Insurance companies (known as Insurers or Carriers)
manufacture and sell insurance coverage in the form of insurance policies or contracts of insurance.
Insurance Agencies
are captive or independent organizations that recruit, contract with, train, and support insurance producers.
Insurance Producers
are licensed individuals representing and appointed by an insurance company when transacting insurance business.
An Insured
is the person or entity that is covered by the Insurer, which covers losses due to loss of life, health, property, or liability.
An Owner
is not necessarily the insured under the policy but is responsible for paying the policy's premium and has various rights as specified in the contract.
The National Association of Insurance Commissioners (NAIC)
consists of all State and territorial insurance commissioners or regulators. It provides resources, research, legislative and regulatory recommendations and interpretations for state insurance regulators. It also promotes uniformity among states. Members
Federal Insurance Office (FIO
was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This office monitors the insurance industry and identifies issues and gaps in the state regulation of insurers. It also monitors access to affordable insurance by traditiona
Insurance Regulation at the State Level
The insurance industry is regulated primarily at the state level. The legislative branch writes and passes state insurance laws, or statutes, to protect the insuring public. The judicial branch is responsible for interpreting and determining the constitut
Insurance Regulation at the Federal Level
In the aftermath of the Supreme Court decision in U.S. v. South-Eastern Underwriters (1944), the McCarran-Ferguson Act of 1945 established that the federal government will not regulate the business of insurance in areas which the states have historically
Private vs. Government Insurers
Most insurance is written through private insurers. However, there are instances where governmental-based insurers step in to offer an insurance alternative when private insurers are unable to provide protection, usually relating to the catastrophic natur
Stock Insurance Company
stock company is owned by stockholders or shareholders. Directors and officers, which are elected by stockholders, put in place a management team to carry out the company's mission.
Stockholders may receive taxable corporate dividends as a share of the co
Mutual Insurance Company
owned by policyholders (who may be referred to as members). A Board of Trustees or Directors is elected by policyholders. The directors and officers put in place a management team to carry out the company's mission. Policyholders may receive non-taxable d
Reciprocal Insurance Company
group-owned insurer whose main activity is risk sharing. A reciprocal insurer is unincorporated, and is formed by individuals, firms, and business corporations that exchange insurance on one another. Each member is known as a subscriber, and each subscrib
Lloyd's of London
not an insurance company, but consists of groups of underwriters called Syndicates, each of which specializes in insuring a particular type of risk. Lloyd's provides a meeting place and clerical services for syndicate members who actually transact the bus
Fraternal Benefit Societies
primarily social organizations that engage in charitable and benevolent activities that can provide life and health insurance to their members. Membership typically consists of members of a given faith, lodge, order, or society. They are usually organized
Risk Retention Groups (RRG)
group-owned insurers that primarily assume and spread the liability-related risks of its members. They are owned by their policyholders, and are licensed in at least one state. However, they may insure members of the group in other states.
Groups must be
Self-Insurers
assume all of the financial risk faced without transferring that risk to an insurer. Rather than paying premiums to a third party the self-insurer sets aside funds in an amount equal to or greater than the expected losses. If the losses are less than what
A Joint Underwriting Association or Joint Reinsurance Pool
Requires insurers writing specific coverage lines in a given state to assume their share of profits/losses of the total voluntary market premiums written in that state.
Risk Sharing Plan
Insurers agree to apportion among themselves those risks that are unable to obtain insurance through normal channels.
Reinsurance Companies
insurance companies that operate to accept all or a portion of the financial risk of loss from the primary (or "ceding") insurance company. The risk of loss is transferred to one or more insurance companies. Consumers have no direct contact with reinsuran
Treaty
Reinsurance agreement that automatically accepts all new risks presented by the ceding insurer (the company seeking or requesting the reinsurance from the reinsurer)
Facultative
Reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher due to their substandard (higher risk) nature
Domicile
Refers to the jurisdiction (i.e., state or country) where an insurer is formed or incorporated
Domestic Insurer
An insurer organized under the laws of this state, whether or not it is admitted to do business in this state.
Foreign Insurer
An insurer organized under the laws of any other state, possession, territory, or the District of Columbia of the United States, whether or not it is admitted to do business in this state.
Alien Insurer
An insurer organized under the laws of any jurisdiction outside the United States, whether or not it is admitted to do business in this state.
Surplus Lines Insurance
finds coverage when insurance cannot be obtained from admitted insurers. However, it cannot be utilized solely to receive lower cost coverage than would be available from an admitted carrier.
Executives
Oversee the operation of the business.
Actuarial Department
Gather and interpret statistical information used in rate making. An actuary determines the probability of loss and sets premium rates.
Underwriting Department
Responsible for the selection of risks (persons and property to insure) and rating that determines actual policy premium.
Marketing/Sales Department
Responsible for advertising and selling.
Claims Department
Assists the policyholder, insured, or beneficiary in the event of a loss and processes, and pays the amount of the claim in a timely manner based upon the contractual provisions and amount insured.
Exclusive or Captive Agency System
Deals with the insured through an exclusive or captive agent.
-Agent represents solely one company or group of companies having common ownership
-Insurer retains ownership rights to the business written by the agent
-The agent is an employee or a commissi
Direct Writing System
-Producer or Agent is an employee of the insurer
-Insurer owns the accounts
-The agent may be paid a salary, salary bonus, or commission
Independent Agency
-An agent or agency that enters into selling agreements with more than one insurer. It may represent an unlimited number of insurers
-Agency retains ownership of the business written
-An independent contractor that is paid a commission and covers the cost
Career Agency System
gents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company.
Direct Mail or Direct Response Company
-Insurers who sell insurance policies directly to the public with licensed employees or contractors
-A marketing system utilizing direct mail, newspapers, magazines, radio, television, internet, web sites, call centers and vending machines
Mass Marketing
-Used to target a specific type of insurance to a large group of individuals, such as the American Association of Retired People (AARP)
-Insurer may benefit by reductions in marketing costs and underwriting expenses may be lower when offering coverage to
Law of Agency
The relationship of a person (called the agent or producer) who acts on behalf of another person, company, or government, known as the principal. The principal is responsible for the acts of the agent, and the agent's acts bind the principal. The principa
Insurer (principal)
The Insurer is the source of authority from which the producer must abide. Insurer appoints the producer to act on its behalf in transacting the business of insurance. It is responsible for all acts of its producers when a producer is acting within the sc
Producer (agent)
A person or agency appointed by an insurance company to represent it and to present policies on its behalf. A producer acts with one or more of the following three types of authority:
Express
Authority that is written into the producer's contract. An example would be the producer's binding authority if written in the contract. A producer's contract may also express what the producer may not do, such as creating his/her own advertisements.
Implied
Authority the public assumes the producer has. An example would be the business activities of providing quotes, completing applications and accepting premiums on behalf of the insurer.
Apparent
Authority created when the producer exceeds the authority expressed in the agency contract. This occurs when the insurer does nothing to counter the public impression that such authority exists. An example would be the producer's issuance of a binder when
Producer's Responsibilities to the Insurer:
-Fiduciary duty to the insurer in all respects, especially when handling premiums for insurance policies or applications
-Must keep premiums in a trust account separate from other funds and forward to insurer promptly (no commingling)
-Must report any mat
Producer's Responsibilities to Insurance Applicant or Insured:
-Forward premiums to insurer on a timely basis
-Seek and gain knowledge of the applicant's insurance needs
-Review and evaluate the applicant's current insurance coverage, limits, and risks
-Serve the best interests of the applicant or insured, although p
Broker
A licensed individual who negotiates insurance contracts with insurers on behalf of the applicant. A broker represents the applicant or insured's interests, not the insurer, and does not have legal authority to bind the insurer. Broker licenses are not ap
Fair Credit Reporting Act (15 USC 1681-1681d)
protects consumer privacy and protects the public from overly intrusive information collection practices. It ensures data collected is confidential, accurate, relevant and used for a proper and specific purpose.
When an application is taken, it must infor
Applicant challenge
Credit reporting agency must reinvestigate within 6 months, if applicant challenges accuracy.
Inaccuracies
Agency must forward to applicant inaccurate information given out within previous 2 years.
Disallowed information
Report must not include lawsuits over 7 years old or bankruptcies more than 10 years old.
Disclosure upon request
Consumer reporting agencies must provide the information on file if requested.
Limited access to information
A consumer reporting agency may not provide a credit report to any party that lacks a permissible purpose, such as the evaluation of an application for a loan, credit, service, or employment. Permissible purposes also include several business and legal us
Investigation of disputed information
If a consumer's file contains inaccurate information, the agency must promptly investigate the matter with the source that provided the information. If the investigation fails to resolve the dispute, a statement may be added to the credit file explaining
Correct or delete inaccurate information
A consumer reporting agency must correct or, if necessary, delete from a credit file the information that is found to be inaccurate or can no longer be verified. The consumer reporting agency is not required to remove accurate data from a file unless it i
USA PATRIOT Act and Anti Money Laundering (AML)
With the increase of drug trafficking and acts of terrorism, the desire and demand for laundered money has also increased. As of May 2006, insurance companies have been required to provide anti-money laundering training to their producers. Brokers as well
Dishonesty
refers to misrepresentation, untruthfulness, falsification.
Breach of Trust
is based on fiduciary relationship of parties and the wrongful acts violating the relationship.
Penalties
Fines and possible prison time.
Reciprocity
If consent is granted by any state, other states must allow the applicant to work in their states as well.
Consent Withdrawal
If conditions of consent are not continually met, the consent may be withdrawn.
Risk
A condition where the chance, likelihood, probability or potential for a loss exists.
Management
-The determination of what types of protection are required to meet an insured's needs. Risk may be manageable, but it cannot be eliminated
-A survey of the insured's operations, health, and risk exposures that could give rise to losses, including the ide
Speculative Risk
Situations where there is a chance for loss, gain, or neither loss nor gain to occur. Examples of speculative risk include gambling, investing, starting a new business. Speculative risk cannot be insured.
Pure Risk
Situations where there is no chance for gain; the only outcome is for nothing to occur or for a loss to occur. Pure risk can be insured. Examples include the possibility of:
-Damage to property caused by a fire or other natural disaster
-Financial loss as
Loss
Reduction, decrease, or disappearance of value. A loss is the basis of a claim under the terms of an insurance policy.
Peril
The cause or source of a loss (fire, windstorm, embezzlement).
Hazard
A specific condition that increases the probability, likelihood, or severity of a loss from a peril.
Physical Hazard
A physical condition that increases the likelihood or probability of loss; use, condition, or occupancy of property. Physical hazards may often be seen, heard, felt, tasted, or smelled. Example: Flammable material stored near a furnace.
Moral Hazard
Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people. Moral hazards most closely related to some form of lying, cheating, or stealing. Example: An insured burns down his/her own house to collect the
Morale Hazard
An attitude of indifference toward the risk of loss that increases the probability of a loss occurring. Example: Driving too fast for conditions, not wearing a seat belt, ignoring stop signs at familiar intersections are all morale hazards.
Managing Risk
Analyzing exposures that create risk and designing programs to minimize the possibility of a loss. Ways of managing risk:
Sharing
Investments by a large number of people may be pooled by use of a corporation or partnership.
Transfer
-Transferring the risk from one party to another, such as from a consumer to an insurance company
-Transfer the uncertainty of loss via a contract
Avoidance
-Elimination of the risk
-Avoid the activity that gives rise to the chance of loss
-After potential areas of hazards have been identified, it may be found that some exposure to risk can be eliminated, but it is impossible to avoid all risk
-A risk may be
Reduction
-Minimizing the chance of loss, but not preventing the risk. For example, sprinkler systems, burglar alarms, pollution controls and safety guards on machinery.
-Pooling or spreading the risk among a large number of persons or entities
Retention
-Assume the responsibility for loss.
-Self-insure the entire loss or a portion of the loss. Choosing deductibles is a method of risk retention.
-It may be economically practical for an insured to not insure each exposure to loss and, instead insure only t
The Insurance Contract
-A legal contract purchased to indemnify the insured against a loss, damage, or liability arising from an unexpected event.
-The exchange of a relatively small and definite expense for the risk of loss that, if it occurs, may be large or small.
-A contrac
Principal of Indemnity
-Insured is restored to the same financial or economic condition that existed prior to the loss, depending on the amount and type of insurance purchased.
-Insured should not profit from an insurance transaction
Insurability
The ability of an applicant to meet an insurer's underwriting requirements.
Underwriting
The process of selecting, classifying, and rating a risk for the purpose of issuing or not issuing insurance coverage
Insurable Event
Any event, past or present, which may cause loss or damage, or create legal liability on the part of an insured.
Contract Law
Pertains to the formation and enforcement of contracts.
Tort Law
Torts are civil wrongs; they're not crimes or breaches of contract. They result in injuries or harm that constitute the basis of a claim by a third party.
Hold Harmless Agreement
A contractual agreement that transfers the liability of one party to another party; it is used by landlords, contractors, and others as a way to avoid or reduce risk.
Reasonable Expectations Doctrine
What a reasonable and prudent policy owner would expect; the reasonable expectations of policyowners are honored by the Courts although the strict terms of the policy may not support these expectations.