Unit 3 Flashcards
stockholders own…
stock companies
a mutual insurance company is owned by
holders policy
reciprocals
give and take (attorney-in-fact)
reciprocal can also mean
to share
Lloyd’s association
Lloyd’s of london is not an insurance company, is a voluntary association of individuals who agree to share in insurance contracts
syndicate also means…
individual (can be responsible for amounts of insurance they write)
self-insurance
part or all of the risk of loss is borne without the benefit of insurance coverage to fall back on if a loss occurs
another way of classifying insurance companies is by…
the type of insurance policies they write
there are four broad categories or lines of insurance:
- property
- casualty
- life
- health and disability
mono-line company
insurance company that only one line of insurance is referred to
multi-line company
insurance company that writes more than one line of insurance
property insurance
many types of insurance designed to handle property risks (risks that we will suffer financial loss because something we own is damaged or detroyed)
the insurance agent who represents the insurance company is…
the direct link between the company and its insureds
the agent is responsible for…
field underwriting each risk
the agent may prepare a quotation means
will show the prospect what the premium for the proposed coverage will be
the agent completes a detailed application means
when the prospect buys, the agent will then fill this out
an agent should maintain a…
suspense or diary system that alerts the agent prior to the time of policy renewal
at any time during the policy year, the agent must be available to assist the insured with
service needs
agents who are negligent in meeting their responsibilities may be liable for
their inadvertent errors… errors and omissions insurance
an agency relationship exists when…
one party (an agent) is authorized to act on behalf of another (a principal)
in insurance business, the principal is
the insurance company and the agent is a person authorized to act on the company’s behalf
principals grant…
certain powers or authority to their agents
the knowledge of the agent is held to be…
the knowledge of the principal
three levels of agent authority
- express authority
- implied authority
- apparent authority
express authority
specifically given to an agent orally or in writing by the principal
written authority
usually provided through agency agreement that allows agent to countersign issue and deliver policies and provide other customary services on all contracts accepted by the insurer from the agent
implied authority
given by insurance company to the agent that is not formally expressed or communicated
apparent authority
doctrine that holds that an agent may have whatever authority a reasonable person would assume they have
in the public’s eye, an agent acting under apparent authority…
binds the company as fully as under expressed or implied authority
exclusive or captive agency system
insurance company contracts with agencies which are independent businesses to represent and sell insurance only for that insurance company
direct writer system
insurance company’s agents are actually employees, may receive a salary/be paid by commission or combination of both
direct response system
there are no agents, companies sell through direct mail or over the phone
independent agency system
agencies that are independent contractors contract with several different companies to represent and sell insurance for those companies
solicitor
like an agent sells insurance and may even be authorized to collect premiums
a solicitor cannot…
issue or countersign policies (only an agent can do this)
both agents and solicitors (client) represent…
the insurance company
broker
represents the insured
excess or surplus lines
highly specialized insurance coverages (auto racing liability and tuition refund insurances) that are often not available from any company admitted to do business in a state
excess or surplus lines agent
agent licensed by the state to handle the placement of such coverages with non admitted companies (ones that are not authorized to conduct business in the state under ordinary circumstances)
consultant
someone who for a fee offers advice on the benefits advantages and disadvantages of various insurance policies, they don’t sell insurance they sell advice
loss ratio
used to compare the company’s operations from year to year, shows percentage of losses the company incurred for every dollar of earned premium
an agent should maintain a…
suspense or diary system
a suspense or diary system can be used to
alert agents prior to the time of policy renewal
at any time during the policy year the agent must be available to assist the insured with
service needs
service needs examples
name change or change in the method of premium payment, maintain accurate records of all changes requested by insured
agents who are negligent in meeting their responsibilities may be liable for
their inadvertent errors
errors and omissions insurance
should be purchased by agents to protect themselves against legal liability arising from inadvertent errors or omissions
earned premi um
premium the company actually earned by providing insurance protection for the designated period of time (need to know formula)
underwriting
process of selecting certain types of risks and rejecting others so the insurance company will have a book of business that will product the company’s desired results
underwriting department
made up of many individual underwriters who make the decisions about whether to accept or reject the applications sent in by agents based on the company’s standards and their own judgement
policy analyst/screener
make sure all information is correct and complete
actuaries
determine the rates to be charged for various types of insurance
reinsurance department
insurance companies often purchase insurance to cover their own exposure to loss, helps protect insurance companies from catastrophic losses and from wild fluctuations in underwriting results
who regulates insurance in KY?
kentucky department of insurance
state insurance regulation is at what level?
state level
it is the states that regulate insurance business that is
conducted within their boundaries
insurance department
each state has this, headed by official charged with responsibility for controlling insurance matters within that state
what are these officials called?
directors, superintendents, commissioners of insurance
in KY they have…
a commissioner
the commissioners of each state make up the…
national association of insurance commissioners (NAIC)
the NAIC’s recommendations are generally followed despite nonbinding on individual states because
they want to provide uniformity
a company that meets the insurance department’s standards and is authorized to do business in a state is called…
an admitted or authorized user
an insurance company no authorized to do business in a state is a
non admitted or unauthorized insurer
one of the duties of an insurance department is to
determine which insurance companies will be allowed to do business in the state
a non admitted insurer may only do business where?
in the state under special circumstances
within its home state, an insurance company is known as a…
domestic company
within states other than the state in which is it incorporated, an insurance company is a
foreign company
a company that is incorporated in a country other than the united state, but doing business in the states, is known as an
alien company
along with examining and authorizing companies to conduct business within the state, state insurance keeps a close watch over…
the financial health of all companies doing business within its boundaries
several companies rate the financial strength of insurance carriers based on
- company’s claims experience
- investments performance
- management
- other factors
organizations that rate financial strength examples
- A.M. Best (important best there is)
- Standard & Poor
- Best’s
in addition to licensing the state is responsible for
the way agents conduct business within the state
state insurance codes are very specific about the…
standards agents must meet
important terms in the many types of laws governing agent conduct
- fiduciary
- misrepresentation
- twisting
- rebating
- unfair discrimination
fiduciary
person who stands in special relationship of trust to another person
misrepresentation
agents may not misrepresent or falsely advertise the terms of benefits of a policy or the financial condition of the company
twisting
form of misrepresentation where the agent convinces the client to cancel already-existing insurance and buy another policy from the agent, to the detriment of the insured is illegal
rebating
giving or offering some benefit other than those specified in the policy (such as cash, gifts, or securities) in to induce a customer to buy insurance
unfair discrimination
unfairly discriminate against insureds, insured cannot be given a lower or higher rate than another insured in identical circumstances, agent cannot accept a bribe from a client to provide insurance or lower the premium
ratification
performed by state insurance, approval, of policy forms endorsements and rates used by companies doing business in their states
prior approval states
insurance company must obtain official approval before using new forms and rates
open competition states
state allows companies to compete openly with the forms and rates they select
in some states for some lines of insurance the use of unique state forms or rates may be
mandatory
rates
basic charges an insurance company sets for various types of insurance
when a company establishes a rate it will use, it…
calculates a rate that will be adequate to pay cost of losses that will have to be paid, cost of conducting the business, a small profit
service bureaus
assist insurance company in collecting statistics, organizations made of individual insurance companies gather pool and analyze statistics from all of the member companies
loss costs
bureau establishes based on combined figures and files them with individual states
member companies may use ______________ to establish finished rates
loss costs combined with factors covering their own expenses and profit margins
insurance services office
one of the largest services bureaus, referred to as ISO
ISO files…
both loss costs and standardized forms on behalf of its member companies
reported violations must be…
investigated with appropriate penalties assessed
violations can result in…
fines, license suspension or revocation, suspension or revocation of a company’s authority to do business in the state and in some cases imprisonment (except imprisonment commissioner of insurance can’t imprison someone)
