Chapter 1 Review Flashcards
Insurance
transfer of risk from one party to another through a legal contract or the transfer of risk through the pooling (accumulation) of funds.
Benefit of Insurance
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.
Multi-line Insurers
Companies that sell more than one line of insurance.
Stockholders
May or may no be policyholders
Life insurance
creates an instant estate, regardless of when death occurs.
Two types of Insurance Companies
Private vs. Government
Stock Insurance Company
typically issues nonparticipating insurance policies.
Nonparticipating
do not allow policyholders to participate in broad elections or dividends and instead aim to increase profit for the shareholders.
Participating
Policyowners participate in dividends
Divisible surplus
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.
Pure Assessment Mutual Company
Operates on the basis of loss-sharing by group members.
Risk Retention Group
risk purchasing group only has to be licensed in one state but may insure members in any state.
Reciprocal Insurer
Organized on the basis of ownership by their policyholders.
Fraternal Benefit Society
Must be nonprofit, have a lodge system that includes ritualistic work, and maintain a representative form of government with elected officers.
Lloyd’s of London
not an insurer but rather a syndicate of individuals and companies that individually underwrite insurance
Ceding Company
the company transferring the risk.
Reinsurer
The company assuming the risk
Primary Insurer
in a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer.
Treaty Insurance
a contract between two insurance companies, which involves an automatic sharing of the risks assumed.
Captive Insurer
Established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure.
Surplus Lines
Nontraditional insurance marker
Industrial insurance
characterized by relatively small face amounts with premiums paid weekly.
Self-Insurer
establishes a self funded plan to cover for potential losses.
Sales Department
typically the department completing the applications.
Underwriting Department
the department completing the application
claims Department
responsible for processing, investigating, and paying claims for losses incurred by insureds.
Actuarial Department
calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports focusing on morbidity and mortality tables.
3 agent types
captive, career agents, and independent agents
Career Agencies
branches of mahjor stock and mutual insurance companies that are contracted to represent an insurer in a specific area.
1868-Paul v. Virginia
The US supreme court decided, involved one state’s attempt to regulate an insurance company domiciled in another state
1944-US v. Southeastern Underwriters Association (SEUA)
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.
1958-intervention by the FTC
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.
1959-intervention by the SEC
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.
1970-Fair Credit Reporting Act
requires fair and accurate reporting of information about consumers, including applications for insurance. Insurers must inform applicants about any investigations
1994- USC sections 1033 and 1034. According to 18 USC | 1033 and 1034
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.
2001-Uniting and strengthening America by Providing Appropriate tools required to intercept and obstruct terrorism act
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.
2003-Patient Protection and Affordable Care act
ACA represents one of the most significant regulatory overhauls and expansions of health insurance coverage in US history
