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Flashcards in Chapter 5 - Types of Insurers Deck (48)
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Define Advance Premium Mutual

Mutual insurance company owned by the policyholders that does not issues assessable policies but charges premiums expected to be sufficient to pay all claims and expenses


Define Agent

Someone who legally represents the insurer, has the authority to act on the insurer's behalf, and can bind the insurer (principal) by expressed authority, by implied authority, and by apparent authority. The principal is legally responsible for all acts of an agent when the agent is acting within the scope of authority.


Define Assessment Mutual

Mutual insurance company that has the right to assess policyholders for losses and expenses.


Define Broker

Someone who legally represents the insured, soliciting or accepting applications for insurance that are not in force until the company accepts the business. They are paid a commission from the insurers where the business is placed.


Define Captive Agent

A term to describe agents who represent only one insurer or a group of insurers that are financially interrelated or under common ownership.


Define Captive Insurer

Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens
-A single parent, or pure, captive ins an insurer owned by one parent
-An association captive is owned by several parents.


Define Demutualization

A term to describe the conversion of a mutual insurer into a stock insurer.


Define Direct Response System

A marketing method where insurance is sold without the services of an agent. Potential customers are solicited by advertising in the mails, newspapers, magazines, television, radio, and other media.


Define Direct Writer

Insurance company in which the salesperson is an employee of the insurer, not an independent contractor, and which pays all selling expenses, including salary. In property and casualty insurance, the term 'direct writer' is also sued to describe insurers that use the exclusive agency system. Usually compensated on a "salary plus" arrangement


Define Exclusive Agency System

Type of insurance marketing system under which the agent represents only one company or group of companies under common ownership. In the property and casualty industry, insurers that use this marketing system are also called "direct writers".
-Agents do not usually own the expiration or renewal rights to the policies
-Agents are generally paid a lower commission rate on renewal business than on new business
-Exclusive agency insurers provide strong support services to new agents.


Define Fraternal Insurer

Medical insurance company that provides life and health insurance to members of a religious faith, ethnic group, or social organization.


Define Holding Company

A company that directly or indirectly controls an authorized insurer


Define Independent Agency System

.Type of property and casualty insurance marketing system, sometimes called the American agency system, in which the agent is an independent businessperson representing several insurers.
-The agency owns the expiration or renewal rights to the business; it may bill the policyholders and collect premiums, but most insurers use direct billing.
-The agent is compensated by commissions based on the amount of business produced, that vary by line of insurance.
-Agent may be authorized to adjust smaller claims and may provide loss control services to their insureds.


Define Lloyd's of London

World's leading insurance makret the provides the services and physical facilities for its members to write specialized lines of insurance. Its a market where members join together to form syndicates to insurance and pool risk.


Define Mass Merchandising

.Plan for insuring individual members of a group, such as employees of firms or members of labor unions, under a single program of insurance at reduced premiums. Property and liability insurance is sold to individual members using group insurance marketing methods.


Define Multiple Distribution Systems

Insurance marketing method that refers to the use of several distribution systems by an insurer; for example, a property and casualty insurer may use the independent agency method and direct response method to sell insurance.


Define Multiple Line Exclusive Agency System

Under this marketing system, agent who sell primarily property and casualty insurance also sell individual and life and health insurance products. The agent represent only one insurer or group of insurers that are financially interrelated or under common ownership. The agents are also called captive agents.


Define Mutual Insurer

Insurance corporation owned by the policyholders, who elect the board of directors. The board appoints managing executives, and the company may pay a dividend or give a rate reduction in advance to insureds.


Define Nonadmitted Insurer

An insurer not admitted to do business in the state.


Define Personal-Producing General Agent

Term used to describe an above-average salesperson with a proven sales record who is hired primarily to sell life insurance under a contract that provides both direct and overriding commissions.


Define Personal Selling Distribution Systems

Systems in which commissioned agents solicit and sell life insurance products to prospective insured.


Define Reciprocal Exchange (Interinsurance Exchange)

Unincorporated mutual insuring organization in which insurance is exchanged among members (called subscribers)
-Insurance is exchanged among the members; each member of the reciprocal insurers the other members
-It is managed by an attorney-in-fact
-Most reciprocals are relatively small and specialize in a limited number of lines of insurance.


Define Savings Bank Life Insurance (SBLI)

Life insurance originally sold by mutual savings banks in Massachusetts, New York, and Connecticut. Now sold in other states as well over the phone or through websites.
The objective of SBLI is to provide low-cost life insurance to consumers by holding down operating costs and the payment of high sales commissions to agents.


Define Stock Insurer

A corporation owned by stockholders
Objective -earn profits for the stockholders by increasing the value of stock and paying dividends
-Stockholders elect board of directors
-Stockholders bear all losses
-Insurer cannot issue an assessable policy


Define Surplus Lines Broker

Specialized insurance broker licensed to place business with a nonadmitted insurer (a company not licensed to do business in the state).


What two trends stand out in the financial services industry?

Consolidation - The number of firms in the industry has declined because of mergers and acquisitions.
Convergence - Financial institutions can now sell a wide variety of financial products that earlier were outside their core business area.


What are the major types of private insurers as classified by legal ownership and structure? 7

- Stock Insurers
- Mutual Insurers
- Lloyd's of London
- Reciprocal Exchanges
- Blue Cross and Blue Shield plans
- Health Maintenance Organizations (HMOs)
- Other types of private insurers.


What are the three types of mutual insurers?

- Advance premium mutual
- Assessment mutual
- Fraternal insurere


What are three reasons the corporate structure of mutual insurers is changing?

-An increase in company mergers
-The creation of mutual holding companies


What are some reasons some mutual insurers have become stock insurers?

-The ability to raise new capital is increased
-Stock insurers have greater flexibility to expand by acquiring new companies or by diversification.
-Stock options can be offered to attract and retain key executives and employees
-Conversion to a stock insurer may provide tax advantages.