Chapter 1 Summary

Question 1

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

Answer 1

Insurance

Question 2

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

Answer 2

benefit of insurance

Question 3

Insurance evolved to produce a _____ ______ to economical undertainties and losses.

Answer 3

practical solution

Question 4

Companies that sell more than one line of insurance are known as

Answer 4

multi-line insurers

Question 5

_______ may or may not be policy holders.

Answer 5

stockholders

Question 6

_________ creates an instant estate, regardless of when death occurs.

Answer 6

Life Insurance

Question 7

typically issues nonparticipating policies

Answer 7

stock insurance company

Question 8

Which policies do not allow policy holders to participate in board elections or dividends and instead aim to increase profit for the shareholders.

Answer 8

Nonparticipating

Question 9

________ _______ are reffered to as _______ companies because the policyowners participate in dividends.

Answer 9

mutual companies participating

Question 10

__________ policies allows policyholders to p________ in the company by electing the board of directors and receiving dividends from the divisible surplus.

Answer 10

participating participate

Question 11

______ _______ ________ is the amount of earning paid to policyownders as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Answer 11

the divisible surplus

Question 12

A ________ ________ _________ _________ operates on the basis of loss-sharing by group members.

Answer 12

pure assessment mutual company

Question 13

A _____ _______ _______ or risk purchasing group only has to be licensed in one state but may insure members in any State.

Answer 13

risk retention group

Question 14

______ ______ are organized on the basis of ownership by their policyholders.

Answer 14

reciprocal insurers

Question 15

To be characterized as a ______ ______ ______, hte organization must be nonprofit, have alodge system that includes ritualistic work, and maintain a representative form of government with elected officers

Answer 15

fraternal benefit society

Question 16

______ ______ ______ is not aninsurer but rather a syndicate of individuals and companies that individually underwrite insurance

Answer 16

Lloyd’s of London

Question 17

The company transferring risk is called the _______ _______

Answer 17

ceding company

Question 18

The company assuming the risk is the ______

Answer 18

reinsurer

Question 19

In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called ______ ______

Answer 19

primary insurer

Question 20

The most common reinsurance contract between two insurance companies is called ______ ______, which involves an utomatic sharing of the risks assumed

Answer 20

treaty reinsurance

Question 21

An insurer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure is known as a ______ ______

Answer 21

captive insurer

Question 22

_______ ______ refer to the nontraditional insurance market.

Answer 22

surplus lines

Question 23

______ ______ is characterized by relatively small face amounts with premiums paid weekly.

Answer 23

industrial insurance

Question 24

a ______-________ established a self-funded plan to cover potential losses

Answer 24

self-insurer

Question 25

The ______ __ ______ divisions are responsible for increasing the number of prospective applicants

Answer 25

marketing or sales

Question 26

The ______ ______ is typically the department completing the application.

Answer 26

sales department

Question 27

the ______ ______ is responsible for reviewing applications, conducting investigations to gain addtitional information about applicants, assigning risk classifications, and approving or declining an application

Answer 27

underwriting department

Question 28

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

Answer 28

claims department

Question 29

The ______ _______ calculates policy rates, reserves, and dividends and makes other applicable statistical studies and repots focusing on morbidity and mortality tables

Answer 29

actuarial department

Question 30

In any _______ between the insured or beneficiary and the insurer, the agent who solicits an insurance application represents the insurer and not the insured or beneficiary.

Answer 30

dispute

Question 31

Agents are also classified as ______ or ______ and ______

Answer 31

captive career agents independent agents

Question 32

This case, which the US Supreme Court decided, involved one state’s attempt to regulate an insurance company domiciled in another state.

Answer 32

1868-Paul v. Virginia

Question 33

In the SEUA case, the 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 commerc to be regulated by the federal government

Answer 33

1944-United states v. Southeastern Underwriters Association (SEUA)

Question 34

This law made it clear that the states’ continued regulation of the insurance was in the public’s best interest. However, it also made possible the application of federal antitrust laws to the exten that (the insurance business) is not regulated by state law

Answer 34

1945-The McCarran-Ferguson Act

Question 35

What year the Supreme Court held that the McCarran-Ferguson 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 been successful

Answer 35

1958-intervention by the FTC

Question 36

The supreme Court held 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 ____ regulates variable life insurance

Answer 36

1959-intervention by the SEC

Question 37

requires fair and accurate reporting of information about consumers, including applications for insurance. Insurers must inform applicants about any investigations that are being made upon completion of the application.

Answer 37

1970-Fair Credit Reporting Act

Question 38

it is a criminal offense for an individual who has been convited of a felony involving dishonesty or breach of trust to willfully engage or participate (in any capacity) 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 individual’s state of residence.

Answer 38

1994-united states code (usc) Sections 1033 and 1034.

Question 39

In ____ Congress passed the ______ ______ ______ ___ , which repealed the Glass Steagall Act. Under this new legislation, commercial banks, investment banks, retail brokerages, and insurance companies can now enter each other’s lines of business

Answer 39

1999-Financial Services Modernization Act

Question 40

___ _____ ___, which Amend the Bank Secrecy Act (BSA), was adopted in response to the September 11,2001, terrorist attacks. ___ _____ ___ is intended to strengthen U.S. measures to prevent, detect, and tere terrorist and their funding. The act also aims to prosecute international money laundering and the financing of terrorist. These Efforts include anti-money laundering (AML) tools that impact the banking, finanical and investment communities

Answer 40

The Patriot Act

Question 41

What does the Patriot Act Stand For?

Answer 41

Uniting and strengthening america by providing apporpriate tools requred to intercept and obstruct terrrorism

Question 42

The Do Not Call Registry allows consumers to include their phone numbers on the list to which telemarkters cannot make solicitation calls

Answer 42

2003- do not call implementation act.

Question 43

Often shortened to the Affortable Care Act (ACA), it represents one of the most significan regulatory overhauls and expansions of health insurance coverage in US history.

Answer 43

2010-Patient Protection and affordable Care Act (PPACA)

Question 44

An ______ is a person who acts for another person or entity known as the principal with regard to contractual arrangements with third partys

Answer 44

agent

Question 45

the authority a principal deliberately gives to its agent

Answer 45

express authority

Question 46

the unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal

Answer 46

implied authority

Question 47

the eppearance or assumption of authority based on the principal’s actions, words, or deeds.

Answer 47

apparent authority

Question 48

in the insurance industry, a _____ ______ company’s primary purpose it to determine the financial strength of the industry’s insurers.

Answer 48

rating service

Question 49

the accounting measurement of an insurer’s future obligations to its policyholders

Answer 49

reserves

Question 50

______ indicates a company’s ability to make unpredictable payouts to policy owners

Answer 50

Liquidity