Health Insurance Ch 1

Manufactureand sell coverage w/ insurance policies or contracts.

- independent organizations that recruit, contract with, and support sales agents and producers

- licensed individuals authorized by an insurer to transact insurance through an admittedinsurance company

a. person/entity that buys insurance for protection from loss of life/ disability

- consists of all state and territorial insurance commissioners or regulators. Provides regulatory recommendations andinterpretations for state insurance regulators, uniformity among states. It has no legal authority to enact or enforceinsurance laws

1. Stock Insurance Company

2. Mutual Insurance Company

3. Fraternal Benefit Societies

Companyowned by stock/shareholders. Directors elected by stockholders to carryout company’s mission. Stockholders may receive taxable corporate dividends as a share of the company’s profit whendeclared by directors. Stock insurers issue Non-Participating policies

Mutual company is owned by policyholders (members). A board of Trusteesis elected by policyholders to manage the company. Policyholders receive non-taxable dividendsas a return of any divisible surplus when and if declared by the directors. Most mutual companies arenon-assessableà they cannot charge members as a pro ratashare of loss and expense at the end of the policy period

Fraternal societies are social organizations that engage in charitable actives that provide life insurance totheir members. Organized on a nonprofit basis and membership is drawn frommembers of a given order

What MAKES insurance affordable No company is exposed to 100% of the losses

refersto the jurisdiction (state of country) where an insurer is formed or incorporated

3 types: Domestic, Foreign, and Alien,

aninsurer organized under the laws of CA, whether of not it is admitted to dobusiness in this state

an insurer NOT organizes under the laws of CA,but in one of the other states or jurisdictions within the US

Aninsurer organizes under laws outside the US

anadmitted insurance company (whether domestic, foreign, or alien) is authorizedto transact insurance in CA by the California Department of Insurance (CDI).

non-admitted insurance company is NOT authorized to transact insurance in CA, either by failing to comply with CA requirements, or by not seeking admission

includesthose types of insurance that cannot be obtained from admitted insurance,because the risk is to great or to difficult to underwrite. It can not be placed with a non-admittedinsurer solely to receive financial advantages that would not be available byplacing the business with and admitted carrier. (these do not need acertificate of authority)

1. Actuarial

2. Underwriting

3. Marketing and Sale

3. Claims

i. -gather/ interpret statistical information to aid in rate making

responsiblefor risk selection

advertising/selling insurance policies

Provideservice to policyholder in event of a loss

-Relationship between 2 parties where the agent acts on behalf of the principaland bind the actions of the principal

a. Insureris the source of authority in which the agent must abide

Agent-person who transacts insurance (on behalf of an admitted insurancecompany). Life Agent authorized totransact life, disability, and health insurance

responsible for reporting any material facts that may affect the underwritingof a policy to the insurer (NOT required to emphasize portable possibilities)

ON TEST A person who handlesinsurer funds in a trust capacity. If fiduciary funds are recieved by an insurance agent, all of the following are required:

1. Premiums collected must be kept separate and not be commingled. Using these funds for personal use is considered theft and punishable by law.

a.--- Premiums, less commissions, must be remitted to the insurer b.----Fiduciary funds received must be maintained in a trust account at a bank or depository in California

The capacity in which the agent legally represents an insurer: (3types of binding authority)

1. expressauthority is written in the contract, 2. impliedauthority agent is assumed, 3. apparent authoritywhen an agent exceeds the authority expressed in the contract

applicationsrisk profile, policy coverage’s, and limits

agentwho submits insurance applications to the insurer

i. -insurance on human lives (endowments and fixed annuities)

i. transactcoverage for sickness, bodily injury, disabaility income

transacts insurance (other then life, disability, or health) with BUT NOT ONBEHALF of an insurance company: i. Musthave a BROKERS SERVICE CONTRACT ii. Broker-Agentàs: considered to be anagent representing an insurer when a notice of appointment for that licenseehas been filed with the Commissioner iii. InsuranceSolicitor- employed by property and casualty agent to transact insurance (not life, disability,or health) iv. SurplusLine Broker- person licensed to write insurancecoverage with non-admitted insurers when coverage cant be placed with anadmitted insurer

a.Solicitationof insurance

b.Negotiationsof execution of an insurance contract

c Executionof a contract

d.Transactionof matters subsequent to execution of the contract

e.Transactinginsurance without a lisecne is committing a misdemeanor, subject to 1 year inprison, and 50,000 fine

ON TEST :addssafe guards such as: consumers final say in info sharing, financial profilingof consumers is restricted, penalties for identity theft are doubled, opt-outfor information family sharing

FIhas authority to share their personal financial information in the followingways: Transactional, operational, identify theft, lawinformant, to imply with PATRIOT actidentifymissing children, investigation of elder financial abuse

standardsof information gathered during insurance transactions Balance between industryand public to: minize intrusiveness, limit disclosure of information, enableapplicants to obtain reasons for any adverse underwriting decisions, provide anotice of information practices

prohibition against persons who have committed felonies involving dishonesty orbreach or trust from being employed in the insurance and financial servicesindustry

-uncertainty concerning a loss 2 types:

Specutialive Risk (Insurable) and Pure Risk (Not insurable)

ON TEST possibilityof loss, no loss or gain (insurable)

possibility of loss or no loss- NO POSSIBILITY FOR GAIN (not insurable)

reeducation,or disappearance of value

somethingthat increases the risk/ severity of loss (3 types):

1. Physical

2. Moral

3. Morale

i. physicalhealth condition increase chance for loss

dispositionto be dishonest increases the chance of loss (false info on app, filing a falseclaim)

indifferent to loss, failure to take proper care – tendency to fail to takeactions that wold have prevented loss (don’t take precautions regarding one’shealth/ safety, smoking, no seat belts)

cause of a loss that a policy insures against. (fire, wind, sickness,disability, or death)

potentialrisk of loss as a result of a covered peril

principle that less desirable risk (more subject to loss) tend to seek insuranceto a greater extent then better risk (ex: person with known health conditionsare more likely to apply for health insurance)

Analyzingexposures that create risk and designing programs to minimize the possibilityof a loss. Ways to manage risk- START:

i. insuredassumes portion of the financial aspect of a loss, people pool their risk (deductibles, copayment, coinsurance)

ON TEST i. shiftingthe financial aspect of the risk of loss to another party, making the insurerresponsible for paying covered losses( purchasing insurance is a TRANSFER OF RISK)

havingNO exposure to risk of a loss- almost impossible. Least effective way ofmanaging risk

mitigatingthe risk we cannot completely avoid.

i. -being “self insured” . person with no insurance retains 100% of the financialaspects of a loss. May be OK when riskof the loss is within financial ability of the individual to cover

i. Large# of homogenous units/ groups with same perils ii. Lawof Large Numbers- combining large # of like units helps insurer to predict apossible loss by relying on statistical probability iii. Chanceof loss is calculable/definite (statistical expectation to calculate premiums) iv. Lossmust be measurable- definite and verifiable in terms of amount, cause, place,and time v. Premiumsmust be affordable vi. Lossmust be accidental in nature vii. Lossmust cause financial hardshipCatastrophic perils are EXCLUDED

i. -combining large # of like units helps insurer to predict a possible loss byrelying on statistical probability

i. contractspermitting 1 party to indemnify another against loss, damage, or liabilityarising from a contingent event; social device for spreading risk. There is anexchange of a small certain expense (premium) for a large uncertain loss(possible claim). Insurance transfersthe risk and protects against uncertainty

ON TEST to make one whole or restore a person to the same financial condition as before the loss.

ON TEST i. -written document setting forth a contract of insurance

to restore a person to the same physical or financial condition which existedprior to a loss, but without profit or a gain

ON TEST: selecting, classifying, and rating risk for the purpose of issuing insurancecoverage (to protect insurance agency from adverse selection)

i. -Anycontingent or unknown event that causes loss or damage to a person havinginsurable interest, or creates liability against him

i. policyowner must have a potential for financial hardship in the event of a loss. In life and health insuranceƒw, must existwhen the insurance takes effect

i. somethingnot founded on an actual right to the item in question/ in any valid contractfor it, is not insurable

a. -the formation and enforcement of contracts

i. CompetentParties- ppl who don’t qualify: minors (under 16), retards, on drugs/alc ii. LegalPurpose-must have insurable interest iii. Agreement-(offer and acceptance) iv.Consideration-exchange of value that makes a contract binding

1. The parties between whom the contract is made

2.The property or life insured

3.The interest of the insured in the property insured, if he is not the absolute

4. The risks insured against

5. The period during which theinsurance is to continue 6. A statement of the premium, or a statement of thebasis

One party writes the contract, without input from the other party. One party (insurer) prepares the contract and presents it to the other party (applicant) on a “take-it-or-leave-it” basis, without negotiation. Any doubt or ambiguity found in the document is construed in favor of the party that did not write it (insured).

The exchange of value is unequal. Insured’s premiumpayment is less than the potential benefit to be received in the event of aloss. The insurer’s payment in the event of a loss may be much greater, or muchless (e.g., $0 in the event a loss doesn’t occur), than the insured’s premiumpayment.

An agreement to pay on behalf of another partyunder specified circumstances, such as when a loss occurs. Under the principleof indemnity, insurance will only restore the insured to the same financialcondition that existed before the loss. The insured cannot profit from theloss.

– A "personal contract" follows theperson who owns the contract, and may not be assigned to another owner withoutprior approval of the insurance company. Most insurance contracts are"personal". Life insurance is NOT a personal contract. Once issued,ownership of a life policy may be transferred or assigned to another personwithout insurable interest simply by giving advance notice to the insurancecompany.

Only one party is legally bound to the contractualobligations after the premium is paid to the insurer. Only the insurer makes apromise of future performance, and only the insurer can be charged with breachof contract.

– Both parties must perform certain duties andfollow rules of conduct to make the contract enforceable. The insurer must payclaims if the insured has complied with all the policy’s terms and conditions.

–Both parties bargain in good faith in forming thecontract. Applicants are required to make a full, fair, and honest disclosure.

An oral or written statement made at the time ofapplication or before issuance of the policy that is believed to be true to thebest of the knowledge of the applicant. A representation may only be altered orwithdrawn BEFORE the insurance is in effect.

Afalse statement contained in the application

Astatement is material if its disclosure or lack of disclosure would change theinsurer’s decision to issue a policy for the same premium.

– A material misrepresentation means the insurerwould not have issued coverage, or the policyowner would not have accepted thepolicy, if the correct information had been communicated. materialmisrepresentation may permit the injured party to rescind the policy from thetime the misrepresentation was made.

Neglect to communicate known information that ismaterial. Concealment, whether intentional or unintentional, on the part of anapplicant or insured, permits the insurer to void the contract from the timethe concealment was made.

A warranty is either express or implied. An expresswarranty is a statement stipulated in the policy relating to the insured riskthat is considered fact. Every express warranty made at or before the executionof a policy must be contained in the policy itself and signed by theinsured.

A warranty may relate to the past, present, orfuture. A statement in a policy showing an intent to do something whichmaterially affects a risk is a warranty or promise made by the insured in thecontract, such as “the insured will maintain an anti-theft device.” Failure tocomply with a warranty breaches the contract, A violation of a materialwarranty allows the other party to rescind the contract.

Termination of a contract from the beginning (as ifit never existed). Canceling the policy back to the inception of the contractresults in a refund of premiums since the contract is not valid. The insurerhas the right to rescind a policy due to concealment (INTENTIONAL ORUNINTENTIONAL), material misrepresentation, or material breach of warranty.

The voluntary abandonment of a known or legal rightor advantage. When an insurer fails to enforce a provision of a contract, thisconstitutes a form of waiver.

A legal doctrine that prevents the denial of afact, if the fact was admitted to be true by a previous action.

- focus on risk selection The underwriter mustprotect the insurer against adverse selection by selecting risks that fall intothe normal range of expected losses. When evaluating a risk, an underwriterexamines:•

The nature of the risk•

What hazards are present•

What outside factors might affect the risk

What past losses have occurred

Insurance upon the lives of persons and thegranting, purchasing, or disposing of annuities.

Insurance compensating employees and theirdependents for injury sustained by the employees arising out of and in thecourse of the employment, regardless of either party’s negligence orfault.

Insurance pertaining to injury, disablement ordeath resulting from accidents or sickness.

TRANSFER OF RISK - one way of employing the risk management technique of transferring

B.Insurance transaction includes solicitation, negotiation, execution, and transaction required to execute the contract such as collecting premiums and settling claims. An agent does not determine rates.

C. The risks insured against must be included in an insurance contract.

C. A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium.

A. Risk transfer involves transfer of the risk, such as to an insurance company

A. A Mutual Insurance Company is owned by its policyholders, and does not have stockholders.

B. A broker must have a written agreement, called a Brokers Service Contract, with an insured to receive any compensation or fees, for services directly from the insured.

A. Underwriting is the process by which an insurer evaluates a risk for the purpose of issuing insurance coverage.

C. The larger the sample is, the more accurate the prediction is.

A. Insurance is a legal contract between 2 parties

civil wrong other than a crime or a breach of contract

C. An Admitted Insurer is an insurer authorized to transact insurance in a particular state by that state's Department or Division of Insurance. An insurer who has a Certificate of Authority to transact business.

B. A fiduciary is a person who handles insurer funds in a trust capacity.

C. Representations are an oral or written statement made at the time of application or before issuance of the policy that is believed to be true to the best of the knowledge of the applicant.

B. Rates- The underwriter protects the insurer against adverse selection.

c- The insurer has the right to rescind a policy due to concealment (intentional or unintentional), material misrepresentation, or material breach of warranty.

C- Issuance of a policy or binder Although the insurer's promise to indemnify is stated on or in it, issuance of a policy or binder is not truly the consideration element of an insurance contract. It is, more correctly, the agreement element (acceptance).

C- The Law of Large Numbers gives predictability to losses of homogeneous groups, not to individual losses.

d: A voidable contract is a valid contract that for reasons satisfactory to a court may be set aside by one of the parties.

A. Independent- The independent agent may represent many insurers at the same time.

C. The financial rating of the insurance company. The property or life being covered must also be included, however the financial rating of the insurer is not required.

C. Medicare Supplement- These classes are: Life, Fire, Marine, Title, Surety, Disability, Plate glass, Liability, Workers' Compensation, Common Carrier Liability, Equipment Breakdown, Burglary, Credit, Sprinkler, Team and Vehicle, Automobile, Aircraft, Mortgage Guaranty, Insolvency, Legal Insurance, and Miscellaneous. Medicare Supplement is a subsection of Disability.

D- Admitted Insurer. A domestic insurer is organized under the laws of one state, whether or not it is admitted to do business in that state, and is foreign to all other states. An alien insurer is organized under the laws of any jurisdiction outside of the United States. An admitted insurance company, whether domestic, foreign or alien, is authorized to transact insurance in California by the California Department of Insurance (CDI). An Admitted or Authorized insurer must have a Certificate of Authority granted from the California Department of Insurance.

A: Under Cal-GLBA, consumers must be advised that a financial institution has authority to share their personal financial information.

D. A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium.

An agent for a direct writing company is a salaried representative of the company.

C: Foreign- A domestic insurer is organized under the laws of one state, whether or not it is admitted to do business in this state, and an alien is organized under the laws of any jurisdiction outside of the country.

D The risks insured against must be included in an insurance contract.

D: Risk is the probability of loss.

C- Adverse selection is seen in the insured's propensity to obtain coverage for risks more prone to loss than average risks. Underwriting seeks to prevent adverse selection.

A> A Contract of Adhesion is one that is prepared by one party and presented to the other party on a take it or leave it basis.

pertains to the formation and enforcement of contracts

Concealment is the neglect to communicate known information that is material.

C- The Actuarial Department interprets the statistical information used in rate making, whereas the Underwriting Department is responsible for risk selection.

A- Risk may be avoided, transferred, or retained.

B. An implied warranty is stipulated in the contract and is considered a fact

An expressed warranty is a statement stipulated in the policy relating to the insured risk that is a fact.

B. Underwriting is the process by which an insurer evaluates a risk for the purpose of issuing insurance coverage.

B- policyowner must have a potential for financial hardship in the event of a loss, such as a spouse.

C- For life insurance an insurable interest need only exist at the time the insurance takes effect, not the time of claim.

D- A Brokers Service Contract A broker must have a written agreement, called a Brokers Service Contract, with an insured to receive any compensation or fees, for services directly from the insured.

A- The state legislature is responsible for passing insurance laws.

C- PROPERITY INSURERS ARE NOT REAL

D- CATASTROPHIC PERILS

C- A physical hazard is a physical condition that increases the likelihood of loss. A morale hazard is an attitude of indifference to loss.

B- An insured is a person or entity that buys insurance for protection from loss of life or disability.