Unit 1: General Insurance Terms and Related Concepts | Chapter 1-2: Insurers Defined Flashcards
To form a Risk Retention Group for the purpose of assuming liability exposures on behalf of its members, members of the group must be engaged in __________ or be related with respect to liability exposures.
a) a Lloyds Association
b) trading insurance policies
c) similar activities
d) an exclusive agency system
To form a Risk Retention Group for the purpose of assuming liability exposures on behalf of its members, members of the group must be engaged in __________ or be related with respect to liability exposures.
similar activities
Members of a Risk Retention Group must be engaged in similar activities or related with respect to liability exposures by virtue of any related or common business exposure, trade, product, services, or premises.
Insolvency of a ceding insurer __________ relieve the assuming reinsurer of its obligation under the contract.
does
does not
Insolvency of a ceding insurer __________ relieve the assuming reinsurer of its obligation under the contract.
does not
In the event of bankruptcy of an insurance company, the assuming reinsurer is still obligated to the contracts (or portion of the contracts) that have been ceded out and have been reinsured (assumed responsibility for) by the reinsurer.
An insurance producer that contracts with more than one insurance company is generally referred to as
a) a multi-line producer.
b) an independent producer.
c) a full-service producer.
d) a general producer.
An insurance producer that contracts with more than one insurance company is generally referred to as
an independent producer.
- An insurance producer that contracts with and writes for more than one insurance company is said to be an independent producer, versus a captive (exclusive) agent that is under contract to represent only one company.*
- An insurance producer, whether captive or independent, may be multiline, writing two or more of the following lines of insurance: property, casualty, life and/or health insurance.*
What type of group is formed for the purpose of purchasing liability insurance for the benefit of its members?
a) Purchasing group
b) Combined ratio group
c) Affordability group
d) Risk retention group
What type of group is formed for the purpose of purchasing liability insurance for the benefit of its members?
Purchasing group
Purchasing groups are formed for the express purpose of gaining group purchasing power when buying liability insurance.
There are several rating organizations that monitor insurance companies, as well as other businesses. Which company is exclusively devoted to monitoring insurance companies?
a) Moody’s
b) A.M. Best
c) Standard and Poor’s
* d) Abercrombie and Fitch*
There are several rating organizations that monitor insurance companies, as well as other businesses. Which company is exclusively devoted to monitoring insurance companies?
A.M. Best
A.M. Best is exclusively devoted to monitoring and rating member insurers.
What is the name of the voluntary associations of individuals or groups of individuals who agree to share in insurance contracts?
a) Fraternal benefits group
b) Weise associations
c) Lloyds associations
d) Risk retention group
What is the name of the voluntary associations of individuals or groups of individuals who agree to share in insurance contracts?
Lloyds associations
- Lloyds is a voluntary association of individuals or groups of individuals who agree to share in insurance contracts. Each individual or group (Syndicate) is responsible for the contracts they write. Lloyds Associations are not insurance companies.*
- For someone that does not have an insurance solution to a particular exposure, they might submit it to Lloyds to see if they will write a contract on it. Many professional athletes and movie stars maintain coverage at Lloyds, e.g. a dancer might insure their legs against injury that prevents them from dancing.*
- A risk retention group is a form of self-insurance among its members.*
- Fraternal insurers are established for the exclusive benefit of its members; in other words, you must be a member in order to purchase coverage with a fraternal. A couple of examples are Foresters and Neighbors of Woodcraft.*
An insurance producer who may only represent one insurance company is considered _____________ producer.
a) a limited
b) an isolated
c) a captive (exclusive)
d) an independent
An insurance producer who may only represent one insurance company is considered _____________ producer.
a captive (exclusive)
An insurance producer that has agreed to represent only one company is said to be exclusive or captive to that company. State Farm, American Family, and Allstate are examples of captive companies.
Fraternal insurers are conducted solely for the benefit of its:
a) Members
b) Owners
c) Insureds
d) Subscribers
Fraternal insurers are conducted solely for the benefit of its:
Members
Only members of the fraternal organization may be benefited; in other words, an individual must be a member in order to purchase insurance through them. A couple of current examples include Foresters and Neighbors of Woodcraft.
In order for an insurer to demonstrate profitability, the insurer’s __________ must be less than one.
a) alien insurer allotment
b) expenses ratio
c) direct writer
d) combined ratio
In order for an insurer to demonstrate profitability, the insurer’s __________ must be less than one.
combined ratio
The insurer’s loss ratio plus its expense ratio are combined to determine profitability. When added together, the insurer’s combined ratio must be less than 100% of the collected premium.
The type of insurance company that is owned by stockholders and does not allow its policyholders to share in company profits is a:
a) mutual company.
b) fraternal organization.
c) reciprocal company.
d) stock company.
The type of insurance company that is owned by stockholders and does not allow its policyholders to share in company profits is a:
stock company.
- A stock insurance company issues capital stock to investors, referred to as “stockholders”, who then have an ownership position in the company. Stockholders have an opportunity to share in company profits. The insurance buyers (policyholders) are issued nonparticipating insurance policies and do not share in company profits.*
- A mutual insurance company is owned by its policyowners. They are issued participating policies and *do* have an opportunity to share in company profits.*
A fraternal benefit society is an insurer without ______________ stock, operating under a representative form of government.
a) Saleable
b) Preferred
c) Capital
d) Marketable
A fraternal benefit society is an insurer without ______________ stock, operating under a representative form of government.
Capital
Fraternal insurers (and mutual insurance companies) may be structured as corporations, but neither issues capital stock.
Insurance provided or subsidized by a state, federal government, or federal agency is called:
a) residual market insurance.
b) tax-payer supported insurance.
c) government sponsored insurance.
d) direct response insurance.
Insurance provided or subsidized by a state, federal government, or federal agency is called:
residual market insurance.
Residual market insurance is insurance provided by or subsidized by a state or federal government or agencies thereof. Examples of Residual Market insurance include Workers Compensation, Flood Insurance, and the FAIR Plan.
A reciprocal insurer utilizes interexchanging agreements of indemnification between:
a) Policyowners
b) Insureds
c) Subscribers
d) Insurers
A reciprocal insurer utilizes interexchanging agreements of indemnification between:
Subscribers
Under a reciprocal arrangement, the subscribers are both insured and the insurer, each agreeing to make each other whole again in the event of a loss. In as much as a reciprocal is technically not an insurance company, the members are referred to as subscribers, not insureds; in other words, they are subscribing to this methodology of maintaining coverage
Insurers known as __________ do not maintain an agency field force.
a) national ratings organizations
b) actuaries
c) direct writers
d) independent agents
Insurers known as __________ do not maintain an agency field force.
direct writers
When purchasing insurance from a direct writer, the consumer is dealing with a salaried employee of the insurer. A good example of a direct writer is GIECO. Nationwide and Progressive also have a direct writer unit, where the consumer buys direct from the home office instead of purchasing insurance through an appointed agent
Developing a premium relative to a particular policy requires predictions of __________ .
a) insurance service officers
b) future probability
c) actuaries
d) insurability
Developing a premium relative to a particular policy requires predictions of __________ .
future probability
Developing a premium relative to a particular insurance policy requires predictions of future probability. The insurer must determine a premium rate high enough to cover its actual claims and general overhead, plus build in some measure of profitability, but also low enough to remain competitive with other insurers offering the same or similar products. Insurers do work with actuaries when developing these predictions.
