Life and Health Insurance License

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

the department 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 (MIC)

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

underwriting department

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

indemnity

one party (the insurer) agrees to compensate another (the insured) for specific financial losses, damages, or liabilities, restoring them to their pre-loss financial condition

valued contracts

an insurance policy in which the insurer is obligated to pay a pre-specific amount to the insured in the event of a loss, regardless of the actual value of the loss

private (commercial) insurance

health coverage from non-government sources, like private companies or employees, bought by individuals or groups; ex. a profit-motivated stock company

government (social) insurance

programs run by federal, state, or local governments that provide subsidized or free coverage for specific needs like healthcare, retirement/disability, or specific risks; ex. Medicare/Medicaid, Social Security, flood insurance

stock insurance company

an insurance company owned by private investors and are publicly traded commercial entities organized and incorporated under state laws to make a profit for their stockholders/shareholders (investors)

earned surplus/retained earnings

the portion of an insurer’s accumulated profits that remains after paying all claims, expenses, and dividends, representing reinvested earnings for growth and financial stability

divisible surplus

the amount of earnings paid to policy owners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes

mutualization

the process of restructuring a company so that clients become owners, sharing in profits and governance

demutualization

the process where a mutual insurance company, owned by its policyholders, transforms into a stock company, owned by shareholders, usually to raise capital and financial stability

mixed insurance plan/hybrid (blended) policy

combines two or more different types of insurance or features into a single, unified policy, offering comprehensive protection and simplified management for a single premium

insurance premium

the regular payment you make to an insurance company to keep your coverage active/the price for your policy that protects you from financial risk for things like health, auto, or home damage

fraternal benefit society (FBS)

a non-for-profit/non-profit organization providing life, health, and other insurance products to members who share a common bond; must have a lodge system that includes ritualistic work, maintain a representative government form with elected officers, and exist for reasons other than obtaining insurance

reciprocal insurers

unincorporated organizations overseen by a board of governors or directors in which individual members (subscribers) agree to insure one another

Attorney-in-fact

a person or entity appointed by a Power of Attorney to manage an individual’s (the principle’s) financial or healthcare decisions; ex. a trusted family member or friend, not necessarily a lawyer

captive insurer

an insurer established and owned by a parent firm or group of firms to insure the parent’s loss exposure

risk retention group (RRG)

a specialized insurance company created under the federal Liability Risk Retention Act (LRRA) of 1986 to provide liability insurance for individuals and entities with a common bond

risk purchasing group (RPG)

an arrangement by which an insurance company transfers a portion of an assumed risk to another insurance

treaty reinsurance

a typical reinsurance contract between two insurance companies; involved an automatic sharing of the risks that are assumed based on previously established criteria

facultative reinsurance

a primary insurer will seek reinsurance tailored to cover a specific risk or exposure without an ongoing agreement

surplus lines insurance

provides coverage for risks that standard, state-regulated (admitted) insurers won’t cover, acting as a market of last resort for unusual, hard-to-place or high-capacity risks; ex. properties in disaster zones

Lloyd’s of London

a global insurance marketplace in London where multiple financial syndicates (brokers) pool capital to insure complex, unique, and large-scale risks that traditional insurers might avoid; to gather and disseminate underwriting information, helps its associates settle claims and disputes, and, through its member underwriters, provide coverages that may otherwise be unavailable in certain areas

service providers

sell medical and hospital care service (not insurance) to their subscribers in return for a premium payment; ex. a health maintenance organization (HMO), the preferred provider organization (PPO)

industrial insurer

provides specialized coverage for large businesses (industrial insureds) or historically offered small, debit-collected policies for individuals, covering risks like property damage, liability, and workers’ compensation

self-insurance

a risk management strategy where an individual or company sets aside its own funds to cover potential losses, rather than paying premiums to a third-party insurer, allowing for cost savings and control but requiring sufficient financial reserves to manage significant unexpected expenses

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

multiline insurers

companies that sell more than one line of insurance

commercial insurers

private companies that offer many lines of insurance; some only sell life insurance and annuities, while others only sell accident and health insurance or strictly property and casualty insurance

classified by authorization

whether insurers have permission to conduct business in a particular state through a certificate of authority

• must receive authority by the law

• require a company to secure a license from the Department of Insurance to sell insurance in a particular state

authorized/admitted insurer

an insurer admitted/authorized to transact insurance business in a particular state

nonadmitted insurer

can offer surplus lines coverage when authorized insurers won’t accept the risk

classified according to domicile

organizing insurers based on where they’re incorporated

domestic insurer

incorporated and primarily operates within the same state or country where the risk is located; ex. company based in Florida selling in Florida

foreign insurer

incorporated in one US state but operates in another US state; ex. California insurer selling in Nevada

alien insurer

incorporated in a country outside the US but is licensed to operate in the US; British insurer selling in Florida

market department

responsible for increasing the number of prospective applicants, thereby increasing the number of insureds through various advertising mediums

sales department

responsible for completing the applications and face-to-face appointments with individual prospective buyers

actuarial department

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

solicitor

not licensed to sell insurance; represents a producer and solicits prospective applicants to meet and discuss their insurance needs with that producer on their behalf

service representatives

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

adjuster

a person who engages in investigative work to obtain information for adjusting, setting, or denying insurance claims; primarily relies on claim forms, but (depending on the claim) may also investigate on an insured’s identity, habits, conduct, business, occupation, honesty, integrity, or credibility

public adjuster

a person who, for compensation, acts on behalf of insureds or aids them with insurance claim settlements

captive/career agent

works for one insurance company and sells only that company’s insurance policies

independent agent

works for themself and sells the insurance products of many companies

career agency

a branch of a major stock/mutual insurance company; depending on the organization, the agency may represent the sponsoring insurer in a specific area; insurance agents are recruited, trained, and supervised by a general agent (GA) who has a vested right in any business that’s written by the agents who sell for the agency

general agent (GA)

may operate strictly as managers, or they may devote a portion of their time to sales

managerial system

the insurance company establishes branch offices in multiple locations; the insurer employs a salaried branch member who supervises agents who work out of that branch office, pays the branch manager’s salary and a bonus based on the amount and type of insurance sold at the number of new agents hired

personal producing general agency (PPGA)

primarily sell insurance, but they may build a small sales force to assist them; generally responsible for maintaining their own offices and administrative staff

independent agency system

a creation of the property and casualty industry doesn’t commit a sales staff or agency to any one particular insurance company; they represent any number of insurance companies through contractual agreements, and they’re compensated on a commission or fee basis for the business they produce

insurance industry

regulated by multiple authorities, including some that operate inside the industry itself;Pa to promote public welfare by maintaining the solvency of insurance companies or to provide consumer protection and ensure fair trade practices and fair contracts at fair prices

Paul v. Virginia (1868)

established that insurance was not interstate commerce, giving states the authority to regulate the insurance industry

US v. SEUA (1944)

United States v. Southeastern Underwriters Association (SEUA) reversed Paul v. Virginia, declaring insurance as interstate commerce subject to federal regulation

McCarran-Ferguson Act (1945)

in response to the SEUA; returned primary insurance regulation to the states while requiring compliance with federal antitrust laws; violations of this act can result in fines up to $10,000 and/or one year imprisonment

Fair Credit Reporting Act (1970)

safeguards consumer privacy by requiring insurers to maintain transparency in their investigation processes; insurance companies must inform applicants about ongoing investigations and, if coverage is denied based on a consumer report, must disclose which reporting agency provided the information

Fraud and False Statements Act (1994)

(USC Sections 1033 and 1034) creates a significant barrier for individuals with felony convictions involving dishonesty or breach of trust, requiring them to obtain written consent from state regulators before working in insurance

• maximum fine of $50,000 and 10 years imprisonment

• up to 15 years imprisonment if insurer solvency is threatened

• license revocation

Financial Services Modernization Act (Gram-Leach-Bliley Act (GLBA)) (1999)

broke down the barriers between banking, insurance, and securities industries by allowing these institutions to affiliate and enter each other’s markets (repealed the Glass-Steagall Act of 1933); established strict privacy protection requirements; financial institutions (including insurance companies) must:

• provide customers with written privacy notices explaining information-sharing practices

• allow customers to opt out of having their information shared with non-affiliated third parties

• obtain affirmative consent (opt-in) before sharing protected health information

• implement comprehensive security programs to protect customer data

• regularly update their privacy and security practices

USA PATRIOT Act (2001)

the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT); introduced new requirements for financial institutions to help prevent terrorism financing; aims to detect, deter, and disrupt terrorist funding efforts through anti-money laundering education programs and information-sharing procedures

Do Not Call Implementation Act (2003)

the National Do Not Call Registry; restricts most commercial calls and maintains exemptions for charities, political organizations, and surveys

CAN-SPAM Act (2003)

established rules for commercial email communications; insurance professionals must ensure their email marketing:

• contains accurate header information

• clearly identifies as advertising

• includes a valid physical address

• provides an easy opt-out method

• honors opt-out requests within 10 business days

National Association of Insurance Commissioners (NAIC)

brings together regulators and industry personnel on committees that regularly examine various aspects of the insurance industry and recommend applicable insurance laws and regulations

• encourage uniformity among the state insurance laws and regulations

• assist in the administration of those laws and regulations by promoting efficiency

• protect the interests of policy owners and consumers

• preserve state regulation of the insurance business

Unfair Trade Practices Act

gives the head of each state insurance department power to investigate insurance companies and producers, but it also authorizes them to issue cease-and-desist orders and to impose penalties; gives officers authority to seek a court injunction to restrain insurers from using any methods believed to be unfair

Model Advertising Code

specifies certain words and phrases that are considered misleading by their very nature; these words cannot be used in the advertising of any kind of insurance, requires the complete disclosure of policy renewal, cancellation, and termination provisions

National Conference of Insurance Legislators (NCOIL)

a legislative organization that focuses on the insurance industry; primarily comprised of state legislators from around the nation who serve on state insurance and financial institutions committees; works to preserve state regulation of the industry and to educate public policymakers on related issues

National Association of Insurance and Financial Advisors (NAIFA) & Nationals Association of Health Underwriters (NAHU)

life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals

agent marketing and sales practices

• selling to needs: an ethical agent learns the client’s needs and determines the best way to address those needs

• suitability of recommended products: the ethical agent assesses the correlation between a recommended product and the client’s needs and capabilities

• full and accurate disclosure: the ethical agent makes it a practice to inform clients about all aspects of the products being recommended, including benefits and limitations

• documentation: the ethical agent documents each client’s meeting and transactions, uses fact-finding forms, and obtains the client’s written agreement for the needs determined, the products recommended, and the decisions made

• client service: the ethical agent knows that a sale doesn’t mark the end of a relationship with a client but rather the beginning

producer responsibilities

a producer is a conduit between the company and the insurance-buying public;

• providing customers with the best service possible

• soliciting new business by helping clients acquire products from application to delivery

• guiding customers to the right products that meet their needs and maintaining a relationship with them

• building a business by keeping current customers satisfied and also actively seeking referrals

rating services

help publicize the financial health of insurers: to determine the rated insurance company’s financial strength

reserves

the accounting measurement of an insurer’s future obligations to its policyholders; classified as liabilities on the insurance company’s accounting statements since they must be settled at a future date

liquidity

indicates a company’s ability to make unpredictable payouts to policy owners