Chapter 8: Insurance Functions

Question 1

Agent

Answer 1

Person authorized to act for another person

Question 2

Principle

Answer 2

person whose agent acts behalf of

Question 3

Agency Contract

Answer 3

Agent and insurance company, establish rights and duties for each party, agent has authority

Question 4

Express Authority

Answer 4

Written appointment of agent

Question 5

Incidental Authority

Answer 5

Agents does what is normally required to accomplish specified acts

Question 6

Binding Authority

Answer 6

agents creates valid & binding insurance contract on behalf of insurer

Question 7

What is a Brokerage

Answer 7

legal representative of insurance consumer with limited authority to find insurance company for their clients.

Question 8

Direct Writing Insurers

Answer 8

Use agents who represent only one insurer, contribution received in commission

Question 9

Independent Agents

Answer 9

contractors who represent multiple different insurers, legal right to renew clients, increase commission fee

Question 10

Life Agent

Answer 10

Motivate people to buy life insurance and apply for coverage, ‘professional financial planners”

Question 11

What do Brokers do?

Answer 11

evaluate market and find insurance for clients, deal with multiple insurers

Question 12

Direct Marketing

Answer 12

mail, telephone, solicitation

Question 13

E-Commerce

Answer 13

internet, cut costs & direct contracts

Question 14

Loss adjustors (Dad’s firebird)

Answer 14

• after loss notified there is a claim investigation
• loss extent not always clear, full or partial
• no agreement then arbitration or appraisal

Question 15

Independent Adjustor

Answer 15

Agent of insurer, resides near accident location to evaluate

Question 16

Public Adjustor

Answer 16

Agent of insured -> hired to gain further estimate or settlement

Question 17

Underwriter

Answer 17

price insurance rates and premiums through models with built in assumptions, review applications for insurance and accepts or applies rates based on criteria

Question 18

Actuaries

Answer 18

Use mathematical and statistic thinking to solve problems, forecast risk, financial losses through models, prior data and trend patterns, make future projections, develop rates

Question 19

Attorneys

Answer 19

represent insurance companies interest in lawsuits against insureds, develop wording of insurance

Question 20

Financial managers

Answer 20

prepare budgets, coordinate cash in/outflow

Question 21

Loss reserves

Answer 21

estimated future liability of claims owed to policyholders

Question 22

Reinsurance

Answer 22

insurance company obtains insurance from another to protect itself from whole loss

Question 23

Primary Insurer

Answer 23

sells insurance to policyholder

Question 24

Reinsurer

Answer 24

primary insurer obtains reinsurance

Question 25

Facultative Reinsurance

Answer 25

primary insurer makes separate agreement each time it needs reinsurance by entering market and negotiating

Question 26

Treaty Reinsurance

Answer 26

relationship between primary and reinsurer, portfolio of primary insurer is covered by reinsurance, must cease business/operation during treaty

Question 27

Pro Rata reinsurance

Answer 27

Primary and reinsurer cover losses, premiums, expense proportionately

Question 28

Excess of loss reinsurance

Answer 28

Reinsurer covers losses and pays only when loss amount exceeds limit set by primary insurer

Question 29

Catastrophe Reinsurance

Answer 29

high retention limits for primary carrier before catastrophe reinsurer becomes liable

Question 30

Reason to purchase reinsurance (3)

Answer 30

keep exposure in smaller size
smaller primary insurers can enter the market and use expertise of large insurer
reduce size of potential loss, accept larger exposure

Question 31

Retrocession

Answer 31

Reinsurer purchases reinsurance

Question 32

Who purchases insurance from the first reinsurer? 2-names for it

Answer 32

Primary Reinsurer or Ceding Reinsurer