NYS Licensing Exam

Insurance

institution or business that transfers risk by the accumulation of capital from the many to pay for the losses of the few

Property Policies

covers policyholders property

Real Property

Buildings, land, and anything attached to the buildings and land

Personal Property

everything else...excluding buildings, land, and anything attached

Specific Property Policies

only covers property that is listed on the policy.
(ex. jewelry pieces)

Blanket Property Policy

either covers all insurance property or all property of a certain type. *Property does not have to be listed

Casualty Policy aka Liability Policy

cover legal liability. covers the policyholder if they are legally responsible for creating the damage. (ex. slip and fall)

Monoline Policy

cover only one line or one type of insurance
*covers only liability or property...not both

Package Policy

covers more than one line or more than one type of insurance
(ex. homeowners policy...covers property and liability)

Peril

a cause of a loss
(ex. fire, wind, rain...)

Named Peril Policy

only covers perils that are listed on the policy. there will be a list. if its not on the list...its not covered. **if there is a dispute over whether a peril is covered it would be the policyholders responsibility to prove the coverage.

Proximate Cause

first peril in an unbroken chain of events

Special Peril/Open Peril (All Risk)

cover all perils except for those that are specifically excluded. If it doesn't state its not covered then it is covered. **if there is a dispute over whether something is covered it would be the insurance company's job to prove its not covered.

Loss

unintentional decline, disappearance, or reduction in the value of property.

Direct Loss

physical loss to property resulting from a peril. (ex. fire damage to a home)

Indirect Loss/Consequential Loss

economic loss caused by a direct loss. (ex. hotel room because house burned down)

Risk

uncertainty concerning loss. The chance of loss.

Speculative Risk

chance of loss and the chance of gain. (ex. gambling)
*is NOT insurable

Pure Risk

the chance of loss with no chance of gain. (ex. getting into an accident) * this IS insurable

Exposure

condition or situation that presents the possibility of a loss. (ex. things..6 trucks = 6 exposures)

Hazard

condition that increases the chance of a loss. (ex. basement filled with garbage)

Moral Hazard

a hazard caused by policyholder's dishonesty. (ex. think about commiting a crime)

Morale Hazard

a hazard caused by the policyholder's poor attitude. (doesn't care)

Physical Hazard

caused by a material, structural, or operational condition. (frayed wires)

Offer and Acceptance

(Agreement) one party must make an offer and the other party must accept the offer.

Offer

is the policyholder submitting their application

Acceptance

the insurance company issues a binder

Binder

temporary contract for insurance. It can be written or verbal.

Competent Parties

both parties must be mentally capable of understanding the contract.

Legal Purpose

cannot have a binding contract on something illegal (ex. can't insure a warehouse w/ illegal drugs.)

Consideration

each party must provide something to the other party. (ex. money, services, promises)
the minimum consideration that the policyholder can provide is the promise to pay premiums.

Adhesion

any ambiguity in the language of the contract will be interpreted in the favor of the policyholders.

Reasonable Expectations

policy must cover what a reasonable policyholder would expect it to cover.

Indemnity Contract

under an insurance contract payment is limited to financial loss. the policyholder should not gain from insurance...
put policyholder back into same position they were in before the loss
*

Utmost Good Faith

both parties are expected to act honestly and cooperate with each other.

Representation

an affirmative statement that something is true at the time the statement was made. *
true as of right now
*

Misrepresentation

the act of providing false information. can be intentinal or not.

Concealment

withholding or hiding information. **very close to misrepresentation.

Fraud

deliberate misrepresentation or concealment that does harm.

Claim Payment & Cancellation in regards to Misrepresentation, Concealment, or Fraud

If the insurance company can prove that the fraud is material and because of this they would not have written the policy coverage can be denied. Applies when a policyholder tries to file a claim.

Warranty

an affirmative statement that something is true and will be true for the entire policy (ex. working fire alarm system)

Insurable Interest

financial stake in property at the time of the loss. (ex. own home at time of claim)

Waiver

intentional and voluntary relinquishment of a right caused by actions taken or not taken.

Estoppel

prevents a party from asserting a right that they already waived.

Aleatory

insurance contracts are written on a contingent basis for the loss. One pary only required to act if something happens. (ex. insurance companies)

Personal Contracts

they dont really pay for lost property. they pay for loss to insurable interest. (ex. building worth $200,000 insured for $200,000) *
if you only owe 50% of building you will only get 50% of claim
*

Unilateral Contracts

insurance contracts are written by one party or one side. *
because they are unilateral if anything is unclear the policyholder will be paid
*

Conditional Contracts

insurance policies contain a number of provisions that both parties must abide by. *
if there is a loss the policyholder must report immediately
*

Liberalizations

any change in a policy that benefits new policyholders at no extra cost must be provided to all current policyholders. (ex. emergency roadside assistance)

Subrogation

assignment of the policyholder's right to proceed against a neglegent third party to the insurance company. **
you give up your right to the insurance company to go after guilty party
* It is to prevent policy holder from collecting twice and holds negleg

Constructive Total Loss

situation where the loss is not a total loss but for the practical reasons the insurance company pays a total loss.

Salvage

applies when the insurance company pays total loss and then takes possession of the property. They take it so they can profit from it. **can apply to total loss

Named Insured

any party listed as an insured on the policy
if named insured dies the coverage and rights transfer over to their legal rep

First Named Insured

the first name that is listed on the policy. *
the insurance company is only required to communicate with the first named on policy.
if the first name is removed the second becomes the first and so on.
**in case of death the legal rep gets all the rights.

Additional Interest

party who is listed on the policy because of their interest in the property. (ex. lien holder)

Loss Payable Clause

adds additional interest to the policy

Assignment

(a rule) transfer..the policyholder cannot assign insurance coverage without the insurance company's consent

Abandonment

the policyholder cannot abandon property to the insurance company without the insurance company's consent (ex. brand new car gets in accident and policyholder demands new car)

Policy Period/Policy Term

the effective date of policy to the expiration date of policy. *
usually one year policy
*

Policy Territory

almost every insurance policy will have a territory clause. where the policy is effective

Standard

policy is effective in the USA, USA possesions, Puerto Rico, and Canada (poss: US Virgin Islands, Guam, American Samoa)

Worldwide

some policies provide coverage worldwide

Notice Given

stop a policy before the expiration. a policyholder can cancel at any time. *
the insurance company must always give notice.
non-payment of premiums = 15 days, any other reason = 20 days notice
*

Non-Renewal

policy will expire and the insurance company will not renew policy. **
insurance company must mail paperwork between 60-45 days before policy is up..must be mailed in 15 day window
*

Pro Rate/Pro Rata

the insurance company keeps earned premium and returns the rest. **if insurance company cancels they must give back at least the pro rate back.

Earned Premium

premium for time policy was effective

Flat Rate

full premium return. **applies when policy never took effect.

Rescession

annulment of the policy. as if the policy never existed. usually flat rate return

Loss Valuation/Basis of Recovery

method the insurance company uses to value property. *
the way insurance company values property decides how much policyholder gets back
*

Market Value

selling price of property. *
it is almost never used for insurance purposes
*

Replacement Cost

cost to replace property with a new version of property *
most homeowners policy give customers replacement cost
*

Functional Replacement Cost

cost to replace property using modern materials and construction methods. *
insurance company says they will build a house with the same functionality
*

Stated Amount/Agreed Value

both parties agree on value of property before the policy starts. *
used for items difficult to value-collectible, antique cars
*
required appraisal
*

Actual Cash Value (ACV)

cost to replace property with property of the same like, kind, and quality. *
depreciation of product taken into consideration
*

Ordinance or Law

related to Basis of Recovery. additional cost to repair or replace property due to government regulations. (ex. new building codes) *
some policies cover and some dont
*

Limits

maximum a policy will pay out in the event of loss. *
almost always mean per occurence
*

Per Person Limit

the most a policy will pay out for injury to any one person

Per Occurence Limit

the most a policy will pay out for any one incident or any one occurence

Aggregate

most that a policy will pay for all occurences over the course of the policy period or over the course of a year. **
never applies to auto insurance
**

Deductibles/Retention Programs

amount a policyholder must pay before the coverage takes effect. *
not usually large numbers
usually per occurence
subtract deductible from loss
*

Deductibles

help lower rates and eliminate small losses **
almost always apply to property but not liability
**

Declaration Page

personalizes the policy...the name, address, policy number, car model and make, deductibles & limits, effective dates **
who, what, when & how much
**

Insuring Agreement/Insuring Clause

insurance companies pay for losses. *
the meat of the policy
sometimes the definition section is included here unless it has its own section
*

Conditions

contains the rights and obligations of both parties. (the rules) *
Policyholders duties in case of loss, loss valuation, cancellation, territory
*

Exclusions

list of what is not covered..very long list

Always Excluded

moral hazard, wear and tear, catastophic losses (ex. war/nuclear)

Definitions

sometimes its own section but usually found in the Insuring Agreement. Clarifies the meanings of certain terms.

Endorsements

not own section. any thing used to make changes to the policies. (ex. may add coverage)

Other Insurance Clauses

what a policy will do if more than one policy covers a loss

Primary Other Insurance Clause

the policy will pay first up to its limit

Excess Other Insurance Clause

the policy will only pay once all other coverages are exhausted

Pro-Rata/Contributory Other Insurance Clause

the policies will pay together.

More Specific Pays First

Rule: the more specific a description then they pay first. (ex. All Policy, All Jewelry, Diamond Ring...if the diamond ring is lost the Diamond Ring Policy will pay first)

Prohibitive Other Insurance Clause

if another policy provides coverage there is no coverage on the policy that has this clause

Co-Insurance

designed to encourage insurance to value. *
encourage policyholders to carry insurance to value
*
policyholder is required to carry at least 80% of the value of their property as their limit, and the insurance company is not responsible to figure out the

Agreed Value Rules

**
sometimes a policy can become an Agreed Value
** An Agreed Value endorsement removes all Co-Insurance requirements.

Underwriting Functions

1. Examination and evaluation of risk.
2. Decides can we write the policy, which company, etc.
3. Producing underwriting guidelines...writing rules

Adverse Selection

tendency for the highest risk to purchase insurance and the lowest rist not to purchase insurance

Loss Ratio

If losses are high, insurance companies should raise rates or re-evaluate underwriting guidelines

Rate

price for the unit of insurance

Premium

all the units in a given policy multiplied by the rate per unit.

Judgement Rating

rates are determined by considering the individual risk. **no tables or computer programs are used...extremely exotic risks

Manual/Class Rating

rates contained in a table or chart

Merit Rating

manual rate that has been modified to reflect special characteristics

Experience Rating

merit rate that has been modified or based on previous losses.

Elements of Insurablity

1.must have a large number of insured or statistics...law of large numbers. 2. must be accidental cannot be expected. 3. losses must be meaurable or calculable. 4. cannot be catastrophic (war). 5. losses must cause financial hardship. 6. rates must be aff

Law of Large Numbers

the more samples that you have the more accurate the rates will be.

Risk Management

planning for future losses. the what ifs.

Avoid the Risk

not engaging in the risky to begin with.

Retain the Risk

retention, planning to pay for future losses out of pocket

Reduce the Risk

taking steps to reduce the frequency and severity of risks

Share the Risk

getting other parties to help pay for losses. *
usually involves some sort of agreement or relationship
* (ex. corporation)

Transfer the Risk

getting another party to pay for your losses. (ex. buying insurance)

Hold Harmless Agreement

a tenant assumes liability for a landlord.

Reinsurance

situation where an insurance company transfers a portion of its risk to another company. *
insurance for insurance companies
*

Facultative Reinsurance

reinsurance on a single piece of property or a single exposure

Treaty Reinsurance

reinsurance company pays percentage of claims incurred during the year.

Catastrophic Reinsurance

the reinsurance company pays if there is an enormous loss affecting a large number of policyholders. *
not one big loss for one company
* (ex. earthquake)

Retrocession

reinsurance company purchases reinsurance

Certificate of Authority

license for insurance company to do business in New York

State Guarantee Fund

fund that if an insurance company goes out of business the claim will be paid

Solvency

financial health

Fraud Report

it details the superintendent's campaign against fraud

Special Frauds Studies Report

analysis of fraud trends

File and Use

insurance company has to file the change ane then they can use it. dont have to wait for approval but can be revoked

Use and File

insurance companies are allowed to make change and then they have a certain amount of time to file it.

Bad Faith Litigation

compelling a claimant to institute legal action when it is not necessary

Waiver 1033-1034 Prior Fraud Conviction

if a person has been previously convicted of fraud they can only obtain an insurance license or hold a position in the insurance industry with the written consent of the State Superintendent of Insurance.

Sarbanes-Oxley Act

it requires financial institutions and insurance companies regulates how they report their financial information.

Stock Insurance Company

owned by shareholders and they share in profit and losses

Mutual Insurance Company

owned by policyholders and the policyholders share in profit and losses.

Fraternal Benefit Society

*special type of mutual
*owned by policyholders
*only available to members of certain organizations
(ex. Knights of Columbus)

Reciprocal

companies that need insurance agree to insure each other

Risk Retention Group

companies that need insurance create and own their own insurance company. the company they form is called a Captive and it insures its owners.

Purchasing Group

companies that need insurance form an agreement and purchase insurance together. they do this to get a better rate

Government Insurance

provided directly by the state or federal government
(ex. Federal Flood Insurance, Workers Comp NYS)

Lloyds

market for insurance where individual investors underwrite risks. (ex. Lloyds of London) **
this was the oldest form of commerical insurance
**

Domestic Insurer

organized or incorporated in New York State

Foreign Insurer

organized or incorporated out of New York but within the United States.

Alien Insurer

organized or incorporated out of the United States
(ex. Lloyds of London)

Home State

state where a producer is licensed and retains their primary residence or place of business.

Negotiate

conferring or offering advice to an insured in regards to benefits, insurance terms, and conditions

Sell

exchange of money for an insurance contract

Solicit

attempting to sell insurance or asking a person to apply for insurance

Business Entity

business licensed to sell insurance

Business Entities

*Corporations
*General Partnerships
*Sole Proprietors
*Limited Liablity Corporations
*Companies

Producer

any licensed person such as an agent or broker that sells, solicits, or negotiates insurance

Assumed Names

producers must only use their legal names...no aliases

Name and Address Changes

all producers must notify Dept of Insurance if a producer changes their name, address, or email address. they have 30 days to do so.

Reporting of Actions

you must report any actions taken against you by a government agency against any profession license you may hold. Included actions...cease and desist, fine, suspension, warning

Display of Licenses

in any location where business is conducted. * the license of the supervising producer must be displayed.

Report Criminal Charges

must be reported to NYS Dept of Insurance within 30 days of pre-trial hearing.

ACV Formula

Replacement ----- Depreciation
Replacement ----- Age over Life X Replacement

Pro-Rata (Contributory) Formula

Limit of Policy A over Limit of All Policies X Loss
Limit of Policy B over Limit of All Policies X Loss
Limit of Policy C over Limit of All Policies X Loss

80% Co-Insurance Formula

Did over Should X Loss

Earned Premium Calculation

Number of Days Policy is in Effect over Number of Days in Policy Period X Annual Premium

The insured originally purchased furniture for $6000. At the time of a fire loss the furniture had depreciated by $2000. The furniture will cost $7000 to replace. What is the ACV of the furniture?

$5000...ACV = Replacement Cost --- Depreciation

A broken step would best be described as which of the following?

Physical Hazard

A fire starts in a building. The fire department responds and chops down a door in order to gain access to the fire. Damage to the door can best be described as:

A direct loss

Jane suffers a loss and is required to prove that the cause of loss is covered under her policy. What type of policy does Jane have?

Named Peril Policy....
policyholder's responsibility

A list of covered perils would be found under which part of a policy?

Insuring Agreement

Which of the following is a Retention Program?

Deductible

Policy A has a limit of $100,000 and a Primary Other Insurance Clause. Policy B has a limit of $1,000,000 and Excess Other Insurance Clause. If a $120,000 loss is covered under both policies, how much would Policy B pay?

$20,000

In order for a loss to be covered by an insurance policy, when must insurable interest exist?

At the time of the loss.

Premiums paid do not equal benefits received. Which of the following best expresses this concept?

Insurance policies are aleatory contracts.

Mary is covered by a Homeowners Policy. She sells her home to Bob and does not notify the insurer. If the house is destroyed by a covered peril, the insurance company will pay who of the following for the loss?

Neither Bob or Mary

Which of the following is not a requirment for an exposure to be insurable?

Must be a total loss

An insurance company fails to mail a cancellation notice to their policyholder. As a result, they are prevented from cancelling the policy. Which of the following would best describe their failure to mail out the cancellation notice?

Waiver

Penelope expects her driveway to last for 15 years. It is now 5 years old. The cost to lay a new driveway is $9,000. The ACV of the driveway is:

$6,000

Which of the following is not a peril? Fire, Wind, Faulty brakes in a car, Lightening

Faulty brakes in a car

Vivian owns a 100 year old home that has archiac ceilings, porch and floors. When the house burns down to the ground, Vivian's insurer pays Vivian to build a new home with modern ceilings, porch, and floors. This can best be described as:

Functional Replacement Cost

Alex is insured under 3 policies with Pro Rata Other Insurance Clauses. Policy 1 has a limit of $40,000. Policy 2 has a limit of $60,000, and Policy 3 has a limit of $20,000. In the event of a $15,000 loss, how much will Policy 1 pay?

$5,000

Christine promises to pay her premium in order for her insurance policy to be in effect. This can best be described as:

Consideration

Maria has a policy that covers only jewelry that is listed on the policy. This policy can best be described as:

Specific

An earthquake destroys a building. The earthquake can best be described as:

A peril

What factor will eliminate a co-insurance requirement?

A Basis of Recovery of Stated Value
Agreed Amount

What best describes re-insurance?

An insurance company transfers a portion of its risk to another company.

Mary is an insurance agent and is looking through a commercial property policy. Where in the policy would she locate duties of the insured?

Conditions

What best describes the tendency of high risk exposures to purchase insurance?

Adverse selection

The ABC Chemical Corporation makes a decision not to enter the pharmaceutical business due to the high risk of product liability lawsuits involved in that industry. This method of handling risk can best be described as:

Avoidance

Phil does not bother to repair the sprinkler system in his building since he knows that he has insurance. This can be described as:

A morale hazard

The annual premium is $800. The policy has been in effect for 73 days. What is the earned premium?

$160.00

What is a hazard?

an increase in the possibility that a loss may occur

The purpose of insurance is to:

Transfer risk from a person, business, or organization to an insurance company that agrees to pay for losses in exchange for a premium.

Anna Hirsh's home is insured by the ABC Insurance Company. Last year she made the final payment to KLP Mortgage Company. Anna is considering selling her home to her niece, Roz Reiss. Who has insurable interest in her home?

Anna Hirsh

Which of the following is not an element of insurablity?
*Loss must be calculable
*Risk of loss must represent a financial hardship
*Cost of insurance must be affordable
*Risk of loss is a speculative risk

Risk of loss is a speculative risk

An insurance contract is considered a unilateral contract because:

The insurance company is the only party that is legally obligated to perform under the insurance contract.

What part of an insurance policy personalizes the policy as to who and what are insured?

Declarations

The loss to a policyholder's property totals $3,750. When will this claim be paid by the insurer?

When repairs are done. *
If repairs exceed $2500 they can withhold until repairs are done
*

Which of the following describes Actual Cash Value?
* Replacement Cost - Depreciation
*Agreed Amount
*Cost to repair or replace
*Market value - Depreciation

Replacement Cost - Depreciation

The insured's property insurance policy has a deductible clause. This means that:

The insured is responsible for a certain amount for each property loss incurred under the policy.

An economic loss that results from a direct loss to property is called a:

An indirect or consequential loss

An insured has $20,000 insurance policy with Company A, a $40,000 policy with Company B. Assume both policies contain an other insurance clause specifying pro-rate. What would Company A pay if there was an $24,000 loss?

$8,000
Company A over Entire insurance amount X Loss

What is a correct definition of co-insurance?

A requirement that the insured carry insurance equal to a specified percentage of the properties value

All of the following are parts to an insurance contract except:
*The Offer and Acceptance
*Insuring Agreement
*Conditions
*Exclusions

The Offer and Acceptance

You have an active insurance policy. Which of the following would you have insurable interest in?
*The house you own but rent to a tenant
*The car on which you are leasing
*Both 1 and 2
*Neither 1 nor 2

Both 1 and 2

The insurance contract is considered a contract of indemnity because:

An insured may collect no more than the amount required to restore him or her to the same financial condition that occured prior to the loss

All new policyholders were given the benefit of towing at no additional cost. Mrs. Ford, an exsisting policyholder with the same company will be:

Will be given towing for free due to the concept of liberalization

The action which, in natural and continuous sequence, produces a loss is:

Proximate Cause

Which of the elements of a legal contract does an insurance company premium represent?

Consideration

A peril is:

A cause of loss

The tendency for people with a greater-than-average exposure to loss to purchase an insurance policy is called:

Adverse Selection

A morale hazard is:

Increases losses due to an individuals carelessness or irresponsible actions

Which one of the following is not required elements of a legal contract?
*Offer and Acceptance
*Compentent Parties
*Legal Purpose
*Written Instrument

Written instrument

An insurance policy has a $25,000 per occurence limit. If the insured has a $5,000 covered loss during the policy period, how much coverage is available for other covered losses that occur during the remainder of the policy period?

$25,000

Furniture that is destroyed when a building burns down is an example of what type of loss:

Direct loss

What constitutes an agreement to enter into a valid contract?

A specific offer by one party and acceptance by the other.

Which of the following would be insurable?
*a pure risk
*a speculative risk
*a moral hazard
*a catastrophic loss

a pure risk

An insurance application asks if the policyholder has ever been involved in a negligent accident. The policyholder responds that they never were, but in truth, had a negligent accident 6 years ago. This is an example of:

Misrepresentation

A particular policy covers the insured's property and thier liability obligations. This policy is:

A package policy

An example of a consequential loss is:

Loss of income after a fire

Which of the following is a Basis of Recovery commonly used for insurance purposes?
*Replacement Cost
*Pro-Rata
*Depreciation
*Market Value

Replacement Cost

The examination and evaluation of a risk is termed:

Function

Installation of a burglar alarm would be an example of:

Risk reduction

The annual limit on a policy is $10,000,000. There is a per occurence limit of $3,000,000, and a per person limit of $1,000,000. The aggregate on this policy is:

$10,000,000

What would be a catastrophic loss to an insurer?

War

A hurricanes high winds causes a tree to fall on a home. As a result the roof collapses and the house suffers water and wind damage from the storm. Which would best describe an indirect loss based on above scenario?
*roof and water damage
*the collapse
*t

The cost of the motel while the house is being repaired

Which of the following is a Basis of Recovery usually involving an appraisal?
*Arbitration
*Agreed Valued
*Replacement Cost
*Functional Replacement Cost

Agreed Valued

A retention program eliminates:

Small loses

Deductible information on a policy would appear where on the contract:

The declaration page

Which of the following could cause ambiguity in the contract?
*A Contract of Adhesion
*A Contract of Indemnity
*An Aleatory Contract
*A Unilateral Contract

A Unilateral Contract

Twelve tatto parlors join together and agree to pay for each other's losses by self-insuring each other. This is an example of:

Sharing

Laura decides not to sell explosives in her contracting business as she does not want to be blamed if there is an explosion and people get hurt. This is an example of:

Avoidance of Risk

Which of the following is not a legal element of a contract?
*Legal in nature
*Producer must be licensed
*The agreement
*Consideration

Producer must be licensed

I have a working sprinkler system in my building, and this sprinkler will continue to work throughout my policy period, This promise best describes:

Warranty

The principal that states that an insured should be restored to approximately the same financial position after a loss as before is known as:

Indemnity

Insurance is a means of:

Transferring risk

It will cost Leonard $5,000 to put a new roof on his home to replace a roof destroyed in a windstorm. Assume that the original roof which cost $3,500 ten years ago, depreciated $300 per year. What is the actual cash value of the roof?

$2,000

Incorporating a business would be considered which of the following risk management methods?
*Transfer
*Avoidance
*Sharing
*Reduction

Sharing

Superintendent of Dept of Financial Services (aka Superintendent of Insurance) Duties and Powers

*appointed by the governer of NY
*term is concurrent with the Governer
*4 year term
*He runs the NY Dept of Financial Services which includes: NY Banking and NY Insurance Depts.
*Directly responisble for issuing, revoking, and suspending insurance license

Involuntary Program

is a government program designed to provide insurance for those that otherwise could not obtain it

NYS Dept of Financial Services Rules

*Must apply for and receive a certificate of Authority.
*Once company receives the certificate they are considered admitted or authorized.
*If a company does not have their certificate they are not admitted or unauthorized.
*Admitted insurer's are protect

Insurance Fraud Prevention Act

*This law defines Insurance Fraud as a criminal act
*It allows a maximum of $5,000 in civil fines for a maximum offense
*Also establishes Frauds Bureau.
*The superintendent can issue subpeonas for witnesses and documents.
*The bureau can submit their find

Monitors Solvency Of Insurers

*Solvency is financial health
*The dept has the right to examine books and records at any time.
*Every insurance company in the state of NY must submit Annual Statement by 3/1 of every year.
*The dept maintains minimum standards for record and book keepin

Financial Rating of insurers by other than NYSDOI

1. AM Best
2. Duff & Philps
3. Moody's
4. Standard & Poors

Maintains Complaint Bureau

*The bureau receives complaints from the public regarding producers and companies.
*The bureau forwards the complaints to the insurance companies.
*Every complaint must be answered.
*Insurance companies must keep detailed complaint records for six years.

Ratification of policy forms and rates

*They have to approve all policy forms and changes
*Some states are file and use
*Some states are use and file

Unfair Claims Practices

(Illegal on part of Insurance Companies)
*Misrepresentation
*Failure to acknowledge communications
*Max 15 days to acknowledge
*Failure to innitiate suitable turn around of claims
*Bad Faith Litigation
*Failure to disclose coverages and other relevant inf

Fair Credit Reporting Act (FCRA)

*Regulates the collection, distribution, and use of consumer reports.
*Protect consumer privacy
*Promote accuracy
*Allow for the prompt correction of errors (Last three most important)
*The credit reports run by Insurance companies do not negatively affec

Credit Reports can be run when:

*Connection w/ credit transactions
*Housing transactions
*Underwriting insurance
*Employment purposes
*Government agencies that issue licenses and benefits
*Child Support Investigation Agencies
*In response to a court order
*For National Security purposes

Process to be Licensed

*Must be at least 18 yeard old
*Pass minimum of 40 hour licensing class
*Pass NY State Licensing Exam
*Pay Exam Fee
*Complete a Licensing application
*Pay application fee $80.00
*Be trustworthy

Ways to be exempt to not have to take class or NY State exam

*CPCU exempt
*Licensed in good standing in another state (must apply within 30 days of move)
*If you have a college degree in insurance

Producer Licensing Renewals

*All broker and agent licensing renew on birthday depending on year of birth. (Odd or Even)
*Renewal application must be submitted 60 days prior to license expiration.
*If your application is late there is a $10 late fee.
*Also must complete 15 hours of c

Broker

*an independently licensed producer
*they are self-employed
*the broker represents the policyholder
*the broker does not have the authority to bind or modify the insurance policy
*they usually deal with multiple insurance companies
*the broker has earned

Float

broker deposits premium in an interest bearing account before its due. when its time to pay, the company takes it out to pay premium and keeps interest.

Agent

*Independently licensed producer
*Works for themselves
*They represent the insurance company and therefore can bind policies and make police changes.
*They earn commisions on earned premium only.
*Once the premium is cancelled no commision
*Authority of t

Captive or Exclusive Agent

represents only one insurance company

Agent/Independent Agent

represents two or more insurance companies

Appointment of Agent

in order to represent an insurance company, that insurance company must appoint the agent.

Termination of Agent Appointment

certificates of appointment are valid until terminated by the appointing insurance company if the agent's license is suspended, revoked, expires, or is non-renewal

Agent Duties

*underwrite and supply the insurance company with underwriting information
*prepare the quote and sell the insurance
*create a binder
*counter-sign and issue the policy
*collect premiums
*provide a link from the insurance company and the insured by servic

Another term for Principal

Insurance Company

Express Authority

authority is given to agent by the principal either orally or in writing. *
verbal or written communication on what they are allowed and not allowed to do
*

Implied Authority

no written or verbal communication specifying what they are allowed or not allowed to do.

Apparent Authority

if the customer who is dealing with the agent believes that the agent has authority to act, the insurance company is bound by the agent's actions

Direct Writer/Company Employee

similiar to captive agent except salaried and commisioned by the company

Marketing/Distribution Systems

the way the insurance company gets their business in

Consultant License

*producers that make recommendations
*they do not represent any insurance company
*they do not earn commision
*would use consultant for special situations or very involved insurance demands (ex Donald Trump)
*they get paid by the person they are selling t

NY State Requires ( ) years for all contracts

Three

Non-Resident License

*issued to a non-resident of NY State who is licensed in their home state.
*it allows them to sell policies in NY State
*every state has their own version of this.

Temporary License

*issued upon the death, disability, or military leave of a producer to another to act on their behalf.
*it is 3 months, but can be extended by Superintendent of Insurance

Excess Lines Broker

*producer is licensed to place specialized risks with an non-admitted insurer.
*the producer must first be licensed as a broker before becoming an excess lines broker
*the excess lines broker application $400

Stamping

Solvency

Export

Exposures

3 Declaration Rule

a policy can only be written through a non-admitted carrier if that exposure has been rejected by three different admitted carriers.

Reinsurance Intermediary

sells reinsurance

Adjuster Licenses

*job of adjuster is to estimate the amount of damage after a loss.
*all adjusters are licensed

Company Adjuster

salaried by insurance company to investigate and settle claims

Independent Adjuster

*self-employed adjusters who lend their services to insurance companies
*they are not salaried but paid by jobs

Public Adjuster

represent the policyholder in the negotiation and settlement of a claim

Commisions and Compensations

only licensed producers can receive commisions or charge additional compensations.

Commisions

producers may split or share their commision with other licensed producers.

Special Compensation

any payment other than a commision

Licensed producer may charge additional compensation for...

*examining
*appraising
*reviewing
*evaluating
*recommending
*advising
**
only if the following is done
**
1. keep the contract signed by both parties for 3 years.
2. specify on contract the amount of special compensation and what it is for.

Regulation 194

*producers must be transparent in regards to the compensation they receive
*if someone asks about compensation you have to provide the answer
*all disclosures have to be kept on file for 3 years

Hearings

*the superintendent will provide at least 10 days notice when calling someone to a hearing
*the accused can be represented by counsel
*the superintendent will provide written notice of his findings following the hearing

Cease & Desist Order

*violator is told to stop illegal activity immediately
*any time you are guilty you will get a cease and desist order.

Per Offense

$500

Per Hearing

$2500

Failure to Respond to Inquiry after Hearing

$500 (per day)
$10,000 (max)

Insurance Frauds Prevention Act

$5000

Defamation of an Insurer

$1000 and/or 1 year in jail

Not paying any fine in full within 20 days

License Suspension/Revocation

Guilty of 5 or more civil penalties within 5 years (per 5 violations)

$50,000

Suspensions, Revocations, and Non-Renewals

*usually only suspended after a hearing, but if the superintendent feels that you are a serious threat to public welfare he can immediately suspend your license and then call a hearing.
*if suspended you must wait one year to reapply

Reasons licenses can be suspended

*misrepresentation on the licensing application or when dealing with the insured
*committing fraud or a dishonest practice
*incompetence
*being untrustworthy
*financial irresponsibility (ex owing taxes, arrears child support)
*any felony conviction
*an in

Jail Time

*In NY jail time varies
*Federal jail time is 15 years and/or $50,000 fine
(cross state lines)

Misrepresentation

written or verbal lie of material fact

Material Fact

change premium

Twisting

form of misrepresentation where producer convinces the client to cancel their insurance policy and buy their insurance policy which is a detriment to the client
*
unfair comparison of insurance policies, making yours look better when it is not
*

False Advertising

distribution or circulation of false information indicating that the insurer or the producer has authority to take action or write types of insurance that they are not authorized to do. It includes making misleading claims and using deceptive wording

Defamation of an Insurer

making a misleading statement about the solvency about another insurance company

Unfair Discrimination

it is illegal to discriminate based on race, color, creed, national origin, mental/physical disability, victim of domestic violence,
info protected and they have an order of protected
*

For auto insurance you can legally discriminate for..

gender, age, and marital status
*
cannot decline insurance for those reasons though
*

Acting Like a Producer When You Are Not One

until you are physically holding your license you are not considered a licensed producer

Rebating

*opposite of rebating is GIFTING
*giving policyholder something of value
*can give gift but there are certain qualifications
*if qualifications are not met then it is considered rebating
*must be trinket like

Gifts

*tangible
*value has to be $15 or less
*has to have name of producer or insurer printed on it.
*trinket like

Controlled Business

selling a policy to a company that you have financial control over *
allowed to do it but there is a limit
*
only allow a maximum of 10% commisions to be controlled business
they go back one year

Co-mingling

*it is your fiduciary responsibility to keep money seperate and not mix it with other funds
*when mix it, it becomes illegal

Fiduciary

person in position of trust
*all producers are fiduciaries because they are trusted with other people's money

Redlining

*only illegal for auto policies
*refusing auto insurance solely based on geographic location

Good Underwriting

*refusing homeowners insurance solely based on geographic location

Liability

you are responsible

Negligence

the failure to use proper care to keep others from harm.
*
Four things have to be proven
*
1 Duty to protect injured party
2 Breech of legal duty owed
3 Proximate cause
4 Actual Injury
**Proximate cause and actual injury have to be related and a direct re

Negligence Per Se

When someone violates a law and as a result someone is injured. The lawbreaker is automatically liable

Vicarious Liability

situation where one party is responsible for another party
(ex. parent--legally responsible for child)

Contractual Liability

assumed under contract
(ex. car lease or rental aggrement)

Strict or Absolute Liability

*you are liable no matter what
*only for very specialized situations
**anything involving special animals
**tunneling or excavations
**explosives
**principal always responsible for policies written by agents

Comparative Negligence

*blame the victim
*still responsible for incident but not 100%
*Accused pays a % and the victim pays a %
M = Money

Contributory Negligence

*blame the victim but this time blaming victim for all of it.
*accused pays 0% and victim pays 100%
*very hard to prove due to jury feeling for victim
N = No money

Assumption of Risk

injured party knew the risk but took the chance anyway.
(ex. skydiving, bungee jumping)

Statute of Limitations

lawsuits must be filled within a specified time fo the occurence

Compensatory Damages

*indemnifying the injured party (pay person for loss)

Special Compensatory Damages

pays actual bills (ex. ambulance bill, mri bill, hospital bill)

General Compensatory Damages

paid for pain and suffering

Punitive Damages

awarded by a judge over compensatory to punish gross negligence or wrecklessness
Punitive damages are meant to punish

Stamping List

contains list of insurers that are certified as financially solvent

Export List

contains those risks that are not written by admitted insurers in NYS

Who always owns their own expirations

Brokers

How long is the term of the Superintendent of the Dept. of Financial Services

4 years

Which of the following is not required in order to obtain a Property and Casualty Personal Lines Agent License.
*Be competent and trustworthy
*Pay an application fee
*Be employed by a producer for at least 3 years
*Pass the New York State examination

Be employed by a producer for at least 3 years.

An agent has deposited money slated to cover her payroll in the same checking account containing premiums. This agent is

Co0mingling

A Mutual insurance company is owned by

Policyholders

An auto insurer has refused an insurance application solely due to the fact that the applicant resides in Brooklyn. This is

Redlining

The maximum that an agent can be fined at a hearing due to a violation of multiple insurance laws is

$2500

Which of the following is legal in New York State
*Rebating
*Redlining
*Advertising
*Co-mingling

Advertising

Total Cost Form

It is signed by the insured to verify that they will pay all premiums and fees

Which of the following is a producer who only deals with one insurance company?
*The Agent
*The Broker
*The Captive Agent
*The Independent

The Captive Agent

An insurance company that is incorporated in Paris, France

Is alien

What is the minimum amount of time that an agent must wait to reapply for a license after it has been suspended

One year

Who has the right to suspend an agents insurance license?

The Superintendent of the Dept of Financial Service

Which party is principal in the relationship between and insurance company and an agent?

The insurance company

A broker has earned his full commision when

The policy is issued and the full premium paid

Which of the following does not rate the solvency of insurance companies
*A M Best
*Moody's
*John Hancock
*Standard and Poors

John Hancock

Which of the following describes a marketing system where the insurance company uses producers who are required to only deal with that insurance company
*Broker
*Exclusive Agent
*Consultant
*Domestic Insurer

Exclusive Agent

An insurance agents license will be terminated:

When the agent moves his home and office from New York to New Jersey.

Which of the following is not a defense against negligence?
*Assumption of risk
*Statute of limitations
Comparative negligence
Breach of the duty to protect the injured party

Breach of the duty to protect the injured party

Which of the following statements is true in regards to the Sarbanes-Oxley Act?
*A state law requiring insurance companies to report their finances.
*A federal law aiming to have producers report suspected financial fraud.
*A state law requiring all produ

A federal law aiming to improve quality and transparency of financial information.

The type of insurance company in which the policyholder is considered an owner, with the right to vote and share in profits is a:

Mutual Company

What is the purpose of the Fair Credit Report Act?

To give the consumer recourse if insurance is denied on the basis of a credit report

In which of the following situations would absolute liability take place?
*Parent..Child
*Teacher...Student
*Principal....Agent
*Homeowner....Guest

Principal...Agent

A Lloyd's organization can best be described as:

An association of indivduals who agree to share in insurance contracts

The authority specially given to an agent either orally or in writing by the principal is:

Express Authority

What organization is responsible for the licensing of insurance agents?

Individual State Insurance Department/NYS Depatment of Insurance

A stock insurance company is owned by:

Its shareholders

Which of the following is true regarding a Fraternal Benefit Society?
*It is available for all insured's
*It can assess additional premiums at the end of the year
*It will cover sororities and fraternities
*It is owned by its stockholders

It can assess addtional premiums at the end of the year.
**
Mutual Insurance Company...Non-profit...because so low they can raise premiums at end of year
**

Which of the following is not a duty of the Superintendent of the Dept of Financial Services?
*Issuance of an agents license
*Issuance of orders to an insurance company
*Can order an agent incarcerated for any felony convictions
*Investigation of insuranc

Can order an agent incarcerated for any felony convictions

All insurance companies must:

Keep detailed complaint records for 6 years.

Which of the following type of insurance company would be considered a mutual?
*A stock company
*A fraternal benefit society
*A Government Insurance Company
*A risk retention group

A fraternal benefit society

An insurance company organized in Florida would best describe:

A foreign insurer

Which of the following is the correct fine if found guilty of 5 or more civil penalties within a 5 year period?
*$500
*$5000
*$10,000
*$ 50,000

$50,000

An insurance agent renews their license

On their birthdate every 2 years

An insurance broker fails to tell an applicant of any exclusions on the policy that he plans to sell, but advises the applicant of all exclusions of another company's policy. This best describes:

Twisting

Which of the following is true in regards to placing business with a non-admitted insurance company?
*It is always illegal
*It is legal only if the agent or broker receives permission from the insured after advising then that the policy is not protected s

The producer must notify the NYSDOI if the line of business being written appears on the Export List