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Financial Essentials > Study three > Flashcards

Study three Flashcards

1
Q

What does a corporation as a distinct legal entity mean?

A
  • are recognized from being separate from their owners
  • they can be sued, can enter into contracts, can own property
  • its debts and liabilities belong to the corporation rather than to its owners
  • board of directors are elected by the company to direct its affairs
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2
Q

What are the two basic types of insurance company structure?

A

1) share capital stock companies
- owned by shareholders
2) non-share capital companies
- mutual companies, fraternal societies

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3
Q

Describe stock companies.

A
  • owned by shareholders
  • shareholders invest in company and receive stock certificates as evidence of ownership
  • investor’s objective is to profit from company’s financial success
  • sale of shares generates capital for the company to be used to achieve its mission statement and to fund its business strategies
  • profit (surplus) is shared in forms of dividends
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4
Q

What are the sources of funds for a stock company?

A

1) sale of shares
2) premium income
3) investment income

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5
Q

Describe mutual companies.

A
  • owned by policyholders
  • formed for mutual benefit of their member policyholders
  • allows insurance to be purchased at an affordable cost by members
  • if earnings are above that required to pay for claims, operating expenses, to post reserves, or to meet other regulatory obligations, they can be distributed to owners
  • may levy a fee against owners if the company requires money to meet its obligations
  • no shares or shareholders
  • not generally exposed to takeover by another company (because of no shares)
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6
Q

What are the source of funds for mutual companies.

A

1) premium income
2) levies on members if required
3) investment income

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7
Q

What does the demutualization include?

A
  • when mutual insurers reorganize as a stock insurance company
  • used to attract more capital
  • in exchange for their ownership rights, eligible policyholders receive cash or shares
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8
Q

Describe fraternal benefit societies.

A
  • non-profit corporations owned by defined member groups to provide social benefits
  • insurance contracts are referred to as certificates instead of policies
  • the source of funds are:
    1) premium income
    2) levies on members
    3) investment income
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9
Q

What does the insurance sales force include?

A

1) agent
- signs agreement with any number of insurer
- commission based on sales
- ownership of client list may be negotiated
- viewed as primarily representing the insurer in sales transactions
- agents actions may bind insurer’s responsibilities to the client

2) career agent
- signs agreement with one insurer
- may collect salary advance based on anticipated commission
- usually the client list is owned by insurance company
- sells the sponsoring insurer’s products
- actions bind the insurer’s responsibilities to the client

3) broker
- operates independently
- covers own operating expenses
- collects commission on sales
- owns client list
- offers policies from a number of different insurer’s
- insurer would generally not be liable for the broker’s representations made to client

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10
Q

Describe an MGA (managing general agent).

A
  • independent business operation given authority by a # of insurance companies to solicit business from agents on behalf of them
  • generally provude admin support, negotiate benefits for agents, and ensure all appropriate info has been gathered from applicants
  • do not own client list, but could be negotiated
  • may include supervising, training and recruiting agents
  • earn an override commission on agents sales
  • independent sales manager
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11
Q

What are the different types of marketing used?

A

1) direct- response marketing
- advertising through direct mail, flyers, print ads, television, telemarketing, and internet

DIRECT MAIL

  • earliest form of direct-response marketing
  • targets specific geographic areas and demographic groups
  • credit card companies and retailers are able to gather info on spending that allows to create accurate demographic profiles

TELEVISION and FLYERS
- has the potential to reach a large audience

2) affinity marketing
- marketing insurance products directly to the group members after developing relationships with professional associations or clubs
- often tailored to coverage to meet the specific needs shared by group members

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12
Q

What are the improper sales practices?

A

1) theft
- taking the premium
2) forgery
- falsification of signatures
3) fraud
- knowingly making a false statement/non-disclosure with intent to deceive insurance company
4) money laundering
- regards to the federal proceeds of crime and terrorist financing act
ex) large deposits into retirement funds would be a red flag

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13
Q

Describe a direct writing company.

A
  • deal directly with the public
  • they rely on salaried employees to act as intermediaries and sell polices to prospective insureds
  • may also receive production-based bonuses or commissions
  • ownership of client list remains with the company
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14
Q

Describe what passing off means.

A
  • those who sell life insurance must represent themselves honestly to the public
  • passing off is the concept of misleading the public into thinking you are someone else
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15
Q

What is rebating?

A
  • commission splitting with clients used as an inducement for the client to buy insurance
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16
Q

Describe commission splitting.

A

1) sales commissions for a policy must not be split with the insured
- only licensed sales people are permitted to share in commissions
2) cannot entice client by giving part of the commission back to them

  • however it is lawful to pay a third party a finders fee or a consulting fee for new clients
17
Q

Describe the different types of improper sales strategies that involve policy replacement practices.

A

1) twisting
- when a policyholder is convinced to surrender or lapse a policy with one insurer and replace it with one from another company to his or her own detriment
- replacing with a new company

2) churning
- when an in-force policy is replaced with a new policy from the same company
- simply to generate a new commission

18
Q

What is a life insurance disclosure form?

A
  • in ontario, regulations in the Insurance Act provide that a standard disclosure form must be prepared
  • this ensures that a proper comparison is made and that proper procedures are followed to protect consumer interests
  • helps client properly understand the consequences of surrendering existing policies
19
Q

Describe FSCO.

A
  • financial service commission of ontario
  • in charge of provincial licensing of agents and brokers
  • enforces insurance laws and regulations
  • each province has its own superintendent which is FSCO
20
Q

Describe OSFI.

A
  • the office of superintendent of financial institutions
  • is a federal agency responsible for overseeing financial institutions including all federally incorporated life and health insurers, as well as foreign insurers operating in canada
  • conducts reviews concerned with financial soundness of insurance companies
  • mandate financial reporting requirements
21
Q

Describe Insurance Company Acts.

A
  • primary federal law governing insurers
  • this act stipulates that each insurer must maintain sufficient assets and capital to meet its obligations
  • must set aside reserves or funds to pay for future obligations
  • mandates amount of surplus a company must possess
22
Q

Describe CCIR.

A
  • canadian council of insurance regulators
  • joined together with provincial superintendents of insurance to:
    1) work to promote harmonization of insurance regulation
    2) encourage cooperation among financial services regulators
    3) ensure consumer protection
    (mainly deals with compliance issues)
23
Q

What is an internal compliance system?

A
  • most companies have an internal legislative compliance management systems to ensure management and staff understand and comply with regulatory requirements
24
Q

Describe the CLHIA.

A
  • canadian life and health insurance association
  • helps industry monitor and respond to regulatory changes
    Deals with:
  • laws and rules on how companies are structured
  • how they operate
  • how they serve customers
  • taxation and financial reporting
  • solvency
  • consumer protection
  • privacy and human rights
  • labour law and employment equity
25
Q

Describe consumer complaint response plans.

A
  • complaints that cannot be resolved internally, can be resolved at the CHLIA or provincial regulator
  • insurance ombudsman of the financial services commission of ontario is responsible for investigating and attempting to resolve customer complaint
26
Q

What is ASSURIS.

A
  • insurer action against insolvency
  • life insurers formed and funded a non-profit federal corporation to ensure that in the event that one of its members became insolvent there would be some measure of protection to their policyholders and beneficiaries
27
Q

What are the guaranteed policy benefits under ASSURIS?

A

1) death benefit of a life insurance policy - $200,000
2) cash value of registered polices - $60,000
(registered retirement income funds, registered pension plans)
3) cash value of non-registered policies - $60,000
(accumulation funds within life policies)
4) monthly income - $ 2,000/month
(retirement and disability income benefits)
5) health expense coverage - $60,000

28
Q

Describe financial ratings.

A
  • independent financial ratings firms provide professional opinions on the financial strength of a company
  • a rating is an estimate of how a company is expected to perform
  • ratings are used by investors, agents, other insurers to assess company
29
Q

What factors should you consider when choosing an insurance company?

A

1) financial strength of insurer
2) reputation for fairness and promptness in claims settlements
3) ability and willingness to provide service before and after a loss
4) superior product

Financial Essentials (10 decks)

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