Insurance Overview and Regulations
61 Questions
5 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the definition of insurance?

Insurance is a way to transfer the costs of losses to an insurer.

Which of the following is NOT a benefit of insurance?

  • Creates an economic burden for individuals (correct)
  • Provides a source of investment funds
  • Reduces social burdens
  • Enables efficient use of resources

List at least four major roles of insurance.

Risk management technique, risk transfer system, business, and contract

What are the two main sectors of the insurance industry?

<p>Property-casualty and life-health</p> Signup and view all the answers

What are the three primary reasons insurance is regulated?

<p>To protect consumers, to maintain insurer solvency, and to prevent destructive competition</p> Signup and view all the answers

What are three examples of common types of personal insurance?

<p>Homeowners, personal auto, and life insurance.</p> Signup and view all the answers

What are three examples of common types of commercial insurance?

<p>Commercial package, commercial auto, and commercial general liability.</p> Signup and view all the answers

What are three examples of private insurers?

<p>Stock insurers, mutual insurers, and reciprocal insurance exchanges.</p> Signup and view all the answers

Reinsurance companies transfer risk from a primary insurer to a reinsurer.

<p>True (A)</p> Signup and view all the answers

List at least two reasons why governments provide insurance programs.

<p>To fill unmet needs in the private market and to facilitate compulsory insurance purchases.</p> Signup and view all the answers

What are the five key functions of an insurer?

<p>Marketing, underwriting, claims, risk control, and premium audit</p> Signup and view all the answers

Which insurance function is primarily responsible for determining the price of a particular type of insurance?

<p>Underwriting (D)</p> Signup and view all the answers

What is the purpose of risk control?

<p>To reduce the frequency and severity of losses.</p> Signup and view all the answers

What is the purpose of a premium audit?

<p>To determine if adjustments are necessary to the insured's premium at the end of the policy period.</p> Signup and view all the answers

What are the two major sources of income for an insurer?

<p>The sale of insurance and the investment of funds.</p> Signup and view all the answers

Explain the difference between written premiums and earned premiums.

<p>Written premiums are premiums collected on all insurance policies regardless of the time period covered, while earned premiums represent the portion of written premiums that apply to the period of coverage already passed.</p> Signup and view all the answers

What are three key elements included in an insurer's income statement?

<p>Revenues, expenses, and net income.</p> Signup and view all the answers

What is a loss ratio?

<p>A loss ratio is a financial ratio that compares an insurer's incurred losses and loss adjustment expenses against its earned premiums.</p> Signup and view all the answers

What is an expense ratio?

<p>An expense ratio is a financial ratio that compares an insurer's incurred underwriting expenses to its written premiums.</p> Signup and view all the answers

What is a combined ratio?

<p>A combined ratio is a financial ratio that measures an insurer's underwriting profitability by adding the loss ratio and the expense ratio.</p> Signup and view all the answers

What is an investment income ratio?

<p>An investment income ratio is a financial ratio that compares an insurer's net investment income to its earned premiums.</p> Signup and view all the answers

What is an overall operating ratio?

<p>An overall operating ratio is derived by subtracting the investment income ratio from the combined ratio.</p> Signup and view all the answers

What is the purpose of insurance distribution systems?

<p>To support the sale of insurance products and services, such as connecting insurance customers with agents, brokers, or the insurer.</p> Signup and view all the answers

What is the main distinction between independent agents and brokers and other distribution systems?

<p>Independent agents and brokers own their expiration lists, allowing them to continue doing business with existing clients through different insurers.</p> Signup and view all the answers

What are three examples of insurance distribution channels?

<p>Internet, call centers, and direct response marketing.</p> Signup and view all the answers

What are three key factors insurers should consider when selecting distribution systems and channels?

<p>Customers' needs and characteristics, their own profile, and the degree of control desired over marketing operations.</p> Signup and view all the answers

What is the purpose of a risk management program?

<p>To develop and implement a comprehensive plan for effectively managing risk, including identification of potential losses, analysis of those losses, selection of appropriate risk management techniques, and monitoring the results of those actions.</p> Signup and view all the answers

What are two main categories into which risk management techniques are classified?

<p>Risk control and risk financing.</p> Signup and view all the answers

List at least four risk control techniques.

<p>Avoidance, loss prevention, loss reduction, and separation.</p> Signup and view all the answers

What are two main risk financing techniques?

<p>Retention and transfer.</p> Signup and view all the answers

What is the purpose of the underwriting process?

<p>To qualify applications for insurance, determine if coverage is appropriate, and set an appropriate premium.</p> Signup and view all the answers

What are five key steps involved in the underwriting process?

<p>Evaluate the submission, develop underwriting alternatives, select an underwriting alternative, determine an appropriate premium, and implement the underwriting decision.</p> Signup and view all the answers

What are the four categories of hazards that underwriters must evaluate?

<p>Physical, moral, morale, and legal.</p> Signup and view all the answers

What is the purpose of ratemaking?

<p>To determine an appropriate premium for each unit of exposure, ensuring a fair and accurate price for insurance.</p> Signup and view all the answers

What are three key criteria insurance commissioners consider when approving insurance rates?

<p>Adequacy, not excessive, and not unfairly discriminatory.</p> Signup and view all the answers

What are two main objectives of insurance policy form regulations?

<p>To ensure that insurance policies are clear and readable for consumers and address any unfair or unreasonable policy provisions.</p> Signup and view all the answers

Explain three key aspects of a property insurance claim.

<p>Verifying coverage, determining the amount of loss, and concluding the claim.</p> Signup and view all the answers

Which of the following is NOT a factor that is considered when determining the amount of a property loss?

<p>The insured's overall financial health (B)</p> Signup and view all the answers

What are three commonly used valuation methods in property insurance policies?

<p>Actual cash value, replacement cost, and agreed value.</p> Signup and view all the answers

What are three crucial components of a business liability claim?

<p>Verifying coverage, determining the cause of loss, and determining the amount of damages.</p> Signup and view all the answers

Which one of these is NOT a type of damage that's covered by a typical liability claim?

<p>Financial loss due to emotional distress (C)</p> Signup and view all the answers

Punitive damages are intended to punish a defendant for egregious misconduct.

<p>True (A)</p> Signup and view all the answers

What are three key elements of a personnel loss exposure?

<p>Assets exposed to personnel loss, causes of personnel loss, and financial consequences of personnel loss.</p> Signup and view all the answers

A personnel loss exposure is considered a direct loss.

<p>False (B)</p> Signup and view all the answers

What are the three elements of a net income loss exposure?

<p>Assets exposed to net income loss, causes of net income loss, and financial consequences of net income loss.</p> Signup and view all the answers

What is an ideally insurable loss exposure?

<p>A pure risk, fortuitous loss, definite and measurable, large number of similar exposure units, independent and not catastrophic, and affordable premium.</p> Signup and view all the answers

What are the four elements required for a valid contract?

<p>Agreement, capacity to contract, consideration, and legal purpose.</p> Signup and view all the answers

What are four distinguishing characteristics of insurance policies?

<p>Contract of indemnity, contract of utmost good faith, contract involving fortuitous events and the exchange of unequal amounts, and contract of adhesion.</p> Signup and view all the answers

A manuscript policy is a customized insurance policy that is specifically tailored to meet the needs of a particular insured.

<p>True (A)</p> Signup and view all the answers

Which of the following is NOT included in a typical property insurance policy?

<p>Customer service agreement (B)</p> Signup and view all the answers

What is the purpose of a policy's declarations section?

<p>To personalize the policy and summarize the essential information about the insured, the coverage, and the policy limits.</p> Signup and view all the answers

What is the purpose of a policy's insuring agreements section?

<p>To clearly outline the insurer's promises to the insured, stating the specific coverage provided and the circumstances under which the insurer will pay for a covered loss.</p> Signup and view all the answers

What is the purpose of a policy's conditions section?

<p>To outline the duties, rights, and obligations of the insured, including their responsibilities for keeping the policy in effect and reporting losses in a timely manner.</p> Signup and view all the answers

What is the primary purpose of a policy's exclusions section?

<p>To clarify what is not covered under the policy, limiting coverage to specific exposures and preventing the insurer from being held accountable for losses they are not obligated to pay.</p> Signup and view all the answers

What are three examples of covered causes of loss in a named perils policy?

<p>Fire, lightning, and windstorm.</p> Signup and view all the answers

What are three types of auto physical damage coverage?

<p>Collision, other than collision (comprehensive), and specified causes of loss.</p> Signup and view all the answers

List at least three reasons why insurers exclude catastrophic events from their coverage?

<p>The potential losses could be so widespread that the insurer's funds might be inadequate, the losses are generally considered uninsurable due to their widespread nature, and such events pose a significant threat to the insurer's financial stability, making them economically unfeasible to insure.</p> Signup and view all the answers

What are three covered financial consequences of a property loss?

<p>Reduction in property value, lost income, and extra expenses.</p> Signup and view all the answers

What are the two types of damages routinely awarded in liability claims?

<p>Compensatory damages and punitive damages.</p> Signup and view all the answers

What are three primary elements of good-faith claims handling?

<p>Thorough and unbiased investigation, complete and accurate documentation, and fair evaluation.</p> Signup and view all the answers

What are at least three examples of common types of liability loss exposures?

<p>Autos, watercraft, and other vehicles; premises; and products.</p> Signup and view all the answers

Flashcards

Solvency

The ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future.

Why is insurance regulated for solvency?

Insurance is regulated to maintain insurer solvency. Insurance regulators try to maintain and enhance the financial condition of private insurers for several reasons.

Why is insurance regulated for solvency? - 2

Insurers hold substantial funds for the ultimate benefit of policyholders. Government regulation is necessary to safeg u ard such funds.

Why is insurance regulated for destructive competition?

Insurance is regulated to prevent destructive competition.

Signup and view all the flashcards

How do regulators determine rates?

When deciding to approve or disapprove an insurer's request for a rate, a state insurance department has several choices.

Signup and view all the flashcards

Admitted insurer

An insurer that is licensed to do business in a state, whether as domestic, foreign, or alien insurers, are collectively referred to as admitted insurers.

Signup and view all the flashcards

Nonadmitted insurer

Under special circumstances, insurers that are not licensed in the patricular state, referred to as nonadmitted insurers, may be permitted to sell insurance within that state.

Signup and view all the flashcards

Licensing

Most insurance companies must be licensed by the state insurance department before they are authorized to write insurance policies in that state.

Signup and view all the flashcards

Domestic insurer

In the United States, insurers are licensed as domestic insurers in the states where they are domiciled.

Signup and view all the flashcards

Foreign insurer

When insurers wish to operate in additional states, they become licensed as foreign insurers.

Signup and view all the flashcards

Alien insurer

Insurers domiciled outside the U.S. are licensed as alien insurers.

Signup and view all the flashcards

Forms of Ownership

Insurers can be classified by legal form of ownership. The three most common forms of insurer ownership in the U.S. are stock insurance companies, mutual insurance companies, and reciprocal insurance exchanges.

Signup and view all the flashcards

Stock insurer

Insurers formed for the purpose of making a profit for their owners are typically organized as stock insurers.

Signup and view all the flashcards

Mutual insurer

A mutual insurer is a corporation owned by its policyholders.

Signup and view all the flashcards

Reciprocal insurance exchange

A reciprocal insurance exchange, also referred to as a reciprocal, is organized as an unincorporated association of members, called subscribers, that agree to insure one another and share profits and losses.

Signup and view all the flashcards

Capital and Surplus

Information about capital stock and surplus is important to licensing regulators because it indicates the insurer's financial soundness.

Signup and view all the flashcards

Licensing as a Foreign or Alien Insurer

In the U.S., an insurer is typically licensed as a domestic insurer in one state and as a foreign insurer in all other states where it wishes ;o operate.

Signup and view all the flashcards

Licensing requirements for Foreign or Alien Insurers

To be licensed in an additional state (that is, as a foreign insurer), an insurer first must show the regulator in the additional state that it has satisfied the requirements imposed by its home state (its state of domicile, or the state where it is a domestic insurer).

Signup and view all the flashcards

Surplus Lines Law

State laws that permit any producer with a surplus lines license issued by that state to procure insurance from an eligible surplus lines insurer if the applicant cannot obtain the desired type of insurance in the admitted market.

Signup and view all the flashcards

Insurance Rate Regulation

Individual states in the United States regulate insurance rates to strike a balance between reasonable profits for insurers and reasonable prices for consumers.

Signup and view all the flashcards

Insurance Policy Form Regulation

In addition to being able to afford to purchase insurance, consumers also need to be able to understand the insurance products they purchase.

Signup and view all the flashcards

How are insurance policy forms regulated?

States typically regulate insurance policy forms to enable consumers to read and understand them.

Signup and view all the flashcards

How are insurance policy forms regulated? - 2

Most states review policy provisions to ensure that they are fair and reasonable. Insurance regulators also protect consumers against fraud and unethical market behavior by insurers and producers, such as selling unnecessary insurance.

Signup and view all the flashcards

What is the goal of insurance rate regulation?

It is important to insurers that rates allow them to collect sufficient premiums to pay for the insured losses that occur, to cover the insurer's costs of operating, and to allow a reasonable profit.

Signup and view all the flashcards

Study Notes

IKAT Version 1 for US Division

  • This is proprietary material and is not to be forwarded outside the organization.
  • The content was curated from previous versions of course material provided by the Institutes Knowledge Group.

Contents

  • Assignment 1: Understanding Insurance (pages 1-21)
    • Benefits and costs of insurance
    • Major roles of insurance
    • Types of personal and commercial insurance
    • Types of private insurers
    • Government insurance programs
    • Overview of insurance functions
  • Assignment 2: Insurance Regulation (pages 27-41)
    • Why insurance operations are regulated
    • Insurer licensing
    • Insurance rate and form regulation
    • Market conduct and solvency regulation
  • Assignment 3: Insurer Financial Performance (pages 43-59)
    • Understanding insurer financial statements
    • Analyzing insurer financial ratio calculation
    • Knowledge to Action: Financial Ratios and Insurer Financial Performance Case
  • Assignment 4: Marketing (pages 64-84)
    • Understanding factors that influence an agency relationship
    • Summarizing types of insurance distribution systems
    • Functions of insurance producers
    • Selecting insurance marketing distribution systems and channels
  • Assignment 5: Underwriting and Rate-making (pages 86-107)
    • Underwriting activities
    • The underwriting process
    • Underwriting management
    • Rate-making
    • Premium determination
  • Assignment 6: Claims (pages 108-137)
    • Goals of the claims function
    • Claims department structure, personnel, and performance
    • The claims handling process
    • Aspects of property insurance claims
    • Aspects of liability insurance claims
    • Good-faith claims handling
  • Assignment 7: Risk Management (pages 139-167)
    • Basic purpose and scope of risk management
    • Identifying and analyzing loss exposures
    • Examining the feasibility of risk management techniques
    • Selecting, implementing, and monitoring risk management techniques
    • Benefits of risk management
    • Applying the risk management process
  • Assignment 8: Loss Exposures (pages 168-202)
    • Property loss exposures
    • The basis for legal liability
    • Liability loss exposures
    • Personnel loss exposures
    • Net income loss exposures
    • Ideally insurable loss exposures
  • Assignment 9: Insurance Policies (pages 204-239)
    • Elements of a contract
    • Distinguishing characteristics of insurance policies
    • Insurance policy structure
    • Policy provisions
    • Property policy provisions
    • Liability policy provisions

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

IKAT Version 1 For US Division PDF

Description

This quiz covers key concepts in insurance, including its benefits, costs, and various types. It also examines the regulation of insurance operations and financial performance analysis of insurers. Dive into the essential roles and functionalities of both personal and commercial insurance.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser