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Flashcards in Chapter 3 Deck (33):

what is the name of the area of insurance operations that handles legal matters such as contracts and legal disputes?

legal function


what does the compliance function do?

performs a wide range of tasks to make sure that company operations follow policies and procedures as well as the laws and regulations of all jurisdictions.


who is generally in charge of an insurance company's legal department?

general counsel or chief consel


who is the chief compliance officer?

is responsible for overseeing and managing the company's compliance with regulatory requirements and internal policies and procedures.


Insurance companies are usually organized as corporations to provide more permanence and stability. Define corporation

a legal entity, separate from its owners, that is created by the authority of a government and continues beyond the death of any or all of its owners.
owners personal liability is limited.


some jurisdictions only give business authority to operate for a specific number of years, give an example.

philipines, has a 50 year lifetime, after which time it is renewable for another 50 years


some juridictions require all corporations to have a minimum amount of capital. give an example.

in US, insurance companies must meet such minimum capital requirements, but other businesses do not have to meet such requirements.


what is a company limited by shares?

found in UK and india, its where the owner's liability is limited to the investments they made when they purchased shares of the company's stock.


what is a company limited by guarantee?

found in UK and india. Its where a company whose owners agree to pay the obligations of the company up to a stated amount if the company is liquidated.


what is a certificate of authority?

a document that grants the insurer legal authority to conduct an insurance business in the specified jurisdictions.


a corporation that operates in more than one country- is known as a multinatoinal corporation. what legal issues will it face?

it must comply with the laws of its country of domicile and also the laws and regulations of each country in which it conducts business.


insures typically begin operations in foreign countries in 3 ways. name them

1. incorporating a business in the foreign country, which operates as a subsidiary of the insurer.
2. opening a branch office in the foreign country that is properly registered with the foreign government
3. entering into a joint venture with a local insurer in the foreign country.


what is a joint venture?

an arrangement between two otherwise independent businesses that agree to undertake a specific project together for a specified period time.


what process is used when a mutual insurer may consider changing to a stock form of ownership?



what is the process used when a stock insurer may wish to convert to a mutual company?



If a demutalization or mutualization were to occur, what does the legal department advise the company board of directors about? (4 things)

1. differences in the regulations of stock companies and mutual companies
2. the legal issues involved in changing the company's corporate form,
3. the structure that would be most beneficial to the insurer
4. the best way to accomplish a change in corporate form.


What are 7 specific responsibilities of the legal department in terms of other insurance departments?

claims- policy language interpretation, litigations of contested claims, settle conflicting claimants
CS- rights of custotmers, privacy, issues affecting CS delivary
HR- employement laws,
Investments- securities laws and investment contracts, real estate assests
products- contract and tax laws, working, documentations and disclorures; obtrains from insurance regilators legal approval for new or modified products
distribution/marketing- laws and angency laws, producer contracts, training, communications
u/w- rights of applicants, privacy,


what is a lawsuit?

an action brought before a court of law by a party claiming that they have been harmed in some way by another party.


what is a litigation?

the process or act of presenting the dispute to a court of law for a resolution.


Attorneys who handle litigation for an insurance company, whether company employee, or outside counsel, are responsible for what? (7 things)

1. initiating or responding to a lawsuit
2. researching the facts of a case
3. taking statements and depositions from involved parties.
4. consulting with company employees before they testify in court.
5. researching relevant court cases.
6. hiring expect testimony, if needed
7. representing the insurer in all aspect of the litigation process, including correspondance and court appearances.


What are ADR (alternative dispute resolution) methids?

formal or informal negotiations to resolve the dispute, rather then going to court.


Name dont define, the two common methods of ADR.

1. mediation, sometimes called conciliation,
2. arbitration


What is mediation, in terms of ADR.

Process in which an impartial third party known as a mediator facilitates negotiations between the parties in an effort to create a mutually agreeable resolution of the dispute.


what is arbitration, in terms of ADR?

process in which impartial third parties, known as arbitrators, evaluate the facts in the dispute and render a decision that usually in binding on the parties. Appeals of arbritators' decisions are generally possible only if the arbitration was done improperly.


Name 9 typical compliance activites

1. disseminating regulatory information to employees
2. overseeing the licensing, training, and conduct of producers
3. approving advertisements and sale literature
4. protecting customer provacry and confidentiality
5. coordinating internal and external audits
6. coordinating market conduct examinations
7. overseeing proper handling and resolution of customer complaints.
8. working with regulatory agencies to demonstrate the company's compliant with applicable laws
9. managing a fraud prevention unit.


how can a regulatory compliance management program be effective?

compliance personal must be knowledgable about the regulatory requirements of all jurisdictions in which the compnay operates.
they must also monitor the regulatory environment for changes that might impact insurers operations.


Why must a an insurers regulatory compliance management program include monitoring?

1. ensure quick response to problems/issues
2. identifies training needs of employees,
3. improves the qualify of compliance procedures


what is an internal audit?

its an examination of a company's records, policies, and procedures that is conducted by a person who works for the insurer.


what is an external audit

audits conducted by parties not associated with the insurance company. This is required to be completed d/t an insurers market conduct.


what is a market conduct examination?

a formal investigation of an insurer by one or more state insurance departments. the pirpose is to determine whether the insurer's market conduct (non financial operations) are in compliance.


how oftern do insurers undergo market conduct examinations?

some may examine all operations with in state every 2-3 yrs, others investigate once theres been a specific complaint about an insurer's market conduct .


what does NAIC stand for, and what do they do?

National association of insurance commissioners, a private, nonprofit association in the US that promotes unifority of state insurance regulations.


Name two type of market conduct examinations, and what are they designed to do

target and comprehensive examinations. both are designed to ensure the insurer has standard in place for the activity being examined, and the standard comply with applicable regulatory requirements, as well as the activity being examined is carried out according to established standards.