Chapter 1 Summary Flashcards
What is the role of insurance?
The role of insurance is to transfer the risk of financial loss from an individual or business to an insurance company. Insurance spreads the costs of the unexpected financial loss to many individuals.
Private companies are known as..
Commercial insurance companies. They are funded through premiums and sell insurance for a profit.
Government programs are funded with…
Taxes and serve national and state social purposes.
Stock Insurance Company
A stock insurance company is organized and incorporated under state law. Stock insurance companies are owed by the stockholders, who get paid a share of the company’s profit through dividends.
What is another name for a nonparticipating or non-par company?
stock insurance company
Mutual insurers
Mutual insurance companies are also organized and incorporated under state laws. Their are no stockholders, instead the policyholders own the company. And get paid a share through dividends.
What is another way mutual companies are referred to?
Participating or par companies, because the policy owners do participate in being paid dividends.
Mutualization
The process of a stock company being converted into a mutual company.
Demutualization
The process of a mutual company being converted into a stock company.
Lloyd’s of London
An association formed to underwrite and issue insurance like coverage on certain items and areas that might otherwise be uninsurable.
Reinsurers
Reinsurers are a specialized branch of the insurance industry that insurers other insurance company’s risk. Reinsurance is arrangement by which an insurance company transfers or sells a portion of the risk to a reinsurance company. The company assuming the risk.
Ceding Company
The insurance company transferring the risk.
Home Service Insurers
Home service insurance is industrial insurance sold by home service or debit insurance companies. The face amounts are very small, usually $1,000 to $2,000, the premiums are collected weekly, door to door, by agents.
Service Providers
Service providers offer benefits to subscribers in return for the payment of a premium. The most common service providers are health maintenance organizations better known as HMOs and preferred provider organizations better known as PPOs.
1945 McCarran and Ferguson Act
States that, while the federal government has authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively and adequately by the states.
