S6: Insurance Companies
A: These are the three (3) departments that are unique to insurance companies.
Q: What are:
1. Actuarial
2. Underwriting
3. Claims
Common to most companies are Accounting & Finance, Admin, Marketing and IT. (See pages 6-11 to 6-15 in the textbook | LO3).
A: This is not an insurance company – it’s a marketplace for specialist insurance and reinsurance.
Q: What is "Lloyd's of London"?
Lloyd's was founded in 1686 as a coffee house for marine insurance discussions. It works through a global network of specialist brokers and cover holders -- experts who understand complex risks and place them into the Lloyds market on behalf of clients. (See pages 6-8 to 6-9 in the textbook | LO1)
A: This type of account holds commissions earned and is used to pay for day-to-day expenses.
Q: What is an "operating account"?
An operating account is the business's general account. Intermediaries may also have a trust account, where premiums they collect for the insurer go before remittance. (See page 7-19 in the textbook | LO5).
A: This type of contract is where both parties have acted in such as way that it’s understood a principal-agent relationship exists.
Q: What is "implied contract"?
Disagreements are more likely to occur with implied contracts than with express contracts, where terms are specifically stated and agreed. (See page 7-7 in the textbook | LO2).
A: This type of actuary analyzes data and calculates how much insurance policies should cost.
Q: What are "pricing actuaries"?
Pricing actuaries also help the company stay competitive while covering risks.
The other type of actuary is a reserving actuary, who monitors the company’s financial position and decides how much money should be held in bulk claim reserves. (See page 6-13 in the textbook | LO3).
A: Proportional reinsurance and non-proportional reinsurance.
Q: What are the two (2) types of reinsurance?
Proportional reinsurance (AKA: pro rata reinsurance). The insurer and reinsurer share the risk, premiums, and losses based on a set %.
In non-proportional reinsurance the insurer pays all claims up to a certain amount (the "priority") and then the reinsurer pays the rest (or up to a previously agreed upon limit). (See page 6-19 in the textbook | LO5).
A: This law allows a person to appoint another person as their legal agent to act and speak on their behalf—commonly through a power of attorney
Q: What is "the law of agency"?
Intermediaries represent insurers in arranging policies for clients so they must follow both agency law and the terms of their contracts with insurers. (See page 7-6 in the textbook | LO2).
A: This is defined in the contract with the insurer and gives agents/brokers the power to make decisions that enter insurers into contracts of insurance.
Q: What is "binding authority"?
If a loss happens before the actual policy is issued but a binder is in place, the coverage still applies as if the full policy had already been written. (See page 7-8 in the textbook | LO2).
A: These are the four (4) basic groups of insurers.
Q: What are:
1. For-Profit Organizations (stock companies & Lloyd's)
2. Cooperative Organizations (mutuals, reciprocals, factory mutuals, fraternal societies)
3. Government Insurance Providers (WCB, CPP, EI, Auto)
4. Captive Insurers (policyholders are limited to the parent company & subsidiaries)
(See page 6-3 in the textbook | LO1).
A: This type of mutual insurance provider is focused on preventing fires and protecting industrial properties.
Q: What are "factory mutuals"?
Four (4) types of mutual companies:
1. Assessment / Premium Note Mutuals
2. Factory Mutuals
3. Stock Mutuals
4. Cooperative Stock Mutuals
(See page 6-6 in the textbook | LO1).
A: Posture, facial expressions, vocal expressions, gestures, eye contact and mirroring are all examples of what?
Q: What is "body language / non-verbal cues"?
Communication isn’t just about words—it’s also about body language. The way people sit, their facial expressions, tone of voice, and gestures all send signals that reveal how they’re feeling and what they really mean. (See page 7-12 in the textbook | LO3).
A: This means listening to what's being said, how it's being said, processing non-verbal cues, asking questions and confirming understanding.
(See page7-11 in the textbook | LO3).
A: The process of transferring of all or part of an insurer’s liability to another insurer.
Q: What is the process of "reinsurance"?
When a company reinsures, it cedes (gives up / yields control) business and becomes the cedent. The amount ceded is called the cession and the amount an insurer keeps for its own account is its retention. (See page 6-16 in the textbook | LO4).
A: The theory that state that the degree of uncertainty is reduced as the number of events increases.
Q: What is the "law of large numbers"?
(See page 6-16 in the textbook | LO4).
A: These are the four (4) main ways to sell insurance in the P&C industry.
Q: What are "independent brokerages, independent agencies, exclusive agencies, and direct writing companies"?
(See page 7-4 in the textbook | LO1)
A: This is how a person qualifies to operate as an intermediary.
Q: What is "pass an exam based on knowledge of the insurance business and government regulations"?
To renew, intermediaries need to complete a set number of continuing education (CE) hours. (See page 7-18 in the textbook | LO4).
A: These are the five (5) major reasons to reinsure.
Q: What are:
1. To increase capacity
2. To keep reserves in balance
3. To reduce catastrophic loss effects
4. To provide stability in a fluctuating market
5. To cease operations (exit the market)
Reinsurance lets an insurance company cover larger or more numerous policies than it could handle alone. The insurer can pass more of the new business to a reinsurer to reduce the amount of reserves it needs to hold without having to raise new capital. CAT events are unpredictable and potentially devastating, so insurers buy catastrophe reinsurance to spread risk across many companies, helping prevent financial collapse. Reinsurance helps insurers manage ups and downs by reducing the impact of bad years, which helps keep financial results more stable. To exit the market, insurers can transfer remaining policies and risks to another insurer.
(See pages 6-17 and 6-18 in the textbook | LO4).
A: This type of reinsurance is arranged one case at a time, and it used for large or unusual risks.
Q: What is "facultative" reinsurance?
Facultative reinsurance is like à la carte: each item (risk) is reviewed and negotiated individually.
The other type of reinsurance, treaty reinsurance, is like a subscription: once the deal is signed, everything in the category is covered automatically. (See page 6-20 in the textbook | LO5).
A: These are typical ways intermediaries find new prospects (clients).
Q: What are "referrals, digital or online marketing, advertising and walk-ins, cold calling, tracking policy expiry dates, up selling and cross-selling".
(See page 7-15 in the textbook | LO3).
A: These are some of the drawbacks to using video calling.
Q: What are "tech issues, a higher cognitive load, privacy and data security"?
Lag or poor connections can interrupt the flow and reduce the sense of connection). Participants must manage taking turns, pacing, and be more self-aware, which can be mentally tiring and distracting. Privacy and data security require extra care to protect sensitive information).
(See page 7-13, 7-14 in the textbook | LO3).