Chapter 8: Insurance Functions Flashcards
Agent
Person authorized to act for another person
Principle
person whose agent acts behalf of
Agency Contract
Agent and insurance company, establish rights and duties for each party, agent has authority
Express Authority
Written appointment of agent
Incidental Authority
Agents does what is normally required to accomplish specified acts
Binding Authority
agents creates valid & binding insurance contract on behalf of insurer
What is a Brokerage
legal representative of insurance consumer with limited authority to find insurance company for their clients.
Direct Writing Insurers
Use agents who represent only one insurer, contribution received in commission
Independent Agents
contractors who represent multiple different insurers, legal right to renew clients, increase commission fee
Life Agent
Motivate people to buy life insurance and apply for coverage, ‘professional financial planners”
What do Brokers do?
evaluate market and find insurance for clients, deal with multiple insurers
Direct Marketing
mail, telephone, solicitation
E-Commerce
internet, cut costs & direct contracts
Loss adjustors (Dad’s firebird)
- after loss notified there is a claim investigation
- loss extent not always clear, full or partial
- no agreement then arbitration or appraisal
Independent Adjustor
Agent of insurer, resides near accident location to evaluate
Public Adjustor
Agent of insured -> hired to gain further estimate or settlement
Underwriter
price insurance rates and premiums through models with built in assumptions, review applications for insurance and accepts or applies rates based on criteria
Actuaries
Use mathematical and statistic thinking to solve problems, forecast risk, financial losses through models, prior data and trend patterns, make future projections, develop rates
Attorneys
represent insurance companies interest in lawsuits against insureds, develop wording of insurance
Financial managers
prepare budgets, coordinate cash in/outflow
Loss reserves
estimated future liability of claims owed to policyholders
Reinsurance
insurance company obtains insurance from another to protect itself from whole loss
Primary Insurer
sells insurance to policyholder
Reinsurer
primary insurer obtains reinsurance
Facultative Reinsurance
primary insurer makes separate agreement each time it needs reinsurance by entering market and negotiating
Treaty Reinsurance
relationship between primary and reinsurer, portfolio of primary insurer is covered by reinsurance, must cease business/operation during treaty
Pro Rata reinsurance
Primary and reinsurer cover losses, premiums, expense proportionately
Excess of loss reinsurance
Reinsurer covers losses and pays only when loss amount exceeds limit set by primary insurer
Catastrophe Reinsurance
high retention limits for primary carrier before catastrophe reinsurer becomes liable
Reason to purchase reinsurance (3)
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
Retrocession
Reinsurer purchases reinsurance
Who purchases insurance from the first reinsurer? 2-names for it
Primary Reinsurer or Ceding Reinsurer
