Insurance Chapter 1- AD BANKER 2025/2026 QUESTIONS AND
ANSWERS GUARANTEE A+
Federal Insurance Office (FIO) - was established by Dodd-Frank Wall Street Reform &
Consumer Protection Act. This office monitors insurance industry & identifies issues & gaps in
state regulation of insurers. It also monitors access to affordable insurance by traditionally
underserved communities & consumers, minorities, & low- & moderate-income persons. Is not a
regulator or supervisor. Insurance is primarily regulated by individual States. Insurance producer
& company trade associations also exist to provide education, support, networking & lobbying
for insurance companies & producers.
Insurance Regulation at State Level - Insurance industry is regulated primarily at the state level.
Legislative branch writes & passes state insurance laws, or statutes, to protect insuring public.
Judicial branch is responsible for interpreting & determining constitutionality of statutes. Role of
a state's executive branch is to enforce existing statutes that have been put in place.
Commissioner, Director, or Superintendent of Insurance is typically appointed (or in some
jurisdictions elected) by Governor, & Commissioner has power to issue rules & regulations to
help enforce these statutes.
Insurance Regulation at Federal Level - In the aftermath of Supreme Court decision in U.S. v.
South-Eastern Underwriters (1944), McCarran-Ferguson Act of 1945 established that federal
government will not regulate business of insurance in areas which states have historically had
authority to do so (such as producer & company licensing) unless states fail to cooperate.
Congress created federal agencies to provide regulatory oversight impacting insurance practices.
Private vs. Government Insurers - Most 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, usually related to catastrophic nature of
the risk, capacity to handle risk, & lack of desire to engage in a line of insurance where
experience to evaluate necessary premium intake to offset potential loss is lacking.
Types of Insurance Companies- Stock Insurance Company - A stock company is owned by
stockholders or shareholders. Directors and officers, which are elected by stockholders, put in
place a management team to carry out company's mission.
,Stockholders may receive taxable corporate dividends as a share of company's profit when & if
declared by Directors. However, dividends are not guaranteed. Traditionally, stock insurers issue
Non-Participating policies, meaning that policyholder is not entitled to receive any dividends.
Types of Insurance Companies- Mutual Insurance Company - A mutual company is owned by
policyholders (who may be referred to as members). A Board of Trustees or Directors is elected
by policyholders. directors and officers put in place a management team to carry out company's
mission. Policyholders may receive non-taxable dividends as a return of any divisible surplus
when & if declared by directors.
Traditionally, mutual insurers issue Participating policies, meaning that policyholders are entitled
to receive any dividends. Dividends represent favorable experience of company & result from
excess investment earnings, favorable mortality, & expense savings. Dividends can be paid in
cash, used to reduce premiums, left to accumulate at interest, & used to purchase paid-up
additional insurance. Dividends are not guaranteed.
A ______________ insurance company is owned by its policyholders - MUTUAL
Types of Insurance Companies- Reciprocal Insurance Company - group-owned insurer whose
main activity is risk sharing. Insurer is unincorporated, & is formed by individuals, firms, &
business corporations that exchange insurance on one another. Each member is known as a
subscriber, & each subscriber assumes a part of risk of all other subscribers.
If premiums collected are insufficient to pay losses, an assessment of additional premium can be
made. Exchange of insurance is affected through an Attorney-In-Fact, who is not required to be
insurance licensed.
Types of Insurance Companies- Lloyd's of London - is not an insurance company, but consists of
groups of underwriters called Syndicates, each of which specializes in insuring a particular type
of risk. Provides a meeting place & clerical services for syndicate members who actually transact
business of insurance.
, Members are individually liable for each risk they assume, & coverage provided is underwritten
by a syndicate manager such as an attorney-in-fact or individual proprietor.
Types of Insurance Companies- Fraternal Benefit Societies - are primarily social organizations
that engage in charitable & benevolent activities that can provide life & health insurance to their
members. Membership typically consists of members of a given faith, lodge, order, or society.
They are usually organized on a non-profit basis, & fraternal insurance producers represent
fraternal insurer & sell insurance to fraternal members.
Types of Insurance Companies- Risk Retention Groups (RRG) - group-owned insurers that
primarily assume & spread liability-related risks of its members. They are owned by their
policyholders, & are licensed in @ least one state. However, they may insure members of group
in other states.
Groups must be made up of a large number of homogeneous or similar units. Membership is
limited to risks with similar liability exposures such as theme parks, go-cart tracks, or water
slides. They must have sufficient liquid assets to meet loss obligations. Each member assumes a
portion of risks insured.
Types of Insurance Companies- Self-Insurers - Self-insurers assume all of financial risk faced
without transferring that risk to an insurer. Rather than paying premiums to a 3rd party self-
insurer sets aside funds in an amount equal to or greater than expected losses. If losses are less
than what is reserved to pay claims, it is a gain, otherwise, losses in excess of the reserve will
require additional funding perhaps from on-going operation revenues. This is generally an option
only for large companies who may limit their risk by only self-insuring up to a certain dollar
amount of risk and then acquiring insurance for dollar amounts in excess of that amount.
RESIDUAL MARKETS - are a last resort private coverage source for businesses and individuals
who have been rejected by voluntary insurance market. Coverage is typically written as workers'
compensation, personal auto liability, or property insurance on real property.
A Joint Underwriting Association - Requires insurers writing specific coverage lines in a given
state to assume their share of profits/losses of the total voluntary market premiums written in that
state.
ANSWERS GUARANTEE A+
Federal Insurance Office (FIO) - was established by Dodd-Frank Wall Street Reform &
Consumer Protection Act. This office monitors insurance industry & identifies issues & gaps in
state regulation of insurers. It also monitors access to affordable insurance by traditionally
underserved communities & consumers, minorities, & low- & moderate-income persons. Is not a
regulator or supervisor. Insurance is primarily regulated by individual States. Insurance producer
& company trade associations also exist to provide education, support, networking & lobbying
for insurance companies & producers.
Insurance Regulation at State Level - Insurance industry is regulated primarily at the state level.
Legislative branch writes & passes state insurance laws, or statutes, to protect insuring public.
Judicial branch is responsible for interpreting & determining constitutionality of statutes. Role of
a state's executive branch is to enforce existing statutes that have been put in place.
Commissioner, Director, or Superintendent of Insurance is typically appointed (or in some
jurisdictions elected) by Governor, & Commissioner has power to issue rules & regulations to
help enforce these statutes.
Insurance Regulation at Federal Level - In the aftermath of Supreme Court decision in U.S. v.
South-Eastern Underwriters (1944), McCarran-Ferguson Act of 1945 established that federal
government will not regulate business of insurance in areas which states have historically had
authority to do so (such as producer & company licensing) unless states fail to cooperate.
Congress created federal agencies to provide regulatory oversight impacting insurance practices.
Private vs. Government Insurers - Most 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, usually related to catastrophic nature of
the risk, capacity to handle risk, & lack of desire to engage in a line of insurance where
experience to evaluate necessary premium intake to offset potential loss is lacking.
Types of Insurance Companies- Stock Insurance Company - A stock company is owned by
stockholders or shareholders. Directors and officers, which are elected by stockholders, put in
place a management team to carry out company's mission.
,Stockholders may receive taxable corporate dividends as a share of company's profit when & if
declared by Directors. However, dividends are not guaranteed. Traditionally, stock insurers issue
Non-Participating policies, meaning that policyholder is not entitled to receive any dividends.
Types of Insurance Companies- Mutual Insurance Company - A mutual company is owned by
policyholders (who may be referred to as members). A Board of Trustees or Directors is elected
by policyholders. directors and officers put in place a management team to carry out company's
mission. Policyholders may receive non-taxable dividends as a return of any divisible surplus
when & if declared by directors.
Traditionally, mutual insurers issue Participating policies, meaning that policyholders are entitled
to receive any dividends. Dividends represent favorable experience of company & result from
excess investment earnings, favorable mortality, & expense savings. Dividends can be paid in
cash, used to reduce premiums, left to accumulate at interest, & used to purchase paid-up
additional insurance. Dividends are not guaranteed.
A ______________ insurance company is owned by its policyholders - MUTUAL
Types of Insurance Companies- Reciprocal Insurance Company - group-owned insurer whose
main activity is risk sharing. Insurer is unincorporated, & is formed by individuals, firms, &
business corporations that exchange insurance on one another. Each member is known as a
subscriber, & each subscriber assumes a part of risk of all other subscribers.
If premiums collected are insufficient to pay losses, an assessment of additional premium can be
made. Exchange of insurance is affected through an Attorney-In-Fact, who is not required to be
insurance licensed.
Types of Insurance Companies- Lloyd's of London - is not an insurance company, but consists of
groups of underwriters called Syndicates, each of which specializes in insuring a particular type
of risk. Provides a meeting place & clerical services for syndicate members who actually transact
business of insurance.
, Members are individually liable for each risk they assume, & coverage provided is underwritten
by a syndicate manager such as an attorney-in-fact or individual proprietor.
Types of Insurance Companies- Fraternal Benefit Societies - are primarily social organizations
that engage in charitable & benevolent activities that can provide life & health insurance to their
members. Membership typically consists of members of a given faith, lodge, order, or society.
They are usually organized on a non-profit basis, & fraternal insurance producers represent
fraternal insurer & sell insurance to fraternal members.
Types of Insurance Companies- Risk Retention Groups (RRG) - group-owned insurers that
primarily assume & spread liability-related risks of its members. They are owned by their
policyholders, & are licensed in @ least one state. However, they may insure members of group
in other states.
Groups must be made up of a large number of homogeneous or similar units. Membership is
limited to risks with similar liability exposures such as theme parks, go-cart tracks, or water
slides. They must have sufficient liquid assets to meet loss obligations. Each member assumes a
portion of risks insured.
Types of Insurance Companies- Self-Insurers - Self-insurers assume all of financial risk faced
without transferring that risk to an insurer. Rather than paying premiums to a 3rd party self-
insurer sets aside funds in an amount equal to or greater than expected losses. If losses are less
than what is reserved to pay claims, it is a gain, otherwise, losses in excess of the reserve will
require additional funding perhaps from on-going operation revenues. This is generally an option
only for large companies who may limit their risk by only self-insuring up to a certain dollar
amount of risk and then acquiring insurance for dollar amounts in excess of that amount.
RESIDUAL MARKETS - are a last resort private coverage source for businesses and individuals
who have been rejected by voluntary insurance market. Coverage is typically written as workers'
compensation, personal auto liability, or property insurance on real property.
A Joint Underwriting Association - Requires insurers writing specific coverage lines in a given
state to assume their share of profits/losses of the total voluntary market premiums written in that
state.
