Unit 1 Part B

Question 1

stock insurer

Answer 1

business formed as a corporation, owned by stockholders. these stockholders receive taxable dividends but they are not guaranteed and they issue non-participating policies

Question 2

mutual insurer

Answer 2

owned by its policyholders; dividends are not guaranteed but paid to policyholders and are not taxable as they are considered refunds of un-used premiums.
issue participating (par) policies

Question 3

fraternal benefit societies (4)

Answer 3

• offer insurance as one of the benefits of memberships, often engaging in charitable causes
• typically based on a common ground (religion)
• fraternal policies are called certificates, members are certificate holders
• cert. holders may be assessed additional charges if premiums are not sufficient to pay a claim = “open contract”

Question 4

reciprocal insurers (4)

Answer 4

• subscribers (policyholders) agree to exchange reciprocal agreements of indemnity
• they pool their resources (premiums) to cover each other’s losses.
• an attorney-in-fact (AIF) is responsible for managing the daily operations/accounts
• the AIF operates under a Power of Attorney from each subscriber

Question 5

lloyd’s associations

Answer 5

not insurance companies; provide a hub for information exchange between underwriters
insure unusual risks such as hole-in-one contest, athlete’s body parts, celebrity’s hair, etc.

Question 6

risk retention group

Answer 6

member-owned and operated insurance company that pools the risks of its members.
regulated in the state they are headquartered

Question 7

risk purchasing groups

Answer 7

not insurers themselves, only purchasing insurance on behalf of members from the same industry;
group of businesses joining to buy liability insurance

Question 8

self-insurers

Answer 8

a business that pays its own claims, reserving funds to cover losses retaining the risk rather than transferring it

Question 9

government insurance includes… (6)

Answer 9

• war risk (federal)
• nuclear energy (federal)
• flood (federal)
• crop (federal)
• unemployment (state)
• worker’s comp (state)

Question 10

domestic, foreign, vs alien insurers

Answer 10

domestic – provide insurance in the state in which the insurer was formed/state of domicile

foreign – providing insurance in another state outside state of domicile

alien – providing insurance in another country where the laws differ

Question 11

admitted/authorized vs.
non-admitted/unauthorized/nonapproved

Answer 11

admitted – company has the required Certificate of Authority to sell, place, and service insurance contracts

non-admitted – no cert.; can sell insurance to certain types of risks called surplus lines

Question 12

surplus lines

Answer 12

can be sold to high-risk insureds only if on the state’s approved list, aka not already provided by an authorized insurer
(ex. mining, skyscrapers, casinos)

Question 13

Financial Strength Rating

Answer 13

“report card” of the company
A++ = superior
AAA = exceptionally strong
Aaa = exceptional

Question 14

independent insurance agents

Answer 14

sell insurance from many companies as an independent contractor, owning the renewals they sell

Question 15

captive/exclusive agents

Answer 15

represent only one company but as a contractor, not employee of insurer although the insurer owns the renewals of their policies

Question 16

managing general agents

Answer 16

hire, train, supervise other agents in a specific area earning overriding commissions on their agents

Question 17

direct-writing companies

Answer 17

products are sold by insurance company employees, compensated through a salary, commission, or both

Question 18

direct response marketing

Answer 18

no producer; policies sold directly to public by insurer through mail, tv, internet advertisements

Question 19

law of agency

Answer 19

contracts made by the agent are considered to be contracts of the principal (insurance company)

Question 20

express, implied, and apparent authority

Answer 20

express – authority made explicit in a producer’s written agreement with insurer

implied – not written in contract but assumed to be granted in accordance to general business practices (ex. printing a business card with insurer’s logo)

apparent – authority others believe the agent has. if the insurers name is on the sign at the agent’s business, the agent has apparent authority from the insurer to conduct business

Question 21

fiduciary

Answer 21

a personal in position of financial authority that complies with laws/regulations and sends premiums to the insurer

Question 22

commingling

Answer 22

illegal act of mixing personal funds with insured’s or insurer’s funds