Personal Lines Flashcards
A ______________ insurance company is owned by its policyholders.
a. Stock
b. Reciprocal
c. Fraternal Benefits Society
d. Mutual
d. Mutual
If an insurance company wants to transfer all or part of the risk it has accepted, it
would buy which of the following types of insurance?
a. Residual
b. Reinsurance
c. Reciprocal
d. Insurer
b. Reinsurance
Domestic Insurer
An insurer organized under
the laws of this state, whether
or not it is admitted to do
business in this state.
Foreign Insurer
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.
Alien Insurer
An insurer organized under the laws of any jurisdiction outside of the United States, whether or not it is admitted to do business in this state.
Domicile
jurisdiction (i.e., state or country) where an insurer is formed or
incorporated.
Admitted (Authorized)
is authorized by this State’s Commissioner of Insurance
to do business in this State. It has received a Certificate of Authority to do business in this
State.
Non-admitted (Unauthorized)
insurer has either applied for authorization to do
business in this state and was declined or they have not applied. They are not authorized
to transact insurance in this state.
Which of the following is an insurance company that is organized under the laws of another state within the United States? a. Domestic b. Alien c. Foreign d. Authorized
c. Foreign
Exclusive or Captive Agency System
a. Agent represents solely one company or group of companies having common ownership.
b. Insurer retains ownership rights to the business written by the agent.
c. The agent is an employee or a commissioned independent contractor.
d. Insurer may or may not provide office and agency support services
Direct Writing System
a. Producer or Agent is an employee of the insurer.
b. Insurer owns the accounts.
c. The agent may be paid a salary, salary plus bonus, or commission.
Independent Agency
a. An agent or agency that enters into agency agreements with more than one insurer. It
may represent an unlimited number of insurers.
b. Agency retains ownership of the business written.
c. An independent contractor that is paid a commission and covers the cost of agency
Career Agency System
Agents are recruited, trained and supervised by either a managing
employee or General Agent who is contracted with the insurance company.
Personal Producing General Agent
a. Does not recruit career agents.
b. Sells insurance for carriers it is contracted with and maintains its own office and staff.
Direct Mail or Direct Response Company
a. Sells insurance policies directly to the public with licensed employees or contractors.
b. A marketing system utilizing direct mail, newspapers, magazines, radio, television,
internet, web sites, call centers and vending machines.
Mass Marketing
a. Mass marketing is used to target a specific type of insurance to a large group of
individuals, such as the American Association of Retired People (AARP).
b. Insurer reduces marketing and underwriting expenses.
Which insurance company department accepts the insurance risk?
a. Executive
b. Actuarial
c. Claims
d. Underwriting
d. Underwriting
Law of Agency
a. A relationship between two or more parties where one party (the agent or producer) acts
on behalf of the other party, known as the principal or insurer.
b. The agent or producer binds the actions and words of the principal.
Insurer (Principal)
a. Insurer is the source of authority from which the producer must abide.
b. Insurer is responsible for all acts of a producer, when producer is acting within the scope
of its authority.
c. Producer may be personally liable when his/her actions exceed the authority of the
agency’s contract.
Producer (Agent)
A person or agency appointed by an insurance company to represent it and to present
policies on its behalf.
Express – Authority
Authority that is written into the producer’s agency contract. It details
specific activity regarding the producer’s ability to transact business on behalf of the
principal. An example would be the producer’s authority to solicit, negotiate, and sell
insurance contracts on behalf of the principal. The agent may also have the express
authority to bind coverage.
Implied – Authority
Authority that is not specifically stated in the contract, but is necessary,
reasonable, and usual for the producer to perform stated duties. Since not all duties
can be spelled out in the contract, incidental duties are assumed by the agent as
appropriate to carry out the express authority granted by the principal. An example
would be the use of the company logo on business cards or letterhead, implying the
agent has authority to represent the principal when finding new clients in the process
of soliciting and selling insurance. This also includes accepting applications and
collecting premiums.
Apparent – Authority
Authority created when the producer exceeds the authority expressed in
the agency contract. It is authority the public (or a third-party) is falsely led to believe
the agent has and the principal does nothing to counter the public impression that
such authority exists. An example would be the producer’s acceptance of premiums
on a lapsed policy.
Broker
a. A licensed individual who negotiates insurance contracts with insurers, on behalf of the
applicant.
b. Represents the applicant or insured’s interests, not the insurer, and thus does not have
legal authority to bind the insurer.
c. A broker’s license is not applicable in all states.
Which of the following individuals represents the insurance company when selling an insurance policy? a. Producer b. Broker c. Adjuster d. Insurer
a. Producer
Which of the following types of authority does the public assume an agent has when quoting insurance? a. Authorized b. Express c. Implied d. Apparent
c. Implied
A producer has each of the following responsibilities to the Insurer, except:
a. A fiduciary duty
b. Forwarding premiums to the insurer on a timely basis
c. Reporting material facts that may affect underwriting
d. A duty to recommend only high rate policies
d. A duty to recommend only high rate policies
A federal regulation called the ___________ protects consumer privacy.
a. Consolidated Omnibus Budget Reconciliation Act
b. Fraudulent Insurance Act
c. Privacy Protection Act
d. Fair Credit Reporting Act
d. Fair Credit Reporting Act
Risk
a. A condition where the chance, likelihood, probability or potential for a loss exists.
b. Uncertainty concerning a loss.
Speculative Risk
Situations where there is a chance for loss, gain, or neither loss nor gain to occur. An
example of speculative risk is gambling. Speculative risk cannot be insured.
Pure Risk
Situations where there is no chance for gain; the only outcome is for nothing to occur
or for a loss to occur.
Loss
Reduction, decrease, or disappearance of value. The basis of a claim for damages
under the terms of an insurance policy.
Peril
The cause of a loss.
Hazard
A specific condition that increases the probability, likelihood, or severity of a loss
from a peril.
Physical Hazard
A physical condition that
increases the probability of loss;
use, condition, or occupancy of
property.
Moral Hazard
Dishonest tendencies that
increase the probability of a
loss; certain characteristics and
behaviors of people.
Morale Hazard
Attitude that increases the
probability of a loss.
S T A R R Risk Management
Sharing Transfer Avoidance Reduction Retention
Dishonest tendencies that increase the probability of loss are what types of hazard?
a. Physical
b. Moral
c. Emotional
d. Legal
b. Moral
Each of the following must be included in an insurable risk, except:
a. Calculable chance of loss
b. Excluded catastrophic perils
c. Large group with dissimilar members
d. Accidental losses
c. Large group with dissimilar members
Which principle of insurance restores the insured to the same economic condition that existed before the loss? a. Indemnity b. Insurability c. Adhesion d. Underwriting
a. Indemnity
Contract of Adhesion
One party writes the contract, without input from the other party. One
party (insurer) prepares the contract and presents it to the other party (applicant) on a “take-it-orleave-
it” basis, without negotiation.
Aleatory Contract
The exchange of value is unequal. Insured’s premium payment is less than
the potential benefit to be received in the event of a loss.
Valued Contract
A contract that pays a stated amount in the event of a loss. (Most insurance
policies are NOT valued contracts unless they are endorsed.)
