of London

Answer 15

not an insurer but rather a syndicate of individuals and companies that individually underwrite insurance

Question 16

Ceding Company

Answer 16

the company transferring the risk.

Question 17

Reinsurer

Answer 17

The company assuming the risk

Question 18

Primary Insurer

Answer 18

in a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer.

Question 19

Treaty Insurance

Answer 19

a contract between two insurance companies, which involves an automatic sharing of the risks assumed.

Question 20

Captive Insurer

Answer 20

Established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure.

Question 21

Surplus Lines

Answer 21

Nontraditional insurance marker

Question 22

Industrial insurance

Answer 22

characterized by relatively small face amounts with premiums paid weekly.

Question 23

Self-Insurer

Answer 23

establishes a self funded plan to cover for potential losses.

Question 24

Sales Department

Answer 24

typically the department completing the applications.

Question 25

Underwriting Department

Answer 25

the department completing the application

Question 26

claims Department

Answer 26

responsible for processing, investigating, and paying claims for losses incurred by insureds.

Question 27

Actuarial Department

Answer 27

calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports focusing on morbidity and mortality tables.

Question 28

3 agent types

Answer 28

captive, career agents, and independent agents

Question 29

Career Agencies

Answer 29

branches of mahjor stock and mutual insurance companies that are contracted to represent an insurer in a specific area.

Question 30

1868-Paul v. Virginia

Answer 30

The US supreme court decided, involved one state’s attempt to regulate an insurance company domiciled in another state

Question 31

1944-US v. Southeastern Underwriters Association (SEUA)

Answer 31

Supreme court ruled that the insurance industry is subject to a series of federal laws, many of which conflicted with existing state laws. As such, insurance is a form of interstate commerce to be regulated by the federal government.

Question 32

1958-intervention by the FTC

Answer 32

The supreme court held that the McCarran-Feguson Act disallowed such supervision by the FTC, a federal agency. Additional attempts have been made by the FTC to force further federal control, but none have beed successful.

Question 33

1959-intervention by the SEC

Answer 33

The supreme court ruled that federal securities laws applied to insurers that issued variable annuities and, thus, required these insurers to conform to both SEC and state regulation. The SEC regulates variable life insurance.

Question 34

1970-Fair Credit Reporting Act

Answer 34

requires fair and accurate reporting of information about consumers, including applications for insurance. Insurers must inform applicants about any investigations

Question 35

1994- USC sections 1033 and 1034. According to 18 USC | 1033 and 1034

Answer 35

It is a criminal offence for an individual who has been convicted of a felony involving dishonesty or breach of trust to willfully engage or participate in the business of insurance without first obtaining a “letter of written consent to engage in the business of insurance” from the regulating insurance department of the individuals state of residence.

Question 36

2001-Uniting and strengthening America by Providing Appropriate tools required to intercept and obstruct terrorism act

Answer 36

The Patriot Act which amends the bank secrecy Act (BSA). The patriot Act is intended to strengthen US measures to prevent, detect, and deter terrorists and their funding. The act also aims to prosecute international money laundering and the financing of terrorism. These efforts include anti-money laundering tools that impact the banking, financial, and investment communities.

Question 37

2003-Patient Protection and Affordable Care act

Answer 37

ACA represents one of the most significant regulatory overhauls and expansions of health insurance coverage in US history