General Insurance Flashcards
Definition: Manufacture and sell insurance coverage in the form of insurance policies or contracts of insurance
Insurance companies
AKA: Insurers or carriers
Definition: Are captive or independent organizations that recruit, contract with, train, and support insurance producers
Insurance Agencies
Definition: Are licensed individuals representing and appointed by an insurance company when transacting insurance business
Insurance Producer
Definition: is the person or entity that is covered by the Insurer, which covers losses due to loss of life, health, property, or liability
Insured
Definition: Is not necessarily the insured under the policy but is responsible for paying the policy’s premium and has various rights as specified in the contract
Owner
Acronym: NAIC
The National Association of Insurance Commissioners
National Association of Insurance Commissioners (NAIC) bullet points
- Consists of all state and territorial insurance commissioners or regulators
- provides resource, research, legislative and regulatory recommendations and interpretations for state insurance regulators.
- promotes uniformity among states
- Members may accept or reject recommendations, NAIC has no legal authority to enact or enforce laws
Acronym: FIO
Federal Insurance Office
Federal Insurance Office bullet points
- established by the Dodd-Frank Wall Street Reform and Consumer Protection Act
- Monitors industry and identifies gaps in the state regulation or insurers
- monitors access to affordable insurance in underserved communities
- FIO is NOT a regulator or supervisor
Insurance is primarily regulated by the ____ Level
State
List the process of Insurance Regulation at the State Level
- Legislative branch writes and passes state insurance law.
- Judicial branch interprets and determines the constitutionality of statute
- State Executive branch enforces the statute
- The Commissioner, Director, or Superintendent of Insurance is appointed by the Governor, and the Commissioner has the power to issue rules and regulations to help enforce these statutes.
US -vs- South-Eastern Underwriters (1944)
The McCarran-Ferguson Act of 1945
Supreme court decision that established the federal government will not regulate the business of insurance in areas which the states have historically had the authority to do so un less the states fail to cooperate.
Congress created federal agencies to provide regulatory oversight impacting insurance practices
A stock company is owned by ________ or ________. Directors and officers, which are elected ________, put in place a management team to carry out the company’s mission.
Stockholders or Shareholders
*Stockholders are not guaranteed dividends
A mutual company is owned by ________ (who may be referred to as members). A Board of Trustees or Directors is elected by _______. The directors and officers put in place a management team to carry out the company’s mission.
Policyholders
- Policyholders are traditionally entitled to dividends, but it is not guaranteed
A reciprocal insurance company is a _______ insurer whose main activity is risk sharing. A reciprocal insurer is unincorporated, and is formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a _____, and each one assumes a part of the risk together.
Group-owned
Subscribers
Lloyd’s of London is NOT an insurance company, but consists of groups of underwriters called _________, each of which specializes in insuring a particular type of risk. Lloyd’s provides a meeting place and clerical services for members who actually transact the business of insurance.
Syndicates
Definition: Are primarily social organizations that engage in charitable and benevolent activities that can provide life and health insurance to their members. Membership typically consists of members of a given faith, lodge, order, or society.
Fraternal Benefit Societies
Definition: Group-owned insurers that primarily assume and spread the liability-related risks of its members. They are owned by their policyholders, and are licensed in at least one state. Membership is limited to risks with similar liability exposures such as theme parks, go-carts tracks, or water slides.
Risk Retention Groups (RRG)
*they must have sufficient liquid assets to meet loss obligations.
Definition: Assume all of the financial risk faced without transferring the risk to an insurer.
Self-Insurers
*rather than pay premiums, funds are set aside to cover claims. This is generally an option for large companies who may limit their risk by only self-insuring up to a certain dollar amount of risk and then acquiring insurance for dollar amounts in excess of that amount.
Definition: are a last Private coverage source for businesses and individuals who have been rejected by the voluntary insurance market. Coverage is typically written as Workers’ Compensation, personal auto liability or property insurance on real property.
Residual Markets
*Joint Underwriting Association or Joint Reinsurance Pool,
Risk Sharing Plan
Definition: Insurance companies that operate to accept all or a portion of the financial risk of loss from the primary (or ‘ceding’) insurance company. The risk of loss is shared with one or more insurance companies. All contractual obligations are on the original (primary) company and the consumers have no direct company with the _________ ______
Reinsurance companies
*Reinsurance is what makes insurance affordable. No single insurance company is exposed to 100% of losses it insures.
What are the 2 types of Reinsurance Agreements?
Treaty - Reinsurance agreement that automatically accepts all new risks presented by ‘ceding’ insurer (the company seeking or requesting the reinsurance from the reinsurer).
Facultative - Reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher due to their substandard (higher risk).
Definition: An insurer organized under the laws of this state, whether or not it is admitted to do business in this state.
Domestic Insurer
Definition: An insurer organized under the laws of any other state, possession, territory, or the District of Columbia of the United States, whether or not it is admitted to the business in this state.
Foreign Insurer
Definition: An insurer organized under the laws of any jurisdiction outside the United States, whether or not it is admitted to do business in this state.
Alien Insurer
Definition: refers to whether or not an insurer is approved or authorized to write business in this state
Admitted -vs- Nonadmitted
Definition: is authorized by this States Commissioner of Insurance to do business in this State and had received a Certificate of Authority to do business in this State
Admitted (Authorized) insurer
Definition: has either applied for authorization to do business in this state and was declined or they have not applied. Cannot transact insurance in this State
Non-admitted (unauthorized) insurer
Definition: Oversees the operation of the business
Executives
Definition: gather and interpret statistical information used in rate making.
Actuarial Department
*an actuary determines the probability of loss and sets premium rates
Definition: responsible for the selection of risks (persons or property) to insure and rating that determines policy premiums.
Underwriting department
Definition: responsible for advertising an selling
Marketing/Sales Department
Definition: assists the policyholder, insured, or beneficiary in the event of a loss and processes, and pays the amount of the claim in a timely manner, based upon the contractual provisions and the amount insured
Claims department
Definition: agent represents solely one company or group of companies having common ownership. The agent is an employee or a commissioned independent contractor.
Exclusive or Captive Agency System mod.
*deals with the insured through an exclusive or captive agent
Definition : producer or agent is an employee of the insurer. The insurer owns the accounts and the agent may be paid a salary, bonus or commission
Direct writing system model
Definition: an agent or agency that enters into selling agreements with more than one insurer. It may represent an unlimited number of insurers. Agency retains ownership of the business written. Paid a commission and covers cost of agency operations
Independent agency model
Definition: agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company
Career Agency System Model
Definition: does not recruit career agents. Sells insurance for carriers it is contracted with and maintains its own office and staff.
Personal Producing General Agent Model
Definition: insurers who sell insurance policies directly to the public with licensed employees or contractors. They utilize mass media, such as newspapers, postal, web, vending machines and Internet.
Direct Mail or Direct Response Company Model
Definition: used to target a specific type of insurance to a large group of individuals, such as AARP. Insurer may benefit by reductions in marketing costs and underwriting expenses may be lower when offering coverage to a limited population. Uses the direct response or direct mail method.
Mass marketing model
Definition: the relationship of a person (called the agent or producer) who acts on behalf of another person, company, or government, known as the principal. The principal is responsible for the acts of the agent, and the agents acts bind the principal. An act of an agent is the act of the principal.
Law of Agency.
Definition: the source of authority from which the producer must abide. They appoint the producer to act on its behalf in transacting the business of insurance. It is responsible for all acts of its producers when a producer is acting within the scope of his/her authority. A producer may be personally liable when his/her actions exceed the authority of his/her contract
Insurer (principal).
