CPCU 520 - Chapter 1 Exam Questions and Answers Solved Correctly Latest Update

CPCU 520 - Chapter 1 Exam Questions and Answers Solved Correctly Latest Update Four ways to classify P&C insurers - Answers 1) Legal form of ownership 2) Place of incorporation 3) Licensing Strength 4) Insurance distribution systems and channels Risk retention group - Answers A group self-insurance plan or group captive insurer operating under the auspices of the Risk Retention Act (RRA) of 1986 Purchasing group - Answers Authorized by the Liability Risk Retention Act of 1986, a group formed to obtain liability coverage for its members, all of which must have similar or related exposures. The Act requires a purchasing group to be domiciled in a specific state. In contrast to risk retention groups (RRGs), purchasing groups are not risk-bearing entities. Main legal forms of ownership - Answers Proprietary, Cooperative, Pools, Government Proprietary Insurers - Answers insurer formed for the purpose of earning a profit for its owners Four types of proprietary insurers - Answers Stock insures, Lloyd's of London, American Lloyd;s, Insurance Exchange Stock Insurers - Answers most prevelent proprietary insurer. Owned by stockholders who elect board of directors Lloyd's of London - Answers Marketplace similar to stock exchange. Members are corporations that are investors. American Lloyd's is a smaller version Insurance Exchange - Answers Similar to Lloyd's, acts as a market place. Members can be individuals, partnerships or corporations and they belong to syndicates. INEX - Answers An example of an insurance exchange Cooperative Insurer - Answers owned by policyholders and formed to provide insurance protection at a minimum cost. Five types of Cooperative Insurers - Answers Mutual Insurers, Reciprocal Insurance Exchange, Freaternal Organizations, Capital Insurers, Risk Retention groups, Purchasing Groups Mutual Insurer - Answers Most common cooperative insurer. No stockholders just policyholders that elect board of directors. Some suplus is retained but most returned to policy holders. Not liable for each others losses. Reciprocal Insurance Exchange - Answers Cooperative insurer. Members of a group contract to insure each other that is run by an attorney in fact. Tax benefits. Attorney in Fact - Answers organization that runs a reciprocal insurane exchange Fraternal Organization - Answers cooperative insurer that resembels a mutual insruer but includes a social function. Primarily writes life and health. Pools - Answers Several insurers join together to insure large exposures. Operate as a syndicate or as reinsurance. Many are required by law especially with auto and workers comp FAIR plan - Answers an insurance pool required by law in which private insurers are ablet o insurer unmet property insurance needs in urban areas Four main government insurance programs - Answers National flood, TRIA, workers comp (competes with regular), automibile insurance plans Residual market - Answers issued by states with autombile isnure, makes insurance available through shared risk mechanism What is the only unicorporated insurer permitted in most states? - Answers Reciprocal insurer Three types of places of incorporation - Answers Domestic insurer (incorporated within specific state), Foreign insurer (licensed to do busienss is other states), Alien insurer (incorporated or formed in other countries). Licensing Status - Answers a license in a state means insurer has met minimum standards for financial strength, competence and integrity Surplus lines brokers - Answers only brokers that can palce insurance with non admitted insurers Three types of Insurrance Channels - Answers Independent agency/brokerage marketing, Direct writer, Exclusive agency Independent agency and broekrage marketing system - Answers producers (agents, brokers) who are independent contractors sell insurance as representatives as unrelated insurers Direct writer marketing system - Answers sales ages who are direct employees of the insurer Exclusive agency marketing system - Answers agent contracts to sell insurance exclusively for one insurer or for associated group of insurer Common distribution channels - Answers internet, call center, group marketing, financial institution FIVE MAIN INSURER GOALS - Answers 1) Earn a profit (not cooperative) 2) Meet customer needs 3) Comply with legal requirements 4) Diversify risk 5) Fufill duty to society Surplus funds - Answers method in wehich cooperative insurer can borrow funds, can only be repaid from profits.