Study three Flashcards
What does a corporation as a distinct legal entity mean?
- 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
What are the two basic types of insurance company structure?
1) share capital stock companies
- owned by shareholders
2) non-share capital companies
- mutual companies, fraternal societies
Describe stock companies.
- 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
What are the sources of funds for a stock company?
1) sale of shares
2) premium income
3) investment income
Describe mutual companies.
- 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)
What are the source of funds for mutual companies.
1) premium income
2) levies on members if required
3) investment income
What does the demutualization include?
- 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
Describe fraternal benefit societies.
- 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
What does the insurance sales force include?
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
Describe an MGA (managing general agent).
- 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
What are the different types of marketing used?
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
What are the improper sales practices?
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
Describe a direct writing company.
- 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
Describe what passing off means.
- 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
What is rebating?
- commission splitting with clients used as an inducement for the client to buy insurance
Describe commission splitting.
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
Describe the different types of improper sales strategies that involve policy replacement practices.
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
What is a life insurance disclosure form?
- 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
Describe FSCO.
- 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
Describe OSFI.
- 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
Describe Insurance Company Acts.
- 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
Describe CCIR.
- 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)
What is an internal compliance system?
- most companies have an internal legislative compliance management systems to ensure management and staff understand and comply with regulatory requirements
Describe the CLHIA.
- 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
Describe consumer complaint response plans.
- 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
What is ASSURIS.
- 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
What are the guaranteed policy benefits under ASSURIS?
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
Describe financial ratings.
- 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
What factors should you consider when choosing an insurance company?
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
