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109 Cards in this Set
- Front
- Back
Agent |
acts on behalf of the insurer |
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broker |
acts on behalf of the insured |
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solicitor |
producer with no binding authority |
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principal |
the party that authorizes the agent to act on that party's behalf. i.e. the insurer |
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5 legal duties of the agent to the principal |
*be loyal to the principal *obey the principal's lawful instructions *exercise a reasonable degree of care *account promptly for any of the principal's money *keep the principal informed of all relevant facts |
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2 legal duties of the princpal to the agent |
*pay the agent for services performed *idemnify the agent for any losses suffered without the agent's fault but arising out of the agent's actions on behalf of the principal |
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actual authority |
authority conferred by the principal on an agent under an agency contract. includes express and implied authority |
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express authority |
specifically granted to the agent |
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implied authority |
conferred on an agent by custom, usage, or a principal's conduct indicating intention to confer such authority |
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binding authority |
a form of express authority where the agent can issue temporary coverage until a formal policy is issued |
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apparent authority |
a third party's reasonable belief that an agent has authority to act on the principal's behalf |
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independent agency |
a business operated for the benefit of its owner that sells insurance, usually as a representative of several unrelated insurers |
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broker |
shop among insurers to find the best coverage and value for their clients.
don't have binding authority |
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What is an agency's most valuable asset? |
the expiration list |
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expiration list |
record of an agency's present policyholders and the dates their policies expire |
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independent agency network |
group of agencies that contractually link to share services, resources, and insurers
to gain advantages normally available only to large regional and national brokers |
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MGA |
Managing General Agent:
authorized by the primary insurer to manage all or part of their insurance activities, usually in a specific geographic area |
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who owns expiration lists in an exclusive agency marketing system? |
the insurer |
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Can an exclusive agent or direct writer place business with another insurer? |
Only if their insurer doesn't offer the product or service needed |
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internet portals |
offer multiple insurers and products on one website |
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difference between call center and direct response distribution channels |
call centers are for existing business, direct response is for new prospects |
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affinity marketing |
target groups based on profession, interests, hobbies, or attitudes |
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trade associations |
serve their members through education, lobbying, research, and advertising to create a favorable image |
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why are financial institutions appealing as strategic partners for insurers? 4 reasons |
*strong customer base *predisposition to product cross-selling *strength at processing transactions *efficient use of technology for database mining geared to specific products and services |
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3 issues to consider with a mixed marketing system |
*maintain consistent customer communications *provide consistent customer experience *match each type of insurance with an appropriate distribution system and channel |
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3 distribution systems |
*independent agency and brokerage *exclusive agency *direct writer |
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4 types of independent agencies and brokerages |
*independent agents and brokers *national and regional brokers *independent agency network *MGA (Managing General Agent) |
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6 distribution channels |
*internet *call centers *direct response *group marketing *trade associations *financial institutions |
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6 prospecting methods |
*referrals from present clients *referrals from strategic partners *advertising in multimedia and direct mail *interactive websites *telephone solicitations *cold canvas |
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how to conduct risk management review for individuals or families |
interview or questionnaire that assists in identifying the prospect's loss exposures |
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why is a risk management review more complicated for businesses than individuals? |
each business has unique components |
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loss run |
history of claims that have occurred over a specific period, valued as of a specific date |
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8 functions of insurance producers |
*prospecting *risk management review *sales *policy issuance *premium collection *customer service *claim handling *consulting |
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agency bill process |
producer bills the insured and sends net premium after commissions to the insurer |
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three methods of transmitting premiums to insurer |
*item basis *statement basis *account current basis |
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item basis |
net premium after commission is forwarded to the insurer when the producer collects it |
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statement basis |
producer is obligated to pay the premiums indicated on a statement from the insurer, or else prove the statement was in error |
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account current basis |
pay the insurer when the premium is due, even if the policyholders have not paid the producer. |
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direct bill |
insurer collects premiums and sends commission to the producer |
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why are distribution systems difficult to change? |
contracts and ownership of expiration lists |
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5 parts of an insurer's profile to consider when selecting distribution systems and channels |
*insurer strategies and goals *insurer strength *existing and target markets *geographic location *degree of control required over producers' results and methods |
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which distribution system is most effective in sparsely populated areas? |
independent agent or direct response (no agent). because exclusive agents are too expensive for places with not enough business |
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3 aspects of marketing that are regulated |
*licensing *compensation *unfair trade practices |
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why do some states require claims representatives to have a license? |
so those making claim decisions are aware of prohibited practices and have a minimum technical understanding |
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2 forms of compensation for producers |
*sales commission *contingent commissions |
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contingent commissions |
based on profitability and/or growth in the agency's book of business placed with that insurer |
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why are contingent commissions scrutinized? |
because brokers will be tempted to lead business to the insurer with the highest payout rather than the insurer that is the best fit for the customer |
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3 unfair trade practices in marketing |
*misrepresentation and false advertising *tie in sales *rebating |
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tie in sales |
when a producer requires that the purchase of insurance be tied to some other sale or financial arrangement |
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this organization is often called the "Big I" |
IIABA (independent insurance agents and brokers of america) |
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3 purposes of underwriting |
*guard against adverse selection *ensure adequate policyholders surplus *enforce underwriting guidelines |
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adverse selection |
the tendency for people with the greatest probability for loss to be the ones most likely to purchase insurance |
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capacity |
the amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus |
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line underwriter |
focuses on evaluating new and renewal submissions and execute the underwriting policy |
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staff underwriter |
focuses on the risk selection process.
assists management with making and implementing underwriting policy |
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6 steps of the underwriting process |
1. evaluate the submission 2. develop underwriting alternatives 3. select an underwriting alternative 4. determine an appropriate premium 5. implement the underwriting decision 6. monitor the underwriting decision |
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hazard |
a condition that increases the frequency or severity of a loss |
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4 types of hazards |
*physical *moral: intentional or exaggerated loss *morale: carelessness *legal |
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information efficiency |
the amount of information needed to underwrite an account based on the number of hazards it presents |
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insurance advisory organization |
independent organization that works with and on behalf of insurers that subscribe to its services, which include developing prospective loss costs and standard policy forms |
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treaty reinsurance |
reinsures a primary insurer for an entire class or portfolio of loss exposures |
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facultative reinsurance |
primary insurer submits individual loss exposures for reinsurance and the reinsurer can accept or reject |
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8 sources of underwriting information |
*producers *applications *inspection reports *government records *financial rating services *loss data *field marketing personnel *claim files |
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expert systems aka knowledge-based systems |
software that supplements the underwriting decision making process |
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4 major modifications underwriters make to a submission |
*require risk control measures *change insurance rates, rating plan, or policy limit *amend policy terms and conditions *use facultative reinsurance |
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3 types of rating plans |
*experience rating *schedule rating *retrospective rating |
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experience rating system |
adjusts premium for the upcoming policy period based on insured's loss experience in the current period |
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schedule rating system |
awards debits and credits based on certain categories so that final premium reflects those factors |
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retrospective rating system |
adjusts premium for the current policy period based on insured's loss experience |
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agency reinsurance |
an alternative to facultative reinsurance where the producer divides insurance among several insurers |
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rate |
price of insurance per exposure unit |
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premium calculation |
rate * number of exposure units |
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5 duties of underwriting management |
*participate in insurer company management *arrange reinsurance *delegating underwriting authority *develop and enforce underwriting guidelines *monitor underwriting results |
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who analyzes loss data and develops rates? |
actuaries or insurance advisory organizations |
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loss costs |
the portion of the rate the covers projected claim payments and LAE |
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contingencies |
a provision for losses that could not be anticipated in the loss data |
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class rating |
rates are the same for all individuals in a class based on average probability of loss. premiums may be higher depending on number of exposure units |
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individual rating |
points system reflects the unique characteristics of an account |
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judgment rating |
a type of individual rating to insure an exposure for which there is no established premium-determining system and the underwriter uses their own judgement |
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2 goals of the claim function |
*keep the insurer's promise *support the insurer's profit goal |
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independent adjuster |
independent claim rep who handles claims for insurers for a fee |
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2 reasons to hire an independent adjuster |
*no staff in that area *not enough staff in case of catastrophe |
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TPA |
Third Party Administrator:
provides administrative services associated with risk financing and insurance to self insured insurers |
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draft |
payment made by a producer that reduces the time an insured waits for payment |
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public adjusters |
hired by the insured to represent the insured |
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3 measures of claim performance quality |
*identified best practices *claim audits *customer satisfaction |
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7 steps in the claims process |
1. acknowledge and assign the claim 2. identify the policy and set reserves 3. contact the insured 4. investigate the claim 5. document the claim 6. determine the cause of loss, liability, and loss amount 7. conclude the claim |
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nonwaiver agreement |
under question of coverage,
agreement signed by both parties indicating that neither party waives rights during investigation |
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reservation of rights letter |
under question of coverage,
insurer's letter to insured specifying coverage issues and that the insurer is handling the claim but may later deny coverage |
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subrogation |
after an insurer pays a loss, it can recover the amount paid from a third party who caused the loss or is otherwise legally liable |
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diary systems |
allows the representative to work on a claim one day and set a date for review |
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5 types of claims reports |
*internal reports for parties within the insurance organization who have an interest in the loss *preliminary reports inform the insurer about initial activity on the claim *status reports report progress *summarized reports are detailed narratives that follow an established format *external reports inform producers and others with an interest in the claim
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5 alternatives to litigation in dispute resolution |
*mediation *arbitration *appraisal *mini-trial *summary jury trial |
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mediation |
neutral outside party develops a mutually agreeable settlement |
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arbitration |
neutral outside party decides the settlement |
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appraisal |
resolves disputes over amount owed |
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mini-trial |
abbreviated trial before a panel or adviser who poses questions and offers opinions |
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summary jury trial |
abbreviated trial presenting evidence and witnesses to a panel of mock jurors |
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insurable interest |
interest in the subject of a policy that is not unduly remote and that would cause financial loss if the property were damaged |
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3 common valuation methods |
*ACV *replacement cost *agreed value |
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which valuation method is used for personal property? |
actual cash value |
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which valuation method is used for real property? |
replacement cost |
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salvage rights |
the insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss or constructive total loss |
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constructive total loss |
when it costs more to repair than it would to pay off the value and collect salvage |
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3 ways liability claims are different from property claims |
*claimant is a third party and may act hostile or unfriendly *may involve bodily injury, making it more difficult to determine amount of loss *must determine whether the insured is legally responsible |
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compensatory damages |
reimburse a victim for actual harm |
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special damages |
compensatory damages for specific, identifiable expenses such as medical expenses or lost wages |
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general damages |
compensatory damages for losses that do not involve specific measurable expenses |
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punitive damages |
punish a defendant for malicious or deceitful behavior |