Random
What is adverse selection?
BONUS: What is implied authority? give an example
The tendency for higher risk individuals to get and keep insurance as compared to individuals that represent average risk levels.
Bonus: Assumed agency by the agent. For example, the agent can print business cards with the companies name on them, even though there is no explicit rules he can or cannot
What is a stock insurer?
Owned by stockholders
Dividends not gauranteed.
Dividends are taxed.
Dividend paid to stockholder.
Non-participatory because they are not participating in the policy.
What does federal government insure?
War risk
Nuclear energy liability
Flood
Federal crops
Billy lives in Florida. His insurer is based in Florida. What type of insurance is this?
Domestic
Little Tommy skydives all the time. He is a high risk individual. What type of insurance might he want to look at?
Bonus: what is express agency?
Surplus line insurance.
Bonus: authority written in the agreement with the insurer
Do insurers want adverse selection?
No, this makes it more likely that they will suffer a loss.
Mutual insurer?
BONUS: What is direct response?
Owned by policy holders
Dividend not guaranteed
Dividend paid to policy holder
Not taxed. as refund of premium
Issue as participating policy
BONUS: no agent involved. direct mail and advertising bypasses the need for an agent.
Why do insurers go through the underwriting process?
Because of adverse selection
Zim has his insurer in Montana, he lives in Pennsylvania.
This is a foreign insurer
What's a report card of an insurance company called?
Financial strength rating
Company A protects only the windows of another insurance company, not the bricks or doors. What is this?
Facultative reinsurance
What is a risk retention group?*
A liability insurance company created for policy holders of the same industry.
E.g. a car dealers' risk retention group in which only car dealers are policy holders.
What is a reciprocal insurer?
Bonus: What is a fiduciary?
Unincorporated groups
Members are assessed if a loss occurs to ANY member of the group
Managed by an attorney in fact
BONUS: a fiduciary sends premiums to the insurer, has knowledge of products, and complies with laws and regulations. Does not commingle funds.
Tommy has insurance from Greenland. He lives in North Carolina.
This is an alien insurer
What do surplus lines typically cover?
Gaming, casinos, mining, skyscrapers.
Risk Purchasing groups?*
BONUS: What is the law of agency?
A group of businesses from the same industry that join together to buy the liability insurance from an insurance company.
BONUS: The insurance agent acts of behalf of the company (principal)
Company A covers Company B. What is this?
Reinsurance
What is a fraternal benefit society
Provides insurance and other benefits
Must be a member to get benefits
Many times religious or ethnic group makes up members
"Certificate holders" are the members
What does state government insure?
Unemployment
Workers comp
What is unauthorized insurance?
Insurance that is allowed to not have a license (called surplus lines).
Also called non-admitted, unauthorized, or nonapproved.
Company B covers everything for Company C. What is this?
Treaty reinsurance
Self insurers do what?
They retain their own risk. It pays it's own claims. They reserve funds for losses.
Lloyd's associations
Named after the Lloyd's of London
Not an insurance company. They provide the hub of exchange of information.
They are typically sold by surplus lines intermediaries because they are only licensed in a few states.
What is an authorized insurer?
Bonus: What is apparent authority?
An insurer that has a license to sell insurance in the state.
Also call admitted.
BONUS: the authority that others believe the agent has.
Sometimes an agent may say or promise something that the insurer did not intend. An insured person speaking to the agent, believes what the agent says to be true.
What are all the agency systems?
Independent agent - they sell on the open market and are not bound to a single company
Captive(exclusive) agents - work for only one company. They are not employees however, they are still independent contractors.
General agents or managing general agents: They hire, train, and supervise other agents within an area. They make commissions on the business of their team.
Direct - Writing companies: Agents ARE employees.