Life and Health Exam

Agent

An individual authorized to solicit, sell, and transact coverage for specific insurance providers under an agent contract

Broker

A person who represents the insured (client) rather than the insurance company and cannot bind coverage

Claims Department

is responsible for processing, investigating, and paying claims.

Insurance

The transfer of risk through the pooling or accumulation of funds

Insured

The customer who receives insurance protection under an insurance policy

Insurer

An insurance company that provides coverage and assumes risk

Mutual Insurance Company

An insurer owned by policyholders that typically issues participating insurance policies with potential dividends

Nonparticipating Policy

A policy that doesn't provide dividends or voting rights to policy owners

Participating Policy

A policy that allows policy owners to receive dividends and elect the board of directors

Producer

An individual licensed to sell, solicit, or transact insurance, including both agents and brokers

Stock Insurance Company

An insurer owned by stockholders that typically issues nonparticipating policies

Underwriting Department

is responsible for reviewing applications, approving or declining coverage, and assigning risk classifications

concept of insurance

may be defined as the transfer of risk from one party to another through a legal contract

principle of indemnity

the goal of an action is to “restore” an insured to the same financial position they were in prior to when the loss in question occurred

Primary insurer/ceding company

Insurance company that transfers its loss exposure (risk) to another insurer

 Reinsurer/assuming company

Company assuming the risk

Net retention/net line

Portion of the risk that the ceding insurer retains

Treaty reinsurance

Automatic sharing of the risks assumed based on previously established criteria 

Facultative reinsurance

Reinsurance tailored to cover a specific risk or exposure without an ongoing agreement

stock company

Owned by private investors who receive stock dividends 

mutual company

Owned by policyholders who receive policy dividends 

risk retention group

Created under federal law for liability insurance among similar professionals

Fraternal benefit society

Must have a lodge system and ritualistic work

authorization determines

whether the company has permission to operate in a state

domicile

where the insurance company is incorporated

alien insurer

incorporated outside the United States

foreign insurer

incorporated in another U.S. state

domestic insurer

incorporated in the state where it operates

nonadmitted insurer

does not have authority but may sell surplus lines insurance

Marketing/Sales department

is responsible for increasing the number of prospective applicants, thereby increasing the number of insureds through various advertising mediums. The sales department is typically responsible for completing the applications and face-to-face appointments with individual prospective buyers.

Underwriting department is

responsible for reviewing applications, conducting investigations to gain additional information about applicants, assigning risk classifications, and approving or declining an application.

Claims department is

responsible for processing, investigating, and paying claims for losses that are incurred by insureds.

Actuarial deparment

calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports that focus on morbidity and mortality tables.

Agents

Agents represent one or more insurers under the terms of their appointment contract

Brokers

represent themselves and the insured

Solicitors

A solicitor is not licensed to sell insurance. Instead, a solicitor represents a producer and solicits prospective applicants to meet and discuss their insurance needs with that producer on their behalf

Service Representatives

are insurance company employees who do not engage in sales activities that pay commissions. These individuals are not required to be licensed unless they receive commissions, solicit, countersign policies, or collect premiums from policy owners

producer

solicit the sale of insurance products to the public. Act in a fiduciary capacity for insurers and clients

Before selling insurance for a company, producers must

be licensed and appointed by the insurer

A captive (career) agent

sells insurance for only one company

independent agent

sells insurance for multiple companies

career agency system

agents are trained and supervised by a general agent

managerial system

the insurer hires a salaried branch manager to supervise agents

PPGAs

primarily sell insurance rather than recruit and train agents

PPGAs usually run

their own office and administrative staff

Agents working for a PPGA

are employees of the PPGA, not the insurance company

The insurance industry

is regulated by multiple authorities

The main purpose of insurance regulation is to

protect the public by ensuring insurance companies remain financially solvent

Regulation

protects consumers, ensures fair business practices, and guarantees fair insurance contracts at fair prices

Insurance agents

must understand and follow insurance laws and regulations

The insurance industry

is regulated by multiple authorities

The main purpose of insurance regulation is to

protect the public by ensuring insurance companies remain financially solvent

Regulation also

protects consumers, ensures fair business practices, and guarantees fair insurance contracts at fair prices

Insurance agents

must understand and follow insurance laws and regulations

Insurers

must inform applicants if an investigation is being conducted

If insurance is denied based on a consumer report

the insurer must tell the applicant which reporting agency provided the information

The law promotes

transparency in how insurers gather consumer information

People with felony convictions involving dishonesty or breach of trust

must get written permission from state regulators before working in insurance

The Fair Credit Reporting Act

protects consumer privacy in insurance investigations

Insurers must notify applicants

of investigations and disclose the reporting agency if coverage is denied

The Fraud and False Statements Act

restricts people with felony dishonesty convictions from working in insurance without regulatory approval

Gramm-Leach-Bliley Act

removed the barriers between banking, insurance, and securities industries, and created strict privacy protection rules for financial institutions

Gramm-Leach-Bliley Act

requires financial institutions to protect customer privacy and provide privacy notices

Customers must

be able to opt out of information sharing with non-affiliated third parties

The USA PATRIOT Act

helps detect and prevent terrorism financing and money laundering

The Do Not Call Implementation Act

created the National Do Not Call Registry.

The registry

limits telemarketing calls to consumers who opt out

The CAN-SPAM Act

regulates commercial email marketing

Marketing emails must

include identification, a physical address, and an opt-out option

The NAIC

is an association of state insurance regulators

The Unfair Trade Practices Act

regulates unfair insurance practices

State regulators

can investigate insurers and issue cease-and-desist orders

The NAIC Advertising Code

regulates misleading insurance advertisements

The NCOIL

is an organization of state legislators focused on insurance regulation

National Conference of Insurance Legislators stands for

ncoil

The NCOIL

develops model laws and educates policymakers about insurance issues

The NCOIL

supports state regulation of insurance under the McCarran-Ferguson Act

National Association of Insurance and Financial Advisors stands for

NAIFA

National Association of Health Underwriters stands for

NAHU

NAIFA and NAHU

promote ethical standards for life and health insurance agents

Ethical agents

sell insurance based on client needs and product suitability

Producers act as a link between

the insurance company and the public

Rating services

evaluate the financial strength of insurance companies

Reserves

are funds set aside to pay future policyholder claims

Liquidity

is the insurer’s ability to pay claims when they occur

States require insurers

to maintain minimum reserves and liquidity before issuing a certificate of authority

The Gramm-Leach-Bliley Act was enacted on

November 12, 1999

The Fair Credit Reporting Act was passed on

October 26, 1970

The Mccarran-Ferguson act was passed on

March 9, 1945

The Paul v Virginia Law was passed in

1868

Adverse Selection

The tendency of higher-risk individuals to seek insurance coverage more frequently than lower-risk individuals

Hazard

A condition that increases the likelihood of a loss occurring

Law of Large Numbers

The principle that the larger the number of similar risks insured, the more accurately future losses can be predicted

Loss

An unintentional decrease in value due to a covered peril

Peril

The specific event or cause that results in a loss

Pure Risk

A risk that involves only the possibility of loss, with no chance of gain; the only type of risk that is insurable

Speculative Risk

A risk that involves the possibility of both loss and gain; not insurable

Risk

The uncertainty regarding the possibility of loss

Agent

A person who represents the insurer during an insurance transaction and has been authorized to act on the insurance company's behalf. Agents have a fiduciary responsibility to both the insurer and the policy owner

Broker

A licensed producer who represents the insured (client) during an insurance transaction. Don't hold appointments with insurers and cannot bind coverage