Insurance Regulation Flashcards
Regulation
The supervision and control of an activity for a specific purpose by an
entity that is not directly involved in, or party to, the activity.
Producer
Any of several kinds of insurance personnel who place insurance
business with insurers and who represent either insurers or insureds, or
both.
Legislation
Law enacted by a legislative body.
Jurisdiction
The geographic area over which authority extends.
Common-law system
A legal system in which the body of law is derived more from court
decisions as opposed to statutes or constitutions.
Civil law system
A basic legal system that relies on scholarly interpretations of codes
and constitutions rather than court interpretations of prior court decisions,
as in common-law systems.
Precedent
A court decision that serves as an example, or rule, for later, similar
cases.
Stare decisis
The principle that lower courts must follow precedents set by higher
courts.
Administrative agency
An official governmental body that is empowered with the authority
to implement and administer particular legislative acts.
Administrative law
The statutory laws that grant power to administrative agencies to act
and the body of law that is created by administrative agencies themselves.
Loss exposure
Any condition or situation that presents a possibility of loss, whether
or not an actual loss occurs.
Misrepresentation
A false statement of a material fact on which a party relies.
Twisting
An illegal misrepresentation that convinces a customer to cancel one
policy and purchase another policy that is detrimental to the customer.
Rebating
The practice of giving a portion of the producer’s commission or
some other financial advantage to an individual as an inducement to
purchase the policy.
Domestic insurer
An insurer doing business in the jurisdiction in which it is incorporated.
Foreign insurer
An insurer licensed to operate in a jurisdiction but incorporated in
another jurisdiction.
Alien insurer
An insurer domiciled in a country other than the one in which it
seeks to conduct, or is conducting, business.
Insurance agent
A legal representative of one or more insurers for which the representative
has a contractual agreement to sell insurance.
Broker
An independent producer who represents insurance customers.
Rate
The price per exposure unit for insurance coverage.
Classification system
A system developed for rating purposes to group similar loss exposures
into homogeneous classes to avoid adverse selection.
Predictive modeling
A process in which historical data based on behaviors and events
are blended with multiple variables and used to construct models of
anticipated future outcomes.
Actuarial rate indication
The proposed rate change derived by actuarial analysis prior to company
strategic influences.
Adverse selection
In general, the tendency for people with the greatest probability of
loss to be the ones most likely to purchase insurance.
Experience rating
A rating plan that adjusts the premium for the current policy period
to recognize the loss experience of the insured organization during
past policy periods.
Individual risk premium modification plan (IRPM)
A rating plan that allows underwriters to modify property premiums based upon specific risk characteristics not reflected in the class rate.
Retrospective rating
A ratemaking technique that adjusts the insured’s premium for the
current policy period based on the insured’s loss experience during the
current period; paid losses or incurred losses may be used to determine
loss experience.
Loss costs
The portion of the rate that covers projected claim payments and loss
adjusting expenses.
Statistical plan
A formal set of directions for recording and reporting insurance premiums,
exposures, losses, and sometimes loss expenses, to a statistical
agent.
Loss development factor
An actuarial means for adjusting losses to reflect future growth in
claims due to both increases in the incurred amount for reported
losses and incurred but not reported (IBNR) losses.
Trend analysis
An analysis that identifies patterns in past data and then projects
these patterns into the future.
Relativity
A numerical estimate of losses in one classification relative to losses
in a base classification.
Prior approval
A type of insurance rate regulation in which rates and supporting
rules must be filed with and approved by the insurance regulator
before they can be used.
Deemer provision
A law stating that if an insurance regulator does not approve of an
insurer’s filing within a specified time, the filing is deemed approved.
File-and-use
A type of insurance rate regulation in which the insurer must file
rates and supporting rules with the insurance regulator within a
specific number of days prior to their use, and if not disapproved by
the regulator during that review period, the rates can then be used
immediately without specific approval
Use-and-file
A type of insurance rate regulation in which the rates and supporting
rules must be filed with the insurance regulator within a specified
period after they are put into use.
Open competition (no-file law)
A type of insurance rate regulation that allows insurers to develop and
use rates and supporting rules without having to file with or receive
approval from the insurance regulator.
Flex rating
A type of insurance rate regulation that requires insurers to obtain
prior regulatory approval only if new rates exceed a certain percentage
above or below previously filed rates.
Return on equity (ROE)
A profitability ratio expressed as a percentage by dividing a company’s
net income by its net worth (book value). Depending on the context,
net worth is sometimes called shareholders’ equity, owners’ equity, or
policyholders’ surplus.
Hard market
Market conditions in which insurer competition diminishes, buyers
have difficulty finding coverage, premiums increase, and insurer profitability
rises.
Soft market
Market conditions in which insurer competition is intense and is indicated
by widely available coverage, lower premiums, and decreased
insurer profitability.
