General Insurance

Question 1

Stock Insurance Company

Answer 1

A stock company owned by stockholders. Stockholders receive corporate dividends as a return of profit.

Question 2

Mutual Insurance Company

Answer 2

Owned by policyholders. A board of Trustees or Director direct the company operations and is elected by policyholders. Policyholders receive dividends!

Question 3

Reciprocal Insurance Company

Answer 3

A group-owned insurer whose main activity is risk sharing. Each subscriber assumes a part of the risk of all other subscribers.

Question 4

Lloyds of London

Answer 4

Consist of groups of underwriters called Syndicates, each of which specializes in a particular type of risk. Members are individually liable for each risk they assume.

Question 5

Fraternal Benefits Societies

Answer 5

Are primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members. They are usually organized on a non-profit basis.

Question 6

Risk Retention Groups (RRG)

Answer 6

A group-owned insurer that primarily assumes and spreads the liability related risk of its members. Owned by POLICYHOLDERS. Must be made up of similar units. Must have sufficient liquid assets to meet loss obligations.

Question 7

Self-Insurer

Answer 7

To assume the financial risk one’s self. Generally only and option for large companies who may even re-insure for risk above certain maximum limits.

Question 8

Residual Markets

Answer 8

A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers.

Question 9

Reinsurance Companies

Answer 9

An insurance company that assumes all or a portion of a risk from a primary or ceding insurance company. Transfers risk among insurance companies.

Types of Reinsurance:

a. Treaty Agreements - Covers all risk contained in the subject lines of business automatically.
b. Facultative Agreements - Allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risk.

Question 10

Financial Rating Services

Answer 10

Services evaluate and rate the financial stability of insurance companies. Rating are available to the public.

Question 11

Domestic Insurer

Answer 11

An insurer organized under the laws of this state, whether or not it is admitted to do business in this state.

Question 12

Foreign Insurer

Answer 12

An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States, whether or not it is admitted to do business in the state or jurisdiction.

Question 13

Alien Insurer

Answer 13

An insurer organized under the laws of any jurisdiction outside of the US, whether or not it is admitted to business in this state.

Question 14

Admitted

Answer 14

Insurer is authorized by this State’s Commissioner of Insurance to do business in this State. Has received a Certificate of Authority.

Question 15

Non-admitted

Answer 15

Insurer has applied for authorization to do business in this sate and was declined or they have not applied. They are not authorized to transact insurance in this state.

-Surplus and Excess lines insurance can be placed through non-admitted carriers.

Question 16

Surplus Lines

Answer 16

Coverage when insurance cannot be obtained through non-admitted carriers.

• State Regulated.
• Must go through a Surplus Lines Brokers or Producers.

Question 17

Actuarial Department

Answer 17

Collect and interpret statistical information used in rate making. Determines the probability of loss and sets premium rates.

Question 18

Underwriting Department

Answer 18

Responsible for the selection of risks and rating that determines actual policy premium

Question 19

Exclusive or Captive Agency System

Answer 19

Deals with the insured through an exclusive or captive agent.

Question 20

Law of Agency

Answer 20

A relationship between two or more parties where one party(the AGENT or PRODUCER) acts on behalf of the other party, known as the PRINCIPLE

Question 21

Insurer (Principle)

Answer 21

Source of authority from which the producer must abide.

Question 22

Three Types of Authority?

Answer 22

Express - Authority that is written into the producer’s agency contract.

Implied - Authority the public assumes the producer has.

Apparent - Authority created when the producer exceeds the authority expressed in the agency contract.

Question 23

Broker

Answer 23

A licensed individual who negotiates insurance contracts with insurers on behalf of the applicant.

Question 24

Fair Credit Reporting Act

Answer 24

Protects consumer privacy. States data collected from applicant is secure and private.

Question 25

Financial Anti-Terrorism Act (USA Patriot Act)

Answer 25

Imposes record keeping and government reporting requirements on banks, financial institutions, and non-financial businesses for specific financial transactions and customer financial records.

Question 26

Fraud and False Statements (Fraudulent Insurance Act)

Answer 26

Federal law prohibits the commission of fraud. Insurance applications must contain a disclosure about how false statements and fraud will be treated by the insurer.

Question 27

Merchant Marine act of 1920 (The Jones Act)

Answer 27

Workers Comp laws don’t apply to seamen, the Jones Act allows insured seamen to make claims for injuries suffered during the course of employment.
-Regulates maritime commerce in US waters, cargo transportation, and the rights of seamen.

Question 28

Motor Carrier Regulatory and Modernization Act (Motor Carrier Act of 1980)

Answer 28

Deregulate the trucking industry by prohibiting any entity from interfering with a motor carrier’s right to set its own rates. Motor carriers that transport property are required to establish evidence of financial responsibility/

Question 29

Gramm-Leach-Bliley Act

Answer 29

Financial Privacy rule requires institutions to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter.

• Allows mergers of banks, securities,and insurance companies.
• Give consumer’s right to opt out of the information being shared per in compliance with the Fair Credit Reporting act.

Question 30

Risk

Answer 30

A condition where the chance or potential for a loss exist.

Question 31

Management

Answer 31

Determination of what types of protection are required to meet an insured’s needs.

Question 32

What are the two types of Risk?

Answer 32

Speculative - Situations where there is a chance for loss, gain, or neither loss nor gain to occur. Think gambling. Speculative risk can’t be insured.

Pure - Situations where there is no chance for gain. Pure risk can be insured.

Question 33

Peril

Answer 33

Cause of loss.

Question 34

Hazard

Answer 34

A specific condition that increases the probability of a loss.

Question 35

What are the three types of hazard?

Answer 35

Physical - A physical condition that increases the probability of loss; Flammable material stored near a furnace

Moral - Dishonest tendencies that increase the chance of a loss; I burned down my crib to collect that insurance money $$$

Morale - Attitude that increase the probability of a loss; I live in the hood and always leave my doors unlocked.

Question 36

Ways of Managing Risk

Hint: S.T.A.R.R.

Answer 36

Sharing - Investments of a large number of people pooled by use of a corporation or partnership.

Transfer - Moving risk from one party to another; such as from a consumer to an insurance company

Avoidance - Elimination of the risk, avoid the activity that causes the loss.

Reduction - Minimizing the chance of loss; Sprinkler systems, burglar alarms, pollution controls, etc. Also, pooling or spreading risk among a large number of ppl or entities.

Retention - Assuming responsibility for loss. Self insure the entire loss or a portion.

Question 37

Law of Large Numbers

Answer 37

As the number of units increases, the more likely it is to predict a particular outcome.

Question 38

Principle of Indemnity

Answer 38

Insured is restored to the same financial or economic condition that existed before the loss. Insured shouldn’t profit.

Question 39

Tort Law

Answer 39

Torts are civil wrongs; NOT CRIMES OR BREACHES OF CONTRACT.

Question 40

Estpoppel

Answer 40

Prevents the denial of fact, if it was admitted prior to be true.

Question 41

Hold Harmless Agreement

Answer 41

Contractual agreement that transfers the liability of one party to another party;used by landlords, contractors, etc to avoid or reduce risk.

Question 42

Contract of Adhesion

Answer 42

One party writes the contract without input from the other party; any doubt is construed in favor of the party that did not write it.

Question 43

Indemnity Contract

Answer 43

An agreement to pay on behalf of another party under specified circumstances; when a loss occurs.

Question 44

Unilateral Contract

Answer 44

Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer can be charged with breach of contract.

Question 45

Conditional Contract

Answer 45

Both parties must perform certain duties and follow rules of conduct to be enforceable.