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31 Cards in this Set
- Front
- Back
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Insurance is what % of financial services industry
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~10%
trend in financial industry *consolidation & convergence |
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Changes in the financial services industry include:
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Consolidations
–The number of firms has declined due to mergers and acquisitions Convergence –Existing financial institutions now sell a wide variety of financial products that earlier were outside their core business area Size of the insurance market, 2007 Life and health insurers: 1009 –These insurers sell life and health insurance products, annuities, mutual funds, pension plans, and related financial products Property and casualty insurers: 2723 –These insurers sell property and casualty insurance and related lines, including marine coverages and surety and fidelity bonds |
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Insurers can be classified by their organizational form:
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Stock insurers
Mutual insurers Reciprocal exchanges Lloyd’s of London Blue Cross and Blue Shield Plans Health maintenance organizations (HMOs) Other types of private insurers |
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stock insurer
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A stock insurer is a corporation owned by stockholders
Objective: earn profit for stockholders –Increase value of stock –Pay dividends Stockholders elect board of directors Stockholders bear all losses Insurer cannot issue an assessable policy speculative risk |
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mutual insurer
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A mutual insurer is a corporation owned by the policyowners
Policyowners elect board of directors, who have effective management control May pay dividends to policyowners, or give a rate reduction in advance reserves (surplus) used when cash gone (assessment mutual) |
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There are three main types of mutual insurers:
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–An advance premium mutual is owned by the policyowners; there are no stockholders, and the insurer does not issue assessable policies
–An assessment mutual has the right to assess policyowners an additional amount if the insurer’s financial operations are unfavorable –A fraternal insurer is a mutual insurer that provides life and health insurance to members of a social or religious organization |
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The corporate structure of mutual insurers is changing due to:
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An increase in company mergers
Demutualization, in which a mutual company is converted into a stock insurer by: –Pure conversion –Merger –Bulk reinsurance The creation of mutual holding companies –A holding company is a company that directly or indirectly controls an authorized insurer |
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Lloyd’s of London
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Lloyd’s of London is not an insurer, but a society of members who underwrite insurance in syndicates
Membership includes corporations, individual members (Names), and Scottish limited partnerships New individual members, or Names, who belong to the various syndicates now have limited legal liability Corporations with limited legal liability and limited liability partnerships can also join Lloyd’s of London Lloyd’s is licensed only in a small number of jurisdictions in the U.S. syndicates = the names (voted in as members) black/white marbles to vote |
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reciprocal exchange
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A reciprocal exchange is an unincorporated mutual
The reciprocal is managed by an attorney-in-fact In a pure reciprocal exchange, insurance is exchanged among the members; each member of the reciprocal insures the other members –A separate account is kept for each member A modified reciprocal exchange is similar to an advance premium mutual –No individual accounts |
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Blue Cross and Blue Shield
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Blue Cross and Blue Shield Plans are generally organized as nonprofit, community oriented plans
Blue Cross plans provide coverage for hospital services Blue Shield plans provide coverage for physicians’ and surgeons’ fees Most plans have merged into one entity Many sponsor HMOs and PPOs Some plans have converted to a for-profit status to raise capital and become more competitive |
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HMO
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A Health Maintenance Organization (HMO) provides comprehensive health care services to its members
Broad health care services are provided for a fixed prepaid fee Cost control is emphasized Choice of health care providers may be restricted Less costly forms of treatment are often provided |
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captive insurer
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A captive insurer is an insurer owned by a parent firm for the purposes of insuring the parent firm’s loss exposures
More than 5100 captives exist today |
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What hurt insurance in the 1980s?
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Asbestos
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Asbestos problem
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businesses did not have $ to close shop, so gov't intervened
policy that was in place during time of occurrence paid out agreed amt of policy (occurrence policy) insurance was stacked limits for many years of cumulative loss so it devastated insurance industry |
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captive insurer
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GE -
owns NBC, appliances, captive insurance co & re-insurance market |
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downsize means
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if someone else has loss you may have to pay for it
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Agent
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An agent is someone who legally represents the principal and has the authority to act on the principal's behalf
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Agent authority may be
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Authority may be:
Expressed Implied Apparent = public perception of authority The principal is responsible for all acts of an agent when the agent is acting within the scope of authority |
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A property and casualty agent has the power to
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bind the insurer
A binder provides temporary insurance until the policy is actually written |
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A life insurance agent normally does not have the authority to
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bind the insurer
The applicant for life insurance must be approved by the insurer before the insurance becomes effective |
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Broker
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A broker is someone who legally represents the insured, and:
solicits applications and attempts to place coverage with an appropriate insurer is paid a commission from the insurers where the business is placed does not have the authority to bind the insurer may have addtl services decide w/customers a/b retention level or other risk management more products available if working w/multiple co |
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A surplus lines broker
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is licensed to place business with a nonadmitted insurer
Surplus lines refer to any type of insurance for which there is no available market within the state, and coverage must be placed with a nonadmitted insurer |
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RENEWAL RIGHTS – What are they and who owns them???
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?????????
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Marketing Systems in Life Insurance: An agency building system is a system
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by which an insurer builds its own agency force by recruiting, financing, training, and supervising new agents
General agency system –The general agent is an independent contractor who represents only one insurer, and receives a commission based on the amount of business produced –Insurer provides some financial assistance, but the general agent is responsible for recruiting, training, and motivating new agents Managerial system –Branch offices are established in various areas –The branch manager is responsible for hiring and training new agents, and receives a commission from the insurer –Insurer pays expenses of the branch office |
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Marketing Systems in Life Insurance: An agency nonbuilding system is a system
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A nonbuilding agency system is a marketing system by which an insurer sells its products through established agents
A personal-producing general agent is a successful agent who is hired primarily to sell insurance under a contract |
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Marketing Systems in Life Insurance: direct response system
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Under a direct response system, insurance is sold directly to customers without the services of an agent
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independent agency
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The independent agency is a business firm that usually represents several unrelated insurers
Agents are paid a commission based on the amount of business produced, which vary by the line of insurance Agency owns the expirations or renewal rights to the business Under the exclusive agency system, the agent represents only one insurer or group of insurers under common ownership Agents do not usually own the expiration or renewal rights to the policies Agents are generally paid a lower commission rate on renewal business than on new business |
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direct writer
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A direct writer is an insurer in which the salesperson is an employee of the insurer, not an independent contractor.
Employees are usually compensated on a “salary plus” arrangement simpler, less servicing, client has much info ab it |
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direct response insurer
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A direct response insurer sells directly to the consumer by television or some other media
Used primarily to sell personal lines of insurance Many property and casualty insurers use multiple distribution systems |
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Many insurers use group marketing methods to sell individual insurance policies to:
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Employer groups
Labor unions Trade associations Some property and liability insurers use mass merchandising plans to market their insurance Employees pay for insurance by payroll deduction |
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exclusive agent
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represents only 1 insurance co or group of insurance under common ownership
more incentive to succeed from insurance co perspective salary + commission high commission on new business |
