Insurance Principles and Regulations

Insurance

A legal contract that transfers risk from the policyholder to the insurer.

Indemnification

Restoring an insured to their pre-loss financial position.

Premium Pooling

Spreading risk across many policyholders.

Insured

Person receiving insurance protection.

Insurer

Company providing coverage and assuming risk.

Premium

Payment made for insurance coverage.

Policy Owner

Person who transfers risk to the insurer.

Life Insurance

Uses valued contracts; predetermined amounts for claims.

Stock Insurance Companies

Owned by shareholders; profits go to stockholders.

Mutual Insurance Companies

Owned by policyholders; they receive dividends and elect the board.

Fraternal Benefit Societies

Non-profit organizations with ritualistic work beyond insurance.

Reciprocal Insurers

Members insure each other.

Risk Retention Groups (RRGs)

Created under federal law for liability insurance.

Captive Insurers

Owned by a parent company to insure its risks.

Marketing/Sales Department

Increases prospective applicants.

Underwriting Department

Reviews applications and assigns risk classifications.

Claims Department

Processes and pays claims.

Actuarial Department

Calculates rates, reserves, and dividends.

Career Agency System

Agents work exclusively for one company.

Independent Agency System

Represents multiple companies.

Direct Selling

The company deals directly with consumers.

Paul v. Virginia

Established state regulation of insurance.

McCarran-Ferguson Act

Returned regulation to the states.

Gramm-Leach-Bliley Act

Introduced privacy requirements.

Fair Credit Reporting Act

Consumer protection regarding credit information.

NAIC

Creates model laws and regulations for insurance.

Consumer Protection

Primary focus of insurance regulation.

Authorized Insurer

An insurer permitted to transact insurance in a specific state.

Nonadmitted Insurer

An insurer not authorized to transact insurance in a state.

Indemnity Principle

Restores the insured to