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Flashcards in Chapter 1 General insurance Deck (102)
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Insurance companies (insurers or carriers)

Manufacture and sell insurance coverage in the form of insurance policies or contracts of insurance. They issue policy


insurance agencies

are captive or independent organizations that recruit, contract with, train, and support insurance producers


insurance producers

are licensed individuals representing and appointed by an insurance company when transacting insurance business.


an insured

is the person or entity that is covered by the Insurer, which covers losses due to loss of life, health, property, or liability


An owner

is not necessary the insured under the policy, but is responsible for paying the policy's premium and has various rights as specified in the contract


private vs government insurers
Most insurance is written through

private insurers. however there are instances where the governmental-based insurers step in to offer an insurance alternative when private insurers are unable to provide protection, usually related to the catastrophic nature of the risk, capacity to handle the risk, and lack of desire to engage in a line of insurance where experience to evaluate necessary premium intake to offset potential loss is lacking.


Directors and officers are elected by



Traditionally stock insurers issue

non-participating policies, meaning that the policyholder is not entitled to receive any dividends.


mutual insurance company is owned by

policyholders (who may be referred to as members)


A board of trustees or directs is elected by

the policyholders


Policyholders may receive

non-taxable dividends as a return of any divisible surplus when and if declared by the directors


Traditionally, mutual insurers issue

participating policies, meaning that policyholders are entitled to receive any dividends.


Dividends can be paid in

cash, used to reduce premiums, left to accumulate interest, and used to purchase paid-up additional insurance


Dividends represent the favorable experience of the company and result from

excess investment earnings, favorable mortality, and expense savings


Reciprocal insurance company is a

group-owned insurer whose main activity is risk sharing. it is unincorporated and is formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a subscriber and each subscriber assumes a part of the risk of all other subscribers. The exchange of insurance is affected through an Attorney-in-fact who does not need to be insurance licensed.


Self insurers

assume all of the financial risk, dont pay premiums. set aside money greater or equal to the expected loss. if loss are greater than expected, it will require additional funding. some companies will self insure up to a certain amount and then acquire insurance for dollar amounts in excess of that amount


alien insurer

Domestic: insurer organized in 1 state
Foreign: incorporated in one state but does business in another
Alien: insurer incorporated in ontario is alien to New york


Admitted (authorized) insurer

is authorized by this state's commissioner of insurance to do business in this state and has received a Certificate of Authority to do business in this state.


Non-admitted (unauthorized) insurer

has either applied for authorization to do business in this state and was declined or they have not applied. they are not authorized to transact insurance in this state.
Excess lines insurance can be placed through non-admitted carriers


Surplus lines insurance finds coverage when

insurance cannot be obtained from admitted insurers. However it cannot be utilized solely to receive lower cost coverage than would be avaliable from an admitted carrier


Surplus line requirements

each state regulates the procurement of surplus lines insurance it its state
Can be placed through non-admitted carriers. non-admitted business must be transacted through a surplus lines broker or producer



oversee the operation of the business


actuarial department

gather and interpret statistical info used in rate making. an actuary determines the probability of loss and stets premium rates


Underwriting department

responsible for the selections of risks (persons or property) to insure and rating that determines policy premiums


marketing/sales department

responsible for advertising and selling


claims department

assists the policyholder, insured, or beneficiary in the event of a loss and processes, and pays the amount of the claims in a timely manner, based upon the contractual provisions and the amount insured.


Insurance agents and producers
Laws of agency

the relationship of a person (called the agent or producer) who acts on behalf of another person, company, or government, known as the principal. The principal is responsible for the acts of the agent, and the agents acts bind the principal. an act of the agent is the act of the principal


Insurer (principal)

the insurer is the source of authority from which the producer must abide. The insurer appoints the producer to act on its behalf in transacting the business of insurance. When acting within scope of authority, the insurer is responsible for the acts of the producer.


Producer (agent)

A person or agency appointed by an insurance company to represent it and to sell policies on its behalf.


A producer acts with one or more of the following types of authority

express: authority that is written into the producers contract
Implied: authority the public assumes the producer has
Apparent: authority crated when the producer exceeds the authority expressed in the agency contract