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38 Cards in this Set
- Front
- Back
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Chapter 1: The Insurance Industry
Insurance Producer |
Insurance Companies use various distribution channels
Major types of producers General Agents Independent agents Captive Agents Career Agents Producing General Agents Brokers Surplus-line or excess-line brokers or agents solicitors |
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General Agents
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Independent Business people - hired by insurance companies to sell products om specified territory and hire additional agents to do business under them.
Like distributors for the company. Maintain business office identified with insurance company. Assume responsibilities and expenses of the office. GA normally just manages the office, little actual selling. |
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Independent Agents
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Represent several insurance companies doing business in the American or Independent agency insurance system.
IA decides were to put business sells policies from various insurance companies - ideally selling the insurance product that is right fit for client. May favor one insurance company. For multiple business reasons. May affiliate with Producer group - AKA high end Independents. Have special commission agreements, minimum production amounts. Typically have several business targets they must reach across different business categories. Can lead to sales strategies not in best interest of client |
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Captive Agents -
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Sell property and liability insurance for "Direct Writers"
Represents only one company/family of related companies These types of agents are not as company anymore |
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Career Agents
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Life insurance agents in a GA or company owned office under agency management.
Agents like this format for the support and benefits - health insurance, receptionist, office space, computer support. Etc |
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Producing General Agents - PGAs
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Aka personal producing general agents PPGAs - Like GAs but...
- Produce Majority of their Income by selling insurance personally - No specified territories - Don't typically hire agents to work under them, but can Can sell other companies, must meet minimums in sales to carry some insurers. Typically has a expense allowance from insurers. |
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Brokers
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Individuals licensed with and work with many insurance companies.
Broker is agent of insurance buyer. Brokers are growing part of business for insurance companies. Insurance companies can increase sales using brokers without increasing overhead costs. Good for clients b/c brokers can sell what is really best for them. |
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Surplus-Line, Excess-line brokers or Agents
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Handle any type of insurance that cannot be purchased using normal distribution channels in a specific state.
Almost exclusively in property casualty. If client cannot get sufficient insurance in their state, these brokers can go to other states. |
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Solicitors
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Find insurance prospects and handle business through general agent, broker, etc,
Not allowed in every state. |
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Legal Relationships
Agents Brokers Principals |
Producers fall into legal category as either broker or agent.
Principal (insurer) gives agent right to sell their insurance Agent is rep of insurer Broker solicits negotiates contracts for prospective insured - Broker is agent of insured, but once contract has been negotiable many times broker is now considered agent for insurer |
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Insurance Broker - Legal Relationships
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Represents prospective insured and generally cannot bind prospective insured to contract.
Broker can legally bind themselves but not insurer, In a legal controversy between broker and insured, insurer generally not involved. Premium payment to broker is not premium payment to insurer. Broker rarely has minimum selling contracts with insurers. ` |
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Agent Legal relationships
3 Sources of agent authority |
One person acts on another behalf.
Insurer legally liable for acts of agents performing their duties, even if agents act fraudulently without knowledge of insurer. Must have clearly established relationship to be agent 3 Sources Express Authority - Specially conferred on agent, Authority stated in agent's contract. Insurer can specify types of products, insureds, amount they can write. Implied Authority - Not expressly granted, agent assumed to have to transact business. Agent has authority to perform all incidental acts to fulfill duties. Implied vs. Apparent often confused - difference is intent. Implied considered positive intent. |
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Apparent Authority
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Apparent Authority - Doctrine of ostensible authority, appearance, assumption of, authority based on actions or words of insurer, third party is led to believe agent is acting withing scope of appropriate authority. Insurer can be liable for actions of agent. Agent is fired, but allowed to keep business cards, sales materials, can be presumed to be acting for insurer and insurer may be legally bound.
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Producer - Legal Relationships
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Many state replaced agent and broker licenses with producer licenses.
States take position that all insurance sales people are agents. Producer license is more expensive to obtain. |
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Chapter 2: Introduction to Loss Adjustment
Loss Adjustment Process |
Steps taken to restore financial position of insured after a loss, health, property, stolen, damaged, wreck, etc.
Covers as close as possible financial loss. Some Loss adjustment process quick and easy some take more effort. |
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Adjuster
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Someone who investigates insurance claims.
Determines amounts of payments to make. Several categories of adjusters - Staff, bureau, and independent. Agents can serve as adjusters. Public adjuster - hired by insured to navigate claim process. provide guidance to those who don't fully understand the claim process. Contingency fee based on amount of settlement |
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Loss Adjustment - Insured Duties
Seven provisions that deal with insured duties in loss settlement Adjusters 4 steps |
1 - Notice of Loss
2 - protection of property 3 - Inventory 4 - evidence 5 - proof of loss 6 - Assistance / cooperation 7 - appraisal Adjusters four steps 1 - Notice of loss 2 - investigation 3 - proof of loss 4 - payment or denial |
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Notice of Loss
Protection of Property Inventory Evidence Proof of Loss Assistance / cooperation Appraisal |
Notice of Loss - Give immediate notice of loss, as soon as possible, 10, 20, 30 days. Telephone call sufficient
Protections of property - Insured must protect damage property after loss, costs to protect normally covered by insurer Inventory - Conduct inventory of damaged property. Itemized report, quantity, description, cash value, amount of loss to damaged property. Receipts bills etc. Evidence - show damaged property, help decided if claim valid. Allow to collect medical records Proof of loss - Forms to be filled out, Time and cause of loss, other insurance policies, other liabilities, signing form is like sworn testimony. Assistance / cooperation - Required to cooperate, attend hearing and trials, present evidence, supply medical records. See insurer physician. Appraisal - When insurer and insured cannot agree on loss / cash value. Both parties select appraiser, then select umpire. |
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3 Options of Insurer
for property loss |
Various options for settling claims, sometimes insurer has option, sometimes insured has option.
For property loss - Replacement: Insurer repair or replace damaged property, give notice within 30 days after date of proof of loss Abandonment / Salvage - Abandonment surrendering ownership of lost or damaged property to insurance company. Salvage - property taken over and sold by insurer to cover cost. Insured can keep damaged property and receive lower settlement Pair and Set - Insurer can repair or replace any part, or restore a pair (earrings, silverware) to value before loss. or pay difference in actual cash value before and after loss. |
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Coinsurance and Deductible Clauses
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For course use replacement cost not Actual Cash Value ACV.
ACV = replacement cost less depreciation Insurer will pay greater of - 1 - ACV of damaged part of building 2 - Amount determined by following formulas Replacement cost * Coinsurance percentage = Amount of insurance required [(Insurance carried/Insurance required) * Loss] - deductible = Amount paid Total payment cannot exceed amount of loss or amount of insurance coverage |
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Coinsurance Rate
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Typically 70-90% of replacement cost. If insured does not have at lest this amount formula provides for penalty.
This formula primarily used for partial losses. Ex $100,000 of insurance on building, would cost $150,000 to replace. Fire cause $25,000 of damage. |
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Different meanings of the terms of coinsurance
Example: Client has health policy with $200 deductible, 80% coinsurance provision, $5,000 stop-loss limit. Client has $6,200 eligible medical expenses |
Used in indemnity-type health insurance: coinsurance refers splitting of costs of medical care - 80% 20% between insurance company and insured. CI % applies to stop-loss limit specified in insurance contract.
Stop loss limit = amount of covered expenses, after payment of deductible, that is shared by insured and insurance company. Coinsurance has very different meaning in property and casualty. Ex: First $200 of covered expenses paid as deductible. Next $5,000 split 80% 20% any amount over $5,000 paid 100% by insured. |
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Liability of the Insurer : 7 Factors that limit insurer liability covering losses.
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Insurable Interest: When interested party will incur financial loss if insured loss occurs.
Actual cash value of the loss: Used in property loss, replacement cost minus depreciation. Policy Limits or face value: Max amount that will be paid. Different for all types of insurance and losses. Some pay replacement value, some pay cash value. Other Insurance: Loss occurs and more than one policy written on same property, insured cannot profit from loss. Insurance companies figure out which pays or split loss. Coinsurance: Splitting of costs, minimum % of insurance required to avoid being penalized for inadequate insurance Deductibles: Retained risk, insured must pay before insurance company pays anything Subrogation: Right of insurance company that paid for loss to recover its payments if it determines another person / insurance company is responsible for loss |
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Chapter 3: Choosing Insurance company/agents
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Must be able to recognize important factors in selection of insurance agents.
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Selecting an Agent
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Good agent can provide second opinion on insurance need, different approaches, what is best insurance. Which company is best?
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Selecting Insurance Company
Rating Companies |
Know the rating companies...
A.M. Best: Oldest, specializes rating insurance companies. Demotech; Fitch; Standard & Poor's; thestreet.com; |
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Insurer Insolvencies
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State Insurer Insolvency Funds: State funds established to protect policy holders in event of insurer insolvency. Remaining insurer in state are assessed to cover share losses.
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NAIC Criteria:
12 Financial ratios |
12 Financial ratios chosen by National Association of Insurance Commissioners to help it keep tabs on insurance companies.
Company has 4 of 12 ratios outside "usual ranges" it is put on NAIC Watchlist. Selected for either "immediate regulatory action" "Targeted regulatory action" "No regulatory action" 1) Net change in capital and surplus - Greater than -10% and less than 50% 2) Gross change in capital and surplus: Greater than -10% and less than 50% 3) Net gain to income > 0% 4) Commissions and expenses to premium deposits < 60% 5) Adequacy of Investment Income > 100% 6) Nonadmitted to Admitted Assets < 10% 7) Real estate to capital and surplus < 200% for companies with cap & Surplus > $5 mill; < 100% for companies < $5mill 8) Investments in affiliates to cap and sup < 100% 9) Surplus Relief: > -99% < 39% 10) change in premium > 10% < 50% 11) Change in product mix < 5% 12) Change in asset mix < 5% |
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Risk Based Capital Ratios
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Measure minimum amount of capital insurance company needs to support business operations. Sets capital requirements.
4 main categories of risk Asset Risk: measure of an assets default of principle or interest or fluctuations in the market value Credit Risk: default risk of policyholder paying premiums, reinsurers, creditors Underwriting risk: Arises from underestimating liabilities from business already written/inadequately pricing current business Off-balance sheet: risk due to excessive growth rates, contingent liabilities |
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Risk-Based Capital Model
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To bolster position of state governments to regulate insurance industry,
Insurer's capital base adjusted to reflect risk. Insurers must submit annual RBC report including... - Risk with respect to insurer assets - Risk of adverse insurance experience ... liabilities & obligations - interest rate risk - other business risks Intended for use by State insurance commissioner only. Insurers prohibited from using RBC ratios in company publications. However RBC ratios are public informaiton If #s fall below "Company Action Level" must submit a plan showing how it will improve #s. No intervention by state at this level. Next level down "Regulatory Action Level" Commissioner will evaluate plan and help decide what needs to be done. Drop to "Authorized control level" Commissioner may put company under regulatory control of commissioner office. "Mandatory Control Level" Final Level. Insurance commissioner required to take control of company ... repairable or insolvent? |
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NAIC Illustration Guidelines
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Life Insurance Policy Illustration Model Regulation - Defines / limits how an insurance company may illustrate life insurance policy values.
Requires all guaranteed and non guaranteed values to be clearly identified. All pages must be given to client. When applying insured must sign a copy of the illustration. |
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Insurance Marketplace Standards Association (IMSA)
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Created in aftermath of 1990s falling interest rates that hurt perception of life insurance policies.
IMSA created to restore public confidence in insurance. IMSA is a voluntary membership trade association. To be member must show it adheres to standards of ehtical market conduct. List of requirements page 46. |
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Chapter 4: Regulation of the Insurance Industry
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One of the most regulated industries in the US.
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State Insurance Company Guarantee Programs
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State funds that protect policy holders from losses in event of insurer insolvency.
Remaining insurers are assessed to cover proportionate share of remaining losses. Several state funds provide for payment to people injured in auto accident when negligent driver cannot pay damages. |
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State Regulation
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Involves all three areas of government: Legislative, administrative, judiciary.
Legislature - Passes laws that govern conduct of insurance business, est requirements for solvency etc. State Department (Admin) headed by state insurance commissioner sets regulations, enforces state insurance codes. State Courts: Interpret and apply laws and regulations regarding insurers and interpret policy provisions. Provide recourse for review of regulators actions. |
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Indirect Federal Regulation of Insurance
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Under McCarran Ferguson Act - direct regulation of insurance left up to states, but Feds act indirectly.
Significant portion of Feds influence on insurance through employers. Must provide benefits to employees, insurance companies design products that allow employers meet obligations. Examples of Federal Regulation: Internal Revenue Code - How insurance gets taxed The SEC - Deals with variable products and how they are marketed. ERISA / PBGC / DOL / IRS - Employee Retirement Income Security Act of 1974 - Set up the Pension Benefit Guaranty Corporation. Department of Labor, |
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More Indirect Federal Regulation of Insurance
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Cobra and Family and Medical Leave Act of 1993 - Consolidated Omnibus Budget Reconciliation Act of 1985 - employers with 20 or more employees must continue to make health insurance available in the event of termination for 18 to 36 months.
Civil Rights Act of 1964 - Know it page 56 HIPAA - Health Insurance Portability and Accountability Act of 1996 - Preexisting conditions medical condition in the prior 6 months. Can be excluded from health care plan for 12 months. To prevent "Job Lock" fear of losing medical coverage. Nondiscrimination - Group plans cannot exclude because of existing health conditions special enrollment rights - group plans must allow to enroll without penalty if previous coverage changes Guaranteed Coverage - Person been covered under plan for at least 18 months, must be allowed to purchase individual plans if no group plan available. Long Term Care - Take income tax deduction for premiums paid, made benefits tax free Accelerated Death Benefits - Person under a HIPAA is terminally / chronically ill, benefits from life insurance paid fully / partially tax free Privacy and access to records - HIPAA key privacy requirements for all medical related activities. |
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Patient Protection and Affordable Care Act of 2010
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PPACA
- Lifetime coverage limits disallowed - Over-the-counter meds cannot be paid with Flexible Spending Arrangement, health reimbursement arrangement, Health Savings Account, Archer Medical Saving Account - Health Coverage for older children under 27 generally tax free to employee - Employers report value of health insurance on w-2 - New requirements for group health Plans - Coverage regarding preexisting condition exclusions, patient protections strengthened Additional requirements for tax exempt hospitals - Annual fee on branded prescription meds - small business health care tax included |
