ARIZONA HEALTH INSURANCE STUDY GUIDE
ANSWERS AND QUESTIONS SET A+
✔✔Insurable Risks that are Randomly Selected and have Large Loss Exposure -
✔✔there must be a sufficiently large pool of the insured that represents a random
selection of risks in terms of age, gender, occupation, health and economic status, and
geographic location.
✔✔Adverse Selection - ✔✔the insuring of risks that are more prone to losses than the
average risk
✔✔__________ risks tend to seen insurance or file claims to a greater extent than
__________ risks. - ✔✔Poorer/Better
✔✔To protect themselves from __________, insurance companies have an option to
refuse or restrict coverage for bad risks, or charge them a higher rate for insurance
coverage. - ✔✔Adverse selection
✔✔Law of Large Numbers - ✔✔states that the larger the number of people with a
similar exposure to loss, the more predictable actual losses will be.
✔✔Which law forms the basis for statistical prediction of loss upon which insurance
rates are calculated? - ✔✔The Law of Large Numbers
✔✔When an insurance company issues a policy of a 35 y/o male, the company really
has no way of kning or accurately predicting when he will die. So they use the
__________ to look at people who are the same age, sex and have similar health and
lifestyle conditions to make conclusions based on the statistics of past losses. This
allows the insurance company yo have a general idea about the predicted time of death
for this type of insured and to set the premiums accordingly. - ✔✔Law of Large
Numbers
,✔✔What is the major difference between government and private insurance? - ✔✔The
government programs are funded with taxes and serve national and state social
purposes, while private policies are funded by premiums.
✔✔What are the 5 ways that private insurance companies can be classified? - ✔✔-
Ownership
- Authority to transact busniess
- Location
- Marketing and distribution systems
- Rating (financial strength)
✔✔Stock Companies - ✔✔insurance companies that are owned by the stockholders
who provide the capital necessary to establish and operate the insurance company and
who share in any profits or losses
✔✔What is a nonparticipating policy? - ✔✔A policy issued by a stock company in which
policy owners do not share in profits or losses that does not pay dividends to policy
owners, but does pay taxable dividends to stock holders.
✔✔Mutual Companies - ✔✔insurance companies that are owned by the policy owners
and issue participating policies
✔✔What is a participating policy? - ✔✔A policy in which policy owners are entitled to
dividends, which, in the case of mutual companies, are a return of excess premiums
and are nontaxable.
✔✔In a mutual company, __________ are generated when the premiums and the
earnings combined exceed the actual costs of providing coverage, creating a surplus.
They are not guaranteed. - ✔✔Dividends
✔✔A __________ is an organization formed to povide insurance benefits for members
of an affiliated lodge, religious organization, or fraternal organization with a
representative form of government. They sell only t their members are are considered
charitible institutions, not insurers. They are not subject ot all of the regulations that
apply to the insurers that offer coverage to the public at large. - ✔✔Fraternal Benefit
Society
✔✔Lloyd's Associations - ✔✔provide support facilities for underwriters or groups of
individuals that accept insurance risk
✔✔__________ are a group of individuals who operate an insurance mechanism using
the same principles of individual liability insurers in which each individual underwriter
assumes part of each risk. - ✔✔Lloyd's Associations
,✔✔In __________, each individual promises to pay a specified amount in the event that
the contingency insured against occurs. Members are liable for only their portion of the
risk and are not bound to assume any portion of a defaulting member. - ✔✔Lloyd's
Associations
✔✔__________ operate almost exclusively in the property insurance field. - ✔✔Llyod's
✔✔A __________ is a liability insurance company owned by its members. The
members are exposed to similar liability risks by virtue of being in the same business or
industry. - ✔✔Risk Retention Group
✔✔The purpose of a __________ is to assure and spread all or part of the liability of its
group members. - ✔✔Risk Retention Group
✔✔A __________ may reinsure another group's liability as long as the members of the
second group are engaged in the same or similar business industry. - ✔✔Risk
Retention Group
✔✔_________ are organized and owned by a corporation or firm to serve the parent
organization;s insurance needs at lower rates than other insurers and without the
uncertainties of commercial insurance. - ✔✔Captive Insurers
✔✔What is a nonadmitted or nonauthorized insurer? - ✔✔An insurance company that
has not applied, or has applied and been denied, for a Certificate of Authority and may
not transact insurance.
✔✔Before an insurer may transact business in a specific state, they must apply for a
license or ___________ from the state Department of Insurance and meet any financial
(capital and surplus) requirements set down by the state. A __________ is issued by
the state Department of Insurance and shows that the insurer has power to write
insurance contracts in that state. - ✔✔Certificate of Authority
✔✔How are insurance companies classified? - ✔✔According to the location of
incorporation (domicile).
✔✔Regardless of where an insurance company is incorporated, it must obtain a
__________ before transacting insurance within the state. - ✔✔Certificate of Authority
✔✔Domestic Insurer - ✔✔an insurance company this is incorporated in this state, most
often the state in which it was formed
✔✔Foreign Insurer - ✔✔an insurance company that is incorporated in another state or
territorial possession
, ✔✔Alien Insurer - ✔✔an insurance company that is incorporated outside of the United
States
✔✔Marketing Characteristics of an Independent Agency System/American Agency
System - ✔✔- 1 independent agent represents several companies
- nonexclusive
- commissions on personal sales
- business renewal with any company
✔✔Marketing Characteristics of an Exclusive Agency System/Captive Agents - ✔✔- 1
agent represents 1 company
- exclusive
- commissions on personal sales
- renewals can only be placed with the appointing insurer
✔✔Marketing Characteristics of a General Agency System - ✔✔- general
agent/entrepreneur represents 1 company
- exclusive
- compensation and commissions
- appoints subagents
✔✔Marketing Characteristics of a Managerial System - ✔✔- branch manager
(supervises agents)
- salaried
- agents can be insurer's employees or independent contractors
✔✔Marketing Characteristics of a Direct Response Marketing System - ✔✔- no agens
- company advertises directly to consumers through mail, internet, television, etc.
- consumers apply directly to the company
✔✔Social Insurance Programs - ✔✔insurance that is provided by federal an state
governments in areas where private insurance is not available (Social Security,
Medicare, Medicaid, Federal Crop Insurance and National Flood Insurance)
✔✔What is the major difference between government programs and private insurance
programs? - ✔✔Government programs are funded with taxes and serve national and
state social purposes, while private policies are funded by premiums.
✔✔Reinsurance - ✔✔a contract under which one insurance company indemnifies
another insurance copany for part of all of its liabilities.
✔✔What is the purpose of reinsurance? - ✔✔To protect insurers against catastrophic
losses.
ANSWERS AND QUESTIONS SET A+
✔✔Insurable Risks that are Randomly Selected and have Large Loss Exposure -
✔✔there must be a sufficiently large pool of the insured that represents a random
selection of risks in terms of age, gender, occupation, health and economic status, and
geographic location.
✔✔Adverse Selection - ✔✔the insuring of risks that are more prone to losses than the
average risk
✔✔__________ risks tend to seen insurance or file claims to a greater extent than
__________ risks. - ✔✔Poorer/Better
✔✔To protect themselves from __________, insurance companies have an option to
refuse or restrict coverage for bad risks, or charge them a higher rate for insurance
coverage. - ✔✔Adverse selection
✔✔Law of Large Numbers - ✔✔states that the larger the number of people with a
similar exposure to loss, the more predictable actual losses will be.
✔✔Which law forms the basis for statistical prediction of loss upon which insurance
rates are calculated? - ✔✔The Law of Large Numbers
✔✔When an insurance company issues a policy of a 35 y/o male, the company really
has no way of kning or accurately predicting when he will die. So they use the
__________ to look at people who are the same age, sex and have similar health and
lifestyle conditions to make conclusions based on the statistics of past losses. This
allows the insurance company yo have a general idea about the predicted time of death
for this type of insured and to set the premiums accordingly. - ✔✔Law of Large
Numbers
,✔✔What is the major difference between government and private insurance? - ✔✔The
government programs are funded with taxes and serve national and state social
purposes, while private policies are funded by premiums.
✔✔What are the 5 ways that private insurance companies can be classified? - ✔✔-
Ownership
- Authority to transact busniess
- Location
- Marketing and distribution systems
- Rating (financial strength)
✔✔Stock Companies - ✔✔insurance companies that are owned by the stockholders
who provide the capital necessary to establish and operate the insurance company and
who share in any profits or losses
✔✔What is a nonparticipating policy? - ✔✔A policy issued by a stock company in which
policy owners do not share in profits or losses that does not pay dividends to policy
owners, but does pay taxable dividends to stock holders.
✔✔Mutual Companies - ✔✔insurance companies that are owned by the policy owners
and issue participating policies
✔✔What is a participating policy? - ✔✔A policy in which policy owners are entitled to
dividends, which, in the case of mutual companies, are a return of excess premiums
and are nontaxable.
✔✔In a mutual company, __________ are generated when the premiums and the
earnings combined exceed the actual costs of providing coverage, creating a surplus.
They are not guaranteed. - ✔✔Dividends
✔✔A __________ is an organization formed to povide insurance benefits for members
of an affiliated lodge, religious organization, or fraternal organization with a
representative form of government. They sell only t their members are are considered
charitible institutions, not insurers. They are not subject ot all of the regulations that
apply to the insurers that offer coverage to the public at large. - ✔✔Fraternal Benefit
Society
✔✔Lloyd's Associations - ✔✔provide support facilities for underwriters or groups of
individuals that accept insurance risk
✔✔__________ are a group of individuals who operate an insurance mechanism using
the same principles of individual liability insurers in which each individual underwriter
assumes part of each risk. - ✔✔Lloyd's Associations
,✔✔In __________, each individual promises to pay a specified amount in the event that
the contingency insured against occurs. Members are liable for only their portion of the
risk and are not bound to assume any portion of a defaulting member. - ✔✔Lloyd's
Associations
✔✔__________ operate almost exclusively in the property insurance field. - ✔✔Llyod's
✔✔A __________ is a liability insurance company owned by its members. The
members are exposed to similar liability risks by virtue of being in the same business or
industry. - ✔✔Risk Retention Group
✔✔The purpose of a __________ is to assure and spread all or part of the liability of its
group members. - ✔✔Risk Retention Group
✔✔A __________ may reinsure another group's liability as long as the members of the
second group are engaged in the same or similar business industry. - ✔✔Risk
Retention Group
✔✔_________ are organized and owned by a corporation or firm to serve the parent
organization;s insurance needs at lower rates than other insurers and without the
uncertainties of commercial insurance. - ✔✔Captive Insurers
✔✔What is a nonadmitted or nonauthorized insurer? - ✔✔An insurance company that
has not applied, or has applied and been denied, for a Certificate of Authority and may
not transact insurance.
✔✔Before an insurer may transact business in a specific state, they must apply for a
license or ___________ from the state Department of Insurance and meet any financial
(capital and surplus) requirements set down by the state. A __________ is issued by
the state Department of Insurance and shows that the insurer has power to write
insurance contracts in that state. - ✔✔Certificate of Authority
✔✔How are insurance companies classified? - ✔✔According to the location of
incorporation (domicile).
✔✔Regardless of where an insurance company is incorporated, it must obtain a
__________ before transacting insurance within the state. - ✔✔Certificate of Authority
✔✔Domestic Insurer - ✔✔an insurance company this is incorporated in this state, most
often the state in which it was formed
✔✔Foreign Insurer - ✔✔an insurance company that is incorporated in another state or
territorial possession
, ✔✔Alien Insurer - ✔✔an insurance company that is incorporated outside of the United
States
✔✔Marketing Characteristics of an Independent Agency System/American Agency
System - ✔✔- 1 independent agent represents several companies
- nonexclusive
- commissions on personal sales
- business renewal with any company
✔✔Marketing Characteristics of an Exclusive Agency System/Captive Agents - ✔✔- 1
agent represents 1 company
- exclusive
- commissions on personal sales
- renewals can only be placed with the appointing insurer
✔✔Marketing Characteristics of a General Agency System - ✔✔- general
agent/entrepreneur represents 1 company
- exclusive
- compensation and commissions
- appoints subagents
✔✔Marketing Characteristics of a Managerial System - ✔✔- branch manager
(supervises agents)
- salaried
- agents can be insurer's employees or independent contractors
✔✔Marketing Characteristics of a Direct Response Marketing System - ✔✔- no agens
- company advertises directly to consumers through mail, internet, television, etc.
- consumers apply directly to the company
✔✔Social Insurance Programs - ✔✔insurance that is provided by federal an state
governments in areas where private insurance is not available (Social Security,
Medicare, Medicaid, Federal Crop Insurance and National Flood Insurance)
✔✔What is the major difference between government programs and private insurance
programs? - ✔✔Government programs are funded with taxes and serve national and
state social purposes, while private policies are funded by premiums.
✔✔Reinsurance - ✔✔a contract under which one insurance company indemnifies
another insurance copany for part of all of its liabilities.
✔✔What is the purpose of reinsurance? - ✔✔To protect insurers against catastrophic
losses.
