Ad Banker Chapter 1 practice test

Insurer - ANSWERS(Insurance companies or Carriers) manufacture and sell insurance coverage by way of insurance policies or contracts. In California, any person capable of making a contract may be an insurer, subject to the restrictions imposed by the insurance code. In this case, a person is defined as any individual (natural person), association, organization, partnership, business trust, limited liability company, or corporation. Insurance Agencies - ANSWERSare independent organizations that recruit, contract with, and support sales agents and producers. Insurance Agents or producers - ANSWERSare licensed individuals authorized, by and on behalf of an insurer, to transact insurance through an admitted insurance company. Insured - ANSWERSis the person or entity that buys insurance for protection from loss of property or liability. National Association of Insurance Commissioners (NAIC) - ANSWERSThe National Association of Insurance Commissioners (NAIC) consists of all state and territorial insurance commissioners or regulators. It provides resources, research, legislative and regulatory recommendations and interpretations for state insurance regulators. It also promotes uniformity among states. Members may accept or reject recommendations. The NAIC has no legal authority to enact or enforce insurance laws. Insurance Regulation at the State Level - ANSWERSThe insurance industry is regulated primarily at the state level. The legislative branch writes and passes state insurance laws, or statutes, to protect the insuring public. The judicial branch is responsible for interpreting and determining the constitutionality of the statutes. The role of a state's executive branch is to enforce the existing statutes that have been put in place. The Commissioner of Insurance supervises and regulates insurance affairs in California. The Commissioner has the power to issue rules and regulations to help enforce these statutes. Insurance Regulation at the Federal Level - ANSWERSThe McCarran-Ferguson Act of 1945 determined that the federal government cannot regulate insurance in areas over which states have the authority to do so. Congress created federal agencies to provide regulatory oversight impacting insurance practices. Government insurers step in (as a last resort) when private insurers are unable to provide protection relative to the catastrophic nature or unpredictability of a risk Private vs. Government Insurers - ANSWERSMost insurance is written through private insurers. However, there are instances where governmental-based insurers step in to offer an insurance alternative when private insurers are unable to provide protection. This usually relates to the catastrophic nature of the risk, capacity to handle the risk, and lack of desire to engage in a line of insurance where experience to evaluate necessary premium intake to offset potential loss is lacking. Stock Insurance Company - ANSWERSA stock company is owned by stockholders or shareholders. Directors and officers direct the company operations and are elected by stockholders. Stockholders receive taxable corporate dividends as a return of profit when declared by the Directors. Dividends are not guaranteed. Traditionally, stock insurers issue Non-Participating policies. Mutual Insurance Company - ANSWERSA mutual company is owned by policyholders (who may be referred to as members). A Board of Trustees or Directors is elected by policyholders to manage the company. Policyholders may receive non-taxable dividends as a return of any divisible surplus when and if declared by the directors. Traditionally, mutual insurers issue Participating policies. Most mutual companies are non-assessable, meaning they cannot charge members a pro rata share of loss and expense at the end of the policy period. Demutualization - ANSWERSthe process where a domestic incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis may be converted into an incorporated stock insurer. Reciprocal Insurance Company - ANSWERSA reciprocal insurance company is a group-owned insurer whose main activity is risk sharing. A reciprocal insurer is unincorporated, and is an aggregation of individuals, firms, and business corporations, which exchange insurance on one another. Each member is known as a subscriber. The exchange of insurance is affected through an Attorney-In-Fact. Each subscriber assumes a part of the risk of all other subscribers. If premiums collected are insufficient to pay losses, an assessment of additional premium can be made. Fraternal Benefit Societies - ANSWERSFraternal societies are primarily social organizations that engage in charitable and benevolent activities that provide insurance, primarily life insurance to its members. They are usually organized on a nonprofit basis. Membership is typically drawn from members of a given lodge, order, society, or religious denomination. Risk Retention Groups (RRG) - ANSWERSAs defined by the federal Liability Risk Retention Act, this is a corporation or other limited liability association whose primary activity consists of assuming and spreading all or any portion of the liability exposure of its group members. Membership is limited to risks with similar liability exposures through a common business, trade, product, service, premises or operation. RRGs are insurers licensed as a liability insurance company under the laws of any state and may insure members of the group in any other state. Examples include theme parks, go-carts, water slides. Purchasing Group - ANSWERSAny group which purchases liability insurance only for its group members and only to cover similar or related liability exposure. A purchasing group must be domiciled in any state and may purchase insurance through a Risk Retention Group.