Insurers Flashcards
What is the major difference between government and private insurance?
Government insurance is funded with taxes but private insurance is funded with premiums.
Name how we classify Private insurance companies
- ownership
- Authority
- Location (domicile)
- Marketing and distribution systems
*Rating (financial strength)
stock companies
owned by the shareholders who provide capital to establish and operate
and share the profit or loss of the insurance company.
Nonparticipating policies
policy owner does not share (participate) in profit or loss
Mutual companies
owned by POLICY holders who are entitled to dividends and use participating policies
dividends (mutual companies)
non taxable return of excess premiums
Fraternal Associations
insurance only for members of an organization. They don’t have to follow regulations of the public insurance company.
Risk purchasing group
Offers insurance to a group of similar businesses that have similar exposure to risk based on their expense/loss experience. Other people don’t get this price. Also, they’re exempt from most state laws rules, and regulations except for the state the group is domiciled in.
Certificate of Authority
a license needed to conduct business in a specific state for insurers if they meet the capital and surplus requirements set down by the state
Authorized / unauthorized insurers
Authorized/admitted means the state has approved the insurers (who meet the financial requirements) to conduct business. Unauthorized can only conduct business through licensed excess and surplus line brokers.
Domestic, foreign, Alien means:
in-state, out-of-state, out of country
insurance companies are classified according to:
location of incorporation (domicile)
Marketing: Independent (American) Agency System
1 independent agent represents several companies, nonexclusive. Commission for personal sales. Business renewal with any company.
Marketing: Exclusive Agency System/ Captive agents
1 agent represents a single company. Exclusive. commissions from personal sales. Renewals can only be placed w/ the appointing insurer.
Marketing: General Agency System
General agent-entrepreneur represents 1 company. Exclusive. Compensation ad commissions. Appoints subagents.
Marketing: Managerial System
The branch manager supervises agents. salaried. Agents can be insurers’ employees or independent contractors.
Direct response marketing
no agents. company advertises directly to consumers through email, the internet, television, other mass marketing, Consumers apply directly to company.
Independent rating services
- Am best
- Fitch
- Standard and Poor’s
- Moody’s
- Weiss
Reinsurance
insurance for insurance companies. Ceding procures insurance from the assuming which acts as the reinsurer.
Law of agency
Defines the relationship between the Principal and the agent
The law of Agency understanding
- Agents represent the insurer
- Any knowledge of the agent is presumed knowledge of the insurer
- If the agent is working within the conditions of their contract, the insurer is fully responsible
- When the insured submits payment to the agent, it is the same as submitting payment to the insurer
Express
Authority granted to Agents from a principal dictated in a contract
Implied Authority
Not every single detail of an agent’s authority can be spelled out. Implied authority is the Assumed authority an agent has in order to do his job.
Apparent Authority
the assumption of authority based on the actions, words, or deeds, of the principal
Fiduciary responsibility
it is illegal to mix the premiums of the insured with your own funds. A fiduciary is someone in a position of trust.
Market conduct
A code of ethics for producers that results in penalties if broken.
conflict of interest, supplying info, requesting gifts to complete business.
4 elements of a contract
- agreement = offer + acceptance
- Consideration
- Competent Parties
- Legal purpose
Agreement offer and acceptance
The applicant makes the offer when submitting the application. The insurer accepts when the underwriter approves the application.
Consideration
The binding force in the contract and must be something of value exchanged by each party.
Competent Parties
must be Legal age, mentally competent, not influenced by drugs or alcohol
Legal Purpose
must be aligned with the laws. In this case, must have insurable interest and consent.
Aleatory
Unequal exchange of value like small premiums in comparison to a big payout in event of a loss.
Adhesion
take it or leave it contract drawn up by the insurer.
Unilateral
One party is bound to a legal responsibility (insurer must pay insured in even of a loss)
Conditional
Conditions that must be met by the policy owner….provide proof of loss and pay premium.
Ambiguities in contract
interpreted to favor the insured.
Reasonable expectations
implied provisions of insurance through speech or ads that the insured could reasonably expect. Large print vs small print. Large print wins.
Indemnity
reimbursement to the insured or beneficiary
Utmost good faith
No fraud between parties. No concealment, misrepresentation, or between parties.
representations
statements believed to be true by the insured while filling out an application. Untrue statements are considered misrepresentation and could void a contract.
Material misrepresentation
intentional fraud statements that if discovered would alter a contract.
Warranties
Absolute true statements that the validity of the insurance policy depends upon.
Concealment
Intentionally withholding info by an applicant
fraud
intentional misrepresentation of a fact.
waiver
voluntarily relinquishing a legal right
Estoppel
legal stopping of a right once it has been waived
Fair Credit Report Act
Procedures must be followed so that records are confidential and properly and truthfully used. Protects consumers from inaccurate info circulating.
consumer reports and investigative consumer reports
outside sources that give additional info about a particular risk used by underwriters to determine risk of loss.
consumer report
info regarding consumer’s character from public sources, including cret score.
investigative consumer report
info obtained through interviews of friends that give the reputation of a consumer. Must be known to the consumer in writing within 3 days of the report was requested. unlawful obtaining of this info could result in 2 years imprisonment. Consumers can request addition info about the report and it will be provided within 5 days
NAIC
organization of Insurance commissioners from all 50 states and 4 US territories that exist to resolve insurance regulation problems.
NCOIL
conference of insurance legislators that help make insurance decisions affecting their scope of focus.
Producer associations
shares research for their area of expertise and are created for agents or producers in the same industry of insurance.
