Term
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Definition
ACCOUNTING MEASUREMENTS OF INSURER'S FUTURE OBLIGATION TO ITS POLICYHOLDERS.
Classified as liabilities on the insurance company accounting statements since they must be settled at future date. |
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Term
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Definition
Indicates a company's ability to make in predictable payouts to policy owners. |
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Term
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Definition
1)private
2)government
there are many subtypes but these are the types of companies. |
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Term
| Private Insurance Companies - Commercial |
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Definition
Companies that sell more than one
line of insurance are known as multi-line insurers. |
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Term
| Stock Companies - Nonparticipating |
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Definition
| A stock company is referred to as a nonparticipating company because policyholders do not participate in dividends resulting from stock ownership. |
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Term
| Mutual Companies - Participating |
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Definition
The owners are the policyholders. Anyone purchasing insurance from a mutual insurer is both a customer and
an owner. He has the right to vote for members of the board of directors. By issuing participating policies that pay
policy dividends, mutual insurers allow their policyowners to share in any company earnings. |
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Term
| Strong Assessment Mutual/Insurers |
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Definition
Assessment mutual companies are classified by the way in which they charge premiums. A pure assessment mutual
company operates on the basis of loss-sharing by group members. No premium is payable in advance. Instead, each
member is assessed an individual portion of losses that actually occur. An advance premium assessment mutual
charges a premium at the beginning of the policy period. If the original premiums exceed the operating expenses and
losses, the surplus is returned to the policyholders as dividends. However, if total premiums are not enough to meet
losses, additional assessments are levied against the members. Normally, the amount of assessment that may be
levied is limited either by state law or simply as a provision in the insurer’s by-laws. |
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Term
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Definition
Insurance company characterized by the fact its policyholders insure the risks of other
policyholders. |
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Term
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Definition
An association of individuals and companies that underwrite insurance on their own accounts
and provide specialized coverages. |
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Term
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Definition
Reinsurers are a specialized branch of the insurance industry because they insure insurers. A common reinsurance contract between two insurance companies is called treaty reinsurance,
which involves an automatic sharing of the risks assumed. |
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Term
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Definition
An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure
is known as a captive insurer. |
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Term
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Definition
A risk retention group (RRG) is a mutual insurance company formed to insure people in the same business,
occupation, or profession (e.g., pharmacists, dentists, or engineers). |
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Term
| Fraternal Benefit Societies |
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Definition
| Non-profit benevolent organization that provides insurance to its members. |
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Term
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Definition
Insurance is also sold through a special branch of the industry known as home service or "debit" insurers. These
companies specialize in a particular type of insurance called industrial insurance, which is characterized by relatively
small face amounts (usually $1,000 to $2,000) with premiums paid weekly. |
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Term
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Definition
An organization that provides health coverage by contracting with service providers to
provide medical services to subscribers who pay in advance through premiums. Examples of such coverages are
HMOs and PPOs. |
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Term
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Definition
An organization that, as an extension of the federal or state government, provides a
program of social insurance.
►Old-Age, Survivors, and Disability Insurance (OASDI), commonly known as Social Security
►Social Security Hospital Insurance (HI) and Supplemental Medical Insurance (SMI), commonly known as Medicare
►Medicaid |
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Term
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Definition
Program for providing insurance financed entirely through the means of the policyowner, in
place of purchasing coverage from commercial carriers. |
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Term
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Definition
1)Career Agency System
2)Personal Producing General Agency System
3)Independent Agency System
4)Other Methods of Selling Insurance
While most insurance is sold through agents or brokers under the systems previously described, a large volume is
also marketed through direct selling and mass marketing methods. |
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Term
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Definition
A method of marketing, selling, and distributing insurance, it is represented by
agencies or branch offices committed to the ongoing recruitment and development of career agents. |
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Term
| Personal Producing General Agency System |
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Definition
A method of marketing, selling, and distributing insurance
in which personal producing general agents (PPGAs) are compensated for business they personally sell and
business sold by agents with whom they subcontract.Subcontracted agents are considered employees of the
PPGA, not the insurer. |
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Term
| Independent Agency System |
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Definition
A system for marketing, selling, and distributing insurance in which independent
brokers are not affiliated with any one insurer but represent any number of insurers. |
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Term
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Definition
This case, which was decided by the U.S. Supreme Court, involved one state's attempt to
regulate an insurance company domiciled in another state. The Supreme Court sided against the insurance company,
ruling that the sale and issuance of insurance is not interstate commerce, thus upholding the right of states to regulate
insurance. |
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Term
| 1944-United States v. Southeastern Underwriters Association (SEUA). |
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Definition
The decision of Paul v. Virginia held for 75
years before the Supreme Court again addressed the issue of state versus federal regulation of the insurance
industry. In the SEUA case, the Supreme Court ruled that the business of insurance is subject to a series of federal
laws, many of which were in conflict with existing state laws, and that insurance is a form of interstate commerce
to be regulated by the federal government. This decision did not affect the power of states to regulate insurance,
but it did nullify state laws that were in conflict with federal legislation. The result of the SEUA case was to shift the
balance of regulatory control to the federal government. |
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Term
| 1945-The McCarran-Ferguson Act. |
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Definition
The turmoil created by the SEUA case prompted Congress to enact
Public Law 15, the McCarran-Ferguson Act. This law made it clear that continued regulation of insurance by the
states was in the public's best interest. However, it also made possible the application of federal antitrust laws
"To the extent that [the insurance business] is not regulated by state law." This act led each state to
revise its insurance laws to conform to the federal laws. Today, the insurance industry is considered to be state-regulated.
*The National Conference of Insurance Legislators (NCOIL) was formed to help legislators make informed
decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment
of state authority to oversee the business of insurance, as authorized under the McCarran-Ferguson Act of 1945.*
**The McCarran-Ferguson Act made it clear that continued regulation of insurance by the states was in the public's best interest.** |
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Term
| 1958-Intervention by the FTC. |
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Definition
In the mid-1950s the Federal Trade Commission (FTC) sought to control the
advertising and sales literature used by the health insurance industry. In 1958 the Supreme Court held that the
McCarran-Ferguson Act disallowed such supervision by the FTC, a federal agency. Additional attempts have been
made by the FTC to force further federal control, but none have been successful. |
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Term
| 1959-Intervention by the SEC. |
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Definition
In this instance, the issue was variable annuities: Are the insurance products to be
regulated by the states or securities to be regulated federally by the Securities and Exchange Commission (SEC)?
The Supreme Court ruled that federal securities laws applied to insurers that issued variable annuities and, thus,
required these insurers to conform to both SEC and state regulation. The SEC also regulates variable life insurance. |
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Term
| 1970-Fair Credit Reporting Act. |
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Definition
The authority that requires fair and accurate reporting of information
about consumers, including applications for insurance. Insurers must inform applicants about any investigations
that are being made. |
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Term
| 1999-Financial Services Modernization Act. |
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Definition
The Glass-Steagall Act of 1933, which barred common ownership
of banks, insurance companies, and securities firms and erected a regulatory wall between banks and nonfinancial
companies, came under repeated attack in the 1980s. In 1999 Congress passed the Financial Services
Modernization Act, which repealed the Glass Steagall Act. Under this new legislation, commercial banks, investment
banks, retail brokerages, and insurance companies can now enter each other's lines of business. |
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Term
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Definition
The ethical agent determines the client’s needs and then determines which is best
suited to address those needs. Two principles of needs-based selling include find the facts, and educate the client. |
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Term
| Suitability of recommended products. |
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Definition
The ethical agent assesses the correlation between a recommended
product and the client's needs and capabilities by asking and answering the following questions.
1. What are the client's needs?
2. What product can help meet those needs?
3. Does the client understand the product and its provisions?
4. Does the client have the capability, financially and otherwise, to manage the product?
5. Is this product in the client's best interest? |
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Term
| Full and accurate disclosure. |
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Definition
The ethical agent makes it a practice to inform clients about all aspects of the
products recommended, including benefits and limitations. There should never be an attempt to hide or disguise the
nature or purpose of the product nor the company being represented. Insurance products are highly effective financial
planning tools. They should be presented clearly, completely, and accurately. |
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Term
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Definition
The ethical agent documents each client meeting and transaction. The agent uses fact-finding
forms and obtains the client's written agreement for the needs determined, the products recommended, and the
decisions made. Some documentation is required by state law. Ethical agents know these laws and follow them precisely. |
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Term
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Definition
The ethical agent knows that a sale does not mark the end of a relationship with a client, but the
beginning. Routine follow-up calls are recommended to ensure that the client’s needs always are covered and the
products in place still are suitable. When clients contact their agents for service or information, these requests are
given top priority. Complaints are handled promptly and fully. |
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Term
| Buyer's Guides and Policy Summaries |
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Definition
To help ensure that prospective insurance buyers select the most
appropriate plan for their needs and to improve their understanding
of basic product features, most states require agents to deliver a
buyer's guide to consumers whenever they solicit insurance sales.
A buyer's guide and policy summary
must be given to applicants before initial
premium accepted. |
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Term
| National Association of Insurance Commissioners |
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Definition
All state insurance commissioners or directors are members of the National Association of Insurance Commissioners
(NAIC). This organization has committees that work regularly to examine various aspects of the insurance industry
and to recommend appropriate insurance laws and regulations. The NAIC has four broad objectives:
1. To encourage uniformity in state insurance laws and regulations
2. To assist in the administration of those laws and regulations by promoting efficiency
3. To protect the interests of policyowners and consumers
4. To preserve state regulation of the insurance business |
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Term
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Definition
| Rules established by the National Association of Insurance Commissioners (NAIC) to regulate insurance advertising. |
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Term
| Unfair Trade Practices Act |
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Definition
A model act written by the National Association of Insurance Commissioners
(NAIC) and adopted by most states empowering state insurance commissioners to investigate and issue cease and
desist orders and penalties to insurersfor engaging in unfair or deceptive practices, such as misrepresentation or
coercion. |
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Term
| State Guaranty Associations |
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Definition
All states have established guaranty funds or guaranty associations to support insurers and to protect consumers if
an insurer becomes insolvent. Should an insurer be financially unable to pay its claims, the state guaranty association
will step in and cover the consumers' unpaid claims. These state associations are funded by insurance companies
through assessments. |
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Term
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Definition
The financial strength and stability of an insurance company are two vitally important factors to potential insurance
buyers and to insurance companies. The PRIMARY purpose of a rating service company, such as A.M. Best, Standard & Poor’s, and Moody’s, is to determine the financial strength of the company being rated. |
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