Insurance > Ch. 1 Basic Principles > Flashcards

Ch. 1 Basic Principles Flashcards

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1
Q

Insurance

A

legal contract that transfers risk from one party to another in exchange for small fee

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2
Q

Types of Insurance Companies

A

Stock (non par) and Mutual (par)

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3
Q

Stock Companies

A

Non-participating, stockholders share company profits & dividends are taxable

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4
Q

Mutual Companies

A

Participating, policy owners receive a share of surplus revenue in form of dividends

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5
Q

Divisible surplus

A

revenue paid out in form of policy dividends

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6
Q

Assessment Mutual Insurers

A

assess premiums at time loss is experienced

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7
Q

Pure Assessment Mutual Company

A

charge no premium in advance

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8
Q

Advance Premium Assessment Insurers

A

collect premium in advance, levy assessments if premium is insufficient

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9
Q

Fraternal Benefit Societies

A

Membership based on common bond; 3 defining characteristics; 1. non-profit
2 .has a lodge system, including ritualistic work and a representative form of government
3. not formed just to provide insurance

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10
Q

Reciprocal Insurers

A

form of risk sharing, each policy owner individually assumes a share of another’s risk. Policy holders receive policy dividends, they own a share of the company surplus, is received upon terminating their membership

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11
Q

Attorney-in-fact

A

appointed to handle transactions for reciprocal insurer

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12
Q

Risk Retention Groups (RRGs)

A

specialized insurance group, provides liability insurance for individuals and entities with a common bond

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13
Q

Risk Purchasing Groups (RPGs)

A

Buys coverage for its members who share a common bond. RPG is master policy holder

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14
Q

Reinsurers

A

provide insurance for other insurance companies

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15
Q

ceding insurer

A

aka “primary insurer”, seeking reinsurance

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16
Q

Risk retention limit

A

the maximum amount of exposure that the insurer can carry when insuring a single risk

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17
Q

Treaty insurance

A

aka “automatic reinsurance”, exists when a reinsurer enters into contract w/ a primary insurance company to automatically assume its excess exposure for risks that meet contractually defined criteria

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18
Q

Facultative reinsurance

A

When a primary insurer seeks reinsurance for a specific exposure without an ongoing agreement

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19
Q

Captive insurer

A

established to cover the loss exposure of the parent organization that owns it

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20
Q

Surplus Lines Insurance Carriers

A

unauthorized insurers that provide coverage when authorized insurers reject buyers or authorized insurers don’t offer the type of insurance being sought

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21
Q

Lloyd’s of London

A

syndicate of individuals that individually underwrite special (unique) risks

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22
Q

Self-Insurers

A

establish a self-funded plan to cover potential losses and often cap potential losses with a stop-loss insurance policy.“Self-insurance” does NOT EQUAL “no insurance”

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23
Q

Authorized insurer

A

aka “admitted insurer”, insurer that has been issued acertificate of authorityfrom a state’s insurance department authorizing the insurer to transact insurance in that state

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24
Q

Certificate of Authority

A

must be received from each state the insurer wishes to transact insurance

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25
Unauthorized insurer
aka "non-admitted insurer", prohibited from conducting insurance operations in that particular state
26
Domestic Insurer
organized and incorporated in the state in which it’s writing business
27
Foreign Insurer
organized under the laws of a different state
28
Alien Insurer
organized under the laws of a different nation
29
Marketing Department
prospects for new business
30
Sales Department
meets with clients face-to-face and completes applications
31
Underwriting Department
reviews applications, selects risks to insure, and assigns risk classifications
32
Claims Department
administers claims
33
Actuarial Department
Calculates policy parameters, such as risks and costs relative to promised benefits
34
Producer
an individual or organization that is licensed by a state to solicit, sell, or transact insurance in that state. Can be agents or brokers
35
Agent
represents one or more insurers under terms of an appointment contract, has limited authority to make binding commitments
36
Broker
Represents themselves and the insured, licensed by the state but not appointed by insurer. Cannot make binding commitments
37
Underwriters
identify, examine, assess, and classify loss exposures. Can approve or decline applications and determine cost
38
Actuaries
calculate policy rates, reserves, and dividends
39
Adjusters
investigate and settle claims
40
Career Agency System
recruits and trains new agents, often a branch of major stock or mutual insurance company, generally one specific area or market
41
Managerial system
career agencies run by a salaried branch manager, multiple areas or markets
42
Personal Producing General Agency (PPGA) System
affiliated with one or more insurers, but a PPGA doesn’t recruit, train, or supervise career agents. Instead, a PPGA focuses on sales in its assigned market or territory. Staff consists of employees rather than agents
43
Independent Agency System
represent any number of insurance companies through contractual agreements.
44
Mass Marketing Sales
methods of sales through internet, newsletters, etc.
45
Direct sellers
use vending machines, advertisements or salaried producers
46
Paul v. Virginia (1868)
The United States Supreme Court ruled that insurance is not interstate commerce, thereby upholding the states’ right to regulate it
47
The United States v. Southeastern Underwriters Association (SEU) (1944)
The United States Supreme Court reversed Paul v. Virginia and ruled that insurance is a form of interstate commerce and is subject to federal regulation
48
The McCarran-Ferguson Act (1945)
 aka "Public Law 15", Congress responded to the SEU decision by delegating the regulation of insurance to the states while requiring compliance with federal antitrust standards – either directly or through comparable state laws. Maximum penalty of up to one year in jail and a fine of $10,000 for violators
49
The Fair Credit Reporting Act (1970)
established to protect privacy by requiring the fair and accurate reporting of consumer information
50
Amendments to USC 1033 and 1034 regarding Fraud and False Statements (1994)
This section of the United States Code (USC) prohibits felons (those guilty of crimes involving dishonesty or breach of trust) from participating in the insurance industry without a “Letter of Written Consent” from their state insurance regulator. Any person who engages in intentionally unfair or deceptive insurance practices is subject to a fine of up to $50,000, 15 years in prison, and license revocation
51
The Financial Services Modernization Act (1999)
allowed banks to sell insurance and prompted states to create regulations for insurance companies to protect the privacy of consumer personal information
52
The USA PATRIOT Act (2001)
focuses on the funding sources for terrorists and international money laundering in general
53
The Do Not Call Implementation Act (2003)
Implemented Do Not Call Registry, allows consumers to opt-out of receiving calls from telemarketers, except on behalf of charities, political organizations and surveys
54
2003-CAN-SPAM Act
outlines the right for consumers to request a business to stop sending emails, the requirements for businesses to honor such requests, and the penalties incurred for those who violate the Act
55
National Association of Insurance Commissioners (NAIC)
industry association of state insurance regulators focused on establishing model acts and regulations that provide a common framework for state officials to address industry-wide issues, encouraging uniform standards
56
4 Objectives of the NAIC
(1) To encourage regulatory uniformity among the states (2) To promote efficient regulatory administration (3) To protect policy owners and consumer interests (4) To preserve state regulation of the insurance industry
57
NAIC's Model Advertising Code
labels certain words and phrases as inherently misleading and bans their use
58
NAIC Unfair Trade Practices (Model) Act
gives a state insurance department the power to: 1. Investigate insurance companies and producers. 2. Issue cease and desist orders. 3. Impose penalties. 4. Seek a court injunction to restrain unfair activities.
59
The National Conference of Insurance Legislators (NCOIL)
an association of state legislators that serves on insurance and financial institutions committees to educate policymakers and preserve state regulation. NCOIL also writes model laws.
60
The National Association of Insurance and Financial Advisors (NAIFA) and The National Association of Health Underwriters (NAHU)
created a Code of Ethics for agents
61
Agent Marketing and Sales Practice standards
1. Selling to needs: Learning and addressing client needs 2. Suitability: Recommending products that address client needs and match client capabilities 3. Full and accurate disclosure of product information 4. Documentation of each client meeting and transaction 5. Client service after the sale
62
Rating Services
companies that determine and publish an insurer's financial strength after analyzing company reserves and liquidity
Insurance
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