person or entity that buys insurance for protection from loss of life, health, property or liability.

Which of the following individuals represents the insurance company when selling an insurance policy?

- provides resources, research, legislative and regulatory recommendations and interpretations for state insurance regulators

-has no legal authority to enact or enforce insurance laws

- established byDodd-Frank Wall Street Reform and Consumer Protection Act.

-monitors the insurance industry and identifies issues and gaps in the state regulation of insurers/affordable insurance

-The McCarran-Ferguson Act of 1945 determined that the federal government can not regulate insurance in areas over which states have the authority

 Government insurers step in (catastrophic nature or unpredictability of a risk)

-owned by stockholders or shareholders

-Directors and officers direct the company operations and are elected by stockholders

-Dividends are not guaranteed.

-Non–Participating policies.

• Stock
• Mutual
• Reciprocal
• Lloyds of London
• Fraternal Benifits Societies
• Risk Rentention Group(RRG)

• owned by policyholders/member
• Board of Trustees or Directors directs the company operations and is elected by policyholders
• Participating policies

• Group owned/rish sharing
• formed by individuals, firms, and business corporations
• exchange of insurance is affected through an Attorney-In-Fact

• consists of groups of underwriters called Syndicates
• individually liable for each risk

•  made up of a large number of homogeneous or similar units
• Owned by policy holders
• Sufficient liquid assests

• An insurance company that assumes all or a portion of a risk for a primary or ceding insurance company; reinsurance transfers risk among insurance companies.

Treaty Agreements– Reinsurance agreement that covers all risks contained in the subject line(s) of business automatically.

• Facultative Agreements – Reinsurance agreement that allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risks.

• Independent financial rating services evaluate and rate the financial stability of insurance companies.
•  available to the public

• Domicile refers to the jurisdiction (i.e., state or country) where an insurer is formed or incorporated.
• There are three types.

• Domestic Insurer (Certain state)
• Foreign Insurer (Any state)
• Alien Insurer(outside of USA)

Insurer Management and Distribution

(Executives)

• Gather info
• sets premium rates

• Responsible for the selection of risks (persons and property to insure)
• rating that determines actual policy premium.

• Exclusive or Captive Agency System
• Direct Writing System 
• Independent Agency
• Career Agency System 
• Personal Producing General Agent
• Direct Mail or Direct Response Company
• Mass Marketing

• Source of authority producer abides by
• responsible for all acts of a producer, but only when the producer is acting within the scope

• Express(Authority written into the contract)
• Implied(Authority the public assumes the producer has)
• Apparent(Authority created when the producer exceeds the authority expressed in the agency contract)

A producer has each of the following responsibilities to the insurer, except:

• A fiduciary duty
• Forwarding premiums to the insurer on a timely basis
• Reporting material facts that may affect underwriting
• A duty to recommend high-rate policies

• negotiates insurance contracts with insurers, on behalf of the applicant.
• represents the applicant or insured’s interests
• does not have legal authority to bind the insurer.

• protects consumer privacy
• ensuring data collected is confidential, accurate, relevant
• protects from overly intrusive information collection practices.

Applicant Rights

(Fair Credit Reporting Act)

• Applicant challenge (reinvestigate within 6 months)
• Inaccuracies (previous 2 years info)
• Disallowed information (Can't include: 7 years old or bankruptcies over 14 years old.)

•  This act repealed parts of the Glass-Steagall Act of 1933 to allow the merger of banks, securities companies, and insurance companies.

Gramm-Leach-Bliley Act

Privacy Must explain:

• Information collected about the consumer.
• Where that information is shared.
• How that information is used.
• How that information is protected.
• re-established-the consumer has the right to opt out again.

• Tempory financial compensation to insured parties
• Gov share in lossses
• Insurance company = 15%
• Gov = 85%
• Insurer Deductable 20% of all covered loss

• expands funding to federal agencies and includes provisions that address domestic abuse and firearms, gang crimes, immigration, registration of sexually violent offenders, victims of crime, and fraud.

• Speculative Risk (gambling)
• Pure Risk (no chance for gain, only loss)

• Physical Hazard (Pysical condition)
• Moral Hazard (Dishonest tendencies)
•  Morale Hazard (Attitude)Ex:Unlocked doors

• Embalance creted (Ex: Living in an earthquake zone)
• High-risk exposures tend to seek or continue insurance at a higher participation rate

• Sharing
• Transfer
• Avoidance
• Reduction
• Retention

Managing Risk

Sharing

Managing Risk

Transfer

Managing Risk

Avoidance

Managing Risk

Reduction

• Minimizing the chance of loss, but not preventing the risk.
• spreading the risk among a large number of persons

Managing Risk

Retention

• Law of Large Numbers
• calculable
• measurable
• premiums must be affordable
•  loss must be accidental
• Catastrophic perils are not covered

• Insured is restored to the same financial condition previously
• Should not profit

• Insurable interest must exist at the time of application, but not at time of loss.
• insurance that may be purchased varies based on the type of coverage

• Insurable interest must exist at the time of the loss.

• Insurable interest must exist at the time of the loss.

• 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.

• Competent parties
• Legal Purpose
• Agreement
• Consideration

• Minors
• Mentally challenged
• Under the influence

• Contract of Adhesion
• Valued Contract
• Indemnity Contract
• Personal Contract
• Non-Personal Contract  
• Unilateral Contract
• Conditional Contract
• Voidable Contract

• One party writes the contract
• Take it or leave it basis

A contract that pays a stated amount in the event of a loss.

(most insurance policies are NOT valued contracts unless they are endorsed).

• Only one party is legally bound to the contractual obligations after the premium is paid to the insurer
• only the insurer can be charged with breach of contract

Each of the following is a factor used by an underwriter, except:

The total cost for the amount of insurance purchased.

• For instance, $50,000 of coverage = $5 rate x 50 (per $1,000 of insurance) for a $250 premium.