LESSON 2

Question 1

TYPES OF PRIVATE INSURERS

Answer 1

1. Stockholder insurers
2. Mutual insurers
3. Lloyd’s of London
4. Reciprocal exchanges
5. Blue cross and blue shield plans
6. Health maintenance organizations (HMOs)
7. Other types of private insurers

Question 2

This is a corporation owned by stockholders.The objective is to earn profits for the stockholders. Stockholders elect a board of directors who, in turn, a point executive officers to manage the corporation

Answer 2

Stockholder Insurers

Question 3

This is a corporation owned by the policy holders. There are no stockholders. The policy holders elect a board of directors who appoint executive to manage the corporation

Answer 3

Mutual Insurers

TYPES OF M. I

• Advanced Premium Mutual
• Assessment Mutual
• Fraternal Insurer

Question 4

A company that directly or indirectly controls an authorized insurer

Answer 4

Holding company

Question 5

Also known as interinsurance exchange. It is an an unincorporated organization where insurance is exchange among the members referred to as subscribers

Answer 5

Reciprocal Exchange

Question 6

These plants originally started as non-profit, community oriented prepayment plans.

1._________ primarily covered hospital services

2._________ initially covered physicians and surgeons fees and other medical services

Answer 6

1. Blue cross
2. Blue shield

Question 7

Not an insurer but the words’ leading insurance market that provides services and physical facilities for its member to write specialized lines of insurance.

________ on the right seven lines of insurance: casualty, property, marine, energy, motor, aviation, and reinsurance

Answer 7

Lloyd’s of London

Question 8

Organized plans of healthcare that provides comprehensive health care services to their members. It provides broad healthcare services to specified group for specific prepaid fee.

Answer 8

Health Maintenance Organizations (HMOs)

Question 9

________ is an insurer owned by parent firm for the purposes of ensuring the parents firm’s loss exposure

Types of it:
1. ________ also called pure captive, is an insurer owned by one parent such as corporation.

2. ________ is an insurer owned by several parents

Answer 9

Captive Insurer
1. Single Parent Captive
2. Association or Group Captive

Question 10

Is someone who legally represents the principal and has the authority to act on the principles behalf. The principal represents the insurance companies

Answer 10

Agents

Question 11

Different types of authority that an Agent Have.

1. __________ the specific powers granted by the ensurer to the agent.

2.___________ the authority to perform acts necessary to exercise the express authority.

3.____________ the authority the public believes the agent possesses based on the insurer’s action

Answer 11

1. Express Authority
2. Implied Authority
3. Apparent Authority

Question 12

The insurance company (principal) is responsible for the acts of the agent when the agent is acting within the scope of their granted or implied authority, including wrongful or fraudulent acts if they are within that scope

Answer 12

Legal Responsibility

Question 13

A ____ legally represents the insured (client) even though they receive the commission from the insurer. They do not have the authority to bind the insurance.

The solicitor accept application for insurance and try to place the coverage within an appropriate insurer. The insurance is not enforced until the ensure accepts the business.

Answer 13

Broker

Question 14

________ refers to the pricing of insurance in the calculation of insurance premium.

The premium paid by the insured is the result of multiplying a rate determined by actually by the number of exposure units. And then adjusting the premium by various rating factors called ________

________ is the price per unit of insurance

____________ is the unit of measurement used in insurance pricing, which bodies by the line of insurance

Answer 14

1. Rate making
2. Rating
3. Rate
4. Exposure unit

Question 15

________ refers to the process of selecting, classifying, rising applicants for insurance.

____________ is the person who decides to accept or reject an application

____________ a clear policy that aligns with the companies objective, specifying acceptable, borderline, and prohibited businesses, as well as the amount of insurance to be written

________ the manual that provides detailed instructions

Answer 15

1. Underwriting
2. Underwriter
3. Underwriting policy
4. Underwriting manual

Question 16

The formula of Rate making

Answer 16

FORMULA: Base Rate (x) Number of exposure units (x) Rating Factors = Premium

Question 17

__________ refers to the sales and marketing activities of the insurers.

Agents who sell insurance are frequently referred to as ________

Answer 17

1. Production
2. Producers

Question 18

This is the department responsible for recruiting in training new agents and for the supervision of the general agents, branch office managers, and local agents

Answer 18

Agency department

Question 19

Refers to the practice of conducting sales with expertise, integrity, client focus service

Answer 19

Professionalism in selling

Question 20

________ is an arrangement by which the primary ensurer that initially writes the insurance transfers to another insurer called Reinsurer part or all of the potential losses associated with the insurance.

Can also be described as the agreement where the primary insurer ( the ceding company) transfer parts or all of it potential losses to another insurer ( the reinsurer)

Answer 20

Reinsurance

Question 21

1. ________ the primary ensurer that initially writes the insurance and transfer part of its risk.

2.________ the company that accepts the risk transferred by the ceeding company

Answer 21

1. Ceding Company
2. Reinsurer

Question 22

1. Is the amount of risk ceding company retains for its own account.
2. The portion of the insurance that is transferred to the reinsurer
3. If today insurance parts interest it is accepted to another insurer, this is called ________ and the second reinsurer is called retrocessionnaire

Answer 22

1. Retention limit
2. Cession
3. Retrocession

Question 23

A type of reinsurance.

It is an optimal, case by case method that is used when the ceding company receives an application for the insurance that exceeds it’s retention limit. Reinsurance is not automatic. The primary insurer negotiate sa contract with a reinsurer for each laws exposure for which reinsurance is desired. However the primary insurer is under no obligation to accept the insurance. But if a willing reinsurer is found the primary insurer and reinsurer can then enter into a valid contract

Answer 23

Facultative Reinsurance

Question 24

A type of reinsurance.

It means that the primary ensurer has agreed to ceed insurance to the reinsurer, and the reinsurer has agreed to accept the business. All business that falls within the scope of the agreement is automatically reinsured according to the terms of the treaty

Answer 24

Treaty Reinsurance

Question 25

METHODS FOR SHARING LOSSES: 1.________ the ceding company and reinsurer share losses and premiums based on a **specified proportions.** Both share the risk equally, depending on the agreed upon ratio. 2.________ the reinsure **only pays when the loss exceed a specified level.** This method is often used for catastrophic or oil losses that is primary insurer cannot handle alone

Answer 25

1. Pro-Rata method 2. Excess of Loss method

Question 26

METHODS FOR SHARING LOSSES// REINSURANCE METHODS 1.________ the ceding company and the reinsurer agree to **share premiums and losses based on some proportion.**The ceding company retention is stated as percentage rather than as a dollar amount.

Answer 26

Quota Share Treaty

Question 27

_ 1.__________ extremely important in a daily operation of the insurers. The systems that heavily depend on computers and new technology 2. ___________ responsible for the financial operation of an insurers 3. ___________ provides a summary of a company's financial position on a specific dates. It summarizes the assets, liabilities, and the owner's equity 4. _____________ typically financial assets. Investments, dollars and retain earnings in the various financial instruments.

Answer 27

1. Information systems 2. Accounting 3. Balance sheets 4. Assets

Question 28

LIABILITIES: 1.__________ large liability item when an insurance companies balance sheets. These reserves **estimate the cost of setting claims for losses that have already occurred but have not been paid** by the balance sheet date. IT IS DIVIDED INTO THREE CATEGORIES: - claims reported and adjusted but not yet - claims reported but not yet adjusted - claims incurred but not yet reported

Answer 28

Lost Reserves

Question 29

____________ Are **loss reserves** that are established for each individual claim when it is reported. METHODS: 1. _________ claim reservices established **based on the judgement of someone** in the claims department or by using a computer program. The reserve is set by assessing the details of the individual claim. 2._________ **assigns an average value to each claim** particularly when there are large number of claims in each claims value is relatively small. Use commonly for also physical damage claims where the losses are generally consistent in value. 3. ____________ use when claim amounts **depend on the factors like life expectancy, disability duration, and other factors.** Specially applicable to long term benefits such as tools for permanent disability or survivor benefits

Answer 29

Case reserves METHODS: 1. Judgement method 2. Average value method 3. Tabular value method

Question 30

Represents the **portion of "premiums" collection by the insurer that corresponds to the coverage that has not yet been provided**. It is a liability item on the balance sheet representing premiums that have been paid in advance by policy holders but the coverage period has not yet been fulfilled

Answer 30

Unearned premium reserve

Question 31

Is the **difference between an insurance company's assets and liabilities.** It is not calculated directly it is the balancing item on the balance sheet. If the insurers were to pay all of its liabilities using its assets the **amounts remaining** will be the ___________

Answer 31

Policy-holder's surplus

Question 32

1. ___________These are the **cash inflows** that the company can claim as income 2.____________ partially upsetting the company's revenue with a company's expenses, which are **cash outflows** from the business

Answer 32

1. Revenues 2. Expenses

Question 33

RATE MAKING METHODS: 1.__________ each exposure is **individually evaluated** and the latest determine largely by the judgement of the underwriter. **Use when the lost exposure are so diverse** that a class rate cannot be calculated or when credible law statistics are not available. Why do you use in ocean marine insurance and some lines and inland marines insurance. 2. __________ the exposures with **similar characteristics are placed in the same underwriting** class and each is charged the same rate. a.) _________ the **portion of the cross rate needed to pay losses and loss adjustment expenses**. Can be determined by dividing the dollar amount of incurred losses and loss adjustment expenses by the number of exposure units. b.) __________ the **actual lost ratio is compared with the expected loss** and the rate is adjusted accordingly. 3. ____________ the third principal type of rating and property casualty insurance. **Means rating plan by which class rates (manual rates) are adjusted upward or downward based on the individual lost experience**. This is based on assumption that the lost experience of a particular insured will differ substantially from the lost experience of the other insureds

Answer 33

1.Judgement rating 2. Class rating a.) pure premium method b.) lost ratio method 3. Merit rating

Question 34

TYPES OF MERIT RATING 1._________ under this **each exposure is individually rated**. A basis rate is determined for each exposure which is done modified by the debits or credits for undesirable or desirable physical features 2. __________ manually rate is adjusted upward or downward based on the past loss experience. The most distinctive characteristics of ________ is that the **insured's past loss experience is used to determine the premium for the next policy period** 3.__________ the insured loss experience during the **current policy period determines the actual premium** paid for that period

Answer 34

1. Schedule rating 2. Experience rating 3. Retrospective rating

Question 35

REASONS FOR INSURANCE REGULATION; insurance are regulated primarily by the states and also by the federal government. Major reasons for regulation of insurance include the following. ENUMERATE

Answer 35

1. Maintain insurers solvency 2. Compensate for inadequate consumer knowledge 3. Ensure reasonable rates 4. Make insurance available

Question 36

AREAS REGULATED

Answer 36

1. Formation and licensing of insurers 2. Solvency regulation 3. Rate regulation 4. Policy forms 5. Sales practices in consumers protection 6. Taxation of insurers

Question 37

An insurer **agrees to accept insurance in excess of the ceding insurer's retention limit**, up to some maximum point. The retention limit is referred to as a line and stated as a dollar amount. If the amount of the insurance on a given policy exceeds the retention limit, the excess insurance is ceeded to the reinsure up to the maximum limit

Answer 37

Surplus Share Treaty

Question 38

Design largely for the **protection against and catastrophic loss**. The range reinsurers pays all parts of the loss that exceeds the ceeding company's detention limit up to the maximum level

Answer 38

Excess of Loss of Reinsurance

Question 39

An **organization of insurers that underwrite insurance on a joint basis**, because of a single insurer alone may not have the financial capacity to write large amount of insurance, but the insurers as a group can combine their financial resources to obtain necessary capacity

Answer 39

Reinsurance Pool