General Insurance Essentials Part 1: Study 2,3

Front 1

General agent

Back 1

Has the authority to manage all of a company's business within his or her territory, to appoint other agents and to settle claims. Not to be confused with general insurance agent as opposed to an agent for life insurance

Front 2

Types of legal system

Back 2

Common law and Civil Code of Quebec

Front 3

Contract, Principal, Agent

Back 3

Mandate, Mandator, Mandatory. An agent is the person who represents a principal i.e. insurer

Front 4

Express contract

Back 4

Could be orally or written where the terms of arrangement is agreed by both parties.

Front 5

Implied contract

Back 5

Parties have acted in a way that is understood that a principal-agent relationship exists

Front 6

Agent/Broker Responsibility

Back 6

Act within the terms of the contract

Follow instructions as to typed of business which may be written

Collect premiums and hold these amounts in trust until

Remit premiums

Advise insurer of the business written promptly

Advise the insurer of all claims promptly

Front 7

Binding Authority

Back 7

The capacity to confirm to applicants that they have coverage. Gives them authority to bind the insurer to a contract of insurance. (This happens anytime within the term of contract).

Front 8

Binder

Back 8

Binder is the confirmation that insurance coverage is in effect. The coverage is subject to the limit as outlined in the agency agreements between the insurer and agent/broker. It is a memorandum of an agreement to insure and is usually issued by the insurer pending the writing of a policy and given to the agent/broker. A policy will be issued as soon as all necessary details is at hand.

Front 9

Cover note

Back 9

Written binder: it is a notice of confirmation to the insurer and insured that the insurer has been bound to a contract of insurance in accordance to the details given. In practice, binders and cover notes are used interchangeably that is when one is issued, the second copy of it is used to fulfil the function of the other.

Front 10

Trust account vs. operating account

Back 10

Trust account is used to collect premiums and remit premiums. Operating account is used for general business i.e. depositing commissions, paying salaries e.t.c.

Front 11

Who regulates insurance intermediaries?

Back 11

By the authority provided within the Insurance act of each province. Some provinces have passed legislation allowing self-regulation

Front 12

Where do insurance agents/brokers get their authority?

Back 12

The insurance act and the contract they have with insurer

Front 13

Consistent production consists of 4 elements

Back 13

A sales quota

Time Control

Prospecting and selling

Product knowledge

Front 14

Sales is achieved by

Back 14

Commision income goal

New business

Renewal business

additional business on existing clients/policies

Front 15

Another name for an insurer

Back 15

Carrier

Front 16

Losses incurred but not yet reported

Back 16

IBNR: incurred but not reported

Front 17

Net worth

Back 17

Assets less liability

Front 18

Assets

Back 18

All of the company's wealth

Front 19

Liabilities

Back 19

Money owed

Front 20

Two columns of a company financial statement

Back 20

Its assets or things it owns and; its liabilities or the amount it owes or expects to owe

Front 21

Basic task of the Under Writing department

Back 21

Selection of risks

Front 22

What does the casualty department under write

Back 22

liability insurance, accident and sickness, various crime insurance, boiler and machinery

Front 23

Subject of an insurance contract

Back 23

Risk

Front 24

Exposure

Back 24

Danger of loss arising from what happens to another risk close by. Also is the sum total of values which if damaged or destroyed would cause loss under a policy ie it is the value of everything a policy insures.

Front 25

Retention

Back 25

The max amount an insurer will insure. It is the amount an insurer retains for its own account not including reinsurance.

Front 26

Reinsurance

Back 26

When an insurer may share its risk with another insurer by paying this insurer a portion of the premium. A reinsurer pay only the company it reinsures and not the actual policyholder

Front 27

Monopolistic vs alternative market

Back 27

Type of govt insurance that is compulsory i.e. automobile, workers compensation, unemployment insurance etc.

Front 28

Directors responsibility

Back 28

Pass basic resolutions for the conduct of business. See to it that the company is run according to it by laws and according to the law and regulations of the provincial and federal government. They are responsible for the broad policy of the company that is the rules and guideline to be followed in the operations of the business.

Front 29

Shareholders choose directors in an incorporated company or directors are chosen by the policyholders in a mutual company. The Board of Directors choose the Chairman.

Front 30

CEO responsibility

Back 30

Carries out the policies set by the Directors.

Front 31

Regulation of insurance agents has four aspects

Back 31

Qualification

Licensing

Operating Requirements: follow requirements of insurance provincial act

Renewal of License

Front 32

Five areas of vital concern in operating an insurance agency or brokerage

Back 32

Finances

Production - new and renewals

General management

Accounting

Claims handling

Front 33

Adequate capacity

Back 33

Provide full range of insurance protection to clients

Front 34

Profit commission

Back 34

extra commission paid annually by insurer if the agent produced a certain level of profitability as agreed in the agency agreement

Front 35

Stock company

Back 35

Fire, marine and casualty insurance companies are done via Stock companies. Companies have to retain sufficient assets free from other encumbrances to cover all their liabilities in the form of two major ones: unearned premium reserves and outstanding loss reserves

Front 36

Unearned premium reserves

Back 36

Premium not earned: fund must be available to refund any unearned premium should the policy be cancelled at some point

Front 37

Outstanding loss reserves

Back 37

Funds set aside to pay losses which have been incurred but not yet paid

Front 38

Incurred but not reported reserves

Back 38

Losses had occurred but not yet reported or recorded by insurer. Insurer must estimate such losses and also set aside funds to cover them when they are reported.

Front 39

Lloyd's insurance market

Back 39

Consists of independent members (corporate and individual) who provide capital to the market. They tend to write new, difficult and complex risks. Does not deal with clients directly but through a global network of insurance brokers. Their franchise are run by a managing agent who employ UW staff and manage the syndicate on behalf of the members. Members are not responsible for each others loss. members accept insurance business through syndicates. Lloyd's broker place risk in the Lloyd's market on behalf of the client(s).

Front 40

Group of members

Back 40

Syndicates

Front 41

Mutual insurer's operate for the benefit of their members

Front 42

Factory mutual specialize in the field of fire prevention

Front 43

Stock mutuals

Back 43

Shareholders carry on the business of writing participating policies with insuring company

Front 44

Co-operative stock mutual

Back 44

Operate as stock company and are risk capital based; no dividends per share capital are paid but surplus profits are distributed/

Front 45

What is a line

Back 45

Refers to a class of risk

Front 46

Liability insurance is written under this department

Back 46

Casualty department